OTHER FINANCIAL DATA

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Other Financial Data

OTHER FINANCIAL DATA

INVENTORIES

The components of inventories by segment are as follows:

INVENTORY BALANCES
(Dollars in millions)
	Natural gas				Liquefied natural gas				Materials and supplies				Total
	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
SDG&E	$	1	$	6	$	—	$	—	$	72	$	69	$	73	$	75
SoCalGas(1)	24		49		—		—		53		30		77		79
Sempra South American Utilities	—		—		—		—		46		30		46		30
Sempra Mexico	—		—		4		3		2		10		6		13
Sempra Renewables	—		—		—		—		3		3		3		3
Sempra Natural Gas	94		94		3		3		—		1		97		98
Sempra Energy Consolidated	$	119	$	149	$	7	$	6	$	176	$	143	$	302	$	298

(1) At both September 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.

Temporary LIFO Liquidation    

The California Utilities value natural gas inventory using the last-in first-out (LIFO) method. As inventories are sold, differences between the LIFO valuation and the estimated replacement cost are reflected in customer rates. These differences are generally temporary, but may become permanent. For interim periods, temporary LIFO liquidation represents the difference between the carrying value of natural gas inventory withdrawn from storage during the period for delivery to customers and the projected cost of the replacement of that inventory by year end. At September 30, 2016, temporary LIFO liquidation of $8 million is recorded in Other Assets on the Sempra Energy and SoCalGas Condensed Consolidated Balance Sheets. SoCalGas estimates that by December 31, 2016, temporary LIFO liquidation may not be replenished, and may result in a permanent LIFO liquidation of approximately $10 million to $15 million. This change in natural gas cost would be recovered in rates.

GOODWILL

We discuss goodwill in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.

Changes in the carrying amount of goodwill on the Sempra Energy Consolidated Balance Sheets are as follows:

GOODWILL
(Dollars in millions)
		Sempra South American Utilities		Sempra Mexico		Sempra Natural Gas			Total
Balance at December 31, 2015		$	722	$	25	$	72		$	819
Acquisition of business		—		1,375		—			1,375
Sale of business		—		—		(72		)	(72		)
Foreign currency translation(1)		28		—		—			28
Balance at September 30, 2016		$	750	$	1,400	$	—		$	2,150
(1)	We record the offset of this fluctuation to Other Comprehensive Income (Loss).

In September 2016, Sempra Mexico recorded goodwill of $1,375 million in connection with the acquisition of GdC, and Sempra Natural Gas reduced goodwill by $72 million in connection with the sale of EnergySouth. We discuss this acquisition and divestiture in Note 3.

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 on 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 $50 million at September 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 $307 million at September 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 September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Operating expenses
Cost of electric fuel and purchased power	$	(28	)	$	(27	)	$	(62	)	$	(66	)
Operation and maintenance	4			3			23			13
Depreciation and amortization	8			7			25			19
Total operating expenses	(16		)	(17		)	(14		)	(34		)
Operating income	16			17			14			34
Interest expense	(5		)	(5		)	(15		)	(14		)
Income (loss) before income taxes/Net income (loss)	11			12			(1		)	20
(Earnings) losses attributable to noncontrolling interest	(11		)	(12		)	1			(20		)
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 September 30, 2016. In addition to the tolling agreements described above, other variable interests involve various elements of fuel and power costs, 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 a VIE principally 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 $838 million at September 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 September 30,
	2016			2015			2016			2015
Service cost	$	26		$	27		$	4		$	5
Interest cost	40			38			9			10
Expected return on assets	(41		)	(42		)	(17		)	(17		)
Amortization of:
Prior service cost (credit)	2			3			—			(1		)
Actuarial loss (gain)	10			9			(1		)	—
Settlements	—			4			—			—
Regulatory adjustment	(28		)	(27		)	5			4
Total net periodic benefit cost	$	9		$	12		$	—		$	1
	Nine months ended September 30,
	2016			2015			2016			2015
Service cost	$	81		$	86		$	15		$	19
Interest cost	120			116			31			33
Expected return on assets	(124		)	(130		)	(52		)	(51		)
Amortization of:
Prior service cost (credit)	8			8			—			(2		)
Actuarial loss (gain)	23			28			(1		)	—
Settlements	—			4			—			—
Regulatory adjustment	(84		)	(86		)	9			4
Total net periodic benefit cost	$	24		$	26		$	2		$	3

