OTHER FINANCIAL DATA

6 Months Ended

Jun. 30, 2016

INVENTORIES

The components of inventories by segment are as follows:

INVENTORY BALANCES
(Dollars in millions)
		Natural gas				Liquefied natural gas				Materials and supplies				Total
		June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
SDG&E		$	1	$	6	$	―	$	―	$	70	$	69	$	71	$	75
SoCalGas(1)			―		49		―		―		44		30		44		79
Sempra South American
Utilities			―		―		―		―		43		30		43		30
Sempra Mexico			―		―		7		3		2		10		9		13
Sempra Renewables			―		―		―		―		3		3		3		3
Sempra Natural Gas			96		94		4		3		―		1		100		98
Sempra Energy
Consolidated		$	97	$	149	$	11	$	6	$	162	$	143	$	270	$	298
(1)	At both June 30, 2016 and December 31, 2015, SoCalGas' natural gas inventory for core customers is net of an inventory loss related to the Aliso Canyon natural gas leak, which we discuss in Note 11.

GOODWILL

We discuss goodwill in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report. The decrease in goodwill from $819 million at December 31, 2015 to $786 million at June 30, 2016 is due to the reclassification of EnergySouth goodwill at Sempra Natural Gas to assets held for sale, offset by foreign currency translation at Sempra South American Utilities. We record the offset of the fluctuation from foreign currency translation in Other Comprehensive Income (Loss).

VARIABLE INTEREST ENTITIES

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

the purpose and design of the VIE;
the nature of the VIE’s risks and the risks we absorb;
the power to direct activities that most significantly impact the economic performance of the VIE; and
the obligation to absorb losses or right to receive benefits that could be significant to the VIE.

SDG&E

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.

Tolling Agreements

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 a qualitative approach in which we consider 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.

Otay Mesa VIE

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 OMEC 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, holds no equity in OMEC LLC 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. Accordingly, SDG&E and Sempra Energy have consolidated Otay Mesa VIE. Otay Mesa VIE’s equity of $37 million at June 30, 2016 and $53 million at December 31, 2015 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 $310 million at June 30, 2016, 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.

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 captions in 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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
Operating expenses
Cost of electric fuel and purchased power	$	(17)	$	(21)	$	(34)	$	(39)
Operation and maintenance		15		6		19		10
Depreciation and amortization		10		6		17		12
Total operating expenses		8		(9)		2		(17)
Operating (loss) income		(8)		9		(2)		17
Interest expense		(5)		(5)		(10)		(9)
(Loss) income before income taxes/Net (loss) income		(13)		4		(12)		8
Losses (earnings) attributable to noncontrolling interest		13		(4)		12		(8)
Earnings attributable to common shares	$	―	$	―	$	―	$	―

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 of a variable interest entity at June 30, 2016. 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. We provide additional information about power purchase agreements with peaker plant facilities that are VIEs of which SDG&E is not the primary beneficiary in Note 15 of the Notes to Consolidated Financial Statements in the Annual Report.

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

Sempra Natural Gas

Sempra Energy’s equity method investment in Cameron LNG JV is considered to be a VIE generally due to contractual provisions that transfer certain risks to customers. Sempra Energy is not the primary beneficiary because we do not have the power to direct the most significant activities of Cameron LNG JV. We will continue to evaluate Cameron LNG JV for any changes that may impact our determination of the primary beneficiary. The carrying value of our investment in Cameron LNG JV, including amounts recognized in Accumulated Other Comprehensive Income (Loss) (AOCI) related to interest-rate cash flow hedges at Cameron LNG JV, was $818 million at June 30, 2016 and $983 million at December 31, 2015. Our maximum exposure to loss includes the carrying value of our investment and the guarantees discussed above in Note 4 and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

Other Variable Interest Entities

Sempra Energy’s other operating units also enter into arrangements which could include variable interests. We evaluate these arrangements and applicable entities based on 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; however, their financial statements are not material to the financial statements of Sempra Energy. 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.

