Sempra Energy 2018 Notice of Annual Shareholders Meeting and Proxy Statement May 10, 2018 Newport Beach, California

March 23, 2018

Dear Fellow Shareholders:

We are pleased to invite you to attend our Annual Shareholders Meeting at 9 a.m. Pacific time, May 10, 2018, at Fashion Island Hotel in Newport Beach, California. Enclosed are the meeting notice, related proxy statement and proxy card.

In 2017, Sempra Energy achieved excellent operating results across our utility and infrastructure businesses. Over the past decade, our total shareholder return (including reinvested dividends) of 134 percent has outperformed both the Standard & Poor’s 500 Index and Standard & Poor’s 500 Utilities Index. Over the same period, we also have increased our dividend by 165 percent.

Your Board of Directors is committed to increasing long-term shareholder value, while upholding strong governance and ethical standards and maintaining an open dialogue with you, our shareholders. Your board, with the company’s leadership team, has mapped out a growth strategy that includes expanding in Mexico, further developing liquefied natural gas exports and increasing our U.S. utilities base with the recent acquisition of a majority stake in Oncor Electric Delivery Company LLC (Oncor), a regulated electric distribution and transmission service provider that is the largest utility in Texas. Your board also is managing a smooth leadership succession with Debra Reed’s retirement on December 1, 2018, and the appointment of Jeffrey Martin, currently Sempra Energy’s executive vice president and chief financial officer, as successor chief executive officer effective May 1, 2018. Mr. Martin also will join Sempra’s board effective May 1.

As Sempra Energy approaches its 20^th anniversary, we are proud that we not only have created lasting value for our shareholders, but also have remained committed to making positive contributions to the many communities where we operate. Since 1998, Sempra Energy has grown to be a diversified energy company with more than $11 billion in revenues in 2017 and, with the addition of Oncor, 20,000 employees, serving 43 million consumers worldwide. We play a vital role in connecting our millions of customers with the necessary energy resources to power their homes and businesses. We only can be successful in our mission with the contributions of an active board of directors, a strong leadership team and our dedicated group of employees.

Whether or not you attend our Annual Shareholders Meeting, please review the enclosed materials and promptly vote your shares. As in past years, there are several ways to vote in advance of the meeting: by completing, signing, dating and returning the enclosed proxy or voting instruction card; by telephone; or via the Internet.

We appreciate your vote and hope you can join us in person on May 10^th.

Sincerely,

Debra L. Reed

Chairman, President and Chief Executive Officer

William C. Rusnack

Lead Director

Table of Contents

Corporate Governance

Our business and affairs are managed and all corporate powers are exercised under the direction of our Board of Directors. The board establishes fundamental corporate policies and oversees the performance of the company and our Chief Executive Officer and the other officers to whom the board has delegated authority to manage our day-to-day business operations.

The board has adopted Corporate Governance Guidelines that set forth expectations for directors, director independence standards, board committee structure and functions, and other policies for the company’s governance. It also has adopted a Code of Business Conduct and Ethics for Directors and Senior Officers. Officers also are subject to business conduct guidelines that apply to all employees. Several standing and ad hoc committees assist the board in carrying out its responsibilities. Each standing committee operates under a written charter adopted by the board.

Our Corporate Governance Guidelines, standing committee charters, including our Audit, Compensation, and Corporate Governance Committee charters, and codes of conduct are posted on our website at www.sempra.com under the “Investors” and “Governance” tabs. Paper copies may be obtained upon request by writing to: Corporate Secretary, Sempra Energy, 488 8^th Avenue, San Diego, CA 92101.

Board of Directors

Functions

In addition to its general oversight role, our Board of Directors performs a number of specific functions, including:

Leadership Structure

The Board of Directors retains the flexibility to determine on a case-by-case basis whether the positions of Chief Executive Officer and Chairman of the Board should be combined or separated and whether an independent director should serve as Chairman. This flexibility permits the board to organize its functions and conduct its business in a manner it deems most effective in then prevailing circumstances. The Board of Directors believes that the company and its shareholders currently are best served by having Debra L. Reed continue to serve as executive Chairman of the Board. By Ms. Reed serving as executive Chairman, she acts as a bridge between the board and the operating organization and provides critical leadership for future strategic initiatives and challenges. During those periods in which we do not have an independent Chairman, the independent directors annually select an independent director as the Lead Director. William C. Rusnack continues to serve as our Lead Director.