NET PERIODIC BENEFIT COST – SDG&E
(Dollars in millions)
	Pension benefits						Other postretirement benefits
	Three months ended September 30,
	2016			2015			2016			2015
Service cost	$	7		$	6		$	1		$	1
Interest cost	10			9			2			2
Expected return on assets	(12		)	(14		)	(3		)	(2		)
Amortization of:
Actuarial loss	2			3			—			—
Regulatory adjustment	(7		)	(3		)	—			(1		)
Total net periodic benefit cost	$	—		$	1		$	—		$	—
	Nine months ended September 30,
	2016			2015			2016			2015
Service cost	$	22		$	22		$	3		$	5
Interest cost	31			29			6			6
Expected return on assets	(37		)	(41		)	(8		)	(8		)
Amortization of:
Prior service cost	1			1			2			2
Actuarial loss (gain)	7			7			(1		)	—
Regulatory adjustment	(22		)	(15		)	(2		)	(5		)
Total net periodic benefit cost	$	2		$	3		$	—		$	—

NET PERIODIC BENEFIT COST – SOCALGAS
(Dollars in millions)
	Pension benefits						Other postretirement benefits
	Three months ended September 30,
	2016			2015			2016			2015
Service cost	$	16		$	17		$	4		$	3
Interest cost	26			25			7			8
Expected return on assets	(26		)	(25		)	(15		)	(14		)
Amortization of:
Prior service cost (credit)	3			2			(1		)	(2		)
Actuarial loss	3			5			—			—
Regulatory adjustment	(21		)	(24		)	5			5
Total net periodic benefit cost	$	1		$	—		$	—		$	—
	Nine months ended September 30,
	2016			2015			2016			2015
Service cost	$	51		$	55		$	11		$	13
Interest cost	76			74			24			26
Expected return on assets	(78		)	(79		)	(43		)	(42		)
Amortization of:
Prior service cost (credit)	7			6			(3		)	(6		)
Actuarial loss	8			16			—			—
Regulatory adjustment	(62		)	(71		)	11			9
Total net periodic benefit cost	$	2		$	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 September 30, 2016:
Pension plans	$	24	$	2	$	1
Other postretirement benefit plans	3		—		1
Total expected contributions in 2016:
Pension plans	$	124	$	7	$	73
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 $439 million and $464 million at September 30, 2016 and December 31, 2015, respectively.

EARNINGS PER SHARE

The following table provides EPS computations for the three months and nine months ended September 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 September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Numerator:
Earnings/Income attributable to common shares	$	622	$	248	$	991	$	980
Denominator:
Weighted-average common shares outstanding for basic EPS(1)	250,386		248,432		250,073		248,090
Dilutive effect of stock options, restricted stock awards and restricted stock units(2)	2,019		2,592		1,903		2,575
Weighted-average common shares outstanding for diluted EPS(2)	252,405		251,024		251,976		250,665
Earnings per share:
Basic	$	2.48	$	1.00	$	3.96	$	3.95
Diluted	2.46		0.99		3.93		3.91

(1) Includes 572 and 504 average fully vested restricted stock units held in our Deferred Compensation Plan for the three months ended September 30, 2016 and 2015, respectively, and 565 and 486 of such units for the nine months ended September 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.