PENSION AND OTHER POSTRETIREMENT BENEFITS

Net Periodic Benefit Cost

The following three tables provide the components of net periodic benefit cost:

NET PERIODIC BENEFIT COST – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	Pension benefits				Other postretirement benefits
	Three months ended June 30,
	2016		2015		2016		2015
Service cost	$	27	$	29	$	6	$	7
Interest cost		40		39		11		11
Expected return on assets		(41)		(44)		(18)		(17)
Amortization of:
Prior service cost		3		2		―		―
Actuarial loss		7		11		―		―
Regulatory adjustment		(28)		(30)		2		―
Total net periodic benefit cost	$	8	$	7	$	1	$	1

	Six months ended June 30,
	2016		2015		2016		2015
Service cost	$	55	$	59	$	11	$	14
Interest cost		80		78		22		23
Expected return on assets		(83)		(88)		(35)		(34)
Amortization of:
Prior service cost (credit)		6		5		―		(1)
Actuarial loss		13		19		―		―
Regulatory adjustment		(56)		(59)		4		―
Total net periodic benefit cost	$	15	$	14	$	2	$	2

NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
	Pension benefits				Other postretirement benefits
	Three months ended June 30,
	2016		2015		2016		2015
Service cost	$	8	$	8	$	1	$	2
Interest cost		11		10		2		2
Expected return on assets		(13)		(13)		(2)		(3)
Amortization of:
Prior service cost		1		1		1		1
Actuarial loss (gain)		2		2		(1)		―
Regulatory adjustment		(8)		(7)		(1)		(2)
Total net periodic benefit cost	$	1	$	1	$	―	$	―

	Six months ended June 30,
	2016		2015		2016		2015
Service cost	$	15	$	16	$	2	$	4
Interest cost		21		20		4		4
Expected return on assets		(25)		(27)		(5)		(6)
Amortization of:
Prior service cost		1		1		2		2
Actuarial loss (gain)		5		4		(1)		―
Regulatory adjustment		(15)		(12)		(2)		(4)
Total net periodic benefit cost	$	2	$	2	$	―	$	―

NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
	Pension benefits				Other postretirement benefits
	Three months ended June 30,
	2016		2015		2016		2015
Service cost	$	18	$	19	$	3	$	5
Interest cost		25		24		9		9
Expected return on assets		(27)		(27)		(14)		(14)
Amortization of:
Prior service cost (credit)		2		2		(1)		(2)
Actuarial loss		2		6		―		―
Regulatory adjustment		(20)		(23)		3		2
Total net periodic benefit cost	$	―	$	1	$	―	$	―

	Six months ended June 30,
	2016		2015		2016		2015
Service cost	$	35	$	38	$	7	$	10
Interest cost		50		49		17		18
Expected return on assets		(52)		(54)		(28)		(28)
Amortization of:
Prior service cost (credit)		4		4		(2)		(4)
Actuarial loss		5		11		―		―
Regulatory adjustment		(41)		(47)		6		4
Total net periodic benefit cost	$	1	$	1	$	―	$	―

Benefit Plan Contributions

The following table shows our year-to-date contributions to pension and other postretirement benefit plans and the amounts we expect to contribute in 2016:

BENEFIT PLAN CONTRIBUTIONS
(Dollars in millions)
	Sempra Energy
	Consolidated		SDG&E		SoCalGas
Contributions through June 30, 2016:
Pension plans	$	23	$	2	$	―
Other postretirement benefit plans		2		―		1
Total expected contributions in 2016:
Pension plans	$	123	$	4	$	77
Other postretirement benefit plans		6		2		1

RABBI TRUST

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 $436 million and $464 million at June 30, 2016 and December 31, 2015, respectively.

EARNINGS PER SHARE

The following table provides earnings per share (EPS) computations for the three months and six months ended June 30, 2016 and 2015. Basic 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 June 30,				Six months ended June 30,
		2016		2015		2016		2015
Numerator:
Earnings/Income attributable to common shares		$	16	$	295	$	335	$	732

Denominator:
Weighted-average common shares
	outstanding for basic EPS(1)		250,096		248,108		249,915		247,916
Dilutive effect of stock options, restricted
	stock awards and restricted stock units		1,842		3,383		1,771		3,348
Weighted-average common shares
	outstanding for diluted EPS		251,938		251,491		251,686		251,264

Earnings per share:
Basic		$	0.06	$	1.19	$	1.34	$	2.95
Diluted			0.06		1.17		1.33		2.91
(1)	Includes 568 and 501 average fully vested restricted stock units held in our Deferred Compensation Plan for the three months ended June 30, 2016 and 2015, respectively, and 562 and 476 of such units for the six months ended June 30, 2016 and 2015, respectively. These fully vested restricted stock units are included in weighted-average common shares outstanding for basic EPS because there are no conditions under which the corresponding shares will not be issued.