Our robust Lead Director role includes the following functions and responsibilities:

Corporate Governance

The position and role of the Lead Director is intended to provide board leadership where the roles of a combined Chairman and Chief Executive Officer may be in conflict. It is also intended to expand lines of communication between the board and members of management. It is not intended to reduce the free and open access and communications that each independent director has with other directors and members of management.

Based upon an extensive shareholder outreach program conducted predominantly in the fall of 2015 and subsequent engagement with shareholders regarding our board leadership structure, most of our largest institutional shareholders have expressed no preference for an independent chair as long as the Lead Director has significant duties, as is the case at Sempra Energy.

The board elected Ms. Reed as Chairman of the Board in December 2012. In addition to being named Chairman at that time, Ms. Reed retained her office of Chief Executive Officer. Ms. Reed is a 40-year employee of the Sempra Energy family of companies with an outstanding career of achievement, as well as extensive industry experience. Ms. Reed also has extensive public board experience which the Board of Directors believes is invaluable to the company. Because of the considerable benefit her public board memberships bring to the company, the Board of Directors encouraged Ms. Reed to sit on two public company boards in addition to the Sempra Energy board. She currently is an independent director of Halliburton Company and Caterpillar Inc. Ms. Reed also has significant experience in working with and adhering to the rules established by the California Public Utilities Commission, the principal regulator of our California utilities. She has used her experience to bring additional and valuable perspectives on, among other areas, corporate governance, compensation practices, succession planning and business development. In connection with Ms. Reed’s retirement as Chairman and from the company effective December 1, 2018, the board will consider whether to combine the role of chairman and chief executive officer or have an independent chairman.

The Board of Directors believes that its independence and oversight of management is maintained effectively through this flexible leadership structure, our board’s composition and sound corporate governance policies and practices.

Director Independence

The Board of Directors determines the independence of our directors by applying the independence principles and standards established by the New York Stock Exchange. These provide that a director is independent only if the board affirmatively determines that the director has no direct or indirect material relationship with the company. They also identify various relationships that preclude a determination of director independence. Material relationships may include commercial, industrial, banking, consulting, legal, accounting, charitable, family and other business, professional and personal relationships.

Applying these standards, the board annually reviews the independence of the company’s directors and director nominees. In its most recent review, the board considered, with respect to the Company’s directors and director nominees other than Ms. Reed and Mr. Martin, who are executive officers of the company, among other things, the absence of any employment relationships between the company and its current directors and nominees and their immediate family members; the absence of any of the other specific relationships that would preclude a determination of independence under New York Stock Exchange independence rules; the absence of any affiliation of the company’s directors and their immediate family members with the company’s independent registered public accounting firm, compensation consultants, legal counsel, and investment bankers; the absence of any transactions with directors and members of their families that would require disclosure in this proxy statement under Securities and Exchange Commission (SEC) rules regarding related person transactions; and the modest amount of our discretionary contributions to non-profit organizations with which some of our directors or their immediate family members may be associated.

Corporate Governance

Based upon this review, the board has affirmatively determined that each of the company’s non-employee directors is independent. The independent directors are:

Director Share Ownership Guidelines

The board has established share ownership guidelines for directors and officers to further strengthen the link between company performance and compensation. For non-employee directors, the guideline is ownership of a number of our shares having a value of five times the directors’ annual base retainer of $85,000, resulting in an ownership guideline equal to $425,000. The Compensation Committee annually reviews adherence to this guideline, which is expected to be attained within five years of becoming a director. For these purposes, share ownership includes phantom shares into which compensation has been deferred, restricted stock units, and the vested portion of certain in-the-money stock options, as well as shares owned directly. All of our non-employee directors who have been on the board for at least five years meet or exceed the guideline. For information regarding executive officer share ownership requirements, please see “Executive Compensation—Compensation Discussion and Analysis—Share Ownership Requirements.”

Board and Committee Meetings; Executive Sessions; Annual Shareholders Meetings

At regularly scheduled board and committee meetings, directors review and discuss management reports regarding the company’s performance, prospects and plans, as well as significant opportunities and immediate issues facing the company. At least once a year, the board also regularly reviews management’s long-term strategic and financial plans, including an annual detailed broad strategy discussion.

