FAIR VALUE MEASUREMENTS

3 Months Ended

Sep. 30, 2011

Notes to Consolidated Financial Statements [Abstract]

NOTE 8. FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The fair values of certain of our financial instruments (cash, temporary investments, accounts and notes receivable, dividends and accounts payable, short-term debt and customer deposits) approximate their carrying amounts. The following table provides the carrying amounts and fair values of certain other financial instruments at September 30, 2011 and December 31, 2010:

FAIR VALUE OF FINANCIAL INSTRUMENTS
(Dollars in millions)
		September 30, 2011				December 31, 2010
		Carrying		Fair		Carrying		Fair
		Amount		Value		Amount		Value
Sempra Energy Consolidated:
Investments in affordable housing partnerships(1)		$	24	$	57	$	28	$	58
Total long-term debt(2)			9,775		11,047		8,330		8,883
Due to unconsolidated affiliate(3)			―		―		2		2
Preferred stock of subsidiaries			99		103		179		166
SDG&E:
Total long-term debt(4)		$	3,648	$	3,993	$	3,305	$	3,300
Contingently redeemable preferred stock			79		83		79		78
SoCalGas:
Total long-term debt(5)		$	1,312	$	1,494	$	1,566	$	1,638
Preferred stock			22		22		22		21
(1)	We discuss our investments in affordable housing partnerships in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.
(2)	Before reductions for net unamortized discount (premium) of $14 million at September 30, 2011 and $22 million at December 31, 2010, and excluding capital leases of $209 million at September 30, 2011 and $221 million at December 31, 2010, and commercial paper classified as long-term debt of $200 million at September 30, 2011 and $800 million at December 31, 2010. We discuss our long-term debt in Note 6 above and in Note 5 of the Notes to Consolidated Financial Statements in the Annual Report.
(3)	Note payable was extinguished due to the increase in our ownership of Chilquinta Energía S.A. to 100% in the second quarter of 2011.
(4)	Before reductions for unamortized discount of $11 million at September 30, 2011 and $9 million at December 31, 2010, and excluding capital leases of $195 million at September 30, 2011 and $202 million at December 31, 2010.
(5)	Before reductions for unamortized discount of $2 million at September 30, 2011 and $3 million at December 31, 2010, and excluding capital leases of $13 million at September 30, 2011 and $19 million at December 31, 2010.

Sempra Energy based the fair values of investments in affordable housing partnerships on the present value of estimated future cash flows, discounted at rates available for similar investments. All entities based the fair values of long-term debt and preferred stock on their quoted market prices or quoted market prices for similar securities.

Nuclear Decommissioning Trusts

We discuss SDG&E's investments in nuclear decommissioning trust funds in Note 6 of the Notes to Consolidated Financial Statements in the Annual Report. The following table shows the fair values and gross unrealized gains and losses for the securities held in the trust funds:

NUCLEAR DECOMMISSIONING TRUSTS
(Dollars in millions)
					Gross		Gross		Estimated
					Unrealized		Unrealized		Fair
			Cost		Gains		Losses		Value
As of September 30, 2011:
Debt securities
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies(1)		$	128	$	17	$	―	$	145
Municipal bonds(2)			115		7		(1)		121
Other securities(3)			40		2		―		42
Total debt securities			283		26		(1)		308
Equity securities			245		192		(10)		427
Cash and cash equivalents			25		―		―		25
Total		$	553	$	218	$	(11)	$	760
As of December 31, 2010:
Debt securities
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies		$	162	$	14	$	(2)	$	174
Municipal bonds			101		2		(3)		100
Other securities			22		3		―		25
Total debt securities			285		19		(5)		299
Equity securities			219		242		(1)		460
Cash and cash equivalents			10		―		―		10
Total		$	514	$	261	$	(6)	$	769
(1)	Maturity dates are 2012-2041.
(2)	Maturity dates are 2012-2057.
(3)	Maturity dates are 2012-2111.

The following table shows the proceeds from sales of securities in the trusts and gross realized gains and losses on those sales:

SALES OF SECURITIES
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Proceeds from sales	$	294	$	97	$	384	$	247
Gross realized gains		27		4		29		7
Gross realized losses		(8)		(2)		(10)		(9)

Net unrealized gains (losses) are included in Regulatory Liabilities Arising from Removal Obligations on the Condensed Consolidated Balance Sheets. We determine the cost of securities in the trusts on the basis of specific identification.

