At December 31, 2012, we had recognized receivables for U.S. Treasury grants based on eligible costs at our Mesquite Solar 1 and Copper Mountain Solar 2 generating facilities when the projects, or portions of projects, were placed into service. During the first quarter of 2013, the federal government imposed automatic federal budget cuts, known as “sequestration,” as required by The Budget Control Act of 2011. As a result, cash grant payments to eligible taxpayers for renewable energy projects were reduced, and we recorded a reduction to our grants receivable of $23 million and a reversal of income tax benefit of $5 million during the first quarter of 2013. In June 2013, we received $74 million in cash related to the Copper Mountain Solar 2 grant. We received $164 million in cash for the remaining grant receivable for Mesquite Solar 1 in August 2013.

INVENTORY BALANCES
(Dollars in millions)
	Natural Gas				Liquefied Natural Gas				Materials and Supplies				Total
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
SDG&E	$	5	$	3	$	―	$	―	$	73	$	79	$	78	$	82
SoCalGas		150		128		―		―		27		23		177		151
Sempra South American
Utilities		―		―		―		―		43		34		43		34
Sempra Mexico		―		―		3		8		16		8		19		16
Sempra Renewables		―		―		―		―		2		3		2		3
Sempra Natural Gas		133		109		5		8		6		5		144		122
Sempra Energy
Consolidated	$	288	$	240	$	8	$	16	$	167	$	152	$	463	$	408

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 impact 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, SDG&E and Sempra Energy consolidate the entity that owns the facility as a VIE, as we discuss below.

SDG&E has an 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, under certain circumstances, it may be required to purchase the power plant at a predetermined price, which we refer to as the put option.

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. SDG&E and Sempra Energy have consolidated Otay Mesa VIE since the second quarter of 2007. Otay Mesa VIE's equity of $79 million at September 30, 2013 and $76 million at December 31, 2012 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 $337 million at September 30, 2013, 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 interests 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, 2013. 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. In addition, 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 operating 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 these contracts are not variable interests in a VIE and therefore are not subject to the U.S. GAAP requirements concerning the consolidation of VIEs.

The Condensed Consolidated Statements of Operations of Sempra Energy and SDG&E include the following amounts associated with Otay Mesa VIE. The amounts are net of eliminations of transactions between SDG&E and Otay Mesa VIE. The financial statements of other consolidated VIEs are not material to the financial statements of Sempra Energy. The captions on the table below generally correspond to SDG&E's Condensed Consolidated Statements of Operations.

AMOUNTS ASSOCIATED WITH OTAY MESA VIE
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012

Operating revenues
Electric	$	(4)	$	―	$	―	$	―
Natural gas		―		―		―		―
Total operating revenues		(4)		―		―		―
Operating expenses
Cost of electric fuel and purchased power		(27)		(26)		(65)		(66)
Operation and maintenance		7		4		33		15
Depreciation and amortization		7		7		20		19
Total operating expenses		(13)		(15)		(12)		(32)
Operating income		9		15		12		32
Other loss, net		―		―		―		(1)
Interest expense		(4)		(3)		(11)		(8)
Income before income taxes/Net income		5		12		1		23
Earnings attributable to noncontrolling interest		(5)		(12)		(1)		(23)
Earnings	$	―	$	―	$	―	$	―

We provide additional information regarding Otay Mesa VIE in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

We discuss asset retirement obligations in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