The Chairman of the Board proposes the agenda and schedule for each board meeting to the Lead Director who then reviews and modifies or approves it. Committee agendas and schedules are set by or in consultation with the committee chair and with the approval of the Lead Director.

Directors are encouraged to propose agenda items, and any director also may raise at any meeting subjects that are not on the agenda.

Information and other materials important to understanding the business to be conducted at board and committee meetings, to the extent available, are distributed in writing to the directors in advance of the meeting. Additional information may be presented at the meeting.

An executive session of independent board members is held at each regular board meeting, and any director may call for an executive session at any board meeting. The Lead Director presides over executive sessions during which the independent directors discuss issues such as succession planning, Chief Executive Officer performance and compensation, executive development and board performance.

During 2017, the board held 10 meetings and committees of the board held 35 meetings. Directors, on an aggregate basis, attended 98 percent of the combined number of these meetings. Each director attended at least 94 percent of the combined number of meetings of the board and each committee of which the director was a member.

The board encourages all nominees for election as directors to attend the Annual Shareholders Meeting. Last year, all of the nominees for election at the 2017 Annual Shareholders Meeting attended the meeting.

Evaluation of Board and Director Performance

The Corporate Governance Committee annually reviews and evaluates the performance of the Board of Directors, including such criteria as board oversight, leadership, composition and independence, conduct of meetings and committees.

Corporate Governance

The board also conducts an annual peer evaluation by which each director is afforded the opportunity to comment anonymously on the other board members’ performance.

In order to help ensure the objectivity and integrity of this process, an outside law firm is engaged every year to conduct the peer review portion of this evaluation and compile the results. The Corporate Governance Committee assesses the board’s contribution as a whole and identifies areas in which the board or senior management believes a better contribution may be made. The purpose of the review is to increase the effectiveness of the board, and the results are reviewed with the board and its committees. The results also are considered in connection with board refreshment efforts. In addition, each standing committee, other than the Executive Committee, conducts an annual self-evaluation, in accordance with its charter.

Our board annually reviews the individual performance and qualifications of each director who may wish to be considered for nomination for election by shareholders of our common stock to an additional term. The evaluations are reviewed by the Corporate Governance Committee, which makes recommendations to the board regarding nominees for election as directors. Our board appreciates the importance of critically evaluating directors and their contributions to the board in connection with the re-nomination decision, including skills, qualifications and experience, feedback from the annual board evaluation, and individual performance, attendance, participation, independence and outside board and other affiliations.

Risk Oversight

The board, in cooperation with management, has developed an integrated risk management framework to assess, prioritize, manage and monitor risks across the company’s operations, including with respect to safety and operational risks, regulatory and compliance risks, cybersecurity risks, climate risks and reputational risks. Sempra Energy’s board has ultimate responsibility for risk oversight under this framework. Consistent with this approach, our Corporate Governance Guidelines provide that the specific functions of the Board of Directors include assessing and monitoring risks and risk management strategies.

The board believes that risk stretches far beyond any one committee. As a result, the board has diversified its risk oversight responsibilities across its membership, housing categories of risk oversight within board committees by topic. In addition, the board may form ad hoc committees to deal with certain risks. Any risk oversight that does not fall within a particular committee remains with the full board. The committee chairs report to the full board regarding their respective committee’s risk oversight role during committee reports.

The board reviews and monitors strategic, financial and operating plans that are intended to provide sustainable long-term growth with what the board deems to be an acceptable level of risk. Each year, the company identifies its top risks and articulates its plans to address those risks. Each of our principal operating units is responsible for identifying and moderating risk in a manner consistent with these goals. The board fulfills its risk oversight function through receipt of reports provided both directly to the board and to appropriate board committees. Based on these reports, the board or appropriate committees establish or amend existing risk oversight and control mechanisms. In addition, the company has a robust internal audit function that reports directly to the Audit Committee.