Derivative Positions Net of Cash Collateral

Each Condensed Consolidated Balance Sheet reflects the offsetting of net derivative positions with fair value amounts for cash collateral with the same counterparty when management believes a legal right of offset exists.

The following table provides the amount of fair value of cash collateral receivables that were not offset in the Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
(Dollars in millions)	2011		2010
Sempra Energy Consolidated	$	19	$	32
SDG&E		11		25
SoCalGas		4		3

Fair Value Hierarchy

We discuss the valuation techniques and inputs we use to measure fair value and the definition of the three levels of the fair value hierarchy in Notes 1 and 2 of the Notes to Consolidated Financial Statements in the Annual Report. We have not changed the valuation techniques or inputs we use to measure fair value during the nine months ended September 30, 2011.

The three tables below, by level within the fair value hierarchy, set forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2011 and December 31, 2010. We also discuss our financial assets and liabilities recorded at fair value on a non-recurring basis. We classify financial assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities, and their placement within the fair value hierarchy levels.

The fair value of commodity derivative assets and liabilities is determined in accordance with our netting policy, as discussed above under "Derivative Positions Net of Cash Collateral."

The determination of fair values, shown in the tables below, incorporates various factors, including but not limited to, the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits, letters of credit and priority interests).

We provide detail about our financial assets and liabilities that were accounted for at fair value on a recurring basis in Note 11 of the Notes to Consolidated Financial Statements in the Annual Report.

RECURRING FAIR VALUE MEASURES -- SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
		At fair value as of September 30, 2011
									Collateral
			Level 1		Level 2		Level 3		netted		Total
Assets:
Nuclear decommissioning trusts
Equity securities		$	427	$	―	$	―	$	―	$	427
Debt securities:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies			84		61		―		―		145
Municipal bonds			―		121		―		―		121
Other securities			―		42		―		―		42
Total debt securities			84		224		―		―		308
Total nuclear decommissioning trusts(1)			511		224		―		―		735
Interest rate instruments			―		69		―		―		69
Commodity contracts subject to rate recovery			12		―		3		―		15
Commodity contracts not subject to rate recovery			13		46		―		(3)		56
Investments			8		―		―		―		8
Total		$	544	$	339	$	3	$	(3)	$	883
Liabilities:
Interest rate instruments		$	―	$	122	$	―	$	―	$	122
Commodity contracts subject to rate recovery			53		6		―		(51)		8
Commodity contracts not subject to rate recovery			2		55		―		(4)		53
Total		$	55	$	183	$	―	$	(55)	$	183

		At fair value as of December 31, 2010
									Collateral
			Level 1		Level 2		Level 3		netted		Total
Assets:
Nuclear decommissioning trusts
Equity securities		$	460	$	―	$	―	$	―	$	460
Debt securities:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies			144		30		―		―		174
Municipal bonds			―		100		―		―		100
Other securities			―		25		―		―		25
Total debt securities			144		155		―		―		299
Total nuclear decommissioning trusts(1)			604		155		―		―		759
Interest rate instruments			―		34		―		―		34
Commodity contracts subject to rate recovery			25		1		2		―		28
Commodity contracts not subject to rate recovery			9		66		―		(22)		53
Investments			1		―		―		―		1
Total		$	639	$	256	$	2	$	(22)	$	875
Liabilities:
Interest rate instruments		$	―	$	82	$	―	$	―	$	82
Commodity contracts subject to rate recovery			60		8		―		(60)		8
Commodity contracts not subject to rate recovery			―		67		―		―		67
Total		$	60	$	157	$	―	$	(60)	$	157
(1)	Excludes cash balances and cash equivalents.