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 of dilutive common stock equivalents 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). For the three months and six months ended June 30, 2016 and 2015, we had no such antidilutive stock options outstanding. For the three months and six months ended June 30, 2016 and 2015, 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 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 RSAs and 1,010 antidilutive RSUs from the application of unearned compensation in the treasury stock method for the three months ended June 30, 2016. There were no such antidilutive RSAs and 2,408 such antidilutive RSUs for the six months ended June 30, 2016. There were no such antidilutive RSAs and 4,715 such antidilutive RSUs for both the three months and six months ended June 30, 2015.

Our performance-based RSUs include awards that vest at the end of three-year (for awards granted during or after 2015) or four-year performance periods based on Sempra Energy’s total return to shareholders relative to that of specified market indices (Total Shareholder Return or TSR RSUs) or based on the compound annual growth rate of Sempra Energy’s EPS (EPS RSUs). The comparative market indices for the TSR RSUs are the Standard & Poor’s (S&P) 500 Utilities Index and the S&P 500 Index. We primarily use long-term analyst consensus growth estimates for S&P 500 Utilities Index peer companies to develop our EPS RSU targets. TSR RSUs represent the right to receive from zero to 1.5 shares (2.0 shares for awards granted during or after 2014) of Sempra Energy common stock if performance targets are met. EPS RSUs represent the right to receive from zero to 2.0 shares of Sempra Energy common stock if performance targets are met. If performance falls between the targets specified for each performance metric, we calculate the payout using linear interpolation. Participants also receive additional shares for dividend equivalents on shares subject to RSUs, which are deemed reinvested to purchase additional units that become subject to the same vesting conditions as the RSUs to which the dividends relate. We discuss performance-based RSU awards further in Note 8 of the Notes to Consolidated Financial Statements in our Annual Report.

Our RSAs, which are solely service-based, and those RSUs that are service-based or issued in connection with certain other performance goals represent the right to receive up to 1.0 share if the service requirements or certain other vesting conditions are met. These RSAs and RSUs have the same dividend equivalent rights as the performance-based RSUs described above. We include RSAs and these RSUs in potential dilutive shares at 100 percent, subject to the application of the treasury stock method. We include our TSR RSUs and EPS RSUs in potential dilutive shares at zero to up to 200 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 indices, dilutive TSR RSU shares may vary widely from period-to-period. If it were assumed that performance goals for all performance-based RSUs were met at maximum levels and if the treasury stock method were not applied to any of our RSAs or RSUs, the incremental potential dilutive shares would be 1,417,481 and 1,370,460 for the three months ended June 30, 2016 and 2015, respectively, and 1,491,195 and 1,424,855 for the six months ended June 30, 2016 and 2015, respectively.

SHARE-BASED COMPENSATION

We discuss our share-based compensation plans in Note 8 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 $7 million for the three months ended June 30, 2016 and 2015, respectively, and $13 million and $15 million for the six months ended June 30, 2016 and 2015, respectively. Pursuant to our Sempra Energy share-based compensation plans, Sempra Energy’s compensation committee granted 373,070 TSR RSUs, 94,760 EPS RSUs and 95,876 service-based RSUs during the six months ended June 30, 2016, primarily in January.

During the six months ended June 30, 2016, IEnova issued 183,970 RSUs from the IEnova 2013 Long-Term Incentive Plan, under which awards are cash settled at vesting based on the price of IEnova common stock.

CAPITALIZED FINANCING COSTS

Capitalized financing costs include capitalized interest costs and AFUDC related to both debt and equity financing of construction projects. We capitalize interest costs incurred to finance capital projects and interest on equity method investments that have not commenced planned principal operations.

The following table shows capitalized financing costs for the three months and six months ended June 30, 2016 and 2015.

