SECURITIES AND EXCHANGE COMMISSION  
 
WASHINGTON, D.C. 20549  
FORM 10-K/A

AMENDMENT 1 
 
(Mark One) 
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange 
Act of 1934 For the fiscal year ended                      December 31, 1995
   OR 
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934 For the transition period from                     to      
                Exact 
               Name of                                                   
Commission     Registrant                                 IRS Employer     
File           as specified        State of               Identification   
Number         in its charter      Incorporation          Number
----------     --------------      --------------         --------------      
1-3779         SAN DIEGO GAS &                                             
               ELECTRIC COMPANY      California           95-1184800        
                                                                     
1-11439        ENOVA CORPORATION     California           33-0643023        
                                                                        
101 ASH STREET, SAN DIEGO, CALIFORNIA                                    92101
-----------------------------------------                           ---------- 
(Address of principal executive offices)                            (Zip Code) 
 
Registrant's telephone number, including area code               (619)696-2000 
                                                                -------------- 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: 
                                                         Name of each exchange 
Title of each class                                        on which registered 
-------------------                                      --------------------- 
San Diego Gas & Electric Company 
Preference Stock (Cumulative) 
  Without Par Value (except $1.70 and $1.7625 Series)                American   
  Cumulative Preferred Stock, $20 Par Value (except 4.60% Series)    American   
 
Enova Corporation                                          
Common Stock, Without Par Value                           New York and Pacific  
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 
San Diego Gas & Electric Company                          None 
Enova Corporation                                         None 
 
Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months and (2) has been subject to such filing 
requirements for the past 90 days.  
Yes [ X ]   No  [   ]    
  
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 
of Regulation S-K is not contained herein, and will not be contained, to the 
best of registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-K or any amendment to 
this  
Form 10-K.  [  ]   
 
Exhibit Index on page 34.  Glossary on page 42.  
 
Aggregate market value of the voting stock held by non-affiliates of the 
registrant as of January 31, 1996: 
Enova Corporation Common Stock                                $2.8 Billion 
San Diego Gas & Electric Company Preferred Stock              $18 Million 
 
Common Stock outstanding without par value as of January 31, 1996: 
 
Enova Corporation:                                          116,563,375 
San Diego Gas & Electric Company:            Wholly owned by Enova Corporation 


<PAGE>
ENOVA CORPORATION

SAN DIEGO GAS & ELECTRIC COMPANY


FORM 10-K/A

AMENDMENT 1



The undersigned registrants hereby amend Item 7, Management's Discussion and  
Analysis of Financial Condition and Results of Operations, of its Annual Report
Report for 1995 on Form 10-K as set forth in the pages attached hereto.

Pursuant to the requirements of the Securities Exchange Act of 1934, the  
registrant has duly caused this amendment to be signed on its behalf by the  
undersigned thereunto duly authorized.



                                							ENOVA CORPORATION

                                							SAN DIEGO GAS & ELECTRIC COMPANY



Date: February 5, 1997				             By:_____/s/F.H.Ault______________________
							                                            (Signature)

                                          									F.H. AULT
							                                   Vice President and Controller

<PAGE>
ENOVA CORPORATION PARENT COMPANY OF SDG&E 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS 
 
RESULTS OF OPERATIONS 
On December 6, 1995, San Diego Gas & Electric Company announced the 
formation of Enova Corporation as the parent company for SDG&E, an  
operating public utility, and unregulated subsidiaries. On January 1, 
1996, Enova Corporation became the parent of SDG&E. SDG&E's  
outstanding common stock was converted on a share-for-share basis  
into Enova Corporation common stock. SDG&E's debt securities, 
preferred stock and preference stock were unaffected and remain with 
SDG&E. On January  31, 1996, SDG&E's ownership interests in its  
subsidiaries were transferred to Enova Corporation at book value, 
completing the parent company structure. The consolidated financial 
statements include SDG&E and its subsidiaries and, therefore, also  
reflect what is now Enova and its subsidiaries. Beginning on January 1, 
1996, SDG&E's financial statements for periods prior to 1996 will be 
restated  to reflect the net results of non-utility subsidiaries as 
discontinued operations in accordance with Accounting Principles Board 
Opinion No. 30 "Reporting the Effects of a Disposal of a Segment of  
Business." 
 
     SDG&E is engaged in electric and gas businesses. It generates and 
purchases electric energy and distributes it to 1.2 million customers  
in San Diego County and an adjacent portion of Orange County,  
California. It also purchases and distributes natural gas to 700,000  
customers in San Diego County and transports gas for others. SDG&E has 
diversified into other businesses.  Enova  Financial, Inc., invests in 
limited partnerships representing approximately 800 affordable-housing 
projects located throughout the United States. Califia Company leases  
computer equipment. The investments in Enova Financial and Califia are 
expected to provide income tax benefits over the next several years. 
Enova Energy, Inc., is an energy management consulting firm offering 
services to utilities and large consumers. Pacific Diversified Capital 
Company is the parent company for non-utility subsidiaries, Phase  One 
Development,  Inc., which is engaged in real estate  development,  and 
Enova  Technologies,  Inc.  Enova Technologies,  whose  ownership  was 
transferred directly to Enova Corporation after December 31, 1995,  is 
in  the  business of developing new technologies generally related  to 
utilities and energy, including certain research transferred from  the 
utility.  Enova International was formed after December 31,  1995,  to 
develop and operate natural gas and power projects outside the  United 
States.  Additional  information  regarding  SDG&E's  subsidiaries  is 
described  in  Notes  1  and 3 of the notes to consolidated  financial 
statements. 
      
OPERATING REVENUES Electric revenues did not change  significantly  in 
1995  or  in  1994, decreasing less than one percent  each  year.  Gas 
revenues  decreased 10 percent in 1995, reflecting lower purchased-gas 
prices and lower sales volume due to warmer weather and an increase in 
customers'  purchases of gas directly from other suppliers  (for  whom 
SDG&E provides transportation). 
 
     Revenues from diversified operations increased in 1994, primarily 
due to Califia's leasing activities. 
      
OPERATING EXPENSES Electric fuel expense decreased 30 percent in  1995 
and  18  percent  in 1994. The decrease in 1995 was primarily  due  to 
lower prices for natural gas and the shifting of energy supply sources 
from  generation to purchased power as a result of nuclear  refuelings 
during  the  year.  The decrease in 1994 was due to lower  prices  for 
natural gas and the replacement of fossil fuel generation with  lower- 
cost nuclear generation. 
 
     Purchased-power expenses decreased in 1995, reflecting a decrease 
in  purchased-power prices, offset by higher volumes.  The  5  percent 
increase in 1994 was primarily due to increased purchases from higher- 
cost, independent power producers. 
 
     Gas  purchased  for resale decreased 23 percent in  1995  and  12 
percent  in  1994.  The decrease in 1995 was primarily  due  to  lower 
prices  for natural gas and lower sales volumes due to warmer  weather 
and  an  increase in customers' purchases of gas directly  from  other 
suppliers  (for whom SDG&E provides transportation). The  decrease  in 
1994  was due to lower natural gas prices and lower sales volumes  due 
to customers' purchases of gas directly from others. 
 
     The changes in maintenance expenses reflect unusually low charges 
in 1994, a year which included no nuclear plant refuelings. 
      
OTHER  INCOME AND DEDUCTIONS Other income and deductions increased  in 
1995  and  decreased in 1994. These changes, including the  change  in 
"Other-net,"  were primarily due to the 1994 writedowns  described  in 
Note 2 of the notes to consolidated financial statements. 

    
EARNINGS 1995 earnings per common share were $1.94, compared to $1.17 
in 1994 and $1.81 in 1993. Earnings per common share from continuing 
operations were $1.94 in 1995, compared with $1.71 in 1994 and $1.89 
in 1993. The increase in earnings in 1995 is due to numerous offsetting 
factors, including the 1994 writedowns, the increased utility authorized 
rate of return and changes in incentive awards for performance-based 
ratemaking and demand-side management programs. The increase in earnings
in 1994 was the result of several offsetting factors, including
lower operating and maintenance expense, performance-based
ratemaking awards and lower utility authorized return. 
     

                                     18 
<PAGE> 
 
 
     Earnings per share for the quarter ended December 31, 1995,  were 
$0.50  compared  to  $0.47 for the same period in 1994.  Earnings  per 
share  from continuing operations for the quarter were $0.45  in  1995 
and  $0.49  in 1994. The latter decrease is due to numerous offsetting 
factors,  including changes in incentive awards for  performance-based 
ratemaking  and  demand-side management programs,  and  the  increased 
authorized rate of return. 
 
     Califia  and Enova Financial's contributions to earnings for  the 
year  were $0.17 in 1995, $0.15 in 1994 and $0.09 in 1993. The  impact 
of  the  remaining subsidiaries on earnings from continuing operations 
was not material. 
      
LIQUIDITY AND CAPITAL RESOURCES 
Utility  operations  continue to be a major source  of  liquidity.  In 
addition, financing needs are met primarily through issuances of short- 
term  and  long-term  debt, and of common and preferred  stock.  These 
capital  resources are expected to remain available. Cash requirements 
include   plant   construction   and   other   capital   expenditures; 
subsidiaries'  affordable-housing, leasing and other investments;  and 
repayments  and retirements of long-term debt. In addition to  changes 
described elsewhere, major changes in cash flows are described below. 
      
CASH  FLOWS  FROM OPERATING ACTIVITIES The major changes in cash flows 
from  operations  among  the  three  years  result  from  changes   in 
regulatory balancing accounts, income taxes, and accounts payable  and 
other current liabilities. The changes related to regulatory balancing 
accounts were due primarily to changes in prices for natural gas.  The 
changes  related  to income taxes (and other current assets) were  due 
primarily to the differences in timing of income tax payments  related 
to  regulatory balancing account activity in 1994. The changes related 
to  accounts payable and other current liabilities were due  primarily 
to  greater  demand-side management activity in December  1995,  lower 
employee  incentive  compensation and lower construction  activity  in 
December 1994. 
 
     Quarterly  cash dividends of $0.39 per share have  been  declared 
for each quarter during the year ended December 31, 1995. The dividend 
payout  ratio for the years ended December 31, 1995, 1994, 1993,  1992 
and  1991 were 80 percent, 130 percent, 82 percent, 81 percent and  79 
percent,  respectively. The increase in the payout ratio for the  year 
ended  December  31, 1994, was due to the writedowns  recorded  during 
1994.  Additional information regarding the writedowns is provided  in 
Notes  2 and 3 of the notes to consolidated financial statements.  The 
payment  of future dividends is within the discretion of the directors 
and  is dependent upon future business conditions, earnings and  other 
factors. Net cash flows provided by operating activities currently are 
sufficient to maintain the payment of dividends at the present level. 
      
CASH FLOWS FROM FINANCING ACTIVITIES SDG&E  had  only  short-   and 
intermediate-term financing needs during 1995 and does not  expect  to 
issue  any  intermediate-term debt in 1996. The utility did not  issue 
stock or long-term debt in 1995, except for refinancings, and does not 
plan  any  issuances  in  1996, other than refinancings.  Subsidiaries 
Enova  Financial, Califia, Pacific Diversified Capital and  Phase  One 
Development  repaid $40 million in long-term debt in 1995  during  the 
ordinary  course  of  business. To date, it has  not  been  determined 
whether the nonutility subsidiaries will issue debt in 1996. 
 
     SDG&E's  utility capital structure is one factor that has enabled 
it  to  obtain long-term financing at attractive rates. The  following 
table  shows  the percentages of capital represented  by  the  various 
components.  The capital structures are net of the construction  funds 
held by a trustee in 1992 and 1993. 
      
                  1991   1992   1993   1994   1995    Goal 
----------------------------------------------------------- 
Common equity      47%    47%    47%    48%    49%   45-48% 
Preferred stock     5      5      4      4      4      5-7 
Debt and leases    48     48     49     48     47    46-49 
----------------------------------------------------------- 
   Total          100%   100%   100%   100%   100%     100% 
___________________________________________________________ 
      
     In December 1995, Standard & Poor's and Moody's Investors Service 
affirmed  the  ratings  of  SDG&E following  the  CPUC's  decision  on 
restructuring California's electric utility industry. Moody's affirmed 
its  long-term bond rating of A1 and stable outlook. Standard & Poor's 
affirmed  its  long-term  bond  rating of  A+  and  negative  outlook. 
Standard  &  Poor's  said  the outlook would remain  negative  pending 
further  study  of  the  financial implications of  the  restructuring 
decision, as well as the potential for modification or approval by the 
governor and the California Legislature. 
 
     On  December  19,  1995, the Securities and  Exchange  Commission 
approved  SDG&E's application to delist its preferred  and  preference 
stock  from  the  Pacific  Stock Exchange.  All  SDG&E  preferred  and 
preference stock is now listed on the American Exchange only. 
 
     On  January  15, 1996, SDG&E redeemed its $7.20 series preference 
stock.   The  entire  $15  million  issue  was  called  for  mandatory 
redemption at $101 per share. 
      
DERIVATIVES SDG&E's policy is to use derivative financial  instruments 
to  reduce its exposure to fluctuations in interest rates and  foreign 
currency  exchange rates. These financial instruments are  with  major 
investment  firms  and,  along  with cash  and  cash  equivalents  and 
accounts  receivable, expose SDG&E to market and credit  risks.  These 
risks  may at times be concentrated with certain counterparties. SDG&E 
presently  contemplates  use  of similar  instruments  to  reduce  its 
exposure  to  fluctuations in natural gas prices. SDG&E does  not  use 
derivatives for trading or speculative purposes. 
 
                                      19 
<PAGE> 
 
 
     SDG&E  periodically  enters  into  interest  rate  swap  and  cap 
agreements  to moderate its exposure to interest rate changes  and  to 
lower  its  overall cost of borrowing. These swap and  cap  agreements 
generally remain off the balance sheet as they involve the exchange of 
fixed- and variable-rate interest payments without the exchange of the 
underlying  principal  amounts.  The  related  gains  or  losses   are 
reflected  in the income statement as part of interest expense.  SDG&E 
would be exposed to interest-rate fluctuations on the underlying  debt 
should  other  parties  to  the  agreement  not  perform.  Such   non- 
performance  is not anticipated. At December 31, 1995, SDG&E  had  two 
such  agreements, including an index cap agreement on $75  million  of 
bonds  maturing in 1996, and a floating-to-fixed-rate swap  associated 
with $45 million of variable-rate bonds maturing in 2002. 
 
     SDG&E's  pension fund periodically uses foreign currency  forward 
contracts  to  reduce  its  exposure from  exchange-rate  fluctuations 
associated  with  certain  investments in foreign  equity  securities. 
These  contracts generally have maturities ranging from three  to  six 
months.  At December 31, 1995, the pension fund held forward  Yen-U.S. 
Dollar contracts totaling $20 million. SDG&E's pension fund is exposed 
to  credit  loss  if  the counterparties fail to  perform.  Such  non- 
performance is not anticipated. 
 
     Additional  information  on derivative financial  instruments  is 
provided in Note 9 of the notes to consolidated financial statements. 
      
CASH FLOWS FROM INVESTING ACTIVITIES Cash used in investing activities 
in 1995 included utility construction expenditures and payments to its 
nuclear  decommissioning  trust. Construction expenditures,  excluding 
nuclear   fuel  and  the  allowance  for  equity  funds  used   during 
construction, were $221 million in 1995 and are estimated to  be  $220 
million  in  1996. The company continuously reviews its  construction, 
investment  and  financing programs and revises them  in  response  to 
changes  in  competition, customer growth, inflation, customer  rates, 
the  cost  of  capital, and environmental and regulatory requirements. 
Among  other things, the level of expenditures in the next  few  years 
will depend heavily on the impact of the CPUC's industry restructuring 
decision,  on  the timing of expenditures to comply with air  emission 
reduction  and other environmental requirements, on the company's plan 
to   transport  natural  gas  to  Mexico  and, on the scope  of  Enova 
Technologies'  investment  in  new  technologies.  These  matters  are 
discussed below. 
 
     Payments  to  the nuclear decommissioning trust are  expected  to 
continue until SONGS is decommissioned, which is not expected to occur 
before 2013. Although Unit 1 was permanently shut down in 1992, it  is 
expected to be decommissioned concurrently with Units 2 and 3. 
      
REGULATORY MATTERS 
ELECTRIC RATES In April 1995, the CPUC issued its decision on  SDG&E's 
May  1995 Energy Cost Adjustment Clause Application, approving an  $81 
million decrease in electric rates effective May 1, 1995. The decrease 
reflects, among other things, lower fuel and purchased-power costs and 
the return of previous overcollections from customers. The $81 million 
ECAC decrease was combined with previously approved increases for cost 
of capital ($31 million) and base rates ($41 million), resulting in an 
authorized system average electric rate of $0.0987. 
 
     In  October 1995, SDG&E filed its 1996 ECAC rate request with the 
CPUC for an $18 million decrease in electric rates which, if approved, 
would result in an authorized system average electric rate of $0.0967  
on June 1, 1996. The request reflects lower forecasted prices for fuel 
and purchased power, lower cost of capital, balancing account activity, 
and  inflation  and customer growth based on SDG&E's performance-based 
ratemaking  Base Rates  Mechanism formula. Settlement discussions are  
currently ongoing among SDG&E, the CPUC's Division of Ratepayer  
Advocates and  other parties. 
 
     In   December  1995,  the  CPUC  found  SDG&E  operations  to  be 
reasonable  for  the record period August 1, 1992,  through  July  31, 
1993, except for $1.8 million associated with a wholesale transaction. 
This   is   the   last  comprehensive  reasonableness  review,   since 
performance-based ratemaking (see below) limits such reviews to  those 
issues causing expenses to fall outside certain parameters. 
      
GAS RATES In  July 1995, the CPUC issued its decision on SDG&E's  June 
1995  application  to lower core gas rates by $16  million,  effective 
August 1, 1995. The decrease was based on the decline in gas prices to 
levels  below the Biennial Cost Allocation Proceeding's price forecast 
that became effective January 1, 1995, and lowered the gas portion  of 
a typical residential SDG&E natural gas bill by $1.60 per month or 6.5 
percent. 
 
     In  December 1995, the CPUC authorized SDG&E to implement  a  $21 
million   natural  gas  refund  as  a  result  of  balancing   account 
overcollections from lower-than-expected natural gas commodity  costs. 
The  typical customer's refund, distributed in February 1996, averaged 
$22.  In December 1995, the CPUC also authorized a $25 million natural 
gas  rate  increase for residential and small-business  customers.  In 
January  1996, the typical customer's gas bill increased approximately 
$1.78  per  month,  primarily  due  to  an  increase  in  natural  gas 
transportation prices from Southern California Gas and  an  update  of 
balancing account activity. 
 
                                        20 
<PAGE> 
 
 
PERFORMANCE-BASED RATEMAKING In December 1995,  the  CPUC  issued  its 
decision, authorizing rewards of $3.7 million for electric generation 
and dispatch (G&D) and $3.8 million for gas procurement based on first- 
year  (August  1993  through July 1994) results  of  performance-based 
ratemaking  (PBR). The CPUC also found SDG&E's nuclear and gas-storage 
operations reasonable for the same period. 
 
     In October 1995, SDG&E filed reports with the CPUC on the results 
of its electric generation and dispatch and gas procurement mechanisms 
for  the  year  ended July 31, 1995. SDG&E's fuel and  purchased-power 
expenses fell below the benchmarks for these mechanisms by a total  of 
$27.9 million ($2.8 million for G&D and $25.1 million for gas). In its 
filing for a rate adjustment effective June 1, 1996, SDG&E requested a 
total  shareholder reward of $3.4 million ($0.8 million  for  G&D  and 
$2.6 million for gas) and that the remainder of these savings be given 
to customers through lower rates. 
 
     In  July  1995,  the  CPUC authorized $7 million  in  rewards  to 
shareholders  as  a  result  of SDG&E's exceeding  CPUC-approved  1994 
benchmarks under the base-rates PBR mechanism. Performance measures in 
the  base-rates  mechanism  measures  include  customer  satisfaction, 
national rates comparison, system reliability and employee safety. 
 
     These  PBR  rewards are recorded in advance of receipt only  when 
the  entire reward will be collected in rates within 24 months of  the 
CPUC's approval. 
 
     The  gas  procurement and G&D mechanisms are  effective  under  a 
previously  authorized two-year experiment that began in August  1993. 
Both have been extended until the Division of Ratepayer Advocates  and 
the  Commission  Advisory  and Compliance Division  file  their  final 
reports  for the year ended July 31, 1995 (expected during  the  first 
quarter  of 1996). Thereafter, SDG&E will be applying for an extension 
and modification in conjunction with the restructuring of California's 
electric  utility industry (see "Competition" below), and the existing 
mechanisms are expected to remain in place until the CPUC acts on  the 
application.  The  base-rates mechanism was established  as  a  5-year 
experimental  mechanism  that is intended to  run  from  January  1994 
through December 1998. 
      
COST OF CAPITAL In  November  1995,  the  CPUC  issued  its  decision 
authorizing  SDG&E,  Pacific  Gas and  Electric,  Southern  California 
Edison, Southern California Gas and Sierra Pacific Power 11.60 percent 
returns  on  common  equity for 1996. (SDG&E's was  12.05  percent  in 
1995.)  SDG&E's resulting rate of return on ratebase is 9.37  percent, 
compared to 9.76 percent in 1995. 
 
     In  October  1995,  SDG&E  filed a  proposal  with  the  CPUC  to 
implement  a  mechanism to establish its cost of capital beginning  in 
January 1997. Each October, SDG&E's authorized rate of return would be 
adjusted  if single A bond rates change by 1 percent or more from  the 
prior  year's  benchmark. A 100-basis-point change in  single  A  bond 
rates  would result in a one-half percent change in SDG&E's return-on- 
equity.  In  addition, SDG&E's embedded costs of  debt  and  preferred 
stock would be adjusted to reflect SDG&E's outstanding long-term  debt 
and  preferred  stock  at  each September 30 if  the  return-on-equity 
adjustment  described  above is triggered. The  adjustments  would  be 
effective on January 1 of the following year. The proposal suggests  a 
3-year  trial period during which SDG&E's authorized capital structure 
would not change. 
      
SAN ONOFRE NUCLEAR GENERATING STATION SDG&E is currently recovering its 
existing  capital investment in San Onofre Nuclear Generating  Station 
Unit 1 over a 4-year period that began in November 1992, when the CPUC 
issued  a  decision  to permanently shut down the unit.  The  decision 
authorized Southern California Edison (majority owner and operator  of 
SONGS)  and  SDG&E to recover their investments in Unit  1,  of  which 
SDG&E's  share  was $111 million. SDG&E is recovering its  investment, 
earning  a  return of 9.1 percent. At December 31, 1995,  $18  million 
remained to be recovered. 
 
     In  January  1996, the CPUC approved the accelerated recovery  of 
SONGS  Units 2 and 3 existing capital costs. The decision allows SDG&E 
to recover its investment of approximately $750 million over an 8-year 
period beginning in 1996, rather than over the anticipated operational 
life of the units, which is expected to extend to 2013. During the  8- 
year  period, the authorized rate of return on the equity  portion  of 
the investment will be 90 percent of SDG&E's embedded cost of debt and 
the  return  on  the debt-financed component will be at  7.52  percent 
(SDG&E's  1995  authorized  cost of debt).  The  decision  includes  a 
performance  incentive  plan  that  encourages  continued,   efficient 
operation  of the plant during the 8-year period. During this  period, 
customers  will  pay  about  $0.04  per  kilowatt-hour.  This  pricing 
structure  replaces  the traditional method of recovering  the  units' 
operating expenses and capital improvements. This is intended to  make 
the units more competitive with other sources. 
      
COMPETITION 
ELECTRIC - CALIFORNIA In December 1995, the CPUC issued its policy 
decision on the restructuring of California's electric utility 
industry to stimulate competition and reduce rates. Beginning in 
January 1998, customers can buy their electricity through a power 
exchange that will obtain power from the lowest-bidding suppliers.  
The exchange is a spot market with visible pricing. Consumers also 
may choose to continue 
 
                                      21 
<PAGE> 
 
 
to purchase from their local utility under  
regulated tariffs. As a third option, a cross section of all customer 
groups (residential, industrial, commercial and agricultural) will be 
able to go directly to any energy supplier and enter into private   
contracts with generators, brokers or others (direct access). 
As the direct access mechanism has many technical issues to be 
resolved, a five-year phase-in is planned. All California electricity 
customers of investor-owned utilities will have the option to purchase 
generation services directly by 2003. Key points of the CPUC decision 
as it relates to SDG&E include: 
 
   -   An  independent  system  operator  (ISO)  will  schedule  power 
transactions  and  access to the state transmission  system,  enabling 
competing  power producers to have equal opportunity to deliver  their 
supplies.   Participation  in  the  power  exchange  or   "pool-based" 
wholesale electricity market will be voluntary for buyers and sellers, 
except  for  the  investor-owned utilities.  The  ISO  and  the  power 
exchange  will be separate, independent entities under Federal  Energy 
Regulatory Commission jurisdiction. 
 
   -  Utilities  will  be  allowed to fully recover  their  "stranded" 
costs  incurred  for facilities approved by the CPUC,  purchased-power 
and  other  contracts, and regulatory assets through the establishment 
of  a  non-bypassable competition transition charge  (CTC)  which  all 
customers will be assessed. 
 
   -  Utilities  will  continue  to have  the  obligation  to  provide 
distribution   service  to  all  customers  and   provide   least-cost 
generation  service to those customers who do not choose  the  direct- 
access  option.  Performance-based  regulation  rather  than  cost-of- 
service  regulation  will  be  used  to  encourage  efficient  utility 
operation. 
 
   -  Utilities will continue to have direct control and operation  of 
the  distribution business and procurement of generation services  for 
customers  who  continue  to purchase from  the  utility,  which  will 
continue to be regulated by the CPUC. Transmission facilities will  be 
owned by the utilities and operated by the ISO. 
 
   -  For  purposes of transition cost recovery, rates  for  customers 
taking  bundled utility service (energy, transmission and distribution 
included  into  one  rate) will be capped at  levels  consistent  with 
January 1, 1996, revenue requirements. Including the CTC, rates cannot 
exceed  the cap and, therefore, recovery of the CTC is limited by  the 
cap.  If  rates  not including the CTC meet or exceed the  cap  for  a 
particular  period,  no  CTC  can be  recouped,  but  rather  will  be 
accumulated in a balancing account for future recovery (see below). 
 
   -  The  CPUC  supports a non-bypassable surcharge  to  fund  public 
policy programs. 
 
     The  decision  identifies  three primary  sources  of  transition 
costs:  uneconomic utility-owned generating assets  (that  portion  of 
fossil units not recoverable in the energy price), existing purchased- 
power  obligations (including qualifying facilities),  and  regulatory 
assets  and  obligations  (including  deferred  operating  costs   and 
deferred  taxes). By September 1996, the utilities must  identify  and 
value  investments for inclusion in a transitional balancing  account, 
subject  to CPUC review and approval. The transition-balancing account 
can  be  adjusted through 2003 for errors or omissions. Collection  of 
any  investment-related transition costs must be  completed  by  2005. 
Thereafter,  participation  in the power  exchange  by  investor-owned 
utilities will be voluntary. 
 
     The  decision  allows  for recovery of all  remaining  generation 
investment  costs,  with a reduced rate of return on  any  investment- 
related  transition costs. The rate of return for the  debt  component 
would be equal to the utility's embedded cost of debt and the rate  of 
return  on  the equity component would be equal to 90 percent  of  the 
embedded cost of debt. SDG&E's authorized cost of debt is 7.52 percent 
for  1995.  The  CPUC  reduced  the rate  of  return  to  reflect  the 
perception   of  lower  risk,  due  to  the  non-bypassable   CTC   on 
distribution customers, and the reduced risk that the plants  will  be 
found no longer used and useful and removed from rate base. 
 
     The  CPUC's  concerns  over  market-power  problems  may  require 
investor-owned utilities to divest themselves of a substantial portion 
of their generating assets. PG&E and Edison are required to file plans 
to  voluntarily  divest themselves of at least  50  percent  of  their 
fossil-fueled generating assets through a spin-off or sale to  a  non- 
affiliated entity. SDG&E is not included in this requirement,  as  the 
CPUC  does  not perceive these market-power problems in San Diego.  In 
order  to  encourage  the  voluntary  divestiture  or  spin-off  of  a 
utility's  fossil generation, the decision provides for a 0.1  percent 
increase  in  equity  return  for each 10  percent  of  fossil  plants 
disposed of in excess of the mandatory percentage. 
 
     In  addition, the utilities are required to file plans  with  the 
CPUC  to  implement  direct access and new or revised  PBR  proposals. 
Plans to establish the power exchange and ISO are also required to  be 
filed  by  the utilities with both the CPUC and the FERC, as the  FERC 
has   jurisdiction   over  the  exchange,  the  ISO   and   interstate 
transmission. 
 
     The  California  Legislature has passed a resolution  forming  an 
oversight  committee to ensure the legislature's  involvement  in  the 
policies  presented  by the CPUC, and that the  policies  comply  with 
federal and state laws, and achieve the objectives both of competition 
and  the  various  social programs that are currently  funded  through 
utility rates. 
 
     The  CPUC is currently working on building a consensus on the new 
market  structure  with  the  California  Legislature,  the  governor, 
utilities and customers. 
      
ELECTRIC-FEDERAL In March 1995, the FERC issued a proposed rule that, 
if  adopted,  would  require all public utilities to  offer  wholesale 
"open-access"  transmission service on a nondiscriminatory  basis.  In 
addition,  public  utilities would be 
 
                                   22 
<PAGE> 
 
 
 required to  functionally  price 
their  generation and transmission services separately. The FERC  also 
stated  its  belief that utilities should be allowed  to  recover  the 
costs  of  assets  and  obligations made  uneconomic  by  the  changed 
regulatory environment. Although SDG&E's cost-recovery mechanisms  are 
not  currently under the jurisdiction of the FERC, the recognition  by 
the  FERC  of the propriety of such cost recovery supports the  CPUC's 
similar position. 
 
     In  October  1995,  SDG&E filed for approval of  its  open-access 
tariffs  for  its service territory with the FERC in conjunction  with 
its  request  for  a marketing license for Enova Energy.  In  December 
1995,  the  FERC  issued a draft order approving  SDG&E's  open-access 
tariff, but rejecting Enova Energy's filing. This limits Enova  Energy 
to  cost-based rates. All non-rate terms and conditions were  accepted 
subject to the outcome of the FERC's restructuring rulemaking. 
 
     Final  approval  of  the  FERC's rule and  the  CPUC's  industry- 
restructuring  plan  would  result in  the  creation  of  a  bid-based 
wholesale  electricity spot market with open-access transmission.  The 
FERC is expected to issue a final rule during the first half of 1996. 
      
GAS The  ongoing restructuring of the gas utility industry has  allowed 
customers to bypass utilities as suppliers and, to a lesser extent, as 
transporters  of  natural  gas.  Currently,  non-utility   electricity 
producers and other large customers may use a utility's facilities  to 
transport  gas  purchased  from non-utility suppliers.  Also,  smaller 
customers  may  form  groups to buy gas from another  supplier.  SDG&E 
would face significant competition if a major pipeline were to operate 
in or near SDG&E's service territory. 
 
     In  September  1995,  SDG&E  signed  an  agreement  with  Pacific 
Enterprises  International, an affiliate of Southern  California  Gas, 
and  Proxima,  a Mexican company, to develop and operate  natural  gas 
distribution  networks in Baja California, Mexico. Representing  SDG&E 
will be an Enova Corporation subsidiary, Enova International. 
 
     In  November  1995,  Mexico  issued  new  regulations   allowing 
privately owned companies, including companies with foreign ownership, 
to  participate  in  infrastructure  projects  involving  natural  gas 
transportation, storage and distribution. Previously, these activities 
were conducted by the government-owned oil company, Pemex. 
 
     In  November  1995,  the  three-company  consortium  submitted  a 
Statement of Interest to the Mexican government requesting a permit to 
distribute natural gas in the city of Mexicali and surrounding  areas. 
Other  companies have also expressed an interest in the project. Under 
the  new  regulations, the government will conduct a  bidding  process 
before a permit is issued. If the consortium is awarded the permit, it 
will  have an exclusive right to distribute natural gas in that region 
for 12 years. 
 
     The  proposed project would deliver gas to Mexicali  through  the 
pipeline network of Southern California Gas in the Imperial Valley. The 
initial capital will be $10 million to $15 million, and the initial 
load will be about 10 million cubic feet per day, serving mostly  
industrial customers.  The proposed pipeline network would be  
continuously expanded to serve residential and commercial customers. 
      
EFFECTS OF REGULATION SDG&E currently accounts for the economic effects 
of  regulation  in  accordance with Statement of Financial  Accounting 
Standards  No.  71, "Accounting for the Effects of  Certain  Types  of 
Regulation,"  under which a regulated utility may record a  regulatory 
asset  if  it  is probable that, through the rate-making process,  the 
utility will recover that asset from its customers. In the event  that 
recovery   of  specific  costs  through  rates  becomes  unlikely   or 
uncertain,  whether  resulting  from the  effects  of  competition  or 
regulatory  actions, it could result in the writeoff  of  portions  of 
these   regulatory   assets.  In  addition,  once  the   restructuring 
transition  is final, SDG&E may not continue to meet the criteria  for 
applying  SFAS  71  to  all of its operations in  the  new  regulatory 
framework. 
 
     As  the  restructuring of the industry evolves, SDG&E will become 
more   vulnerable  to  competition.  However,  based  on  recent  CPUC 
decisions,  recovery  of  stranded costs is  provided  for,  including 
recovery  of  investment in SONGS Units 2 and 3, and  SDG&E  does  not 
anticipate  incurring  a  material charge  against  earnings  for  its 
generating  facilities, the related regulatory assets and other  long- 
term  commitments. In addition, although California  utilities'  rates 
are  significantly higher than the national average, SDG&E has a lower 
concentration  of industrial customers and for 7 years  has  been  the 
lowest-cost provider among the investor-owned utilities in California, 
which make its customers a less likely target for outside competitors. 
      
RESOURCE PLANNING 
BIENNIAL  RESOURCE PLAN UPDATE PROCEEDING In December 1994,  the  CPUC 
issued  a  decision  ordering  SDG&E, Pacific  Gas  and  Electric  and 
Southern California Edison to proceed with the BRPU auction. SDG&E was 
ordered  to begin negotiating contracts (ranging from 17 to 30  years) 
to purchase 500 mw of power from qualifying facilities at an estimated 
cost  of  $4.8 billion beginning in 1997. In February 1995,  the  FERC 
issued  an order declaring the BRPU auction procedures unlawful  under 
federal law. In July 1995, the CPUC issued a ruling encouraging SDG&E, 
PG&E  and  Edison  to  reach  settlements with  the  auction  winners. 
Settlement   discussions  are  ongoing.  Additional   information   on 
potential  stranded costs and SDG&E's purchased-power  commitments  is 
described  in  Notes 10 and 11 of the notes to consolidated  financial 
statements. 
 
                                       23 
<PAGE> 
 
 
SOURCES OF  FUEL  AND  ENERGY SDG&E's  primary  sources  of  fuel  and 
purchased  power  include natural gas from Canada and  the  Southwest, 
surplus power from other utilities in the Southwest and the Northwest, 
and  uranium  from Canada. SDG&E expects its fuel and  purchased-power 
costs  to  remain  relatively low in the next few  years  due  to  the 
continued  availability  of surplus power in  the  Southwest  and  the 
continued availability of natural gas. Although short-term natural-gas 
supplies  are  volatile  due to weather and  other  conditions,  these 
sources  should  provide  SDG&E with an adequate  supply  of  low-cost 
natural gas. SDG&E is currently involved in litigation concerning  its 
long-term  contracts for natural gas with certain Canadian  suppliers. 
SDG&E  has settled with one supplier. SDG&E cannot predict the outcome 
of  the litigation with the other suppliers, but does not expect  that 
an  unfavorable outcome would have a material effect on its  financial 
condition or results of operations. 
      
ENVIRONMENTAL MATTERS 
SDG&E's operations are conducted in accordance with federal, state and 
local  environmental laws and regulations governing hazardous  wastes, 
air and water quality, land use and solid-waste disposal. SDG&E incurs 
significant costs to operate its facilities in compliance  with  these 
laws  and regulations, and to clean up the environment as a result  of 
prior  operations of SDG&E or of others. The costs of compliance  with 
environmental laws and regulations are normally recovered in  customer 
rates.  However, the CPUC's decision for restructuring the  California 
electric  utility  industry (see above) will change  the  way  utility 
rates  are set and costs are recovered. Depending on the final outcome 
of  industry restructuring and the impact of competition, the costs of 
compliance  with  future environmental regulations may  not  be  fully 
recoverable. 
 
     Capital  expenditures  to  comply  with  environmental  laws  and 
regulations were $4 million in 1995, $5 million in 1994 and $8 million 
in  1993,  and are expected to aggregate $38 million over the  next  5 
years.  These  expenditures primarily include the  estimated  cost  of 
retrofitting SDG&E's power plants to reduce air emissions. They do not 
include   potential   expenditures  to  comply  with   water-discharge 
requirements  for the Encina, South Bay and SONGS power plants,  which 
are discussed below. 
      
HAZARDOUS WASTES In  May  1994,  the CPUC  approved  a  mechanism  for 
utilities  to  recover  their  costs  to  clean  up  hazardous   waste 
contamination at sites at which the utility may have responsibility or 
liability  under  the law to conduct or participate  in  any  required 
cleanup.  Basically,  the  mechanism allows utilities  to  recover  90 
percent  of  their cleanup costs and any related costs  of  litigation 
with  responsible  parties, and 70 percent of their costs  related  to 
obtaining  recovery  of  such cleanup costs  from  insurance  carriers 
providing coverage for such costs. 
 
     SDG&E  disposes of its hazardous wastes at facilities  owned  and 
operated by other entities. Operations at these facilities may  result 
in  actual  or  threatened risks to the environment or public  health. 
Where  the owner or operator of such a facility fails to complete  any 
corrective action required by regulatory agencies to abate such risks, 
applicable  environmental laws may impose an obligation on  SDG&E  and 
others  who disposed of hazardous wastes at the facility to  undertake 
corrective actions. 
 
     This  type of obligation has been imposed upon SDG&E with respect 
to  the  Rosen's Electrical Equipment Supply Company site  located  in 
Pico Rivera, California. In December 1993, SDG&E received notification 
that  the  California  Department of Toxic Substances  Control  (DTSC) 
considered   SDG&E  and  eight  other  entities  to   be   potentially 
responsible  parties (PRPs) liable for any required corrective  action 
regarding polychlorinated biphenyls contamination at the Rosen's site. 
The  site was operated between approximately 1948 and 1984. As a  part 
of  its  operations,  Rosen's acquired and  scrapped  used  electrical 
transformers.  SDG&E sold some of its used electrical transformers  to 
Rosen's.  The  DTSC  considers SDG&E to be  responsible  for  about  7 
percent of the transformer-related contamination at the site. SDG&E is 
continuing  to  investigate this matter. In December  1995,  the  DTSC 
issued  an  Imminent  and Substantial Endangerment  Determination  and 
Remedial  Action  Order to SDG&E and 10 other PRPs requiring  them  to 
assess  and remove the risks of contamination from the site.  However, 
SDG&E  and the other PRPs have been negotiating with Rosen's  and  the 
DTSC  to  effect, before April 20, 1996, an alternative consent  order 
which  would  separate the development of the cleanup  plan  from  the 
actual  cleanup. This would provide the PRPs with greater  flexibility 
to  manage  and  implement the required actions.  Based  on  available 
information,  SDG&E is unable to estimate the range of  liability,  if 
any, it may have for the necessary corrective action at this site. 
 
     During  the  early 1900s SDG&E and its predecessors  manufactured 
gas  from  oil  at  its  Station A facility and  at  two  other  small 
facilities  in  Escondido and Oceanside. In 1995, SDG&E  commenced  an 
environmental  assessment of Station A. Some  significant  amounts  of 
residual  by-products  from the gas-manufacturing  process  have  been 
discovered on portions of the facility during the assessment. However, 
the  magnitude  of  such contamination has yet to be  determined.  The 
assessment will be completed in 1996, at which time the extent of  any 
required  remediation  activities  and  a  range  of  costs  will   be 
determined.  Sufficient  information is  not  currently  available  to 
estimate cleanup costs. The Escondido facility has been remediated  at 
a  cost  of approximately $3 million during the period of 1990 through 
1993.  A site closure letter for this  
 
                                     24 
<PAGE> 
 
 
facility has been obtained  from 
the  San  Diego  County Department of Environmental  Health  Services. 
However, contaminants similar to the ones found on the Escondido  site 
have  been observed on adjacent parcels of property. SDG&E will assess 
these contaminants in 1996. 
 
     SDG&E  has identified various other sites for which it  may  bear 
some responsibility or liability for any corrective action that may be 
required  under federal, state or local environmental laws. SDG&E  may 
be held partially or indirectly responsible for remediation of some of 
these  sites. However, SDG&E is unable to estimate the extent  of  its 
responsibility, if any, for remediation. Furthermore, the  timing  for 
assessing  the costs of remediation at these sites and the number  and 
identities  of other parties that may also be responsible  (and  their 
respective responsibilities and abilities to share in the cost of  the 
remediation) are also unknown. 
      
ELECTRIC  AND  MAGNETIC  FIELDS (EMF) SDG&E and  other  utilities  are 
involved  in  litigation concerning electric and magnetic  fields.  An 
unfavorable outcome of this litigation could have a significant impact 
on  the future operations of the electric utility industry, especially 
if relocation of existing power lines is ultimately required. To date, 
science  has  demonstrated  no cause-and-effect  relationship  between 
cancer  and  exposure  to  the  type of  EMFs  emitted  by  utilities' 
transmission  lines and generating facilities. To  respond  to  public 
concerns,  the CPUC has directed the California utilities to  adopt  a 
low-cost EMF-reduction policy that requires reasonable design  changes 
to  achieve  noticeable reduction of EMF levels that  are  anticipated 
from  new  projects.  However, consistent with  the  major  scientific 
reviews of available research literature, the CPUC has indicated  that 
no health risk has been identified with exposure to EMFs. 
      
AIR QUALITY In 1996, SDG&E must begin to comply with nitrogen  dioxide 
emission  limits  that  the San Diego Air Pollution  Control  District 
imposed on electric generating boilers through its Rule 69. Under  the 
initial rule, SDG&E would have been required to retrofit each  of  its 
nine  boilers  with  expensive pollution-control equipment  to  reduce 
nitrogen  dioxide emissions and to maintain the total  nitrogen  oxide 
emissions  from  the  entire system below a prescribed  emissions  cap 
(having  graduated emission reductions to be achieved  through  2001). 
The capital costs of compliance with the initial rule were expected to 
be approximately $110 million. However, in December 1995, the district 
amended   the   rule   to  remove  the  individual   boiler   retrofit 
requirements, but retained the system-wide emissions cap with  further 
system-wide emission reductions to be achieved by 2005. The  estimated 
capital  costs  for compliance with the amended rule are approximately 
$60  million.  The  California  Air Resources  Board  (ARB)  expressed 
concern  that  the amendments to Rule 69 did not meet the requirements 
of  the California Clean Air Act. However, the ARB withheld any formal 
objections pending its review of SDG&E's Rule 69 compliance plan to be 
submitted  in 1996. The ARB may seek to overturn some or  all  of  the 
Rule  69  amendments or to otherwise impose more restrictive emissions 
limitations,  which  would cause SDG&E's Rule 69 compliance  costs  to 
increase. 
 
     In  1990  the South Coast Air Quality Management District  (AQMD) 
passed  a rule which will require SDG&E's older natural gas compressor 
engines  at its Moreno facility to either meet new stringent  nitrogen 
oxide  emission levels or be converted to electric drive.  In  October 
1993,  the  AQMD adopted a new program called RECLAIM, which  replaced 
existing rules and requires SDG&E's natural-gas compressor engines  at 
its Moreno facility to reduce their nitrogen oxide emission levels  by 
about  10  percent  a  year through 2003. This  will  be  accomplished 
through   the  installation  of  new  emission-monitoring   equipment, 
operational  changes  to  take advantage of low-emission  engines  and 
engine retrofits. SDG&E has concluded negotiations with the AQMD  that 
resulted  in  the  reclassification of  three  of  these  engines  and 
eliminated  the  need for certain expensive monitoring  equipment  for 
those engines. The cost of complying with RECLAIM may be as much as $3 
million. 
      
WATER QUALITY In 1989, SDG&E submitted applications to the  San  Diego 
Regional  Water  Quality Control Board to renew the discharge  permits 
for  its  South Bay and Encina power plants. Supplemental applications 
were submitted in 1993. These discharge permits are required to enable 
SDG&E  to  discharge its cooling water and certain other  treated  and 
nontreated  nonhazardous wastewaters into the Pacific Ocean  and  into 
San  Diego  Bay.  The  permits are, therefore,  prerequisites  to  the 
continued  operation of its power plants as they are  now  configured. 
Increasingly   stringent   cooling-water  and   wastewater   discharge 
limitations may be imposed in the future, and SDG&E may be required to 
build  additional  facilities to comply with these requirements.  Such 
facilities  could  include  wastewater treatment  facilities,  cooling 
towers or offshore- discharge pipelines. 
 
     SDG&E anticipates that the regional board will issue a new permit 
for  SDG&E's  South  Bay  power plant in 1996.  Pending  the  regional 
board's action, the previous permit remains effective. 
 
     The  regional board issued SDG&E a new discharge permit  for  its 
Encina power plant in November 1994. However, SDG&E's application  for 
an  exception  to  certain  thermal-discharge  requirements  is  still 
pending  until  the completion of thermal studies to be  conducted  in 
1996.  If  SDG&E's  exception application is denied,  SDG&E  could  be 
required to construct offshore-discharge facilities at a cost of up to 
$75 million. 
 
                                     25 
<PAGE> 
 
 
     The  California  Coastal  Commission  required  a  study  of  the 
offshore  impact  on  the  marine environment from  the  cooling-water 
discharge  by  SONGS  Units  2 and 3. The study  concluded  that  some 
environmental  damage  is  caused by the discharge.  To  mitigate  the 
environmental damage, the California Coastal Commission ordered Edison 
and  SDG&E to improve the plant's fish-protection system, build a 300- 
acre  artificial reef to help restore kelp beds and restore 150  acres 
of  coastal wetlands. SDG&E may be required to incur capital costs  of 
up to $30 million to comply with this order. The new pricing structure 
contained  in  the CPUC's decision regarding accelerated  recovery  of 
SONGS  Units  2  and  3  (see "San Onofre Nuclear Generating  Station" 
above)  accommodates these added mitigation costs. In addition,  SDG&E 
and  Edison have asked the California Coastal Commission to reconsider 
and  modify  this mitigation plan to reduce the size of the artificial 
reef and shorten the monitoring period. Negotiations are ongoing. 
      
WOOD-POLE PRESERVATIVES The Pacific Justice Center (Pacific),  a  for- 
profit  law  firm,  and  the Mateel Environmental  Justice  Foundation 
(Mateel),  a  nonprofit  corporation,  claim  that  SDG&E  and   other 
utilities  and parties have violated California's Safe Drinking  Water 
and  Toxic Enforcement Act (Proposition 65) by failing to warn persons 
who  may come into contact with the preservatives used in treated wood 
utility  poles and by allowing such preservatives to be released  into 
sources  of drinking water. Some preservatives used in woodpoles  are 
included  on California's list of chemicals known to cause  cancer  or 
reproductive harm. Proposition 65 requires that prior warning be given 
to  individuals  who  may  be  exposed to such  chemicals  unless  the 
exposure  will  not pose a significant risk and that these  substances 
not  be  released  into  sources  of  drinking  water  in  significant 
quantities  or  otherwise in violation of the law. Violations  of  the 
Proposition 65 warning requirement can result in penalties  of  up  to 
$2,500  per  violation. SDG&E believes, on the basis  of  studies  and 
other  information,  that  exposure to  wood  poles  containing  these 
preservatives does not give rise to a significant risk and, therefore, 
no  warning  is  required  and that significant  quantities  of  these 
preservatives are not released to any source of drinking water.  SDG&E 
and  the  other utilities and parties have responded to the claims  by 
denying  their validity.  In  June  1995,  Mateel,  represented  by 
Pacific,  filed  a complaint in San Francisco Superior  Court  against 
Pacific  Bell,  PG&E  and  two  wood-pole manufacturers  alleging  the 
violations noted above. Although SDG&E was not named in this  lawsuit, 
it  is  anticipated  that Mateel may file a separate  lawsuit  against 
SDG&E  and  other utilities on the same grounds. SDG&E is  cooperating 
with  PG&E,  Pacific  Bell  and others to  achieve  an  effective  and 
favorable resolution of this matter. 
      
NEW ACCOUNTING STANDARDS 
In  March  1995,  the  Financial  Accounting  Standards  Board  issued 
Statement  of Financial Accounting Standards No. 121, "Accounting  for 
the  Impairment of Long-Lived Assets and for Long-Lived Assets  to  Be 
Disposed  Of."  This statement, which is effective for 1996  financial 
statements,  requires that long-lived assets and certain  identifiable 
intangibles be reviewed for impairment whenever events or  changes  in 
circumstances indicate that the carrying amount of an asset may not be 
recoverable.  In performing the review of recoverability,  the  entity 
should estimate the future cash flows expected to result from the  use 
of  the asset and its eventual disposition. As discussed above and  in 
Note  11  of the notes to consolidated financial statements, the  CPUC 
has  issued  a  decision  for restructuring  the  California  electric 
utility  industry to stimulate competition and has indicated that  the 
California utilities will, within certain limits, be allowed  recovery 
of  regulatory assets, the excess carrying amount of existing  utility 
plant  and obligations under long-term purchased-power contracts  over 
fair-market  value over a transition period that ends in  2005.  As  a 
result  of this and preliminary indications from the FERC on  recovery 
of  transition costs arising from industry restructuring, SFAS 121  is 
not  currently expected to have an adverse impact on SDG&E's financial 
condition  or results of operations. However, this may change  in  the 
future  as  restructuring, deregulation and competitive  factors  take 
effect in the electric utility industry. 
 
     In  October 1995, the Financial Accounting Standards Board issued 
Statement  of Financial Accounting Standards No. 123, "Accounting  for 
Stock-Based  Compensation." SFAS 123 is effective for  1996  financial 
statements and establishes a fair-value-based method of accounting for 
stock-based   compensation  plans.  SFAS  123  provides  a   voluntary 
alternative  to the provisions of Accounting Principles Board  Opinion 
25,  "Accounting for Stock Issued to Employees." However, it  requires 
pro  forma  disclosure  of the stock-based compensation  arrangement's 
impact on net income and earnings per share as though SFAS 123's fair- 
value  provisions had been adopted. SDG&E currently issues restricted- 
stock  awards under its Long-Term Incentive Plan and expects to  adopt 
the disclosure-only requirement of SFAS 123. Additional information on 
SDG&E's  stock-based compensation plans is provided in Note 7  of  the 
notes to consolidated financial statements.