CHANGES IN ASSET RETIREMENT OBLIGATIONS
(Dollars in millions)
		Sempra Energy
		Consolidated				SDG&E				SoCalGas
		2013		2012		2013		2012		2013		2012
Balance at January 1(1)		$	2,056	$	1,925	$	741	$	698	$	1,253	$	1,175
Accretion expense			74		69		35		31		37		36
Liabilities incurred			4		15		―		―		―		―
Payments			(1)		(1)		―		―		―		―
Revisions, GRC-related(2)			(135)		(8)		(30)		―		(105)		―
Revisions, other(3)			181		―		207		―		―		―
Balance at September 30(1)		$	2,179	$	2,000	$	953	$	729	$	1,185	$	1,211
(1)	The current portions of the obligations are included in Other Current Liabilities on the Condensed Consolidated Balance Sheets.
(2)	The decreases in asset retirement obligations in 2013 at SDG&E and SoCalGas are due to revised estimates related to the 2012 General Rate Case (GRC) that received final approval in May 2013. At SDG&E, these revisions included increases in asset service lives ranging from 2 percent to 7 percent, and lower estimated cost of removal. At SoCalGas, the decrease includes increases in asset service lives ranging from 4 percent to 6 percent, partially offset by a higher estimated cost of removal.
(3)	The increase in asset retirement obligations in 2013 at SDG&E is due to revised estimates recorded in the third quarter of 2013 related to the early decommissioning of SONGS Units 2 and 3 (see Note 9).

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,
	2013		2012		2013		2012
Service cost	$	28	$	23	$	8	$	4
Interest cost		35		40		10		11
Expected return on assets		(39)		(38)		(15)		(13)
Amortization of:
Prior service cost (credit)		1		―		(1)		―
Actuarial loss		11		12		―		2
Settlement		1		1		―		―
Regulatory adjustment		(14)		9		3		3
Total net periodic benefit cost	$	23	$	47	$	5	$	7
	Nine months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Service cost	$	82	$	68	$	21	$	19
Interest cost		111		122		33		39
Expected return on assets		(121)		(116)		(44)		(40)
Amortization of:
Prior service cost (credit)		3		2		(3)		(2)
Actuarial loss		41		35		5		9
Settlement		1		8		―		―
Regulatory adjustment		(65)		(9)		7		8
Total net periodic benefit cost	$	52	$	110	$	19	$	33

NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
Service cost	$	8	$	7	$	2	$	1
Interest cost		9		11		2		2
Expected return on assets		(13)		(11)		(3)		(1)
Amortization of:
Prior service cost		―		―		1		1
Actuarial loss		3		4		―		―
Settlement		1		(1)		―		―
Regulatory adjustment		3		7		1		1
Total net periodic benefit cost	$	11	$	17	$	3	$	4
	Nine months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Service cost	$	24	$	21	$	6	$	5
Interest cost		30		34		6		6
Expected return on assets		(39)		(35)		(7)		(5)
Amortization of:
Prior service cost		1		1		3		3
Actuarial loss		10		11		―		―
Settlement		1		1		―		―
Regulatory adjustment		(3)		7		1		2
Total net periodic benefit cost	$	24	$	40	$	9	$	11

NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
	Pension Benefits				Other Postretirement Benefits
	Three months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
Service cost	$	17	$	13	$	5	$	2
Interest cost		22		24		8		9
Expected return on assets		(24)		(23)		(12)		(10)
Amortization of:
Prior service credit		―		―		(2)		(1)
Actuarial loss		6		6		―		1
Regulatory adjustment		(17)		2		2		2
Total net periodic benefit cost	$	4	$	22	$	1	$	3
	Nine months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Service cost	$	50	$	40	$	13	$	12
Interest cost		68		74		26		31
Expected return on assets		(73)		(72)		(36)		(33)
Amortization of:
Prior service cost (credit)		1		1		(6)		(5)
Actuarial loss		23		17		4		8
Settlement		―		1		―		―
Regulatory adjustment		(62)		(16)		6		6
Total net periodic benefit cost	$	7	$	45	$	7	$	19

The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2013:

In support of its Supplemental Executive Retirement, Cash Balance Restoration and Deferred Compensation Plans, Sempra Energy maintains dedicated assets, including a Rabbi Trust and investments in life insurance contracts, which totaled $486 million and $510 million at September 30, 2013 and December 31, 2012, respectively.