The board and its committees seek to mitigate risk through establishing policies that include:

In addition, the board’s Environmental, Health, Safety and Technology Committee is devoted to issues affecting the environment and is regularly briefed on the progress the company has made on environmental and sustainability matters. This committee also oversees the company’s overall safety policies, reinforcing our strong commitment to safety. Finally, this committee oversees cybersecurity and other information technology risks and keeps abreast of technology advancements of importance to our business.

Each independent director receives an evaluation survey for each other director Directors forward completed surveys to an outside law firm that compiles results, maintaining confidentiality The law firm provides compiled results to the Corporate Governance Committee Chair who discusses with the CEO The Corporate Governance Committee Chair and CEO address specific issues directly with individual board members as needed The full board discusses results and identifies areas in which the board can be improved and enhanced to increase board effectiveness

Corporate Governance

With respect to investments where we do not operate or control the related entity or operations, we closely monitor these investments and mitigate risk by carefully selecting our business partners. In addition, we may have representation on the entity’s governing body, or we may negotiate contractual protections such as limiting our liability, having independent audit rights or prohibiting certain actions without our consent; or we may utilize a combination thereof.

The risks inherent in our businesses, which primarily involve utilities, the generation of energy, the development of liquefied natural gas (LNG) liquefaction facilities, construction of pipelines in the United States and Mexico and liquid fuels storage terminals in Mexico, and transmission of natural gas and liquefied petroleum gas (LPG) through pipelines, are periodically reviewed by our board and the appropriate board committees. In addition, a review of Sempra Energy’s major risks and mitigation strategies is presented to the full board annually.

Board and Management Approach to Sustainability

The board takes an active role in providing oversight of sustainability through its Environmental, Health, Safety and Technology Committee. This includes reviewing business strategies on safety and reliability, system modernization, and electrification and decarbonization, while overseeing efforts that minimize the impact of company operations on the environment. We rigorously track performance on environmental, social and governance-related topics and issues and incorporate many elements of sustainability into our risk management approach.

Our annual sustainability report includes companywide and subsidiary goals and results in the areas of emissions reduction, renewable energy, energy efficiency, water use, employee and public safety, electric reliability, customer assistance programs, diversity and inclusion, employee engagement and community giving. We also publicly report detailed information annually on our greenhouse gas emissions and climate-related risks and opportunities.

Succession Planning and Management Development

Our Compensation Committee oversees and regularly evaluates leadership succession planning practices and results. The committee reports annually to the Board of Directors on succession planning, including policies and principles for executive officer selection. In connection with this review and Ms. Reed’s announced retirement as President and Chief Executive Officer effective May 1, 2018, and as Chairman and a director effective December 1, 2018, the board appointed Jeffrey W. Martin, who currently is serving as Executive Vice President and Chief Financial Officer, as Chief Executive Officer, and Joseph A. Householder, who currently is serving as Corporate Group President—Infrastructure Businesses, as President, in each case effective May 1, 2018.

Review of Related Person Transactions

SEC rules require us to disclose certain transactions involving more than $120,000 in which we are a participant and any of our directors, nominees as directors or executive officers, or any member of their immediate families, has or will have a direct or indirect material interest. The charter of our Corporate Governance Committee requires the committee to review and approve or ratify any such “related person transaction” that is required to be disclosed. In accordance with its charter, the Corporate Governance Committee reviewed and approved a transaction with Bicker, Castillo & Fairbanks disclosed on page 18 of this proxy statement. Gwyn Bicker, a named partner of Bicker, Castillo & Fairbanks, is the sister-in-law of Jeffrey W. Martin. There have been no other transactions or proposed transactions requiring such review during 2017 or 2018 through the date of the mailing of this proxy statement.

Director Orientation and Education Programs

Every new director participates in an orientation program and receives materials and briefings to acquaint him or her with our business, industry, management and corporate governance policies and practices. Continuing education is provided for all directors through board materials and presentations, discussions with management, visits to corporate facilities and other sources. Several directors, at the company’s expense, also attend third-party offered education courses and participate in the National Association of Corporate Directors (NACD), of which the company is a member.

Board Access to Senior Management, Independent Accountants and Counsel

Directors have complete access to our senior management and other employees, as well as to our independent registered public accounting firm. They also have complete access to counsel, advisors and experts of their choice with respect to any issues relating to the board’s discharge of its duties.

Retirement Policy

In accordance with our Corporate Governance Guidelines, directors should not stand for election after attaining the age of 75.