CAPITALIZED FINANCING COSTS
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Sempra Energy Consolidated:
AFUDC related to debt	$	8	$	7	$	15	$	13
AFUDC related to equity		30		31		57		58
Other capitalized interest		20		17		38		34
Total Sempra Energy Consolidated	$	58	$	55	$	110	$	105
SDG&E:
AFUDC related to debt	$	4	$	4	$	8	$	7
AFUDC related to equity		13		10		24		18
Total SDG&E	$	17	$	14	$	32	$	25
SoCalGas:
AFUDC related to debt	$	4	$	3	$	7	$	6
AFUDC related to equity		10		10		20		19
Total SoCalGas	$	14	$	13	$	27	$	25

COMPREHENSIVE INCOME

The following tables present the changes in AOCI by component and amounts reclassified out of AOCI to net income, excluding amounts attributable to noncontrolling interests:

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1)
SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
		Foreign						Total
		currency				Pension and other		accumulated other
		translation		Financial		postretirement		comprehensive
		adjustments		instruments		benefits		income (loss)
		Three months ended June 30, 2016 and 2015
2016:
Balance as of March 31, 2016		$	(514)	$	(221)	$	(86)	$	(821)
Other comprehensive income (loss) before
reclassifications			11		(48)		―		(37)
Amounts reclassified from accumulated other
comprehensive income			―		5		1		6
Net other comprehensive income (loss)			11		(43)		1		(31)
Balance as of June 30, 2016		$	(503)	$	(264)	$	(85)	$	(852)
2015:
Balance as of March 31, 2015		$	(384)	$	(145)	$	(84)	$	(613)
Other comprehensive (loss) income before
reclassifications			(43)		57		―		14
Amounts reclassified from accumulated other
comprehensive income			―		2		1		3
Net other comprehensive (loss) income			(43)		59		1		17
Balance as of June 30, 2015		$	(427)	$	(86)	$	(83)	$	(596)

		Six months ended June 30, 2016 and 2015
2016:
Balance as of December 31, 2015		$	(582)	$	(137)	$	(87)	$	(806)
Other comprehensive income (loss) before
reclassifications			79		(130)		―		(51)
Amounts reclassified from accumulated other
comprehensive income			―		3		2		5
Net other comprehensive income (loss)			79		(127)		2		(46)
Balance as of June 30, 2016		$	(503)	$	(264)	$	(85)	$	(852)
2015:							.
Balance as of December 31, 2014		$	(322)	$	(90)	$	(85)	$	(497)
Other comprehensive (loss) income before
reclassifications			(105)		3		―		(102)
Amounts reclassified from accumulated other
comprehensive income			―		1		2		3
Net other comprehensive (loss) income			(105)		4		2		(99)
Balance as of June 30, 2015		$	(427)	$	(86)	$	(83)	$	(596)
(1)	All amounts are net of income tax, if subject to tax, and exclude noncontrolling interests.

RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
		Amounts reclassified
Details about accumulated		from accumulated other				Affected line item on Condensed
other comprehensive income (loss) components		comprehensive income (loss)				Consolidated Statements of Operations
		Three months ended June 30,
		2016		2015
Sempra Energy Consolidated:
Financial instruments:
Interest rate and foreign exchange instruments		$	3	$	3	Interest Expense
Interest rate instruments			2		3	Equity Earnings (Losses), Before Income Tax
Interest rate and foreign exchange instruments			5		―	Equity Earnings, Net of Income Tax
Total before income tax			10		6
			(1)		(1)	Income Tax Expense
Net of income tax			9		5
			(4)		(3)	Earnings Attributable to Noncontrolling Interests
		$	5	$	2

Pension and other postretirement benefits:
Amortization of actuarial loss		$	2	$	2	See note (1) below
			(1)		(1)	Income Tax Expense
Net of income tax		$	1	$	1

Total reclassifications for the period, net of tax		$	6	$	3
SDG&E:
Financial instruments:
Interest rate instruments		$	3	$	3	Interest Expense
			(3)		(3)	Losses (Earnings) Attributable to Noncontrolling Interest
Total reclassifications for the period, net of tax		$	―	$	―
(1)	Amounts are included in the computation of net periodic benefit cost (see "Pension and Other Postretirement Benefits" above).

RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
		Amount reclassified
Details about accumulated		from accumulated other				Affected line item on Condensed
other comprehensive income (loss) components		comprehensive income (loss)				Consolidated Statements of Operations
		Six months ended June 30,
		2016		2015
Sempra Energy Consolidated:
Financial instruments:
Interest rate and foreign exchange instruments		$	7	$	9	Interest Expense
Interest rate instruments			5		6	Equity Earnings (Losses), Before Income Tax
Interest rate and foreign exchange instruments			6		―	Equity Earnings, Net of Income Tax
Commodity contracts not subject to
	rate recovery		(7)		(7)	Revenues: Energy-Related Businesses
Total before income tax			11		8
			(1)		―	Income Tax Expense
Net of income tax			10		8
			(7)		(7)	Earnings Attributable to Noncontrolling Interests
		$	3	$	1

Pension and other postretirement benefits:
Amortization of actuarial loss		$	4	$	4	See note (1) below
			(2)		(2)	Income Tax Expense
Net of income tax		$	2	$	2

Total reclassifications for the period, net of tax		$	5	$	3
SDG&E:
Financial instruments:
Interest rate instruments		$	6	$	6	Interest Expense
			(6)		(6)	Losses (Earnings) Attributable to Noncontrolling Interest
Total reclassifications for the period, net of tax		$	―	$	―
(1)	Amounts are included in the computation of net periodic benefit cost (see "Pension and Other Postretirement Benefits" above).

For the three months and six months ended June 30, 2016 and 2015, Other Comprehensive Income (Loss) (OCI), excluding amounts attributable to noncontrolling interests, at SDG&E and SoCalGas was negligible, and reclassifications out of AOCI to Net Income were also negligible for SoCalGas.

SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

The following tables provide reconciliations of changes in Sempra Energy’s and SDG&E’s shareholders’ equity and noncontrolling interests for the six months ended June 30, 2016 and 2015.

SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
			Sempra Energy		Non-
			shareholders’		controlling		Total
			equity		interests(1)		equity
Balance at December 31, 2015		$	11,809	$	770	$	12,579
Comprehensive income			290		22		312
Preferred dividends of subsidiary			(1)		―		(1)
Share-based compensation expense			24		―		24
Common stock dividends declared			(377)		―		(377)
Issuances of common stock			56		―		56
Repurchases of common stock			(54)		―		(54)
Tax benefit related to share-based compensation			34		―		34
Equity contributed by noncontrolling interest			―		1		1
Distributions to noncontrolling interests			―		(11)		(11)
Balance at June 30, 2016		$	11,781	$	782	$	12,563
Balance at December 31, 2014		$	11,326	$	774	$	12,100
Comprehensive income			634		33		667
Preferred dividends of subsidiary			(1)		―		(1)
Share-based compensation expense			26		―		26
Common stock dividends declared			(347)		―		(347)
Issuances of common stock			59		―		59
Repurchases of common stock			(66)		―		(66)
Tax benefit related to share-based compensation			52		―		52
Equity contributed by noncontrolling interest			―		1		1
Distributions to noncontrolling interests			―		(16)		(16)
Balance at June 30, 2015		$	11,683	$	792	$	12,475
(1)	Noncontrolling interests include the preferred stock of SoCalGas and other noncontrolling interests as listed in the table below under "Other Noncontrolling Interests."

SHAREHOLDER'S EQUITY AND NONCONTROLLING INTEREST – SDG&E
(Dollars in millions)
		SDG&E		Non-
		shareholder’s		controlling		Total
		equity		interest		equity
Balance at December 31, 2015	$	5,223	$	53	$	5,276
Comprehensive income (loss)		229		(13)		216
Common stock dividends declared		(175)		―		(175)
Distributions to noncontrolling interest		―		(3)		(3)
Balance at June 30, 2016	$	5,277	$	37	$	5,314
Balance at December 31, 2014	$	4,932	$	60	$	4,992
Comprehensive income		273		9		282
Distributions to noncontrolling interest		―		(8)		(8)
Balance at June 30, 2015	$	5,205	$	61	$	5,266

SHAREHOLDERS' EQUITY ― SOCALGAS
(Dollars in millions)
		SoCalGas
		shareholders'
		equity
Balance at December 31, 2015	$	3,149
Comprehensive income		195
Preferred stock dividends declared		(1)
Balance at June 30, 2016	$	3,343
Balance at December 31, 2014	$	2,781
Comprehensive income		285
Preferred stock dividends declared		(1)
Balance at June 30, 2015	$	3,065

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 (Loss).

Preferred Stock

At Sempra Energy, the preferred stock of SoCalGas is presented as a noncontrolling interest and preferred stock dividends are charges against income related to noncontrolling interests. We provide additional information concerning preferred stock in Note 11 of the Notes to Consolidated Financial Statements in the Annual Report.

Other Noncontrolling Interests

At June 30, 2016 and December 31, 2015, we reported the following 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
		June 30,		December 31,			June 30,		December 31,
		2016		2015			2016		2015
SDG&E:
Otay Mesa VIE		100	%	100	%	$	37	$	53
Sempra South American Utilities:
Chilquinta Energía subsidiaries(1)		23.2 – 43.4		23.5 – 43.4			21		21
Luz del Sur		16.4		16.4			175		164
Tecsur		9.8		9.8			4		4
Sempra Mexico:
IEnova		18.9		18.9			484		468
Sempra Natural Gas:
Bay Gas Storage Company, Ltd.		9.1		9.1			26		25
Liberty Gas Storage, LLC		23.3		23.2			14		14
Southern Gas Transmission Company		49.0		49.0			1		1
Total Sempra Energy						$	762	$	750
(1)	Chilquinta Energía has four subsidiaries with noncontrolling interests held by others. Percentage range reflects the highest and lowest ownership percentages among these subsidiaries.

TRANSACTIONS WITH AFFILIATES

Amounts due from and to unconsolidated affiliates at Sempra Energy Consolidated, SDG&E and SoCalGas are as follows:

AMOUNTS DUE FROM (TO) UNCONSOLIDATED AFFILIATES
(Dollars in millions)
		June 30, 2016		December 31, 2015
Sempra Energy Consolidated:
Total due from various unconsolidated affiliates - current		$	6	$	6

Sempra South American Utilities(1):
Eletrans S.A. and Eletrans II S.A.:
4% Note(2)		$	79	$	72
Other related party receivables			2		―
Sempra Mexico(1):
Affiliate of joint venture with PEMEX:
Note due November 13, 2017(3)			2		3
Note due November 14, 2018(3)			43		42
Note due November 14, 2018(3)			35		34
Note due November 14, 2018(3)			8		8
Energía Sierra Juárez:
Note due June 15, 2018(4)			17		24
Sempra Natural Gas:
Cameron LNG JV			6		3
Total due from unconsolidated affiliates - noncurrent		$	192	$	186

Total due to various unconsolidated affiliates - current		$	(8)	$	(14)
SDG&E:
Sempra Energy(5)		$	163	$	―
Other affiliates			―		1
Total due from unconsolidated affiliates - current		$	163	$	1

Sempra Energy		$	―	$	(34)
SoCalGas			(7)		(13)
Other affiliates			(183)		(8)
Total due to unconsolidated affiliates - current		$	(190)	$	(55)

Income taxes due from Sempra Energy(6)		$	59	$	28
SoCalGas:
Sempra Energy(7)		$	―	$	35
SDG&E			7		13
Total due from unconsolidated affiliates - current		$	7	$	48

Sempra Energy		$	(25)	$	―
Total due to unconsolidated affiliate - current		$	(25)	$	―

Income taxes due from Sempra Energy(6)		$	9	$	1
(1)	Amounts include principal balances plus accumulated interest outstanding.
(2)	U.S. dollar-denominated loan, at a fixed interest rate with no stated maturity date, to provide project financing for the construction of transmission lines at Eletrans S.A. and Eletrans II S.A., both of which are joint ventures at Chilquinta Energía.
(3)	U.S. dollar-denominated loan, at a variable interest rate based on a 30-day LIBOR plus 450 basis points (4.97 percent at June 30, 2016), to finance the Los Ramones Norte pipeline project.
(4)	U.S. dollar-denominated loan, at a variable interest rate based on a 30-day LIBOR plus 637.5 basis points (6.84 percent at June 30, 2016), to finance the first phase of the Energía Sierra Juárez wind project, which is a joint venture of IEnova.
(5)	At June 30, 2016, net receivable included outstanding advances to Sempra Energy of $172 million at an interest rate of 0.35 percent.
(6)	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 each company having always filed a separate return.
(7)	At December 31, 2015, net receivable included outstanding advances to Sempra Energy of $50 million at an interest rate of 0.11 percent.