(2) Reflects the prospective adoption of ASU 2016-09 as of January 1, 2016, as we discuss in Note 2. Prior to the adoption, the dilutive effect of stock options, restricted stock awards and restricted stock units was reduced by excess tax benefits assumed to be used to repurchase shares on the open market.

The potentially dilutive impact from stock options, restricted stock awards (RSAs) and restricted stock units (RSUs) is calculated under the treasury stock method. Under this method, proceeds based on the exercise price and unearned compensation are assumed to be used to repurchase shares on the open market at the average market price for the period, reducing the number of potential new shares to be issued and sometimes causing an antidilutive effect. The computation of diluted EPS excludes 2,426 RSUs for the nine months ended September 30, 2016 because to include them would be antidilutive for the period. However, these RSUs could potentially dilute basic EPS in the future. There were no antidilutive RSUs for the three months ended September 30, 2016, and there were no antidilutive stock options or RSAs for the three months and nine months ended September 30, 2016. There were no antidilutive RSUs, stock options or RSAs for the three months and nine months ended September 30, 2015.

Prior to adoption of ASU 2016-09 as of January 1, 2016, which we discuss in Note 2, excess tax benefits were also assumed to be used to repurchase shares on the open market when applying the treasury stock method. The excess tax benefits are tax deductions we would receive upon the assumed exercise of stock options and assumed vesting of RSAs and RSUs in excess of the deferred income taxes we recorded related to the compensation expense on such stock options, awards and units. Tax shortfalls occur when the assumed tax deductions are less than recorded deferred income taxes. Upon adoption of ASU 2016-09, as a result of the provision to recognize excess tax benefits and shortfalls in earnings, these benefits and shortfalls are no longer included in the calculation of diluted EPS beginning January 1, 2016.

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 2,273,102 and 2,001,020 for the three months ended September 30, 2016 and 2015, respectively, and 2,406,512 and 2,047,656 for the nine months ended September 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 $7 million for each of the three months ended September 30, 2016 and 2015, and $20 million and $22 million for the nine months ended September 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 nine months ended September 30, 2016, primarily in January.

During the nine months ended September 30, 2016, IEnova issued 378,367 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 nine months ended September 30, 2016 and 2015.

CAPITALIZED FINANCING COSTS
(Dollars in millions)
	Three months ended September 30,				Nine months ended September 30,
	2016		2015		2016		2015
Sempra Energy Consolidated:
AFUDC related to debt	$	7	$	6	$	22	$	19
AFUDC related to equity	29		26		86		84
Other capitalized interest	26		18		64		52
Total Sempra Energy Consolidated	$	62	$	50	$	172	$	155
SDG&E:
AFUDC related to debt	$	4	$	3	$	12	$	10
AFUDC related to equity	11		9		35		27
Total SDG&E	$	15	$	12	$	47	$	37
SoCalGas:
AFUDC related to debt	$	3	$	3	$	10	$	9
AFUDC related to equity	10		10		30		29
Other capitalized interest	1		1		1		1
Total SoCalGas	$	14	$	14	$	41	$	39