Corporate Governance

Board Committees

The following chart sets forth our standing board committees and membership on these committees.

Audit Committee

Our Audit Committee is composed entirely of independent directors. It is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm, which reports directly to the committee. The committee prepares the report included in the proxy statement under the caption “Audit Committee Report.” It also assists the Board of Directors in fulfilling oversight responsibilities regarding:

The board has determined that each member of the Audit Committee is financially literate. It also has determined that Mr. Taylor, who chairs the committee, is an audit committee financial expert as defined by the rules of the SEC.

During 2017, the Audit Committee held seven meetings.

Compensation Committee

Our Compensation Committee is composed entirely of independent directors. It assists the Board of Directors in the evaluation and compensation of our executives. It establishes our compensation principles and policies and oversees our executive compensation program and executive succession planning. The committee’s responsibilities include:

During 2017, the Compensation Committee held four meetings.

Audit Compensation Corporate Governance Environmental, Health, Safety and Technology Executive Alan L. Boeckmann Kathleen L. Brown Andrés Conesa Maria Contreras-Sweet Pablo A. Ferrero William D. Jones Bethany J. Mayer William G. Ouchi Debra L. Reed William C. Rusnack Lynn Schenk Jack T. Taylor James C. Yardley Committee Chairman

Corporate Governance

For additional information regarding the Compensation Committee’s principles, policies and practices, please see the discussion under “Executive Compensation — Compensation Discussion and Analysis.”

Corporate Governance Committee

Our Corporate Governance Committee is composed entirely of independent directors. The committee’s responsibilities include:

The committee reviews with the board the skills and characteristics required of directors in the context of current board membership, as well as the company’s long-term business strategy. It seeks a group of individuals who bring to the board a variety of complementary skills and a range of viewpoints, backgrounds, experiences and other individual qualities and attributes that contribute to overall board diversity. It solicits the names of director candidates from a variety of sources, including members of the board and search firms. The committee also considers candidates submitted by shareholders. The committee assesses the effectiveness of its policies as part of its annual review of board composition and board, committee and individual director performance and in its recommendations to the board of nominees for election as directors at the next Annual Shareholders Meeting.

The committee reviews biographical data and other relevant information regarding potential board candidates, may request additional information from the candidates or other sources and, if the committee deems it appropriate, may interview candidates and consult references and others who may assist in candidate evaluation. The committee evaluates all candidates in the same manner whether identified by shareholders or through other sources.

In considering potential director candidates, the committee evaluates each candidate’s integrity, independence, judgment, knowledge, experience and other relevant factors to develop an informed opinion of his or her qualifications and ability and commitment to meet the board’s expectations for directors as set forth in our Corporate Governance Guidelines. The committee’s deliberations reflect the board’s requirement that substantially all directors should be independent and that all director nominees must be financially literate or must become financially literate within a reasonable time after becoming a director. They also reflect the board’s view regarding the appropriate number of directors and the composition of the board, including its belief that the membership of the board should reflect diversity.

The committee, in recommending nominees for election as directors at the 2017 Annual Shareholders Meeting, and the board, in approving the nominees, considered the individual experience, qualifications, attributes and skills of each nominee (including his or her prior contributions to the board), with a view to constituting a board that, as a whole, is well-qualified to oversee our businesses.

With respect to Dr. Ouchi, the committee and the board also considered that in 2010 he was a director of FirstFed Financial Corp. and during 2009 and prior years he also served as a director of FirstFed’s subsidiary First Federal Bank of California. In January 2009, First Federal Bank consented to an order by the Office of Thrift Supervision that First Federal Bank and its directors and employees cease and desist engaging in unsafe or unsound banking practices. In December 2009, First Federal Bank was closed by the Office of Thrift Supervision and in January 2010, FirstFed Financial filed for liquidation under the Bankruptcy Code. The committee and the board concluded that these events do not reflect upon the integrity of Dr. Ouchi or, in view of the unprecedented and historic national and international financial crisis that resulted in the insolvency of numerous financial institutions, his ability and qualifications to serve on our board.

During 2017, the Corporate Governance Committee held six meetings.