RECURRING FAIR VALUE MEASURES -- SDG&E
(Dollars in millions)
		At fair value as of September 30, 2011
									Collateral
			Level 1		Level 2		Level 3		netted		Total
Assets:
Nuclear decommissioning trusts
Equity securities		$	427	$	―	$	―	$	―	$	427
Debt securities:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies			84		61		―		―		145
Municipal bonds			―		121		―		―		121
Other securities			―		42		―		―		42
Total debt securities			84		224		―		―		308
Total nuclear decommissioning trusts(1)			511		224		―		―		735
Commodity contracts subject to rate recovery			11		―		3		―		14
Commodity contracts not subject to rate recovery			1		―		―		―		1
Total		$	523	$	224	$	3	$	―	$	750

Liabilities:
Interest rate instruments		$	―	$	79	$	―	$	―	$	79
Commodity contracts subject to rate recovery			51		5		―		(51)		5
Total		$	51	$	84	$	―	$	(51)	$	84

		At fair value as of December 31, 2010
									Collateral
			Level 1		Level 2		Level 3		netted		Total
Assets:
Nuclear decommissioning trusts
Equity securities		$	460	$	―	$	―	$	―	$	460
Debt securities:
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies			144		30		―		―		174
Municipal bonds			―		100		―		―		100
Other securities			―		25		―		―		25
Total debt securities			144		155		―		―		299
Total nuclear decommissioning trusts(1)			604		155		―		―		759
Commodity contracts subject to rate recovery			24		―		2		―		26
Commodity contracts not subject to rate recovery			2		―		―		―		2
Total		$	630	$	155	$	2	$	―	$	787

Liabilities:
Interest rate instruments		$	―	$	58	$	―	$	―	$	58
Commodity contracts subject to rate recovery			60		2		―		(60)		2
Total		$	60	$	60	$	―	$	(60)	$	60
(1)	Excludes cash balances and cash equivalents.

RECURRING FAIR VALUE MEASURES -- SOCALGAS
(Dollars in millions)
	At fair value as of September 30, 2011
								Collateral
		Level 1		Level 2		Level 3		netted		Total
Assets:
Commodity contracts subject to rate recovery	$	1	$	―	$	―	$	―	$	1
Commodity contracts not subject to rate recovery		2		―		―		―		2
Total	$	3	$	―	$	―	$	―	$	3
Liabilities:
Commodity contracts subject to rate recovery	$	2	$	1	$	―	$	―	$	3

	At fair value as of December 31, 2010
								Collateral
		Level 1		Level 2		Level 3		netted		Total
Assets:
Interest rate instruments	$	―	$	3	$	―	$	―	$	3
Commodity contracts subject to rate recovery		1		1		―		―		2
Commodity contracts not subject to rate recovery		3		―		―		―		3
Total	$	4	$	4	$	―	$	―	$	8

There were no transfers into or out of Level 1 or Level 2 for Sempra Energy Consolidated, SDG&E or SoCalGas during the periods presented.

Level 3 Information

The following table sets forth reconciliations of changes in the fair value of net trading and other derivatives classified as Level 3 in the fair value hierarchy for Sempra Energy Consolidated and SDG&E:

	Three months ended September 30,
(Dollars in millions)	2011		2010
Balance as of July 1	$	3	$	7
Realized and unrealized gains (losses)		5		(1)
Allocated transmission instruments		―		7
Settlements		(5)		(1)
Balance as of September 30	$	3	$	12
Change in unrealized gains relating to
instruments still held at September 30	$	―	$	―

	Nine months ended September 30,
(Dollars in millions)	2011		2010
Balance as of January 1	$	2	$	10
Realized and unrealized gains (losses)		17		(5)
Allocated transmission instruments		2		7
Settlements		(18)		―
Balance as of September 30	$	3	$	12
Change in unrealized gains relating to
instruments still held at September 30	$	―	$	―

There were no transfers into or out of Level 3 during the periods presented.

Level 3 recurring items are related to CRRs. These instruments are recorded at fair value based on the most current auction prices published by the California Independent System Operator (ISO). The earnings impact of CRRs is deferred and recorded in regulatory accounts to the extent they are recoverable or refundable through rates. Upon settlement, CRRs are included in Cost of Electric Fuel and Purchased Power on the Condensed Consolidated Statements of Operations.

Non-Recurring Fair Value Measures – Sempra Energy Consolidated

We discuss non-recurring fair value measures and the associated accounting impact on our investments in RBS Sempra Commodities and Argentina in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report and, with regard to RBS Sempra Commodities, in Note 4 above.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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