The following table provides the per share computations for our earnings for the three months and nine months ended September 30, 2013 and 2012. Basic earnings per common share (EPS) is calculated by dividing earnings attributable to common shares 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,
		2013		2012		2013		2012
Numerator:
Earnings/Income attributable to common shares		$	296	$	268	$	719	$	566

Denominator:
Weighted-average common shares
	outstanding for basic EPS		244,140		241,689		243,682		241,133
Dilutive effect of stock options, restricted
	stock awards and restricted stock units		5,119		4,113		5,041		3,880
Weighted-average common shares
	outstanding for diluted EPS		249,259		245,802		248,723		245,013

Earnings per share:
Basic		$	1.21	$	1.11	$	2.95	$	2.35
Diluted		$	1.19	$	1.09	$	2.89	$	2.31

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 recognized, minus tax shortfalls recognized, 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 no such antidilutive stock options outstanding during either the three months or nine months ended September 30, 2013. We had no such antidilutive stock options outstanding during the three months ended September 30, 2012 and 40,000 such options outstanding during the nine months ended September 30, 2012.

During the three months and nine months ended September 30, 2013 and 2012, we had no stock options outstanding that were antidilutive because of the unearned compensation and windfall tax benefits included in the assumed proceeds under the treasury stock method.

The dilution from unvested restricted stock awards (RSAs) and restricted stock units (RSUs) is also based on the treasury stock method. Proceeds equal to the unearned compensation and windfall tax benefits recognized, minus tax shortfalls recognized, 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 recognized or tax shortfalls recognized 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. There were no antidilutive RSUs from the application of unearned compensation in the treasury stock method for either the three months or nine months ended September 30, 2013. There were 3,387 such antidilutive RSUs for the three months ended September 30, 2012 and 1,881 such antidilutive RSUs for the nine months ended September 30, 2012. There were no such antidilutive RSAs for either the three months or nine months ended September 30, 2013. There were no such antidilutive RSAs for the three months ended September 30, 2012 and 14,319 such antidilutive RSAs for the nine months ended September 30, 2012.

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 Standard & Poor's (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 Performance-Based 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 RSU.
(2)	Participants also receive additional shares for dividend equivalents on shares subject to RSUs, which are reinvested to purchase additional units that become subject to the same vesting conditions as the RSUs to which the dividends relate.

RSAs and those RSUs which are solely service-based have a maximum potential of 100 percent vesting and have the same dividend equivalent rights as performance-based RSUs. We include our performance-based RSUs in potential dilutive shares at zero to 150 percent 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 performance-based RSUs may vary widely from period-to-period. We include our RSAs, which are solely service-based, and those RSUs that are solely 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, as we discuss above, or because performance goals are currently not met. The maximum excluded RSAs and RSUs, assuming performance goals were met at maximum levels, were 712,941 and 889,420 for the three months and nine months ended September 30, 2013, respectively, and 2,349,338 and 2,523,343 for the three months and nine months ended September 30, 2012, respectively.

In September 2013, SDG&E announced that it would redeem all six series of its outstanding shares of contingently redeemable preferred stock at prices ranging from $20.25 to $26.00 per share plus accrued dividends of $1 million. The redemption was completed in October 2013, and accordingly, we recorded the redemption value of $82 million, including a $3 million early call premium, as a current liability at September 30, 2013, included in Other Current Liabilities and Preferred Stock Pending Redemption on Sempra Energy's and SDG&E's Condensed Consolidated Balance Sheets, respectively. The early call premium is presented as Call Premium on Preferred Stock of Subsidiary on Sempra Energy's and Call Premium on Preferred Stock on SDG&E's Condensed Consolidated Statements of Operations. We provide more detail concerning SDG&E'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 $6 million and $5 million for the three months ended September 30, 2013 and 2012, respectively, and $17 million and $18 million for the nine months ended September 30, 2013 and 2012, respectively. Pursuant to our share-based compensation plans, we granted 651,193 performance-based RSUs, 105,680 service-based RSUs and 4,617 RSAs during the nine months ended September 30, 2013, primarily in January.

In April 2013, the IEnova board of directors approved the IEnova 2013 Long-Term Incentive Plan. The purpose of this plan is to align the interests of employees and directors of IEnova with its shareholders. All awards issued from this plan and any related dividend equivalents will settle in cash based on the fair market value of the awards, based on IEnova's common stock value, upon vesting. In 2013, 1,014,899 RSUs have been issued from this plan.

Capitalized financing costs include capitalized interest costs and, primarily at the California 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, 2013 and 2012.

CAPITALIZED FINANCING COSTS
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Sempra Energy Consolidated:
AFUDC related to debt	$	6	$	5	$	17	$	32
AFUDC related to equity		14		13		44		80
Other capitalized financing costs		9		13		22		40
Total Sempra Energy Consolidated	$	29	$	31	$	83	$	152
SDG&E:
AFUDC related to debt	$	4	$	3	$	12	$	26
AFUDC related to equity		10		6		30		61
Total SDG&E	$	14	$	9	$	42	$	87
SoCalGas:
AFUDC related to debt	$	2	$	2	$	5	$	6
AFUDC related to equity		4		7		14		19
Total SoCalGas	$	6	$	9	$	19	$	25

The following tables present the changes in Accumulated Other Comprehensive Income by component and amounts reclassified out of Accumulated Other Comprehensive Income (Loss) to net income, excluding amounts attributable to noncontrolling interests:

CHANGES IN COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1)
(Dollars in millions)
		Three months ended September 30, 2013
		Foreign								Total
		Currency		Unamortized		Unamortized				Accumulated Other
		Translation		Net		Prior Service		Financial		Comprehensive
		Adjustments		Actuarial Loss		Credit		Instruments		Income (Loss)
Sempra Energy Consolidated:
Balance as of June 30, 2013		$	(96)	$	(98)	$	1	$	(26)	$	(219)
Other comprehensive income (loss) before
reclassifications			5		―		―		(6)		(1)
Amounts reclassified from accumulated other
comprehensive income			―		3		―		2		5
Net other comprehensive income (loss)			5		3		―		(4)		4
Balance as of September 30, 2013		$	(91)	$	(95)	$	1	$	(30)	$	(215)
SDG&E:
Balance as of June 30, 2013		$	―	$	(11)	$	1	$	―	$	(10)
Amounts reclassified from accumulated other
comprehensive income			―		1		―		―		1
Net other comprehensive income			―		1		―		―		1
Balance as of September 30, 2013		$	―	$	(10)	$	1	$	―	$	(9)
(1)	All amounts are net of income tax, if subject to tax, and exclude noncontrolling interests.

CHANGES IN COMPONENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1)
(Dollars in millions)
		Nine months ended September 30, 2013
		Foreign								Total
		Currency		Unamortized		Unamortized				Accumulated Other
		Translation		Net		Prior Service		Financial		Comprehensive
		Adjustments		Actuarial Loss		Credit		Instruments		Income (Loss)
Sempra Energy Consolidated:
Balance as of December 31, 2012		$	(240)	$	(102)	$	1	$	(35)	$	(376)
Other comprehensive income (loss) before
reclassifications			(121)		―		―		1		(120)
Amounts reclassified from accumulated other
comprehensive income			270	⁽²⁾	7		―		4		281
Net other comprehensive income			149		7		―		5		161
Balance as of September 30, 2013		$	(91)	$	(95)	$	1	$	(30)	$	(215)
SDG&E:
Balance as of December 31, 2012		$	―	$	(12)	$	1	$	―	$	(11)
Amounts reclassified from accumulated other
comprehensive income			―		2		―		―		2
Net other comprehensive income			―		2		―		―		2
Balance as of September 30, 2013		$	―	$	(10)	$	1	$	―	$	(9)
SoCalGas:
Balance as of December 31, 2012		$	―	$	(4)	$	1	$	(15)	$	(18)
Amounts reclassified from accumulated other
comprehensive income			―		―		―		1		1
Net other comprehensive income			―		―		―		1		1
Balance as of September 30, 2013		$	―	$	(4)	$	1	$	(14)	$	(17)
(1)	All amounts are net of income tax, if subject to tax, and exclude noncontrolling interests.
(2)	Represents cumulative foreign currency translation adjustment related to the impairment of our Argentine investments in 2006, which is substantially offset by an accrued liability established at that time. We provide additional information about these investments in Note 4.

RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Three months ended September 30, 2013
		Amount reclassified
Details about accumulated		from accumulated other			Affected line item
other comprehensive income (loss) components		comprehensive income (loss)			on Condensed Consolidated Statement of Operations
Sempra Energy Consolidated:
Financial instruments:
Interest rate instruments			$	3	Interest Expense
Interest rate instruments				3	Equity Losses, Before Income Tax
Total before income tax				6
				(2)	Income Tax
Net of income tax				4
				(2)	Earnings Attributable to Noncontrolling Interests
			$	2

Amortization of defined benefit pension
and postretirement benefits items:
	Actuarial gain		$	5	(1)
				(2)	Income Tax
Net of income tax			$	3
SDG&E:
Financial instruments:
Interest rate instruments			$	2	Interest Expense
				(2)	Earnings Attributable to Noncontrolling Interest
			$	―

Amortization of defined benefit pension
and postretirement benefits items:
	Actuarial gain		$	2	(1)
				(1)	Income Tax
Net of income tax			$	1
(1)	Amounts are included in the computation of net periodic benefit cost (see "Pension and Other Postretirement Benefits" above).

RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
Nine months ended September 30, 2013
		Amount reclassified
Details about accumulated		from accumulated other			Affected line item
other comprehensive income (loss) components		comprehensive income (loss)			on Condensed Consolidated Statement of Operations
Sempra Energy Consolidated:
Foreign currency translation			$	270	Equity Earnings, Net of Income Tax(1)

Financial instruments:
Interest rate instruments			$	9	Interest Expense
Interest rate instruments				7	Equity Losses, Before Income Tax
Commodity contracts not subject to					Cost of Natural Gas, Electric Fuel and Purchased
	rate recovery			(5)	Power
Total before income tax				11
				(1)	Income Tax
Net of income tax				10
				(6)	Earnings Attributable to Noncontrolling Interests
			$	4

Amortization of defined benefit pension
and postretirement benefits items:
	Actuarial gain		$	12	(2)
				(5)	Income Tax
Net of income tax			$	7
SDG&E:
Financial instruments:
Interest rate instruments			$	6	Interest Expense
				(6)	Earnings Attributable to Noncontrolling Interest
			$	―

Amortization of defined benefit pension
and postretirement benefits items:
	Actuarial gain		$	3	(2)
				(1)	Income Tax
Net of income tax			$	2
SoCalGas:
Financial instruments:
Interest rate instruments			$	1	Interest Expense
				―	Income Tax
Net of income tax			$	1
(1)	Represents cumulative foreign currency translation adjustment related to the impairment of our Argentine investments in 2006, which is substantially offset by an accrued liability established at that time. We provide additional information about these investments in Note 4.
(2)	Amounts are included in the computation of net periodic benefit cost (see "Pension and Other Postretirement Benefits" above).

For the three months ended September 30, 2013, Other Comprehensive Income, excluding amounts attributable to noncontrolling interests, at SoCalGas was negligible and reclassifications out of Accumulated Other Comprehensive Income (Loss) to Net Income were also negligible for SoCalGas.

The amounts for comprehensive income in the Condensed Consolidated Statements of Comprehensive Income 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,
			2013						2012
			Share-		Non-				Share-		Non-
			holders'		controlling		Total		holders'		controlling		Total
			Equity(1)		Interests		Equity		Equity(1)		Interests		Equity
Sempra Energy Consolidated:
	Other comprehensive income before
		reclassifications:
		Financial instruments	$	(2)	$	―	$	(2)	$	(3)	$	―	$	(3)

	Amounts reclassified from accumulated other
		comprehensive income:
		Pension and other postretirement benefits	$	2	$	―	$	2	$	(7)	$	―	$	(7)
		Financial instruments		2		―		2		2		―		2
SDG&E:
	Amounts reclassified from accumulated other
		comprehensive income:
		Pension and other postretirement benefits	$	1	$	―	$	1	$	―	$	―	$	―
SoCalGas:
	Amounts reclassified from accumulated other
		comprehensive income:
		Financial instruments	$	―	$	―	$	―	$	1	$	―	$	1
			Nine months ended September 30,
			2013						2012
			Share-		Non-				Share-		Non-
			holders'		controlling		Total		holders'		controlling		Total
			Equity(1)		Interests		Equity		Equity(1)		Interests		Equity
Sempra Energy Consolidated:
	Other comprehensive income before
		reclassifications:
		Financial instruments	$	3	$	―	$	3	$	(8)	$	―	$	(8)

	Amounts reclassified from accumulated other
		comprehensive income:
		Pension and other postretirement benefits	$	5	$	―	$	5	$	(4)	$	―	$	(4)
		Financial instruments		1		―		1		3		―		3
SDG&E:
	Amounts reclassified from accumulated other
		comprehensive income:
		Pension and other postretirement benefits	$	1	$	―	$	1	$	―	$	―	$	―
SoCalGas:
	Amounts reclassified from accumulated other
		comprehensive income:
		Financial instruments	$	―	$	―	$	―	$	1	$	―	$	1
(1)	Shareholders' equity of Sempra Energy Consolidated, SDG&E or SoCalGas as indicated in left margin.

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, 2013 and 2012.

SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS
(Dollars in millions)
			Sempra
			Energy		Non-
			Shareholders’		controlling		Total
			Equity		Interests		Equity
Balance at December 31, 2012		$	10,282	$	401	$	10,683
Comprehensive income			888		33		921
Preferred dividends of subsidiaries			(5)		―		(5)
Share-based compensation expense			30		―		30
Common stock dividends declared			(460)		―		(460)
Issuance of common stock			57		―		57
Repurchase of common stock			(45)		―		(45)
Tax benefit related to share-based compensation			30		―		30
Sale of noncontrolling interests, net of offering costs			135		439		574
Distributions to noncontrolling interests			―		(28)		(28)
Call premium on preferred stock of subsidiary			(3)		―		(3)
Balance at September 30, 2013		$	10,909	$	845	$	11,754
Balance at December 31, 2011		$	9,775	$	403	$	10,178
Comprehensive income			671		42		713
Preferred dividends of subsidiaries			(5)		―		(5)
Share-based compensation expense			33		―		33
Common stock dividends declared			(435)		―		(435)
Issuance of common stock			50		―		50
Repurchase of common stock			(16)		―		(16)
Common stock released from ESOP(1)			9		―		9
Equity contributed by noncontrolling interest			―		5		5
Distributions to noncontrolling interests			―		(36)		(36)
Balance at September 30, 2012		$	10,082	$	414	$	10,496
(1)	Employee Stock Ownership Plan

SHAREHOLDER’S EQUITY AND NONCONTROLLING INTEREST
(Dollars in millions)
		SDG&E		Non-
		Shareholder’s		controlling		Total
		Equity		Interest		Equity
Balance at December 31, 2012	$	4,222	$	76	$	4,298
Comprehensive income		294		15		309
Preferred stock dividends declared		(4)		―		(4)
Distributions to noncontrolling interest		―		(12)		(12)
Call premium on preferred stock		(3)		―		(3)
Balance at September 30, 2013	$	4,509	$	79	$	4,588
Balance at December 31, 2011	$	3,739	$	102	$	3,841
Comprehensive income		378		10		388
Preferred stock dividends declared		(4)		―		(4)
Distributions to noncontrolling interest		―		(22)		(22)
Balance at September 30, 2012	$	4,113	$	90	$	4,203

Ownership interests that are held by owners other than Sempra Energy and SDG&E in subsidiaries or entities consolidated by them are accounted for and reported as noncontrolling interests. As a result, noncontrolling interests are reported as a separate component of equity on the Condensed Consolidated Balance Sheets. Earnings or losses attributable to noncontrolling interests are separately identified on the Condensed Consolidated Statements of Operations, and comprehensive income or loss attributable to noncontrolling interests is separately identified on the Condensed Consolidated Statements of Comprehensive Income.

On March 21, 2013, Sempra Energy's subsidiary, Infraestructura Energética Nova, S.A.B. de C.V. (IEnova) priced a private offering in the U.S. and outside of Mexico and a concurrent initial public offering in Mexico of new shares of Class II, Single Series common stock at $2.75 per share in U.S. dollars or 34.00 Mexican pesos. The initial purchasers in the private offering and the underwriters in the Mexican public offering were granted a 30-day option to purchase additional common shares at the initial offering price, less the underwriting discount, to cover overallotments. These options were exercised before the settlement date of the offerings, which was March 27, 2013. After the initial offerings and the exercise of the overallotment options, the aggregate shares of common stock sold in the offerings totaled 218,110,500, representing approximately 18.9 percent of IEnova's outstanding ownership interest.

The net proceeds of the offerings, including the additional option shares, were approximately $574 million in U.S. dollars or 7.1 billion Mexican pesos. IEnova expects to use the net proceeds of the offerings primarily for general corporate purposes, and for the funding of its current investments and ongoing expansion plans. All U.S. dollar equivalents presented here were based on an exchange rate of 12.3841 Mexican pesos to 1.00 U.S. dollar as of March 21, 2013, the pricing date for the offerings. Net proceeds are after reduction for underwriting discounts and commissions and offering expenses. Following completion of the initial offerings and overallotment options, we beneficially owned 81.1 percent of IEnova and its subsidiaries. Consistent with applicable accounting guidance, changes in noncontrolling interests that do not result in a change of control are accounted for as equity transactions. When there are changes in noncontrolling interests of a subsidiary that do not result in a change of control, any difference between carrying value and fair value related to the change in ownership is recorded as an adjustment to shareholders' equity. As a result of the offerings and overallotment options, we recorded an increase in Sempra Energy's shareholders' equity of $135 million for the sale of IEnova shares to noncontrolling interests.

IEnova is a separate legal entity, formerly known as Sempra México, S.A. de C.V., comprised primarily of Sempra Energy's operations in Mexico. IEnova is included within our Sempra Mexico reportable segment, but is not the same in its entirety as the reportable segment. In addition to the IEnova operating companies, the Sempra Mexico segment includes, among other things, certain holding companies and risk management activity. Also, IEnova's financial results are reported in Mexico under IFRS, as required by the Mexican Stock Exchange (the Bolsa Mexicana de Valores, S.A.B. de C.V.) where the new shares are now traded under the symbol IENOVA.

The private offering was exempt from registration under the U.S. Securities Act of 1933, as amended (the Securities Act), and shares in the private offering were offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to persons outside of the United States, in accordance with Regulation S under the Securities Act. The shares were not registered under the Securities Act or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable securities laws.

The preferred stock of SoCalGas is presented at Sempra Energy as a noncontrolling interest at September 30, 2013 and December 31, 2012. The preferred stock of SDG&E was contingently redeemable preferred stock and was fully redeemed in October 2013, as we discuss in “SDG&E Preferred Stock” above. At Sempra Energy, the preferred stock dividends of both SDG&E and SoCalGas are charges against income related to noncontrolling interests. We provide additional information concerning preferred stock in Note 12 of the Notes to Consolidated Financial Statements in the Annual Report.

At September 30, 2013 and December 31, 2012, we reported the following other noncontrolling ownership interests held by others (not including preferred shareholders) recorded in Other Noncontrolling Interests in Total Equity on Sempra Energy's Condensed Consolidated Balance Sheets:

OTHER NONCONTROLLING INTERESTS
(Dollars in millions)
		Percent Ownership Held by Others			September 30, 2013		December 31, 2012
SDG&E:
Otay Mesa VIE		100	%	$	79	$	76
Sempra South American Utilities:
Chilquinta Energía subsidiaries(1)		24.4 – 43.4			27		29
Luz del Sur		20.2			222		236
Tecsur		9.8			3		4
Sempra Mexico:
IEnova, S.A.B. de C.V.		18.9			457		―
Sempra Natural Gas:
Bay Gas Storage, Ltd.		9.1			21		20
Liberty Gas Storage, LLC		25.0			15		15
Southern Gas Transmission Company		49.0			1		1
Total Sempra Energy				$	825	$	381
(1)	Chilquinta Energía has four subsidiaries with noncontrolling interests held by others. Percentage range reflects the highest and lowest ownership percentages amongst these subsidiaries.

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,
		2013		2012
SDG&E
Current:
Due from SoCalGas		$	―	$	37
Due from various affiliates			1		2
		$	1	$	39

Due to Sempra Energy		$	11	$	19
Due to SoCalGas			2		―
		$	13	$	19

Income taxes due (to) from Sempra Energy(1)		$	(2)	$	12

SoCalGas
Current:
Due from Sempra Energy		$	12	$	24
Due from SDG&E			2		―
		$	14	$	24

Due to SDG&E		$	―	$	37
Due to affiliate			20		―
		$	20	$	37

Income taxes due from Sempra Energy(1)		$	130	$	99
(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.

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

OTHER INCOME, NET
(Dollars in millions)
		Three months ended September 30,				Nine months ended September 30,
		2013		2012			2013		2012
Sempra Energy Consolidated:
Allowance for equity funds used during construction		$	14	$	13	$	44	$	80
Investment (losses) gains(1)			(6)		17		16		27
Gains on interest rate and foreign exchange instruments, net			4		1		17		11
Regulatory interest, net(2)			1		―		3		1
Sundry, net			3		13		(1)		18
Total		$	16	$	44	$	79	$	137
SDG&E:
Allowance for equity funds used during construction		$	10	$	6	$	30	$	61
Regulatory interest, net(2)			1		―		3		1
Sundry, net			(1)		(1)		(3)		(3)
Total		$	10	$	5	$	30	$	59
SoCalGas:
Allowance for equity funds used during construction		$	4	$	7	$	14	$	19
Sundry, net			(2)		(1)		(5)		(5)
Total		$	2	$	6	$	9	$	14
(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)	Interest on regulatory balancing accounts.

INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
		Three months ended September 30,
	2013					2012
			Effective				Effective
		Income Tax	Income			Income Tax	Income
		Expense	Tax Rate			Expense	Tax Rate
Sempra Energy Consolidated	$	117	27	%	$	49	15	%
SDG&E		84	38			38	17
SoCalGas		38	27			37	34
		Nine months ended September 30,
	2013					2012
			Effective				Effective
		Income Tax	Income			Income Tax	Income
		Expense	Tax Rate			Expense	Tax Rate
Sempra Energy Consolidated	$	327	30	%	$	48	8	%
SDG&E		147	33			151	27
SoCalGas		107	29			105	35

The increase in income tax expense in the three months ended September 30, 2013 was due to higher pretax income and a higher effective tax rate. The change in the effective income tax rate was primarily due to:

On September 13, 2013, the IRS and U.S. Department of the Treasury released final tangible property regulations on the capitalization and expensing rules applicable to expenditures for the acquisition and production of tangible property. A company must conform its tax accounting methods and elect any safe harbors under the final regulations no later than January 1, 2014, however, if a change in the company's tax accounting methods is required to conform to the final regulations, the company must adjust its deferred tax balances in the current period for any tax adjustments required to bring all prior periods into compliance with the final regulations. We have evaluated our capitalization and expensing policies under the final tangible property regulations and believe that these final regulations will not have a material impact on our financial statements. Accordingly, we have not made any adjustment to our deferred tax balances at September 30, 2013 resulting from the IRS' issuance of final tangible property regulations during the period.

The California Public Utilities Commission (CPUC) requires 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. The following items are subject to flow-through treatment:

We provide additional information about our accounting for income taxes in Notes 1 and 7 of the Notes to Consolidated Financial Statements in the Annual Report.