Corporate Governance

Environmental, Health, Safety and Technology Committee

Our Environmental, Health, Safety and Technology Committee is composed entirely of independent directors, and is responsible for:

During 2017, the Environmental, Health, Safety and Technology Committee held four meetings.

Executive Committee

Our Executive Committee meets on call by the Chairman of this committee during the intervals between meetings of the Board of Directors when scheduling or other requirements make it difficult to convene the full board. During 2017, the Executive Committee held no meetings.

In addition to the standing board committees described above, the board may, from time to time, establish ad hoc committees to address particular matters, transactions and projects. During 2017, the board maintained ad hoc committees, three of which are described below:

LNG Construction and Technology Committee

Our LNG Construction and Technology Committee, whose members are Alan L. Boeckmann, Chair, William C. Rusnack and James C. Yardley, is responsible for:

During 2017, the LNG Construction and Technology Committee held one meeting.

Special Matters Committee

Our Special Matters Committee, whose members are William C. Rusnack, Chair, William D. Jones, Jack T. Taylor and James C. Yardley, meets at the direction of the board to serve as an advisor to the board with respect to special matters that affect the company, to review and analyze issues pertaining to special matters, and to oversee the management and resolution of issues relating to special matters. The Special Matters Committee is advising the board on the natural gas well leak at the Southern California Gas Company Aliso Canyon natural gas storage facility and related matters. The leak was sealed in February 2016. The committee will continue to operate in close coordination with the full board and closely track developments with respect to Aliso Canyon.

During 2017, the Special Matters Committee held seven meetings.

Demand Review Committee

Our Demand Review Committee, whose members are William C. Rusnack, Chair, and Alan L. Boeckmann, meets on call by the chairman of this committee as needed to investigate allegations set forth in demands received from shareholders relating to the natural gas well leak at the Southern California Gas Company Aliso Canyon natural gas storage facility and related matters, and to provide a recommendation to the Board of Directors for any actions that the committee determines are necessary or appropriate in light of its review of the demands.

During 2017, the Demand Review Committee held one meeting.

Corporate Governance

Communications with the Board

Shareholders, employees and interested parties who wish to communicate with the board, non-management directors as a group, a board committee or a specific director may do so by mail addressed to the attention of our Corporate Secretary. All such communications regarding executive compensation will be relayed to the Compensation Committee Chair for appropriate evaluation and consideration. All such communications regarding accounting, accounting policies, internal accounting controls and procedures, auditing matters, financial reporting processes, or disclosure controls and procedures will be relayed to the Audit Committee Chair.

All other communications are reviewed by the Corporate Secretary and provided to the directors consistent with a screening policy providing that unsolicited items, sales materials, and other routine items and items unrelated to the duties and responsibilities of the board are not relayed to directors. Any communication that is not relayed is recorded in a log and made available to the directors.

The address for these communications is:

		Corporate Secretary Sempra Energy 488 8th Avenue San Diego, CA 92101

Corporate Governance

Director Compensation

Summary

Our 2017 director compensation program is summarized in the table below:

Retainers

Directors who are not employees of Sempra Energy received annual retainers as set forth in the table above. Directors may elect to receive their retainer in cash or to defer it into phantom investment funds (including a fund for which interest is credited at the higher of 110 percent of the Moody’s Corporate Bond Yield Average or the Moody’s Corporate Bond Yield Average plus 1 percent) or phantom shares of our common stock.

Equity

Each quarter, non-employee directors are credited with a number of vested phantom shares of our common stock having a market value of $12,500, which we refer to as Mandatory Deferred Equity and are required to hold these phantom shares until retirement or separation from the board. Following the director’s retirement or separation from the board, the current market value of the shares credited to the director’s account (together with reinvested dividend equivalents) is paid to the director in cash. Directors also receive initial or annual grants of restricted stock units or phantom shares of our common stock, which are subject to the vesting requirements described below.

Upon first becoming a director, each non-employee director receives an initial grant of restricted stock units or phantom shares having a market value of $180,000 and vesting in three equal annual installments (together with related reinvested dividend equivalents) on each of the first three anniversaries of the grant date.

Thereafter, at each annual meeting (other than the annual meeting that coincides with or first follows the director’s election to the board), each non-employee director who continues to serve as a director will receive an additional grant of restricted stock units or phantom shares having a market value of $60,000 and vesting on the date of the next annual meeting.

Unvested restricted stock units or phantom shares immediately vest if the director’s service on the board terminates by reason of death, disability or removal without cause. Upon any other termination event, all unvested units or phantom shares are forfeited.

Corporate Governance

Director Compensation Table

We summarize below the 2017 compensation of our non-employee directors who served on our board during the year.

The following tables reflect the components of the stock awards granted to each non-employee director in 2017 and the outstanding equity balances with respect to those awards for each director as of December 31, 2017.

Corporate Governance

In 2017, all long-term incentive compensation was delivered through phantom shares and restricted stock units, and no stock options were granted. The following table summarizes the number of stock options, phantom shares and restricted stock units outstanding for each non-employee director at December 31, 2017:

Directors who also are employees of the company are not additionally compensated for service as a director. Compensation of Debra L. Reed and Jeffrey W. Martin (who will become the chief executive officer and a director on May 1, 2018) is summarized in the Summary Compensation Table appearing under “Executive Compensation—Compensation Tables.”

Audit Committee Report

The Audit Committee of the Board of Directors is composed of the six directors named below, all of whom have been determined by the board to be independent directors. The board also has determined that all members of the committee are financially literate and that Mr. Taylor, the chair of the committee, is an audit committee financial expert as defined by the rules of the Securities and Exchange Commission. The committee’s charter, adopted by the board, is posted on the company’s website at www.sempra.com under the “Investors” and “Governance” tabs.

The committee’s responsibilities include appointing the company’s independent registered public accounting firm, pre-approving both audit and non-audit services to be provided by the firm and assisting the board in providing oversight of the company’s financial reporting process. In fulfilling its oversight responsibilities, the committee meets with the company’s independent registered public accounting firm, internal auditors and management to review accounting, auditing, internal control and financial reporting matters.

It is not the committee’s responsibility to plan or conduct audits or to determine that the company’s financial statements and disclosures are complete, accurate and in accordance with accounting principles generally accepted in the United States and applicable laws, rules and regulations. Management is responsible for the company’s financial statements, including the estimates and judgments on which they are based, as well as the company’s financial reporting process, accounting policies, internal audit function, internal accounting controls, disclosure controls and procedures, and risk management. The company’s independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an audit of the company’s annual financial statements, expressing an opinion as to the conformity of the annual financial statements with accounting principles generally accepted in the United States, expressing an opinion as to the effectiveness of the company’s internal control over financial reporting and reviewing the company’s quarterly financial statements.

The committee has discussed with Deloitte & Touche LLP the matters required to be discussed by the rules of the Public Company Accounting Oversight Board Auditing Standard No. 1301, “Communications with Audit Committees,” which requires the independent registered public accounting firm to communicate information to the committee regarding the scope and results of its audit of the company’s financial statements, including information with respect to the firm’s responsibilities under auditing standards generally accepted in the United States, significant accounting policies, management judgments and estimates, any significant unusual transactions or audit adjustments, any disagreements with management and any difficulties encountered in performing the audit and other such matters required to be discussed with the committee by those standards.

The committee also has received from Deloitte & Touche LLP a report providing the disclosures required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence. Deloitte & Touche LLP also has discussed its independence with the committee and confirmed in the report that, in its professional judgment, it is independent of the company within the meaning of the federal securities laws. The committee also considered whether Deloitte & Touche LLP’s provision of non-audit services to the company and its affiliates is compatible with its independence.

The committee also has reviewed and discussed with the company’s senior management the audited financial statements included in the company’s Annual Report on Form 10-K for the year ended December 31, 2017, and management’s reports on the financial statements and internal control over financial reporting. Management has confirmed to the committee that the financial statements have been prepared with integrity and objectivity and that management has maintained an effective system of internal control over financial reporting. Deloitte & Touche LLP has expressed its professional opinions that the financial statements conform with accounting principles generally accepted in the United States of America and that management has maintained an effective system of internal control over financial reporting. In addition, the company’s Chief Executive Officer and Chief Financial Officer have reviewed with the committee the certifications that each will file with the Securities and Exchange Commission pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and the policies and procedures management has adopted to support the certifications.

Based on these considerations, the Audit Committee has recommended to the Board of Directors that the company’s audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2017, for filing with the Securities and Exchange Commission.

Audit Committee

Jack T. Taylor, Chair

Andrés Conesa

Maria Contreras-Sweet

Pablo A. Ferrero

William G. Ouchi

James C. Yardley

Share Ownership

The following table shows the number of shares of our common stock beneficially owned at March 16, 2018, by each of our directors, by each of our executive officers named in the executive compensation tables in this proxy statement, and by all of our directors and executive officers as a group. The shares of common stock beneficially owned by our directors and executive officers as a group total less than 1.0 percent of our outstanding shares. In calculating these percentages, shares under the heading “Phantom Shares” are not included because these phantom shares cannot be voted. In addition, these shares may be settled only for cash or cannot be settled for common stock within 60 days of March 16, 2018.

Share Ownership

Based on filings made under Sections 13(d) and/or 13(g) of the Securities Exchange Act of 1934, as amended, as of December 31, 2017 for Blackrock, Inc. and The Vanguard Group, and as of February 28, 2018 for T. Rowe Price Associates, Inc., the only persons or entities known by us to be a beneficial owner of more than 5 percent of our common stock were as follows:

For information regarding share ownership guidelines applicable to our directors and officers, please see “Corporate Governance—Board of Directors—Director Share Ownership Guidelines” and “Executive Compensation—Compensation Discussion and Analysis—Share Ownership Requirements.”

Section 16(a) Beneficial Ownership Reporting Compliance

Our directors and executive officers are required to file reports with the SEC regarding their ownership of our shares. Based solely on our review of the reports filed and written representations from directors and executive officers that no other reports were required, we believe that all filing requirements were timely met during 2017.

Related Person Transaction

Gwyn Bicker, sister-in-law of Jeffrey W. Martin, our Executive Vice President and Chief Financial Officer, is a named partner in Bicker, Castillo & Fairbanks (Firm), a firm that has performed public communications services for San Diego Gas & Electric Company (SDG&E), an indirect wholly owned subsidiary of Sempra Energy, as part of a public communications effort. In 2017 and 2018, SDG&E’s contractual payments to the Firm are expected to be an aggregate of approximately $250,000, which includes (i) $97,100, representing SDG&E’s payments made under a contract entered into in May 2017 that expired on December 31, 2017, and (ii) payments made and to be made under a contract entered into as of March 1, 2018 that will expire on September 30, 2018.

Proposals to be Voted On

Board of Directors Proposals

Proposals 1, 2 and 3 have been included in this proxy statement at the direction of the Board of Directors. The board recommends that you vote “FOR” each director nominee in Proposal 1 and “FOR” each of Proposals 2 and 3.

Proposal 1: Election of Directors

Directors are elected at each Annual Shareholders Meeting for terms expiring at the next Annual Shareholders Meeting.

The Board of Directors has nominated the following 14 individuals for election as directors, all of whom are currently directors, except Mr. Martin who will join the board on May 1, 2018:

Properly executed proxies will be voted for these 14 nominees unless other instructions are specified. If any nominee should become unavailable to serve, the proxies may be voted for a substitute nominee designated by the board, or the board may reduce the authorized number of directors. In no event may the proxies be voted for more than 14 nominees.

We have not received notice of any additional candidates to be nominated for election as directors at the 2018 Annual Shareholders Meeting and the deadline for notice of the nomination of additional candidates has passed. Consequently, the election of directors will be an uncontested election and our bylaw providing for majority voting in uncontested elections will apply. Under majority voting, to be elected as a director, a nominee must receive votes “FOR” his or her election constituting a majority of the shares represented and voting at the Annual Shareholders Meeting at which a quorum is present, and the “FOR” votes must also represent more than 25 percent of our outstanding shares. If a nominee who currently is serving as a director does not receive sufficient “FOR” votes to be re-elected, the director will cease to be a director not later than 90 days following the certification of the election results, and the resulting vacancy in the board may be filled by the remaining directors.

The board has determined that each non-employee nominee is an independent director. Information concerning the board’s independence standards is contained under the caption “Corporate Governance—Board of Directors—Director Independence.”

Proposals to be Voted On

Our directors possess a valuable breadth and depth of expertise and experience to oversee the company’s multiple businesses and global operations. