|                                                                                        |                                                                                                  |                        |                                   
|--------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ---------------------- | ----------------------------------
|                                                                                       
|                                                                                       
|UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549                  
|FORM 10-Q                                                                              
|QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THESECURITIES EXCHANGE ACT OF 1934
|                                                                                        | For the quarterly period ended                                                                   | September
30, 2008    
|                                                                                        |                                                                                                  |                       
|Commission
File Number                                                                  | Name
of Registrant as Specified in its Charter, Address and Telephone
Number                     | State of Incorporation | I.R.S.
Employer Identification No.
|1-40                                                                                    | PACIFIC
ENTERPRISES101 Ash StreetSan Diego, California 92101(619)
696-2020                       | California             | 94-0743670                        
|                                                                                        |                                                                                                  |                        |                                   
|1-1402                                                                                  | SOUTHERN
CALIFORNIA GAS COMPANY
555
West Fifth StreetLos Angeles, California 90013(213)
244-1200 | California             | 95-1240705                        



|                                                                                                                                                                                                                                                                                                                                                        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                        
|No Change                                                                                                                                                                                                                                                                                                                                               
|(Former name, former address and former fiscal year, if
changed since last report)                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                        
|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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.



|                                                                                                                                                                                                                                                |                                     |                   |     |                       |       |  |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ----------------- | --- | --------------------- | ----- |  |  |  |  |  |  |  |  | 
|                                                                                                                                                                                                                                                | Yes                                 | X                 |     | No                    |      
|Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act. (Check one):
|                                                                                                                                                                                                                                               
|Large
accelerated filer                                                                                                                                                                                                                         | [ ]                                 | Accelerated filer | [ ] | Non-accelerated filer | [ X ]
|                                                                                                                                                                                                                                               
|Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).                                                                                                                               
|                                                                                                                                                                                                                                                | Yes                                 |                   |     | No                    | X    
|Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.                                                                                                                  
|                                                                                                                                                                                                                                                |                                     |                   |     |                       |      
|Common
stock outstanding:                                                                                                                                                                                                                       |                                    
|Pacific
Enterprises                                                                                                                                                                                                                             | Wholly
owned by Sempra Energy      
|Southern
California Gas Company                                                                                                                                                                                                                 | Wholly
owned by Pacific Enterprises
|                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                               



1















INFORMATION REGARDING FORWARD-LOOKING STATEMENTS



This
Quarterly Report contains statements that are not historical fact and constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The words "believes," "expects," "anticipates,"
"plans," "estimates," "projects," "contemplates," "intends," "depends,"
"should," "could," "would," "may," "potential," "target," "goals," or similar
expressions, or discussions of strategy or of plans are intended to identify
forward-looking statements. Forward-looking statements are necessarily based
upon assumptions with respect to the future, involve risks and uncertainties and
are not guarantees of performance. Factors, among others, that could cause the
company's actual results and future actions to differ materially from those
described in forward-looking statements include:



·

local,
regional and national economic, competitive, political, legislative and
regulatory conditions and developments;

·

actions
by the California Public Utilities Commission, the California State Legislature,
the Federal Energy Regulatory Commission and other regulatory bodies in the
United States;

·

capital
markets conditions, inflation rates, interest rates and exchange rates;

·

energy
and trading markets, including the timing and extent of changes in commodity
prices;

·

the
availability of natural gas and liquefied natural gas;

·

weather
conditions and conservation efforts;

·

war
and terrorist attacks;

·

business,
regulatory, environmental and legal decisions and requirements;

·

the
status of deregulation of retail natural gas and electricity delivery;

·

the
timing and success of business development efforts;

·

the
resolution of litigation; and

·

other
uncertainties, all of which are difficult to predict and many of which are
beyond the control of the companies.



Readers
are cautioned not to rely unduly on any forward-looking statements and are urged
to review and consider carefully the risks, uncertainties and other factors
which affect the companies' business described in this report and other reports
filed by the companies from time to time with the Securities and Exchange
Commission. These forward-looking statements represent the company's estimates
and assumptions only as of the date of this report.





2













|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|--------------------------------------------------------- | -------------------------------- | ------------------------------- | ---- | ---- | --- | - | - | ----- | - | - | ----- | -
|PART I. FINANCIAL INFORMATION                            
|ITEM 1. CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS      
|                                                         
|PACIFIC ENTERPRISES AND SUBSIDIARIES                     
|STATEMENTS OF CONSOLIDATED INCOME                        
|                                                         
|                                                          | Three months ended
September 30, | Nine months ended
September 30,
|(Dollars in millions)                                     | 2008                             | 2007                            | 2008 | 2007
|                                                          | (unaudited)                     
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Operating revenues                                        | $                                | 1,077                           |      | $    | 819 |   | $ | 3,776 |   | $ | 3,168 |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Operating expenses                                        |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Cost of natural gas                                       |                                  | 609                             |      |      | 350 |   |   | 2,369 |   |   | 1,791 |  
|Other operating expenses                                  |                                  | 241                             |      |      | 254 |   |   | 756   |   |   | 746   |  
|Depreciation                                              |                                  | 67                              |      |      | 71  |   |   | 209   |   |   | 210   |  
|Franchise fees and other
taxes                            |                                  | 29                              |      |      | 26  |   |   | 100   |   |   | 91    |  
|Total operating expenses                                  |                                  | 946                             |      |      | 701 |   |   | 3,434 |   |   | 2,838 |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Operating income                                          |                                  | 131                             |      |      | 118 |   |   | 342   |   |   | 330   |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Other income (expense), net                               |                                  | 1                               |      |      | (1  | ) |   | 1     |   |   | (4    | )
|Interest income                                           |                                  | 5                               |      |      | 15  |   |   | 18    |   |   | 40    |  
|Interest expense                                          |                                  | (15                             | )    |      | (20 | ) |   | (47   | ) |   | (58   | )
|Income before income taxes                                |                                  | 122                             |      |      | 112 |   |   | 314   |   |   | 308   |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Income tax expense                                        |                                  | 42                              |      |      | 46  |   |   | 119   |   |   | 128   |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Net income                                                |                                  | 80                              |      |      | 66  |   |   | 195   |   |   | 180   |  
|Preferred dividend requirements                           |                                  | 1                               |      |      | 1   |   |   | 3     |   |   | 3     |  
|Earnings applicable to common shares                      | $                                | 79                              |      | $    | 65  |   | $ | 192   |   | $ | 177   |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|See Notes to Condensed Consolidated Financial
Statements.





3











|                                                          |                                                      |                                    |       |              |       |   |       |        |       | 
|--------------------------------------------------------- | ---------------------------------------------------- | ---------------------------------- | ----- | ------------ | ----- | - | ----- | ------ | ----- | 
|PACIFIC ENTERPRISES AND SUBSIDIARIES                      |                                                      |                                    |       |             
|CONSOLIDATED BALANCE SHEETS                               |                                                      |                                    |       |             
|                                                          |                                                      |                                    |       |             
|                                                          |                                                      | September 30,                      |       | December 31,
|(Dollars in millions)                                     |                                                      | 2008                               |       | 2007        
|                                                          |                                                      | (unaudited)                        |      
|ASSETS                                                    |                                                      |                                   
|Current assets:                                           |                                                      |                                    |       |              |       |   |       |       
|                                                          | Cash and cash equivalents                            |                                    | $     | 38           |       |   | $     | 59     |      
|                                                          | Accounts receivable - trade                          |                                    |       | 365          |       |   |       | 671    |      
|                                                          | Accounts receivable - other                          |                                    |       | 53           |       |   |       | 22     |      
|                                                          | Due from unconsolidated affiliates                   |                                    |       | 7            |       |   |       | 5      |      
|                                                          | Income taxes receivable                              |                                    |       | 106          |       |   |       | 37     |      
|                                                          | Deferred income taxes                                |                                    |       | 27           |       |   |       | 33     |      
|                                                          | Inventories                                          |                                    |       | 327          |       |   |       | 98     |      
|                                                          | Regulatory assets                                    |                                    |       | 23           |       |   |       | 40     |      
|                                                          | Other                                                |                                    |       | 61           |       |   |       | 23     |      
|                                                          |                                                      | Total current assets               |       |              | 1,007 |   |       |        | 988   | 
|                                                          |                                                      |                                    |       |              |       |   |       |       
|Other assets:                                             |                                                      |                                    |       |              |       |   |       |       
|                                                          | Due from unconsolidated affiliates                   |                                    |       | 459          |       |   |       | 457    |      
|                                                          | Regulatory assets                                    |                                    |       | 100          |       |   |       | 100    |      
|                                                          | Pension plan assets in excess of benefit
obligations |                                    |       | 37           |       |   |       | 62     |      
|                                                          | Sundry                                               |                                    |       | 40           |       |   |       | 39     |      
|                                                          |                                                      | Total other assets                 |       |              | 636   |   |       |        | 658   | 
|                                                          |                                                      |                                    |       |              |       |   |       |       
|Property, plant and equipment:                            |                                                      |                                    |       |              |       |   |       |       
|                                                          | Property, plant and equipment                        |                                    |       | 8,716        |       |   |       | 8,448  |      
|                                                          | Less accumulated depreciation and
amortization       |                                    |       | (3,435       | )     |   |       | (3,292 | )    
|                                                          |                                                      | Property, plant and equipment, net |       |              | 5,281 |   |       |        | 5,156 | 
|Total assets                                              |                                                      | $                                  | 6,924 |              |       | $ | 6,802 |       
|                                                          |                                                      |                                    |       |              |       |   |       |       
|See Notes to Condensed Consolidated Financial
Statements.







4











|                                                          |                                                                                           |                                              |       |              |       |   |       |       |       | 
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------- | ----- | ------------ | ----- | - | ----- | ----- | ----- | 
|PACIFIC ENTERPRISES AND SUBSIDIARIES                      |                                                                                           |                                              |       |             
|CONSOLIDATED BALANCE SHEETS                               |                                                                                           |                                              |       |             
|                                                          |                                                                                           |                                              |       |             
|                                                          |                                                                                           | September 30,                                |       | December 31,
|(Dollars in millions)                                     |                                                                                           | 2008                                         |       | 2007        
|                                                          |                                                                                           | (unaudited)                                  |      
|LIABILITIES AND SHAREHOLDERS' EQUITY                      |                                                                                           |                                             
|Current liabilities:                                      |                                                                                           |                                              |       |              |       |   |       |      
|                                                          | Short-term debt                                                                           |                                              | $     | 96           |       |   | $     | --    |      
|                                                          | Accounts payable - trade                                                                  |                                              |       | 244          |       |   |       | 300   |      
|                                                          | Accounts payable - other                                                                  |                                              |       | 118          |       |   |       | 130   |      
|                                                          | Due to unconsolidated affiliates                                                          |                                              |       | 97           |       |   |       | 125   |      
|                                                          | Regulatory balancing accounts, net                                                        |                                              |       | 122          |       |   |       | 183   |      
|                                                          | Customer deposits                                                                         |                                              |       | 104          |       |   |       | 90    |      
|                                                          | Accrued compensation and benefits                                                         |                                              |       | 81           |       |   |       | 87    |      
|                                                          | Other                                                                                     |                                              |       | 243          |       |   |       | 223   |      
|                                                          |                                                                                           | Total current liabilities                    |       |              | 1,105 |   |       |       | 1,138 | 
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|Long-term debt                                            |                                                                                           |                                              | 1,113 |              |       |   | 1,113 |      
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|Deferred credits and other liabilities:                   |                                                                                           |                                              |       |              |       |   |       |      
|                                                          | Customer advances for construction                                                        |                                              |       | 126          |       |   |       | 123   |      
|                                                          | Pension and
other postretirement benefit obligations, net of plan assets                  |                                              |       | 61           |       |   |       | 58    |      
|                                                          | Deferred income taxes                                                                     |                                              |       | 172          |       |   |       | 102   |      
|                                                          | Deferred investment tax credits                                                           |                                              |       | 31           |       |   |       | 33    |      
|                                                          | Regulatory liabilities arising from removal
obligations                                   |                                              |       | 1,178        |       |   |       | 1,187 |      
|                                                          | Asset retirement obligations                                                              |                                              |       | 587          |       |   |       | 562   |      
|                                                          | Deferred taxes refundable in rates                                                        |                                              |       | 227          |       |   |       | 231   |      
|                                                          | Regulatory
liabilities arising from pension and other postretirement benefit
obligations  |                                              |       | 7            |       |   |       | 34    |      
|                                                          | Preferred stock of subsidiary                                                             |                                              |       | 20           |       |   |       | 20    |      
|                                                          | Deferred credits and other                                                                |                                              |       | 245          |       |   |       | 285   |      
|                                                          |                                                                                           | Total deferred credits and other liabilities |       |              | 2,654 |   |       |       | 2,635 | 
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|Commitments and contingencies (Note 6)                    |                                                                                           |                                              |       |              |       |   |       |      
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|Shareholders equity:                                     |                                                                                           |                                              |       |              |       |   |       |      
|                                                          | Preferred stock                                                                           |                                              |       | 80           |       |   |       | 80    |      
|                                                          | Common
stock (600 million shares authorized; 84 million shares outstanding; no
par value) |                                              |       | 1,462        |       |   |       | 1,462 |      
|                                                          | Retained earnings                                                                         |                                              |       | 520          |       |   |       | 378   |      
|                                                          | Accumulated other comprehensive income
(loss)                                             |                                              |       | (10          | )     |   |       | (4    | )    
|                                                          |                                                                                           | Total shareholders' equity                   |       |              | 2,052 |   |       |       | 1,916 | 
|Total liabilities and shareholders' equity                |                                                                                           | $                                            | 6,924 |              |       | $ | 6,802 |      
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|See Notes to Condensed Consolidated Financial
Statements.





5











|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |     |      |  
|--------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------ | ----------- | ---- | --- | ---- | --- | ---- | -
|PACIFIC ENTERPRISES AND SUBSIDIARIES                     
|CONDENSED STATEMENTS OF CONSOLIDATED CASH
FLOWS          
|                                                          |                                                                                  
|                                                          | Nine months ended
September 30,                                                  
|(Dollars in millions)                                     | 2008                                                                              |                                                                                | 2007                                            
|                                                          |                                                                                   |                                                                                |                                                  | (unaudited)
|CASH FLOWS FROM OPERATING ACTIVITIES                      |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          | Net income                                                                        | $                                                                              | 195                                              |             |      | $   | 180  |    
|                                                          | Adjustments
to reconcile net income to net cash provided by operating
activities: |                                                                                |                                                  |             |      |     |      |    
|                                                          |                                                                                   |                                                                                | Depreciation                                     |             | 209  |     |      |     | 210  |  
|                                                          |                                                                                   |                                                                                | Deferred income taxes and investment tax
credits |             | 74   |     |      |     | 22   |  
|                                                          |                                                                                   |                                                                                | Other                                            |             | (2   | )   |      |     | (1   | )
|                                                          | Net change in other working capital
components                                    |                                                                                | (134                                             | )           |      |     | 30   |    
|                                                          | Changes in other assets                                                           |                                                                                | 25                                               |             |      |     | 12   |    
|                                                          | Changes in other liabilities                                                      |                                                                                | (63                                              | )           |      |     | (6   | )  
|                                                          |                                                                                   |                                                                                | Net cash provided by operating activities        |             | 304  |     |      |     | 447  |  
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |     |      |  
|CASH FLOWS FROM INVESTING ACTIVITIES                      |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          | Expenditures for property, plant and
equipment                                    |                                                                                | (350                                             | )           |      |     | (300 | )  
|                                                          | Decrease (increase) in loans to affiliates,
net                                   |                                                                                | 132                                              |             |      |     | (116 | )  
|                                                          | Other                                                                             |                                                                                | --                                               |             |      |     | 1    |    
|                                                          |                                                                                   |                                                                                | Net cash used in investing activities            |             | (218 | )   |      |     | (415 | )
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |     |      |  
|CASH FLOWS FROM FINANCING ACTIVITIES                      |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          | Common dividends paid                                                             |                                                                                | (200                                             | )           |      |     | (100 | )  
|                                                          | Preferred dividends paid                                                          |                                                                                | (3                                               | )           |      |     | (3   | )  
|                                                          | Increase in short-term debt, net                                                  |                                                                                | 96                                               |             |      |     | --   |    
|                                                          |                                                                                   |                                                                                | Net cash used in financing activities            |             | (107 | )   |      |     | (103 | )
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |     |      |  
|Decrease in cash and cash equivalents                     |                                                                                   | (21                                                                            | )                                                |             |      | (71 | )   
|Cash and cash equivalents, January 1                      |                                                                                   | 59                                                                             |                                                  |             |      | 211 |     
|Cash and cash equivalents, September 30                   | $                                                                                 | 38                                                                             |                                                  |             | $    | 140 |     
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |     |      |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION          |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          | Interest payments, net of amounts
capitalized                                     | $                                                                              | 37                                               |             |      | $   | 48   |    
|                                                          | Income tax payments, net of refunds                                               | $                                                                              | 113                                              |             |      | $   | 118  |    
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |     |      |  
|SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING ACTIVITY     |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          |                                                                                   | Decrease in
accounts payable from investments in property, plant and equipment | $                                                | (30         | )    |     | $    | (11 | )   
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |     |      |  
|See Notes to Condensed Consolidated Financial
Statements.



6











|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|--------------------------------------------------------- | -------------------------------- | ------------------------------- | ---- | ---- | --- | - | - | ----- | - | - | ----- | -
|SOUTHERN CALIFORNIA GAS COMPANY AND
SUBSIDIARIES         
|STATEMENTS OF CONSOLIDATED INCOME                        
|                                                         
|                                                          | Three months ended
September 30, | Nine months ended
September 30,
|(Dollars in millions)                                     | 2008                             | 2007                            | 2008 | 2007
|                                                          | (unaudited)                     
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Operating revenues                                        | $                                | 1,077                           |      | $    | 819 |   | $ | 3,776 |   | $ | 3,168 |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Operating expenses                                        |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Cost of natural gas                                       |                                  | 609                             |      |      | 350 |   |   | 2,369 |   |   | 1,791 |  
|Other operating expenses                                  |                                  | 241                             |      |      | 255 |   |   | 756   |   |   | 746   |  
|Depreciation                                              |                                  | 67                              |      |      | 71  |   |   | 209   |   |   | 210   |  
|Franchise fees and other
taxes                            |                                  | 29                              |      |      | 26  |   |   | 100   |   |   | 91    |  
|Total operating expenses                                  |                                  | 946                             |      |      | 702 |   |   | 3,434 |   |   | 2,838 |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Operating income                                          |                                  | 131                             |      |      | 117 |   |   | 342   |   |   | 330   |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Other income (expense), net                               |                                  | (1                              | )    |      | --  |   |   | 1     |   |   | (4    | )
|Interest income                                           |                                  | 2                               |      |      | 8   |   |   | 9     |   |   | 22    |  
|Interest expense                                          |                                  | (14                             | )    |      | (18 | ) |   | (44   | ) |   | (53   | )
|Income before income taxes                                |                                  | 118                             |      |      | 107 |   |   | 308   |   |   | 295   |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Income tax expense                                        |                                  | 41                              |      |      | 44  |   |   | 117   |   |   | 122   |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|Net income                                                |                                  | 77                              |      |      | 63  |   |   | 191   |   |   | 173   |  
|Preferred dividend requirements                           |                                  | --                              |      |      | --  |   |   | 1     |   |   | 1     |  
|Earnings applicable to common shares                      | $                                | 77                              |      | $    | 63  |   | $ | 190   |   | $ | 172   |  
|                                                          |                                  |                                 |      |      |     |   |   |       |   |   |       |  
|See Notes to Condensed Consolidated Financial
Statements.





7













|                                                          |                                                      |                                    |       |              |       |   |       |        |       | 
|--------------------------------------------------------- | ---------------------------------------------------- | ---------------------------------- | ----- | ------------ | ----- | - | ----- | ------ | ----- | 
|SOUTHERN CALIFORNIA GAS COMPANY AND
SUBSIDIARIES         
|CONSOLIDATED BALANCE SHEETS                              
|                                                          |                                                      |                                    |       |             
|                                                          |                                                      | September 30,                      |       | December 31,
|(Dollars in millions)                                     |                                                      | 2008                               |       | 2007        
|                                                          |                                                      | (unaudited)                        |      
|ASSETS                                                    |                                                      |                                   
|Current assets:                                           |                                                      |                                    |       |              |       |   |       |       
|                                                          | Cash and cash equivalents                            |                                    | $     | 38           |       |   | $     | 59     |      
|                                                          | Accounts receivable - trade                          |                                    |       | 365          |       |   |       | 671    |      
|                                                          | Accounts receivable - other                          |                                    |       | 50           |       |   |       | 22     |      
|                                                          | Due from unconsolidated affiliates                   |                                    |       | 2            |       |   |       | 129    |      
|                                                          | Income taxes receivable                              |                                    |       | 41           |       |   |       | --     |      
|                                                          | Deferred income taxes                                |                                    |       | 26           |       |   |       | 33     |      
|                                                          | Inventories                                          |                                    |       | 327          |       |   |       | 98     |      
|                                                          | Regulatory assets                                    |                                    |       | 23           |       |   |       | 40     |      
|                                                          | Other                                                |                                    |       | 63           |       |   |       | 22     |      
|                                                          |                                                      | Total current assets               |       |              | 935   |   |       |        | 1,074 | 
|                                                          |                                                      |                                    |       |              |       |   |       |       
|Other assets:                                             |                                                      |                                    |       |              |       |   |       |       
|                                                          | Regulatory assets                                    |                                    |       | 100          |       |   |       | 100    |      
|                                                          | Pension plan assets in excess of benefit
obligations |                                    |       | 37           |       |   |       | 62     |      
|                                                          | Sundry                                               |                                    |       | 15           |       |   |       | 16     |      
|                                                          |                                                      | Total other assets                 |       |              | 152   |   |       |        | 178   | 
|                                                          |                                                      |                                    |       |              |       |   |       |       
|Property, plant and equipment:                            |                                                      |                                    |       |              |       |   |       |       
|                                                          | Property, plant and equipment                        |                                    |       | 8,714        |       |   |       | 8,446  |      
|                                                          | Less accumulated depreciation and
amortization       |                                    |       | (3,435       | )     |   |       | (3,292 | )    
|                                                          |                                                      | Property, plant and equipment, net |       |              | 5,279 |   |       |        | 5,154 | 
|Total assets                                              |                                                      | $                                  | 6,366 |              |       | $ | 6,406 |       
|                                                          |                                                      |                                    |       |              |       |   |       |       
|See Notes to Condensed Consolidated Financial
Statements.







8











|                                                          |                                                                                           |                                              |       |              |       |   |       |       |       | 
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------- | ----- | ------------ | ----- | - | ----- | ----- | ----- | 
|SOUTHERN CALIFORNIA GAS COMPANY AND
SUBSIDIARIES         
|CONSOLIDATED BALANCE SHEETS                              
|                                                          |                                                                                           |                                              |       |             
|                                                          |                                                                                           | September 30,                                |       | December 31,
|(Dollars in millions)                                     |                                                                                           | 2008                                         |       | 2007        
|                                                          |                                                                                           | (unaudited)                                  |      
|LIABILITIES AND SHAREHOLDERS' EQUITY                      |                                                                                           |                                             
|Current liabilities:                                      |                                                                                           |                                              |       |              |       |   |       |      
|                                                          | Short-term debt                                                                           |                                              | $     | 96           |       |   | $     | --    |      
|                                                          | Accounts payable - trade                                                                  |                                              |       | 244          |       |   |       | 300   |      
|                                                          | Accounts payable - other                                                                  |                                              |       | 118          |       |   |       | 130   |      
|                                                          | Due to unconsolidated affiliates                                                          |                                              |       | 10           |       |   |       | 171   |      
|                                                          | Income taxes payable                                                                      |                                              |       | --           |       |   |       | 26    |      
|                                                          | Regulatory balancing accounts, net                                                        |                                              |       | 122          |       |   |       | 183   |      
|                                                          | Customer deposits                                                                         |                                              |       | 104          |       |   |       | 90    |      
|                                                          | Accrued compensation and benefits                                                         |                                              |       | 81           |       |   |       | 87    |      
|                                                          | Other                                                                                     |                                              |       | 243          |       |   |       | 223   |      
|                                                          |                                                                                           | Total current liabilities                    |       |              | 1,018 |   |       |       | 1,210 | 
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|Long-term debt                                            |                                                                                           |                                              | 1,113 |              |       |   | 1,113 |      
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|Deferred credits and other liabilities:                   |                                                                                           |                                              |       |              |       |   |       |      
|                                                          | Customer advances for construction                                                        |                                              |       | 126          |       |   |       | 123   |      
|                                                          | Pension and
other postretirement benefit obligations, net of plan assets                  |                                              |       | 61           |       |   |       | 58    |      
|                                                          | Deferred income taxes                                                                     |                                              |       | 183          |       |   |       | 117   |      
|                                                          | Deferred investment tax credits                                                           |                                              |       | 31           |       |   |       | 33    |      
|                                                          | Regulatory liabilities arising from removal
obligations                                   |                                              |       | 1,178        |       |   |       | 1,187 |      
|                                                          | Asset retirement obligations                                                              |                                              |       | 587          |       |   |       | 562   |      
|                                                          | Deferred taxes refundable in rates                                                        |                                              |       | 227          |       |   |       | 231   |      
|                                                          | Regulatory
liabilities arising from pension and other postretirement benefit
obligations  |                                              |       | 7            |       |   |       | 34    |      
|                                                          | Deferred credits and other                                                                |                                              |       | 231          |       |   |       | 268   |      
|                                                          |                                                                                           | Total deferred credits and other liabilities |       |              | 2,631 |   |       |       | 2,613 | 
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|Commitments and contingencies (Note 6)                    |                                                                                           |                                              |       |              |       |   |       |      
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|Shareholders equity:                                     |                                                                                           |                                              |       |              |       |   |       |      
|                                                          | Preferred stock                                                                           |                                              |       | 22           |       |   |       | 22    |      
|                                                          | Common
stock (100 million shares authorized; 91 million shares outstanding; no
par value) |                                              |       | 866          |       |   |       | 866   |      
|                                                          | Retained earnings                                                                         |                                              |       | 726          |       |   |       | 586   |      
|                                                          | Accumulated other comprehensive income
(loss)                                             |                                              |       | (10          | )     |   |       | (4    | )    
|                                                          |                                                                                           | Total shareholders' equity                   |       |              | 1,604 |   |       |       | 1,470 | 
|Total liabilities and shareholders' equity                |                                                                                           | $                                            | 6,366 |              |       | $ | 6,406 |      
|                                                          |                                                                                           |                                              |       |              |       |   |       |      
|See Notes to Condensed Consolidated Financial
Statements.





9













|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |      |      |  
|--------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------ | ----------- | ---- | --- | ---- | ---- | ---- | -
|SOUTHERN CALIFORNIA GAS COMPANY AND
SUBSIDIARIES         
|CONDENSED STATEMENTS OF CONSOLIDATED CASH
FLOWS          
|                                                          |                                                                                  
|                                                          | Nine months ended
September
30,                                                  
|(Dollars in millions)                                     | 2008                                                                              |                                                                                | 2007                                            
|                                                          |                                                                                   |                                                                                |                                                  | (unaudited)
|CASH FLOWS FROM OPERATING ACTIVITIES                      |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          | Net income                                                                        | $                                                                              | 191                                              |             |      | $   | 173  |     
|                                                          | Adjustments
to reconcile net income to net cash provided by operating
activities: |                                                                                |                                                  |             |      |     |      |     
|                                                          |                                                                                   |                                                                                | Depreciation                                     |             | 209  |     |      |      | 210  |  
|                                                          |                                                                                   |                                                                                | Deferred income taxes and investment tax
credits |             | 71   |     |      |      | 23   |  
|                                                          |                                                                                   |                                                                                | Other                                            |             | 1    |     |      |      | 2    |  
|                                                          | Net change in other working capital
components                                    |                                                                                | (135                                             | )           |      |     | 20   |     
|                                                          | Changes in other assets                                                           |                                                                                | 21                                               |             |      |     | 8    |     
|                                                          | Changes in other liabilities                                                      |                                                                                | (60                                              | )           |      |     | (1   | )   
|                                                          |                                                                                   |                                                                                | Net cash provided by operating activities        |             | 298  |     |      |      | 435  |  
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |      |      |  
|CASH FLOWS FROM INVESTING ACTIVITIES                      |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          | Expenditures for property, plant and
equipment                                    |                                                                                | (350                                             | )           |      |     | (300 | )   
|                                                          | Decrease (increase) in loans to affiliates,
net                                   |                                                                                | 136                                              |             |      |     | (107 | )   
|                                                          | Other                                                                             |                                                                                | --                                               |             |      |     | 2    |     
|                                                          |                                                                                   |                                                                                | Net cash used in investing activities            |             | (214 | )   |      |      | (405 | )
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |      |      |  
|CASH FLOWS FROM FINANCING ACTIVITIES                      |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          | Common dividends paid                                                             |                                                                                | (200                                             | )           |      |     | (100 | )   
|                                                          | Preferred dividends paid                                                          |                                                                                | (1                                               | )           |      |     | (1   | )   
|                                                          | Increase in short-term debt, net                                                  |                                                                                | 96                                               |             |      |     | --   |     
|                                                          |                                                                                   |                                                                                | Net cash used in financing activities            |             | (105 | )   |      |      | (101 | )
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |      |      |  
|Decrease in cash and cash equivalents                     |                                                                                   | (21                                                                            | )                                                |             |      | (71 | )   
|Cash and cash equivalents, January 1                      |                                                                                   | 59                                                                             |                                                  |             |      | 211 |     
|Cash and cash equivalents, September 30                   | $                                                                                 | 38                                                                             |                                                  |             | $    | 140 |     
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |      |      |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION          |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          | Interest payments, net of amounts
capitalized                                     | $                                                                              | 35                                               |             |      | $   | 43   |     
|                                                          | Income tax payments, net of refunds                                               | $                                                                              | 113                                              |             |      | $   | 118  |     
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |      |      |  
|SUPPLEMENTAL
DISCLOSURE OF NONCASH INVESTING ACTIVITY     |                                                                                   |                                                                                |                                                  |             |      |     |     
|                                                          |                                                                                   | Decrease in
accounts payable from investments in property, plant and equipment | $                                                | (30         | )    |     | $    | (11) |     
|                                                          |                                                                                   |                                                                                |                                                  |             |      |     |      |      |      |  
|See Notes to Condensed Consolidated Financial
Statements.











10









NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE
1. GENERAL



Principles
of Consolidation



This
Quarterly Report on Form 10-Q is that of Pacific Enterprises (PE) and Southern
California Gas Company (SoCalGas) (collectively referred to as the company or
the companies). PEs common stock is wholly owned by Sempra Energy, a
California-based Fortune 500 holding company, and PE owns all of the common
stock of SoCalGas. The accompanying financial statements are, in one case, the
Condensed Consolidated Financial Statements of PE and its subsidiary, SoCalGas,
and, in the other case, the Condensed Consolidated Financial Statements of
SoCalGas and its subsidiaries, which comprise less than one percent of SoCalGas'
consolidated financial position and results of operations.



Sempra
Energy also indirectly owns all of the common stock of San Diego Gas &
Electric Company (SDG&E). SoCalGas and SDG&E are collectively referred
to as the Sempra Utilities.



Basis
of Presentation



The
Condensed Consolidated Financial Statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
(GAAP) and in accordance with the interim-period-reporting requirements of Form
10-Q. Results of operations for interim periods are not necessarily indicative
of results for the entire year. In the opinion of management, the accompanying
statements reflect all adjustments necessary for a fair presentation. These
adjustments are only of a normal, recurring nature.



Information
in this Quarterly Report should be read in conjunction with the companys Annual
Report on Form 10-K for the year ended December 31, 2007 (the Annual Report) and
its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008 and
June 30, 2008.



The companies' significant accounting policies are described in
Note 1 of the Notes to Consolidated Financial Statements in the Annual Report.
The same accounting policies are followed for interim reporting purposes, except
for the adoption of new accounting standards as discussed in Note 2.



SoCalGas
accounts for the economic effects of regulation on utility operations in
accordance with Statement of Financial Accounting Standards (SFAS)71,
Accounting for the Effects of Certain Types of Regulation.



As
discussed in Note 5, beginning April 1, 2008, the SDG&E and SoCalGas core
natural gas supply portfolios were combined and are managed by SoCalGas.
SoCalGas will procure natural gas for SDG&Es core customers. This core gas
procurement function is considered a shared service, therefore amounts related
to SDG&E are not included in the income statement.



NOTE
2. NEW ACCOUNTING STANDARDS



Recently
issued pronouncements that have had or may have a significant effect on the
company's financial statements are described below.





11









SFAS
161, "Disclosures about Derivative Instruments and Hedging Activities  an
amendment of FASB Statement No. 133" (SFAS 161):SFAS 161 expands the
disclosure requirements in Financial Accounting Standards Board (FASB) Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133). SFAS 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The company is in the process of evaluating
the effect of this statement on its financial statement
disclosures.



FASB
Staff Position (FSP) FASB Interpretation (FIN) No. 39-1, "Amendment of FASB
Interpretation No. 39" (FSP FIN 39-1): FSP FIN 39-1 amends FASB
Interpretation No. 39, Offsetting of Amounts Related to Certain
Contracts, to permit a reporting entity to offset fair value amounts
recognized for the right to reclaim or the obligation to return cash collateral
against fair value amounts recognized for derivative instruments executed with
the same counterparty under the same master netting arrangement. The company
adopted FSP FIN 39-1 effective January 1, 2008. The company applied FSP FIN 39-1
as a change in accounting principle through retrospective application. Each
consolidated balance sheet herein reflects the offsetting of net derivative
positions with fair value amounts for cash collateral with the same counterparty
when management believes a legal right of setoff exists. The adoption of FSP FIN
39-1 did not have a material impact on the company's financial statements.
Additional disclosure is provided in Note 4.



NOTE
3. OTHER FINANCIAL DATA



Debt
and Credit Facilities



Committed
Line of Credit



On
August 15, 2008, the company and its affiliate, SDG&E entered into an $800
million, three-year syndicated revolving credit agreement expiring in 2011.
JPMorgan Chase Bank serves as administrative agent for the syndicate of 17
lenders. The agreement permits each company to individually borrow up to $600
million, subject to a combined limit of $800 million for both companies. It also
provides for the issuance of letters of credit on behalf of each company subject
to a combined letter of credit commitment of $200 million for both companies
with the amount of borrowings otherwise available under the facility reduced by
the amount of outstanding letters of credit.



Borrowings
bear interest at benchmark rates plus a margin that varies with market index
rates and the borrowing company's credit rating. The agreement also requires
each company to maintain at the end of each quarter a ratio of total
indebtedness to total capitalization (as defined in the agreement) of no more
than 65%.



Each
companys obligations under the agreement are individual obligations, and a
default by one company would not constitute a default or preclude borrowings by,
or the issuance of letters of credit on behalf of, the other company.



Concurrently
with the effectiveness of this credit agreement, SDG&Es and SoCalGas
combined $600 million revolving credit facility scheduled to expire in August
2010 was terminated.





12









At
September 30, 2008, SoCalGas had no outstanding borrowings and no outstanding
letters of credit under this facility. The facility provides support for $96
million of commercial paper outstanding at September 30, 2008.



Weighted
Average Interest Rate



The
company's weighted average interest rate on the total short-term debt
outstanding was 2.95 percent at September 30, 2008.



Pension
and Other Postretirement Benefits



The
following tables provide the components of benefit costs:



|                                |                             |      |                               |   |      |    |   |      |    |   |      |    |  
|------------------------------- | --------------------------- | ---- | ----------------------------- | - | ---- | -- | - | ---- | -- | - | ---- | -- | -
|                                | Pension Benefits            |      | Other Postretirement Benefits |  
|                                | Three months ended          |      | Three months ended            |  
|                                | September 30,               |      | September 30,                 |  
|(Dollars in millions)           |                             | 2008 |                               |   | 2007 |    |   | 2008 |    |   | 2007 |   
|Service cost                    | $                           | 10   |                               | $ | 11   |    | $ | 3    |    | $ | 3    |   
|Interest cost                   |                             | 24   |                               |   | 24   |    |   | 10   |    |   | 10   |   
|Expected return on assets       |                             | (26  | )                             |   | (25  | )  |   | (10  | )  |   | (10  | ) 
|Amortization of:                |                             |      |                               |   |      |    |   |      |    |   |      |   
|                                | Prior service cost (credit) |      | 1                             |   |      | 1  |   |      | (1 | ) |      | (1 | )
|                                | Actuarial (gain) loss       |      | --                            |   |      | (1 | ) |      | -- |   |      | 1  |  
|Regulatory adjustment           |                             | (8   | )                             |   | (9   | )  |   | (2   | )  |   | 4    |   
|Total net
periodic benefit cost | $                           | 1    |                               | $ | 1    |    | $ | --   |    | $ | 7    |   



|                                |                             |      |                               |   |      |    |   |      |    |   |      |    |  
|------------------------------- | --------------------------- | ---- | ----------------------------- | - | ---- | -- | - | ---- | -- | - | ---- | -- | -
|                                | Pension Benefits            |      | Other Postretirement Benefits |  
|                                | Nine months ended           |      | Nine months ended             |  
|                                | September 30,               |      | September 30,                 |  
|(Dollars in millions)           |                             | 2008 |                               |   | 2007 |    |   | 2008 |    |   | 2007 |   
|Service cost                    | $                           | 30   |                               | $ | 31   |    | $ | 12   |    | $ | 14   |   
|Interest cost                   |                             | 73   |                               |   | 72   |    |   | 31   |    |   | 33   |   
|Expected return on assets       |                             | (77  | )                             |   | (76  | )  |   | (32  | )  |   | (30  | ) 
|Amortization of:                |                             |      |                               |   |      |    |   |      |    |   |      |   
|                                | Prior service cost (credit) |      | 2                             |   |      | 2  |   |      | (3 | ) |      | (4 | )
|                                | Actuarial loss              |      | --                            |   |      | -- |   |      | -- |   |      | 4  |  
|Regulatory adjustment           |                             | (26  | )                             |   | (27  | )  |   | 1    |    |   | 6    |   
|Total net
periodic benefit cost | $                           | 2    |                               | $ | 2    |    | $ | 9    |    | $ | 23   |   



The
company expects to contribute $3 million to its pension plan and $22 million to
its other postretirement benefit plans in 2008. For the nine months ended
September 30, 2008, the company made contributions of $1 million and$9
million to the pension plan and other postretirement benefit plans,
respectively, including $1 million and a negligible amount, respectively, for
the three months ended September 30, 2008.





13









Capitalized
Interest



The
company recorded a negligible amount and$2 million of capitalized
interest for thethree months andnine months ended September 30,
2008, respectively, including primarily the debt-related portion of allowance
for funds used during construction. The company recorded a negligible amount
and$1 million of capitalized interest for thethree months andnine months ended September 30, 2007, respectively, including primarily the
debt-related portion of allowance for funds used during construction.



Comprehensive
Income



The following is a reconciliation of net income to comprehensive
income for PE:



|                       |                                                                                                      |    |                   |  |      |    |      |  |   |     |   |  |   |     |  | 
|---------------------- | ---------------------------------------------------------------------------------------------------- | -- | ----------------- |  | ---- | -- | ---- |  | - | --- | - |  | - | --- |  | 
|                       | Three months ended                                                                                   |    | Nine months ended
|                       | September 30,                                                                                        |    | September 30,    
|(Dollars in millions)  | 2008                                                                                                 |    | 2007              |  | 2008 |    | 2007
|Net income             | $                                                                                                    | 80 |                   |  | $    | 66 |      |  | $ | 195 |   |  | $ | 180 | 
|Financial instruments* |                                                                                                      | (6 | )                 |  |      | -- |      |  |   | (6  | ) |  |   | --  | 
|Comprehensive income   | $                                                                                                    | 74 |                   |  | $    | 66 |      |  | $ | 189 |   |  | $ | 180 | 
|*                      | Net of income tax benefit of $4 million for both
the three and nine months ended September 30,
2008.



The following is a reconciliation of net income to comprehensive
income for SoCalGas:



|                       |                                                                                                      |    |                   |  |      |    |      |  |   |     |   |  |   |     |  | 
|---------------------- | ---------------------------------------------------------------------------------------------------- | -- | ----------------- |  | ---- | -- | ---- |  | - | --- | - |  | - | --- |  | 
|                       | Three months ended                                                                                   |    | Nine months ended
|                       | September 30,                                                                                        |    | September 30,    
|(Dollars in millions)  | 2008                                                                                                 |    | 2007              |  | 2008 |    | 2007
|Net income             | $                                                                                                    | 77 |                   |  | $    | 63 |      |  | $ | 191 |   |  | $ | 173 | 
|Financial instruments* |                                                                                                      | (6 | )                 |  |      | -- |      |  |   | (6  | ) |  |   | --  | 
|Comprehensive income   | $                                                                                                    | 71 |                   |  | $    | 63 |      |  | $ | 185 |   |  | $ | 173 | 
|*                      | Net of income tax benefit of $4 million for both
the three and nine months ended September 30,
2008.



Other
Income (Expense), Net



Other
Income (Expense), Net consists of the following:



|                                                    |                    |    |                   |  |      |    |      |  |   |    |   |  |   |    |  
|--------------------------------------------------- | ------------------ | -- | ----------------- |  | ---- | -- | ---- |  | - | -- | - |  | - | -- | -
|                                                    | Three months ended |    | Nine months ended
|                                                    | September 30,      |    | September 30,    
|(Dollars in millions)                               | 2008               |    | 2007              |  | 2008 |    | 2007
|Allowance for
equity funds used during construction | $                  | 2  |                   |  | $    | 2  |      |  | $ | 6  |   |  | $ | 4  |  
|Regulatory interest, net                            |                    | (2 | )                 |  |      | (1 | )    |  |   | (4 | ) |  |   | (6 | )
|Sundry, net                                         |                    | (1 | )                 |  |      | (1 | )    |  |   | (1 | ) |  |   | (2 | )
|Total at SoCalGas                                   |                    | (1 | )                 |  |      | -- |      |  |   | 1  |   |  |   | (4 | )
|Additional at Pacific Enterprises:                  |                    |    |                   |  |      |    |      |  |   |    |   |  |   |    |  
|Preferred dividends of
subsidiary                   |                    | -- |                   |  |      | -- |      |  |   | (1 | ) |  |   | (1 | )
|Sundry, net                                         |                    | 2  |                   |  |      | (1 | )    |  |   | 1  |   |  |   | 1  |  
|Total                                               | $                  | 1  |                   |  | $    | (1 | )    |  | $ | 1  |   |  | $ | (4 | )



NOTE
4. FINANCIAL INSTRUMENTS



The
company periodically uses commodity derivative instruments and interest-rate
swap agreements to moderate its exposure to commodity-price and interest-rate
changes and to lower its overall cost of borrowing.





14









Fair
Value Hedges



As
of September 30, 2008 and December 31, 2007, the company has a fair value hedge
for a notional amount of debt totaling $150 million. The fair value hedge
balances were an asset of $3 million and $2 million at September 30, 2008 and
December 31, 2007, respectively. The hedge expires in 2011.



Market
value adjustments since inception of the hedge were recorded as an increase in
fixed-price contracts and other derivatives (in noncurrent assets as Sundry or
in Deferred Credits and Other) and as a corresponding increase or decrease in
Long-Term Debt without affecting net income or other comprehensive income. There
has been no hedge ineffectiveness on this swap.



Cash
Flow Hedges



As
of September 30, 2008 and December 31, 2007, the company had established a cash
flow interest-rate swap hedge for a notional amount of debt totaling $183
million. The swap expires in 2038. There has been no hedge ineffectiveness on
this swap.



Natural
Gas Contracts



The
use of derivative instruments is subject to certain limitations imposed by
company policy and regulatory requirements. These instruments enable the company
to estimate with greater certainty natural gas prices to be received by the
company and the corresponding prices to be charged to its customers. The company
records realized gains or losses on derivative instruments associated with
transactions for natural gas contracts in Cost of Natural Gas on the Statements
of Consolidated Income. On the Consolidated Balance Sheets, the company records
corresponding regulatory assets and liabilities related to unrealized gains and
losses from these derivative instruments to the extent derivative gains and
losses associated with these derivative instruments will be payable or
recoverable in future rates.



Adoption of FSP FIN 39-1



The
company adopted FSP FIN 39-1 effective January 1, 2008, which requires
retroactive application. Each Consolidated Balance Sheet reflects the offsetting
of net derivative positions with fair value amounts for cash collateral with the
same counterparty when management believes a legal right of setoff exists. As of
September 30, 2008, the company offset fair value cash collateral receivables
against net derivative positions of $16 million. As of December 31, 2007, the
application of FSP FIN 39-1 had no impact on the Consolidated Balance Sheet. The
fair value of cash collateral that was not offset in the Consolidated Balance
Sheets as of September 30, 2008 and December 31, 2007 was $16 million and $7
million, respectively. The fair value of commodity derivative assets and
liabilities as of September 30, 2008 and December 31, 2007, determined in
accordance with the company's netting policy, is presented below.



Fair
Value Hierarchy



The
companys valuation techniques used to measure fair value and the definition of
the three levels of the fair value hierarchy, as defined in SFAS 157,Fair
Value Measurements (SFAS 157), are discussed in Note 7 of the Notes to
Consolidated Financial Statements in the Annual Report.



The
following tables set forth by level within the fair value hierarchy the
company's financial assets and liabilities that were accounted for at fair value
on a recurring basis as of September 30,



15









2008and December 31, 2007. As required by SFAS 157, financial assets and
liabilities are classified in their entirety based on the lowest level of input
that is significant to the fair value measurement. The company's assessment of
the significance of a particular input to the fair value measurement requires
judgment, and may affect the valuation of fair value assets and liabilities and
their placement within the fair value hierarchy levels.



|                              |   |                                        |   |         |   |         |   |      
|----------------------------- | - | -------------------------------------- | - | ------- | - | ------- | - | -----
|Recurring Fair Value Measures |   | At fair value as of September 30,
2008
|(Dollars in millions)         |   | Level 1                                |   | Level 2 |   | Level 3 |   | Total
|Assets:                       |   |                                        |   |         |   |         |   |      
|Commodity derivatives         | $ | 16                                     | $ | 4       | $ | --      | $ | 20   
|Other derivatives             |   | --                                     |   | 3       |   | --      |   | 3    
|Total                         | $ | 16                                     | $ | 7       | $ | --      | $ | 23   
|                              |   |                                        |   |         |   |         |   |      
|Liabilities:                  |   |                                        |   |         |   |         |   |      
|Other derivatives             | $ | --                                     | $ | 9       | $ | --      | $ | 9    



|                              |   |                                       |   |         |   |         |   |      
|----------------------------- | - | ------------------------------------- | - | ------- | - | ------- | - | -----
|Recurring Fair Value Measures |   | At fair value as of December 31,
2007
|(Dollars in millions)         |   | Level 1                               |   | Level 2 |   | Level 3 |   | Total
|Assets:                       |   |                                       |   |         |   |         |   |      
|Commodity derivatives         | $ | 7                                     | $ | 1       | $ | --      | $ | 8    
|Other derivatives             |   | --                                    |   | 5       |   | --      |   | 5    
|Total                         | $ | 7                                     | $ | 6       | $ | --      | $ | 13   



NOTE
5. REGULATORY MATTERS



General
Rate Case (GRC)



In
July 2008, the California Public Utilities Commission (CPUC) issued a final
decision in the companys 2008 general rate case (2008 GRC). The decision
adopted the test-year 2008 revenue requirements, effective retroactive to
January 1, 2008, and the post-test year revenue requirements that were included
in the settlement agreement filed with the CPUC. The decision provides an
increase in the annual revenue requirement in 2008, as compared to 2007, of $59
million, and provides average annual increases of approximately $52 million, or
three percent, in each of the post-test years' revenue requirements. The
decision also establishes a GRC period of four years (2008-2011) and does not
impose a cap on the companys earnings.



Since
the final decision was not issued by June 30, 2008, the company's reported net
income for the first six months of 2008 was based on the 2007 authorized revenue
requirement as established by the CPUCs 2004 Cost of Service decision. As the
2008 GRC decision is retroactive, the company recognized additional net income
for the period January 1 through June 30, 2008 of approximately $7 million in
the third quarter of 2008.



Utility
Ratemaking Incentive Awards



Performance-Based
Regulation (PBR) consists of a series of measures of utility performance.
Generally, if performance is outside of a band of specified benchmarks, the
utility is subject to financial rewards or penalties. The three areas that are
eligible for incentive awards or penalties are operational incentives, energy
efficiency awards based on the effectiveness of the energy efficiency programs
and natural gas procurement awards or penalties.



Incentive
awards are not included in the company's earnings until CPUC approval of the
award is received.



16











Operational
Incentives



Operational
incentives and the associated benchmarks are determined as a component of a
general rate case or cost of service decision. The operational PBR incentives to
be in effect for fiscal year 2008 through 2011 were established as part of the
CPUC's final decision in the 2008 GRC, which adopted modified PBR measures for
customer satisfaction and employee safety. The company reviewed these modified
PBR measures and filed its response in regard to these measures in September
2008, accepting the safety performance measure but rejecting the customer
satisfaction measure, as allowed by the GRC decision. As a result, the company
is no longer entitled to operational PBR awards for customer satisfaction after
2007.



During
the second quarter of 2008, the company received CPUC approval for its 2007
Operational PBR incentive award of $2 million (pretax). The company plans to
submit its employee safety results and incentive award claim in May 2009 for
performance in 2008.



Energy
Efficiency



Energy
efficiency awards are determined under an incentive mechanism established by the
CPUC in September 2007, which was subsequently modified in January 2008. This
incentive award mechanism applies to the utilities' performance over a
three-year energy efficiency program period. In accordance with this mechanism,
the company submitted its initial report on its 2006 and 2007 energy efficiency
results, as compared to the company's goals, with the CPUC in the first quarter
of 2008. The CPUC is currently reviewing these results with a verification
report not expected to be issued until sometime in 2009.



A
joint petition was filed in August 2008 by SDG&E, SoCalGas, Pacific Gas and
Electric Company, and Southern California Edison seeking modification of the
CPUC's energy efficiency incentive mechanism decisions due to the delay in the
issuance of the verification report from its original, expected timeframe. The
petition proposed certain procedures that would be triggered if the CPUC's
Energy Division were unable to complete its review of the utilities' results on
time. The joint petition also requested approval of each utility's awards claim
for 2006 - 2007, including $9.6 million for SoCalGas.



A
draft Administrative Law Judge (ALJ) decision and a draft Commissioners
alternate decision were issued by the CPUC on November 4, 2008. The ALJ decision
would deny the joint petition and retain the CPUCs current performance review
and award process. The alternate decision grants the joint petition in part but
increases the interim award holdback from 35% to 50% and approves an interim
award for SoCalGas, net of the holdback amount, of $7.4 million. SoCalGas
expects that a final decision could be adopted by the CPUC in December 2008.



Natural
Gas Procurement



In
January 2008, the CPUC approved a SoCalGas natural gas cost incentive mechanism
(GCIM) award of $9 million (pretax) for its core natural gas procurement
activities for the 12-month period ended March 31, 2007 (Year 13). The award was
recorded in the first quarter of 2008. In June 2008, SoCalGas filed its GCIM
application for core natural gas procurement activities in the 12-month period
ended March 31, 2008 (Year 14), seeking a $6.5 million (pretax) award. A final
decision is expected in the first quarter of 2009.





17









As
of April 1, 2008, the SDG&E and SoCalGas core natural gas supply portfolios
were combined, and SoCalGas now procures natural gas for SDG&E's
requirements. Also effective as of April 1, 2008, SoCalGas' GCIM award is based
on the natural gas procured on a combined portfolio basis.



2009
Biennial Cost Allocation Proceeding (BCAP)



In
August 2006, SoCalGas, SDG&E and Southern California Edison jointly filed an
application with the CPUC seeking its approval of a series of revisions to the
natural gas operations and service offerings of the Sempra Utilities. The CPUC
issued a final decision in December 2007 approving some, but not all, of the
proposals and deferring a number of issues, including the incentive mechanism
for SoCalGas' natural gas storage program, to the Sempra Utilities BCAP where
they could be addressed more fully. A settlement agreement on a majority of the
storage-related issues was reached with the parties, and a draft ALJ decision
was issued on November 4, 2008, recommending approval of the settlement without
modification. A final decision on the uncontested settlement is expected by
year-end 2008.



Effective
January 1, 2008, and until such time as a resolution is achieved in the BCAP,
the storage revenues and costs that were previously shared between ratepayers
and shareholders are being deferred pending a regulatory decision on this
matter. The settlement, if approved, would resolve the incentive mechanism for
the natural gas storage program for 2008, but the shareholder amount would
depend on the actual storage revenues for the calendar year.



If
approved as submitted, the settlement agreement would be in effect for a
six-year period (2009 through 2014) and would allow SoCalGas to invest in
certain storage replacement and expansion projects that ultimately would add an
estimated 145 million cubic feet per day (MMcfd) of storage injection capacity
and approximately 7 billion cubic feet (Bcf) of inventory capacity. The cost of
these storage investments is estimated at $250 million, would be incremental to
the capital provided in the 2008 GRC and would be treated like existing storage
assets, providing additional earnings through the resulting increase in rate
base. The agreement also provides that the annual net revenues (revenues less
allocated embedded cost) from the unbundled storage and system operator hub
services programs be split between ratepayers and shareholders on a graduated
basis. The first $15 million of net revenue would be shared 90/10
(ratepayer/shareholder), the next $15 million shared 75/25, and all additional
net revenues shared 50/50, up to a total annual shareholder cap of $20 million
(pretax). The prior mechanism provided a 50/50 split of the net revenues (2007
and prior).



Advanced
Metering Infrastructure



In
September 2008, SoCalGas filed an application with the CPUC for approval to
upgrade approximately six million natural gas meters with an advanced metering
system at an estimated cost of $1.1 billion (including approximately $900
million in capital investment). The company has requested a CPUC decision by
mid-2009. If timely approved, installation of the meters is expected to begin in
2011 and continue through 2015.



Natural
Gas Market OIR



The
CPUC considered natural gas market issues, including market design and
infrastructure requirements, as part of its Natural Gas Market Order Instituting
Rulemaking (OIR). A final decision in Phase II of this proceeding was issued in
September 2006, reaffirming the adequacy of the capacity of the SoCalGas and
SDG&E systems to meet then-current and forecasted



18









demand.
Among other things, this decision established revised natural gas quality
standards that apply to all natural gas supplies entering the SoCalGas and
SDG&E systems, including new supplies of regasified liquefied natural gas.
The South Coast Air Quality Management District and the City of San Diego
(jointly with Ratepayers for Affordable Clean Energy) filed petitions for review
in the California Court of Appeal and the California Supreme Court challenging
the CPUC's September 2006 decision and contending that the CPUC was required to
prepare an environmental impact statement under the California Environmental
Quality Act evaluating the environmental impacts that might result from the
changes in natural gas quality standards approved by the CPUC. In November 2007,
the Court of Appeal determined that the California Supreme Court had exclusive
jurisdiction over the petitions for review. In July 2008, the California Supreme
Court denied the petitions for review, thereby affirming the CPUCs decision in
all respects.



NOTE
6. COMMITMENTS AND CONTINGENCIES



Legal
Proceedings



At
September 30, 2008, the company's reserves related to unresolved litigation
matters were $1million. The uncertainties that exist in complex legal
proceedings make it difficult to estimate with reasonable certainty the costs
and effects of resolving legal matters. Accordingly, actual costs incurred may
differ materially from estimated costs and could materially adversely affect the
company's business, cash flows, results of operations and financial condition.



Natural
Gas Cases



In
April 2003, Sierra Pacific Resources and its utility subsidiary Nevada Power
filed a lawsuit in the U.S. District Court in Nevada against major natural gas
suppliers, including Sempra Energy, the Sempra Utilities and Sempra Commodities,
a business unit of Sempra Energy, seeking recovery of damages alleged to total
more than $150 million (before trebling). The lawsuit claims that the defendants
conspired to manipulate and inflate the prices that Nevada Power had to pay for
its natural gas by preventing the construction of natural gas pipelines to serve
Nevada and other Western states, and reporting artificially inflated prices to
trade publications. The U.S. District Court dismissed the case in November 2004,
determining that the Federal Energy Regulatory Commission (FERC) had exclusive
jurisdiction to resolve the claims. In September 2007, the U.S. Court of Appeals
for the Ninth Circuit (Ninth Circuit Court of Appeals) reversed the dismissal
and returned the case to the District Court for further proceedings.



Five
cases against Sempra Energy, Sempra Commodities, the Sempra Utilities and
various other companies are pending in the U.S. District Court in Nevada.
Plaintiffs claim that energy prices were unlawfully manipulated by the reporting
of artificially inflated natural gas prices to trade publications and by
entering into deceptive transactions such as wash trades and churning
transactions. Four of the cases also include conspiracy allegations similar to
those made in the Continental Forge litigation discussed below. The court
dismissed four of these actions in 2005, determining that the FERC had exclusive
jurisdiction to resolve the claims. The remaining case, which includes
conspiracy allegations, was stayed. In September 2007, the Ninth Circuit Court
of Appeals reversed the dismissal and returned the cases to the District Court
for further proceedings.





19









Other
Litigation



In
1998, SoCalGas converted its traditional pension plan for non-union employees to
a cash balance plan. In July 2005, a lawsuit was filed against the company in
the U.S. District Court for the Central District of California alleging that the
conversion unlawfully discriminated against older employees and failed to
provide required disclosure of a reduction in benefits. In October 2005, the
court dismissed three of the four causes of action and, in March 2006, dismissed
the remaining cause of action. Plaintiffs appealed to the Ninth Circuit Court of
Appeals and, in August 2008, the court affirmed the dismissal of three of the
four causes of action and reversed the District Courts dismissal of the
remaining cause of action. Plaintiffs have petitioned the Ninth Circuit Court of
Appeals for a rehearing of two of the three affirmed cause of action dismissals.
Briefs have been filed on the petition.



Resolved
Matters



The
company has accrued liabilities for resolved matters of $69 million, including
$63 million for settlements related to certain litigation arising out of the
2000 - 2001 California energy crisis.



The
litigation that is the subject of these settlements and accrued liabilities is
frequently referred to as the Continental Forge litigation, although the
settlements also include other cases. The terms of these settlements were
reported previously. In July 2008, the California Attorney General and the DWR
dismissed their appeal of the final order, and the settlements became final in
August 2008. The reserves recorded for the settlements by Sempra Energy,
including SoCalGas, in 2005 fully provide for the present value of both the cash
amounts to be paid in the settlements and the price discount to be provided on
electricity to be delivered under the DWR contract by Sempra Generation, a
business unit of Sempra Energy.



NOTE
7. SUBSEQUENT EVENT



On November 6, 2008,
a Tulare County Superior Court jury found SoCalGas liable in the amount of $12.3
million in compensatory and punitive damages payable to two plumbers who were
injured in a natural gas explosion when they tried to ignite a water heater
pilot light. SoCalGas intends to appeal.





20









ITEM
2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The
following discussion should be read in conjunction with the financial statements
contained in this Form 10-Q, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the company's 2007 Annual
Report on Form 10-K (Annual Report), and "Risk Factors" contained in the
company's 2007 Annual Report and Part II of this Form 10-Q.



RESULTS
OF OPERATIONS



Revenues
and Cost of Sales



During
the three months and nine months ended September 30, 2008, natural gas revenues
and the cost of natural gas increased compared to the corresponding periods in
2007, primarily as a result of higher natural gas prices and volumes.



Since
the final decision in the 2008 General Rate Case (GRC) was not issued by the
California Public Utilities Commission (CPUC) by June 30, 2008, revenues for the
first six months of 2008 associated with CPUC-regulated operations were based on
the 2007 CPUC-authorized revenue established by the 2004 Cost of Service
decision. An adjustment was made in the third quarter of 2008 to reflect the
authorized revenue established in the 2008 GRC for the period of January 1
through June 30, 2008. Further discussion is provided in Note 5 of the Notes to
Condensed Consolidated Financial Statements herein.



Although the current regulatory framework
provides that the cost of natural gas purchased for core customers be passed
through to the customers on a substantially concurrent basis, SoCalGas' Gas Cost
Incentive Mechanism (GCIM) allows SoCalGas to share in the savings or costs from
buying natural gas for its customers below or above monthly market-based
benchmarks. The GCIM permits full recovery of all costs within a tolerance band
around the benchmark price. The costs or savings outside the tolerance band are
shared between customers and shareholders. Further discussion is provided in
Note 5 of the Notes to Condensed Consolidated Financial Statements herein and in
Notes 1 and 9 of the Notes to Consolidated Financial Statements in the Annual
Report.





21









The
table below summarizes natural gas volumes and revenues by customer class for
the nine-month periods ended September 30.



Natural Gas Sales,
Transportation and Exchange

(Volumes in billion
cubic feet, dollars in millions)



|                             |  |                   |  |                             |   |         |  |         |     |         |  |         |     |  |  |     |  |  |   |       | 
|---------------------------- |  | ----------------- |  | --------------------------- | - | ------- |  | ------- | --- | ------- |  | ------- | --- |  |  | --- |  |  | - | ----- | 
|                             |  | Natural Gas Sales |  | Transportation and Exchange |   | Total  
|                             |  | Volumes           |  | Revenue                     |   | Volumes |  | Revenue |     | Volumes |  | Revenue
|2008:                        |  |                   |  |                             |   |         |  |         |     |         |  |         |     |  |  |     |  |  |   |       | 
|Residential                  |  | 174               |  |                             | $ | 2,307   |  |         | 1   |         |  | $       | 3   |  |  | 175 |  |  | $ | 2,310 | 
|Commercial and industrial    |  | 77                |  |                             |   | 924     |  |         | 208 |         |  |         | 130 |  |  | 285 |  |  |   | 1,054 | 
|Electric generation plants   |  | --                |  |                             |   | --      |  |         | 170 |         |  |         | 61  |  |  | 170 |  |  |   | 61    | 
|Wholesale                    |  | --                |  |                             |   | --      |  |         | 105 |         |  |         | 16  |  |  | 105 |  |  |   | 16    | 
|                             |  | 251               |  |                             | $ | 3,231   |  |         | 484 |         |  | $       | 210 |  |  | 735 |  |  |   | 3,441 | 
|Balancing
accounts and other |  |                   |  |                             |   |         |  |         |     |         |  |         |     |  |  |     |  |  |   | 335   | 
|Total                        |  |                   |  |                             |   |         |  |         |     |         |  |         |     |  |  |     |  |  | $ | 3,776 | 
|2007:                        |  |                   |  |                             |   |         |  |         |     |         |  |         |     |  |  |     |  |  |   |       | 
|Residential                  |  | 173               |  |                             | $ | 1,915   |  |         | 1   |         |  | $       | 3   |  |  | 174 |  |  | $ | 1,918 | 
|Commercial and industrial    |  | 79                |  |                             |   | 729     |  |         | 204 |         |  |         | 150 |  |  | 283 |  |  |   | 879   | 
|Electric generation plants   |  | --                |  |                             |   | --      |  |         | 158 |         |  |         | 56  |  |  | 158 |  |  |   | 56    | 
|Wholesale                    |  | --                |  |                             |   | --      |  |         | 99  |         |  |         | 42  |  |  | 99  |  |  |   | 42    | 
|                             |  | 252               |  |                             | $ | 2,644   |  |         | 462 |         |  | $       | 251 |  |  | 714 |  |  |   | 2,895 | 
|Balancing
accounts and other |  |                   |  |                             |   |         |  |         |     |         |  |         |     |  |  |     |  |  |   | 273   | 
|Total                        |  |                   |  |                             |   |         |  |         |     |         |  |         |     |  |  |     |  |  | $ | 3,168 | 



Income
Taxes



Income
tax expense was$119 million and $128 million ($117 million and $122
million for SoCalGas) for the nine months ended September 30, 2008 and 2007,
respectively, and the effective income tax rates for the company were 38 percent
and 42 percent (38 percent and 41 percent at SoCalGas), respectively.Income tax expense was$42 million and
$46 million ($41 million and $44 million for SoCalGas) for the three months
ended September 30, 2008 and 2007, respectively, and the effective income tax
rates for the company were 34 percent and 41 percent (35 percent and 41 percent
at SoCalGas), respectively.



The
decrease in income tax expense for the three months and nine months ended
September 30, 2008 was due primarily to larger permanent tax deductions allowed
for regulatory purposes and higher favorable resolution of prior years' income
tax issues in 2008.



Net
Income



Net
income for SoCalGas increased by $18 million (10%) in the nine months ended
September 30, 2008 to $191 million and by $14 million (22%) in the three months
ended September 30, 2008 to $77 million. The increase in the nine months was
primarily attributable to $11 million in higher authorized margin in 2008, net
of higher operating expenses, associated with CPUC-regulated operations, $6
million in higher regulatory awards ($7 million in 2008 compared to $1 million
in 2007) and $5 million as a result of a lower effective tax rate (excluding the
effect of the resolution of prior years' income tax matters), offset by $12
million lower earnings from non-core natural gas storage in accordance with the
Omnibus Gas Settlements, as discussed in Note 5 of the Notes to Condensed
Consolidated Financial Statements herein and Note 9 of the Notes to Consolidated
Financial Statements in the Annual Report. In addition to these factors, the



22









comparative
nine-month results were favorably impacted by $7 million from the favorable
resolution of a regulatory matter in 2008 and $5 million from the higher
favorable resolution of prior years' income tax issues ($4 million favorable in
2008 compared to $1 million unfavorable in 2007), partially offset by $5 million
higher expense in 2008 for potential uncollectible customer receivables.



The
increase in the three months ended September 30, 2008 included a benefit of $3
million as a result of a lower effective income tax rate (excluding the effect
of the resolution of prior years' income tax issues), offset by $4 million in
lower earnings from non-core natural gas storage. In addition to these factors,
the three-month comparative net income was favorably impacted by $7 million from
the favorable resolution of a regulatory matter in 2008, $7 million retroactive
impact of the 2008 GRC decision for January 1 through June 30, 2008, and a $5
million increase from the favorable resolution of prior years' income tax issues
($4 million favorable in 2008 compared to $1 million unfavorable in 2007),
partially offset by $4 million higher expense in 2008 associated with potential
uncollectible customer receivables.



CAPITAL
RESOURCES AND LIQUIDITY



SoCalGas
utility operations generally are the major source of liquidity. In addition,
cash requirements may be met through the issuance of short-term and long-term
debt. Cash requirements primarily consist of capital expenditures for utility
plant.



At
September 30, 2008, the company had $38 million in unrestricted cash and cash
equivalents, and $504 million in available unused credit on its committed line
at SoCalGas,which is shared with SDG&E and is discussed more fully
in Note 3 of the Notes to Condensed Consolidated Financial Statements herein.
The line expires in August 2011 and is syndicated with 17 different banks.



The
recent global credit crisis has severely affected the availability and cost of
both short-term and long-term financing. If cash flows from operations were to
be significantly reduced or the company were to be unable to borrow under
acceptable terms, the company would reduce or postpone discretionary capital
expenditures.Management continues to regularly monitor SoCalGas' ability
to finance the needs of its operating, investing and financing activities in a
manner consistent with its intention to maintain strong, investment-quality
credit ratings.



CASH
FLOWS FROM OPERATING ACTIVITIES



Net
cash provided by PE's operating activities decreased by $143 million (32%) to
$304 million for 2008 due to the decrease in net cash provided by SoCalGas
operating activities, which decreased by $137 million (31%) to $298 million for
2008. The changes were primarily due to a $143 million higher increase in
inventory at SoCalGas and a $15 million increase in net amounts due from
affiliates in 2008 compared to a $41 million decrease in 2007, offset by a $65
million increase ($64 million at SoCalGas) in net income (adjusted for noncash
items). Net amounts due from affiliates at SoCalGas increased by $20 million in
2008 compared to a $35 million decrease in 2007.



For
the nine months ended September 30, 2008,the company made contributions
of $1 million and $9 million to the pension plan and other postretirement
benefit plans, respectively. If equity and bond markets remain at approximately
the same levels as the end of October, the company expects qualified pension
contributions to be approximately $90 million at SoCalGas in 2009.



23









The
additional contributions will be fully recovered in future rates, and there is
no earnings impact.



CASH
FLOWS FROM INVESTING ACTIVITIES



Net
cash used in PE's investing activities decreased by $197 million (47%) to $218
million for 2008. Net cash used in SoCalGas' investing activities decreased by
$191 million (47%) to $214 million for 2008. The changes were primarily at
SoCalGas due to a $136 million decrease in loans to affiliates in 2008 compared
to a $107 million increase in 2007, offset by an increase of $50 million in
capital expenditures.



Significant
capital expenditures in 2008 are expected to include $400 million for
improvements to distribution and transmission systems. These expenditures are
expected to be financed by cash flows from operations and security issuances.



CASH
FLOWS FROM FINANCING ACTIVITIES



Net
cash used in PE's financing activities increased by $4 million (4%) to $107
million for 2008. Net cash used in SoCalGas' financing activities increased by
$4 million (4%) to $105 million for 2008. The changes were due to a $100 million
increase in common dividends paid in 2008 compared to 2007, offset by a $96
million increase in short-term debt.



COMMITMENTS



At
September 30, 2008, there were no significant changes to the commitments that
were disclosed in the Annual Report, except for an increase of $580 million
related to natural gas contracts at SoCalGas, of which $190 million related to
the transfer of SDG&Es natural gas supply portfolio to SoCalGas as part of
the Omnibus Gas Settlements discussed in Note 9 of the Notes to Consolidated
Financial Statements in the Annual Report and Note 5 of the Notes to Condensed
Consolidated Financial Statements herein. The future payments under these
contractual commitments are expected to be $48 million for 2008, $247 million
for 2009, $38 million for 2010, $30 million for 2011, $31 million for 2012 and
$186 million thereafter.



FACTORS
INFLUENCING FUTURE PERFORMANCE



Performance
of the company will depend primarily on the ratemaking and regulatory process,
natural gas industry restructuring, and the changing energy marketplace.
Performance will also depend on the successful completion of capital projects
that are discussed in various places in this report and in the Annual Report. As
the 2008 GRC provides for fixed annual increases rather than for adjustments
based on inflation indices as in the past, performance will depend on the
company's ability to manage or recover in rates the effects of rising costs.
Additional information is provided in Note 5 of the Notes to Condensed
Consolidated Financial Statements herein and in Note 9 of the Notes to
Consolidated Financial Statements in the Annual Report.



Factors
regarding the impact of the global credit market crisis are discussed in
"Capital Resources and Liquidity" herein.





24









Litigation



Note
6 of the Notes to Condensed Consolidated Financial Statements herein and Note 10
of the Notes to Consolidated Financial Statements in the Annual Report describe
litigation, the ultimate resolution of which could have a material adverse
effect on future performance.



Industry
Developments



Note
5of the Notes to Condensed Consolidated Financial Statements herein
andNote 9 of the Notes to Consolidated Financial Statements in the
Annual Report describe natural gas regulation and rates, and other pending
proceedings and investigations.



CRITICAL
ACCOUNTING POLICIES AND ESTIMATES



Certain
accounting policies are viewed by management as critical because their
application is the most relevant, judgmental and/or material to the company's
financial position and results of operations, and/or because they require the
use of material judgments and estimates. These accounting policies are discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report.



The
company's significant accounting policies are described in Note 1 of the Notes
to Consolidated Financial Statements in the Annual Report.



NEW
ACCOUNTING STANDARDS



Recently
issued pronouncements that have had or may have a significant effect on the
company's financial statements are described in Note 2 of the Notes to Condensed
Consolidated Financial Statements herein.



ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



As
of September 30, 2008, the total Value at Risk (VaR) of SoCalGas' commodity
positions was not material.



The
companys one-year VaR for long-term debt has increased as a result of
considerable interest-rate volatility during 2008. The following table shows the
nominal amount and the one-year VaR for long-term debt at September 30, 2008 and
December 31, 2007:



|                       |                                           |     |                   |  |              |     |              |  |   |     |  |  |   |     |  | 
|---------------------- | ----------------------------------------- | --- | ----------------- |  | ------------ | --- | ------------ |  | - | --- |  |  | - | --- |  | 
|                       | September 30, 2008                        |     | December 31, 2007
|(Dollars in millions)  | Nominal Debt                              |     | One-Year VaR      |  | Nominal Debt |     | One-Year VaR
|Utility fixed-rate*    | $                                         | 863 |                   |  | $            | 243 |              |  | $ | 863 |  |  | $ | 161 | 
|Utility variable-rate* | $                                         | 250 |                   |  | $            | 10  |              |  | $ | 250 |  |  | $ | 9   | 
|*                      | After the effects of interest-rate
swaps.





25









ITEM
4. CONTROLS AND PROCEDURES



Company
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act Rules 13a-15(f).
The company has designed and maintains disclosure controls and procedures to
ensure that information required to be disclosed in the company's reports is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission and is
accumulated and communicated to the company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating these
controls and procedures, management recognizes that any system of controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired objectives and necessarily applies
judgment in evaluating the cost-benefit relationship of other possible controls
and procedures. There have been no changes in the company's internal control
over financial reporting during the company's most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the
company's internal control over financial reporting.



Under
the supervision and with the participation of management, including the Chief
Executive Officer and the Chief Financial Officer, the company evaluated the
effectiveness of the design and operation of the company's disclosure controls
and procedures as of September 30, 2008, the end of the period covered by this
report. Based on that evaluation, the company's Chief Executive Officer and
Chief Financial Officer concluded that the company's disclosure controls and
procedures were effective at the reasonable assurance level.



PART
II - OTHER INFORMATION



ITEM
1. LEGAL PROCEEDINGS



The
Los Angeles Regional Water Quality Control Board has asserted violations of the
California Water Code by SoCalGas in connection with certain maintenance
activities in Los Angeles County's Sullivan Canyon. In June 2008, the board
dismissed without prejudice a related lawsuit to provide an opportunity for the
parties to resolve this matter without litigation. SoCalGas believes that the
resolution will impose upon it fines and penalties of no more than $750,000.



Except
for the matters described in Notes 5 and 6 of the Notes to Condensed
Consolidated Financial Statements herein, neither the company nor its
subsidiaries are party to, nor is their property the subject of, any material
pending legal proceedings other than routine litigation incidental to their
businesses.



ITEM
1A. RISK FACTORS



There
have been no material changes in risk factors as previously disclosed in the
company's 2007 Annual Report on Form 10-K except as follows. The recent global
credit crisis has severely affected the availability and cost of both short-term
and long-term financing. If cash flows from operations were to be significantly
reduced or the company were to be unable to borrow under acceptable terms, the
company would reduce or postpone discretionary capital expenditures.



26











|                                         |                                                                                                                                               
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------
|ITEM
6.EXHIBITS                         
|                                         |                                                                                                                                               
|Exhibit 10 --
Material Contracts        
|                                         |                                                                                                                                               
|10.1                                     | Sempra Energy
Employee Stock Ownership Plan and Trust Agreement effective 1/1/2001
(September 30, 2008 Sempra Energy Form 10-Q, Exhibit 10.1).
|                                         |                                                                                                                                               
|Exhibit 12 --
Computation of ratios     
|                                         |                                                                                                                                               
|12.1                                     | Computation of
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
of PE.                                               
|                                         |                                                                                                                                               
|12.2                                     | Computation of
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
of SoCalGas.                                         
|                                         |                                                                                                                                               
|Exhibit 31 --
Section 302 Certifications
|                                         |                                                                                                                                               
|31.1                                     | Statement of
PE's Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934.                         
|                                         |                                                                                                                                               
|31.2                                     | Statement of
PE's Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934.                         
|                                         |                                                                                                                                               
|31.3                                     | Statement of
SoCalGas' Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of
the Securities Exchange Act of 1934.                    
|                                         |                                                                                                                                               
|31.4                                     | Statement of
SoCalGas' Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of
the Securities Exchange Act of 1934.                    
|                                         |                                                                                                                                               
|Exhibit 32 --
Section 906 Certifications
|                                         |                                                                                                                                               
|32.1                                     | Statement of
PE's Chief Executive Officer pursuant to 18 U.S.C. Sec. 1350.                                                                    
|                                         |                                                                                                                                               
|32.2                                     | Statement of
PE's Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350.                                                                    
|                                         |                                                                                                                                               
|32.3                                     | Statement of
SoCalGas' Chief Executive Officer pursuant to 18 U.S.C. Sec.
1350.                                                               
|                                         |                                                                                                                                               
|32.4                                     | Statement of
SoCalGas' Chief Financial Officer pursuant to 18 U.S.C. Sec.
1350.                                                               





27











|                                                                                                                                                                                         |                                                                    
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------
|SIGNATURES                                                                                                                                                                              
|Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|                                                                                                                                                                                         | PACIFIC
ENTERPRISES,(Registrant)                                   
|                                                                                                                                                                                         |                                                                    
|Date:
November 10, 2008                                                                                                                                                                  | By:
/s/ Robert Schlax                                              
|                                                                                                                                                                                         | Robert
SchlaxVice President, Controller and Chief Financial Officer
|                                                                                                                                                                                         |                                                                    
|                                                                                                                                                                                         | SOUTHERN
CALIFORNIA GAS COMPANY,(Registrant)                       
|                                                                                                                                                                                         |                                                                    
|Date:
November 10, 2008                                                                                                                                                                  | By:
/s/ Robert Schlax                                              
|                                                                                                                                                                                         | Robert
SchlaxVice President, Controller and Chief Financial
Officer





28