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 currency translation adjustments			Financial instruments			Pension and other postretirement benefits			Total accumulated other comprehensive income (loss)
	Three months ended September 30, 2016 and 2015
2016:
Balance as of June 30, 2016	$	(503	)	$	(264	)	$	(85	)	$	(852	)
Other comprehensive (loss) income before
reclassifications	(28		)	8			—			(20		)
Amounts reclassified from accumulated other
comprehensive income	—			5			2			7
Net other comprehensive (loss) income	(28		)	13			2			(13		)
Balance as of September 30, 2016	$	(531	)	$	(251	)	$	(83	)	$	(865	)
2015:
Balance as of June 30, 2015	$	(427	)	$	(86	)	$	(83	)	$	(596	)
Other comprehensive loss before
reclassifications	(92		)	(79		)	—			(171		)
Amounts reclassified from accumulated other
comprehensive income	—			1			5			6
Net other comprehensive (loss) income	(92		)	(78		)	5			(165		)
Balance as of September 30, 2015	$	(519	)	$	(164	)	$	(78	)	$	(761	)
	Nine months ended September 30, 2016 and 2015
2016:
Balance as of December 31, 2015	$	(582	)	$	(137	)	$	(87	)	$	(806	)
Other comprehensive income (loss) before
reclassifications	51			(122		)	—			(71		)
Amounts reclassified from accumulated other
comprehensive income	—			8			4			12
Net other comprehensive income (loss)	51			(114		)	4			(59		)
Balance as of September 30, 2016	$	(531	)	$	(251	)	$	(83	)	$	(865	)
2015:							.
Balance as of December 31, 2014	$	(322	)	$	(90	)	$	(85	)	$	(497	)
Other comprehensive loss before
reclassifications	(197		)	(76		)	—			(273		)
Amounts reclassified from accumulated other
comprehensive income	—			2			7			9
Net other comprehensive (loss) income	(197		)	(74		)	7			(264		)
Balance as of September 30, 2015	$	(519	)	$	(164	)	$	(78	)	$	(761	)

(1) All amounts are net of income tax, if subject to tax, and exclude noncontrolling interests.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT(1)
SOUTHERN CALIFORNIA GAS COMPANY
(Dollars in Millions)
	Financial instruments			Pension and other postretirement benefits			Total accumulated other comprehensive income (loss)
	Three months ended September 30, 2016 and 2015
2016:
Balance as of June 30, 2016	$	(14	)	$	(5	)	$	(19	)
Amounts reclassified from accumulated other
comprehensive income	1			—			1
Net other comprehensive income	1			—			1
Balance as of September 30, 2016	$	(13	)	$	(5	)	$	(18	)
2015:
Balance as of June 30 and September 30, 2015	$	(14	)	$	(4	)	$	(18	)
	Nine months ended September 30, 2016 and 2015
2016:
Balance as of December 31, 2015	$	(14	)	$	(5	)	$	(19	)
Amounts reclassified from accumulated other
comprehensive income	1			—			1
Net other comprehensive income	1			—			1
Balance as of September 30, 2016	$	(13	)	$	(5	)	$	(18	)
2015:
Balance as of December 31, 2014 and September 30, 2015	$	(14	)	$	(4	)	$	(18	)
(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)
Details about accumulated other comprehensive income (loss) components	Amounts reclassified from accumulated other comprehensive income (loss)						Affected line item on Condensed Consolidated Statements of Operations
	Three months ended September 30,
	2016			2015
Sempra Energy Consolidated:
Financial instruments:
Interest rate and foreign exchange instruments	$	4		$	5		Interest Expense
Interest rate instruments	3			3			Equity Earnings, Before Income Tax
Interest rate and foreign exchange instruments	7			—			Remeasurement of Equity Method Investment
Interest rate and foreign exchange instruments	(2		)	—			Equity Earnings, Net of Income Tax
Commodity contracts not subject to rate recovery	—			(3		)	Revenues: Energy-Related Businesses
Total before income tax	12			5
	(3		)	(1		)	Income Tax Expense
Net of income tax	9			4
	(4		)	(3		)	Earnings Attributable to Noncontrolling Interests
	$	5		$	1
Pension and other postretirement benefits:
Amortization of actuarial loss	$	4		$	7		See note (1) below
	(2		)	(2		)	Income Tax Expense
Net of income tax	$	2		$	5
Total reclassifications for the period, net of tax	$	7		$	6
SDG&E:
Financial instruments:
Interest rate instruments	$	3		$	3		Interest Expense
	(3		)	(3		)	(Earnings) Losses Attributable to Noncontrolling Interest
Total reclassifications for the period, net of tax	$	—		$	—
SoCalGas:
Financial instruments:
Interest rate instruments	$	1		$	—		Interest Expense
Total reclassifications for the period, net of tax	$	1		$	—

(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)
Details about accumulated other comprehensive income (loss) components	Amounts reclassified from accumulated other comprehensive income (loss)						Affected line item on Condensed Consolidated Statements of Operations
	Nine months ended September 30,
	2016			2015
Sempra Energy Consolidated:
Financial instruments:
Interest rate and foreign exchange instruments	$	11		$	14		Interest Expense
Interest rate instruments	8			9			Equity Earnings, Before Income Tax
Interest rate and foreign exchange instruments	7			—			Remeasurement of Equity Method Investment
Interest rate and foreign exchange instruments	4			—			Equity Earnings, Net of Income Tax
Commodity contracts not subject to rate recovery	(7		)	(10		)	Revenues: Energy-Related Businesses
Total before income tax	23			13
	(4		)	(1		)	Income Tax Expense
Net of income tax	19			12
	(11		)	(10		)	Earnings Attributable to Noncontrolling Interests
	$	8		$	2
Pension and other postretirement benefits:
Amortization of actuarial loss	$	8		$	11		See note (1) below
	(4		)	(4		)	Income Tax Expense
Net of income tax	$	4		$	7
Total reclassifications for the period, net of tax	$	12		$	9
SDG&E:
Financial instruments:
Interest rate instruments	$	9		$	9		Interest Expense
	(9		)	(9		)	(Earnings) Losses Attributable to Noncontrolling Interest
Total reclassifications for the period, net of tax	$	—		$	—
SoCalGas:
Financial instruments:
Interest rate instruments	$	1		$	—		Interest Expense
Total reclassifications for the period, net of tax	$	1		$	—

(1) Amounts are included in the computation of net periodic benefit cost (see “Pension and Other Postretirement Benefits” above).

For the three months and nine months ended September 30, 2016 and 2015, Other Comprehensive Income (Loss) (OCI), excluding amounts attributable to noncontrolling interests, at SDG&E was negligible.

SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

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

SHAREHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS – SEMPRA ENERGY CONSOLIDATED
(Dollars in millions)
	Sempra Energy shareholders’ equity			Non- controlling interests(1)			Total equity
Balance at December 31, 2015	$	11,809		$	770		$	12,579
Cumulative-effect adjustment from change in accounting principle	107			—			107
Comprehensive income	933			117			1,050
Preferred dividends of subsidiary	(1		)	—			(1		)
Share-based compensation expense	38			—			38
Common stock dividends declared	(565		)	—			(565		)
Issuances of common stock	80			—			80
Repurchases of common stock	(55		)	—			(55		)
Equity contributed by noncontrolling interests	—			2			2
Distributions to noncontrolling interests	—			(44		)	(44		)
Balance at September 30, 2016	$	12,346		$	845		$	13,191
Balance at December 31, 2014	$	11,326		$	774		$	12,100
Comprehensive income	717			56			773
Preferred dividends of subsidiary	(1		)	—			(1		)
Share-based compensation expense	39			—			39
Common stock dividends declared	(520		)	—			(520		)
Issuances of common stock	82			—			82
Repurchases of common stock	(74		)	—			(74		)
Tax benefit related to share-based compensation	56			—			56
Equity contributed by noncontrolling interest	—			1			1
Distributions to noncontrolling interests	—			(60		)	(60		)
Balance at September 30, 2015	$	11,625		$	771		$	12,396

(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 shareholder’s equity			Non- controlling interest			Total equity
Balance at December 31, 2015	$	5,223		$	53		$	5,276
Cumulative-effect adjustment from change in accounting principle	23			—			23
Comprehensive income	419			3			422
Common stock dividends declared	(175		)	—			(175		)
Equity contributed by noncontrolling interest	—			1			1
Distributions to noncontrolling interest	—			(7		)	(7		)
Balance at September 30, 2016	$	5,490		$	50		$	5,540
Balance at December 31, 2014	$	4,932		$	60		$	4,992
Comprehensive income	443			20			463
Common stock dividends declared	(150		)	—			(150		)
Distributions to noncontrolling interest	—			(16		)	(16		)
Balance at September 30, 2015	$	5,225		$	64		$	5,289

SHAREHOLDERS’ EQUITY – SOCALGAS
(Dollars in millions)
	SoCalGas shareholders’ equity
Balance at December 31, 2015	$	3,149
Cumulative-effect adjustment from change in accounting principle	15
Comprehensive income	200
Preferred stock dividends declared	(1		)
Balance at September 30, 2016	$	3,363
Balance at December 31, 2014	$	2,781
Comprehensive income	277
Preferred stock dividends declared	(1		)
Common stock dividends declared	(50		)
Balance at September 30, 2015	$	3,007

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 September 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
	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
SDG&E:
Otay Mesa VIE	100	%	100	%	$	50	$	53
Sempra South American Utilities:
Chilquinta Energía subsidiaries(1)	23.1 – 43.4		23.5 – 43.4		22		21
Luz del Sur	16.4		16.4		171		164
Tecsur	9.8		9.8		4		4
Sempra Mexico:
IEnova(2)	18.9		18.9		537		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					$	825	$	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.

(2) On October 19, 2016, IEnova completed follow-on equity offerings that increased the 18.9 percent ownership held by others to 33.6 percent, as we discuss in Note 13.

Sempra Renewables

Sempra Renewables entered into a membership interest purchase agreement with a financial institution to form a portfolio tax equity partnership that includes Copper Mountain Solar 4, Mesquite Solar 2 and Mesquite Solar 3 (the tax equity portfolio). Under the purchase agreement, the formation of the portfolio tax equity partnership is subject to conditions precedent, including funding dates that correspond to each project’s completion. In July 2016, Sempra Renewables received the first funding in the form of a $78 million cash deposit, which has been recorded in Deferred Credits and Other on Sempra Energy’s Condensed Consolidated Balance Sheet at September 30, 2016. We expect the final funding date under the purchase agreement and formation of the portfolio tax equity partnership to occur in December 2016.

Sempra Renewables also entered into a membership interest purchase agreement with a financial institution to form a tax equity partnership involving the Black Oak Getty Wind project. The final funding date under the purchase agreement and formation of the tax equity partnership are subject to conditions precedent that we expect to occur in December 2016.

Sempra Renewables will continue to consolidate the tax equity portfolio and the Black Oak Getty Wind project. After the final funding dates, Sempra Renewables will report noncontrolling interests representing the financial institutions’ respective membership interests in the tax equity partnerships.

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)
	September 30, 2016			December 31, 2015
Sempra Energy Consolidated:
Total due from various unconsolidated affiliates - current	$	8		$	6
Sempra South American Utilities(1):
Eletrans S.A. and Eletrans II S.A.:
4% Note(2)	$	83		$	72
Other related party receivables	1			—
Sempra Mexico(1):
Affiliate of joint venture with DEN:
Note due November 13, 2017(3)	3			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)	14			24
Sempra Natural Gas:
Cameron LNG JV	8			3
Total due from unconsolidated affiliates - noncurrent	$	195		$	186
Total due to various unconsolidated affiliates - current	$	(9	)	$	(14	)
SDG&E:
Sempra Energy(5)	$	88		$	—
Other affiliates	—			1
Total due from unconsolidated affiliates - current	$	88		$	1
Sempra Energy	$	—		$	(34	)
SoCalGas	(5		)	(13		)
Other affiliates	(5		)	(8		)
Total due to unconsolidated affiliates - current	$	(10	)	$	(55	)
Income taxes due from Sempra Energy(6)	$	109		$	28
SoCalGas:
Sempra Energy(7)	$	30		$	35
SDG&E	5			13
Total due from unconsolidated affiliates - current	$	35		$	48
Income taxes due from Sempra Energy(6)	$	16		$	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 of Chilquinta Energía.