Revenues and cost of sales from unconsolidated affiliates are as follows:

REVENUES AND COST OF SALES FROM UNCONSOLIDATED AFFILIATES
(Dollars in millions)
	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
REVENUES
Sempra Energy Consolidated	$	5	$	8	$	10	$	16
SDG&E		―		2		3		5
SoCalGas		18		17		35		36
COST OF SALES
Sempra Energy Consolidated	$	20	$	30	$	50	$	49
SDG&E		16		13		30		18

Guarantees

Sempra Energy has provided guarantees to certain of its solar and wind farm joint ventures and entered into completion guarantees related to the financing of the Cameron LNG JV project, as we discuss above in Note 4 and in Note 4 of the Notes to Consolidated Financial Statements in the Annual Report.

OTHER INCOME, NET

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

OTHER INCOME, NET
(Dollars in millions)
		Three months ended June 30,				Six months ended June 30,
			2016		2015		2016		2015
Sempra Energy Consolidated:
Allowance for equity funds used during construction		$	30	$	31	$	57	$	58
Investment gains (losses)(1)			10		(2)		20		7
Losses on interest rate and foreign exchange instruments, net			(15)		(3)		(12)		(3)
Foreign currency transaction losses			(5)		(2)		(7)		(3)
Sale of other investments			1		6		2		6
Electrical infrastructure relocation income(2)			2		4		3		4
Regulatory interest, net(3)			1		1		3		2
Sundry, net			(1)		2		6		5
Total		$	23	$	37	$	72	$	76
SDG&E:
Allowance for equity funds used during construction		$	13	$	10	$	24	$	18
Regulatory interest, net(3)			1		1		3		2
Sundry, net			(1)		(2)		―		(2)
Total		$	13	$	9	$	27	$	18
SoCalGas:
Allowance for equity funds used during construction		$	10	$	10	$	20	$	19
Sundry, net			(4)		(1)		(4)		(2)
Total		$	6	$	9	$	16	$	17
(1)	Represents investment gains (losses) 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)	Income at Luz del Sur associated with the relocation of electrical infrastructure.
(3)	Interest on regulatory balancing accounts.

INCOME TAXES

INCOME TAX EXPENSE AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
		Income tax	Effective				Effective
		(benefit)	income			Income tax	income
		expense	tax rate			expense	tax rate
		Three months ended June 30,
		2016				2015
Sempra Energy Consolidated	$	(106)	95	%	$	98	25	%
SDG&E		48	36			54	29
SoCalGas		(29)	100			16	18
		Six months ended June 30,
		2016				2015
Sempra Energy Consolidated	$	36	10	%	$	261	26	%
SDG&E		120	36			142	34
SoCalGas		58	23			111	28

Sempra Energy, SDG&E and SoCalGas record income taxes for interim periods utilizing a forecasted effective tax rate anticipated for the full year, as required by U.S. GAAP. The income tax effect of items that can be reliably forecasted is factored into the forecasted effective tax rate, and the impact is recognized proportionately over the year. Items that cannot be reliably forecasted (e.g., resolution of prior years’ income tax items, remeasurement of deferred tax asset valuation allowances, Mexican currency translation and inflation adjustments, deferred income tax benefits associated with impairment of a book investment and certain impacts of regulatory matters) are recorded in the interim period in which they actually occur, which can result in variability in the effective income tax rate.

Sempra Energy Consolidated

The income tax benefit in the three months ended June 30, 2016 compared to income tax expense in the same period in 2015 was due to a pretax loss in the period in 2016. The pretax loss includes the charges associated with prior years’ tax repairs deductions as a result of the 2016 General Rate Case Final Decision (GRC FD) issued by the CPUC in June 2016 affecting the California Utilities and losses from the permanent release of pipeline capacity at Sempra Natural Gas, as we discuss in Notes 10 and 11, respectively. Pretax income in 2015 included the gain from the sale of the Mesquite Power plant discussed in Note 3. Items affecting the effective income tax rate in 2016 include

higher flow-through items as a percentage of pretax loss;
higher income tax benefit from foreign currency translation and inflation adjustments; and

lower U.S. income tax expense as a result of lower planned repatriation of current year earnings from certain non-U.S. subsidiaries.

The decrease in income tax expense in the six months ended June 30, 2016 compared to the same period in 2015 was due to lower pretax income, as we discuss for the second quarter above, and a lower effective income tax rate, primarily due to:

higher flow-through items as a percentage of pretax income in 2016; and
higher income tax benefit in 2016 from foreign currency translation and inflation adjustments; offset by

$32 million deferred Mexican income tax expense in 2016 on our basis difference in TdM as a result of management’s decision to hold the asset for sale. We discuss the planned sale further in Note 3.

SDG&E

The decrease in SDG&E’s income tax expense in the three and six months ended June 30, 2016 compared to the same periods in 2015 was primarily due to lower pretax income, offset by a higher effective income tax rate. Pretax income in 2016 includes the charges associated with prior years’ tax repairs deductions as a result of the 2016 GRC FD. The higher effective income tax rate was primarily due to:

favorable resolution of prior years’ income tax items in 2015; and
Otay Mesa VIE’s pretax loss in 2016 compared to pretax income in 2015, which is excluded from SDG&E’s and Sempra Energy Consolidated’s taxable income; offset by

higher flow-through items as a percentage of pretax income in 2016.

SoCalGas

SoCalGas’ income tax benefit in the three months ended June 30, 2016 compared to income tax expense in the same period in 2015 was due to a pretax loss in the period in 2016. The pretax loss includes the charges associated with prior years’ tax repairs deductions as a result of the 2016 GRC FD. In addition, the effective income tax rate in 2016 was affected by higher flow-through items as a percentage of pretax loss.

The decrease in SoCalGas’ income tax expense in the six months ended June 30, 2016 compared to the same period in 2015 was primarily due to lower pretax income, as discussed for the second quarter above, and a lower effective income tax rate. The lower effective income tax rate was primarily due to higher flow-through items as a percentage of pretax income in 2016.

The 2016 GRC FD requires the establishment of a two-way income tax expense memorandum account for SDG&E and SoCalGas to track any revenue variances resulting from differences between the income tax expense forecasted in the GRC and the income tax expense incurred from 2016 through 2018. The variances to be tracked include tax expense differences relating to

net revenue changes,
mandatory tax law, tax accounting, tax procedural, or tax policy changes, and

elective tax law, tax accounting, tax procedural, or tax policy changes.

The account will remain open, and the balance in the account will be reviewed in subsequent GRC proceedings, until the CPUC decides to close the account. We believe the future disposition of these tracked balances may result in refunds being directed to ratepayers to the extent tax expense incurred is lower than forecasted tax expense as a result of certain flow-through item deductions (see description below) exceeding the amounts forecasted in the GRC process. In the second quarter of 2016, SoCalGas recorded a $9 million after-tax charge ($15 million pretax) and SDG&E recorded a negligible amount to earnings for the differences in the income tax expense forecasted in the GRC proceedings and the income tax expense that SDG&E and SoCalGas incurred for the six-month period ended June 30, 2016. We discuss the memo account further in Note 10.

Although the 2016 GRC FD requires the tracking described above for SDG&E and SoCalGas, the California Public Utilities Commission (CPUC) continues to require 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 tax assets and liabilities are not recorded to deferred income tax expense, but rather to a regulatory asset or liability, which impacts the current effective income tax rate. 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:

repairs expenditures related to a certain portion of utility plant assets
the equity portion of AFUDC
a portion of the cost of removal of utility plant assets
utility self-developed software expenditures
depreciation on a certain portion of utility plant assets

state income taxes

Differences arising from the forecasted amounts for these flow-through items will be tracked in the two-way income tax expense tracking account described above, except for the equity portion of AFUDC, which is not subject to taxation. We expect that amounts recorded in the tracking account may give rise to regulatory liabilities until the CPUC disposes with the account.

The AFUDC related to equity recorded for regulated construction projects at Sempra Mexico is also subject to flow-through treatment.

We provide additional information about our accounting for income taxes in Notes 1 and 6 of the Notes to Consolidated Financial Statements in the Annual Report.