(3) U.S. dollar-denominated loan, at a variable interest rate based on a 30-day LIBOR plus 450 basis points (5.03 percent at September 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 (6.91 percent at September 30, 2016), to finance the first phase of the Energía Sierra Juárez wind project, which is a joint venture of IEnova.

(5) At September 30, 2016, net receivable included outstanding advances to Sempra Energy of $107 million at an interest rate of 0.60 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 September 30, 2016, net receivable included outstanding advances to Sempra Energy of $51 million at an interest rate of 0.57 percent. 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 September 30,				Nine months ended September 30,
	2016		2015		2016		2015
REVENUES
Sempra Energy Consolidated	$	5	$	6	$	15	$	22
SDG&E	2		3		5		8
SoCalGas	21		19		56		55
COST OF SALES
Sempra Energy Consolidated	$	10	$	29	$	60	$	78
SDG&E	16		15		46		33

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 September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Sempra Energy Consolidated:
Allowance for equity funds used during construction	$	29		$	26		$	86		$	84
Investment gains (losses)(1)	9			(12		)	29			(5		)
Losses on interest rate and foreign exchange instruments, net	(11		)	(4		)	(23		)	(7		)
Foreign currency transaction losses	(2		)	(3		)	(9		)	(6		)
Sale of other investments	1			2			3			8
Electrical infrastructure relocation income(2)	1			—			4			4
Regulatory interest, net(3)	1			1			4			3
Sundry, net	(2		)	2			4			7
Total	$	26		$	12		$	98		$	88
SDG&E:
Allowance for equity funds used during construction	$	11		$	9		$	35		$	27
Regulatory interest, net(3)	—			1			3			3
Sundry, net	—			(2		)	—			(4		)
Total	$	11		$	8		$	38		$	26
SoCalGas:
Allowance for equity funds used during construction	$	10		$	10		$	30		$	29
Regulatory interest, net(3)	1			—			1			—
Sundry, net	(3		)	(2		)	(7		)	(4		)
Total	$	8		$	8		$	24		$	25

(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 (BENEFIT) AND EFFECTIVE INCOME TAX RATES
(Dollars in millions)
	Income tax expense		Effective income tax rate		Income tax expense (benefit)			Effective income tax rate
	Three months ended September 30,
	2016				2015
Sempra Energy Consolidated	$	282	29	%	$	15		6	%
SDG&E	91		32		75			29
SoCalGas	21		100		(20		)	71
	Nine months ended September 30,
	2016				2015
Sempra Energy Consolidated	$	284	21	%	$	276		22	%
SDG&E	204		33		217			32
SoCalGas	75		27		91			25

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.

For SDG&E and SoCalGas, 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 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

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

The final decision in the 2016 General Rate Case (2016 GRC) issued by the CPUC in June 2016 affecting the California Utilities requires the establishment of a two-way income tax expense memorandum account for SDG&E and SoCalGas to track any revenue variances resulting from certain differences arising between the income tax expense forecasted in the 2016 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 in the GRC process as a result of certain flow-through item deductions, as described above, or other items. We discuss the memo account further in Note 10.

Differences arising from the forecasted amounts will be tracked in the two-way income tax expense tracking account, except for the equity portion of AFUDC, which is not subject to taxation. We expect that certain amounts recorded in the tracking account may give rise to regulatory assets or liabilities until the CPUC disposes with the account. The CPUC tracking account does not affect the recovery of income tax expense in Federal Energy Regulatory Commission (FERC) formulaic rates.

In the third quarter of 2016, we adopted ASU 2016-09 with an effective date of January 1, 2016. ASU 2016-09 requires excess tax benefits and tax deficiencies related to employee share-based payment transactions to be recorded in earnings, instead of in shareholders’ equity. We discuss the impact of adopting the provisions of this standard in Note 2.

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.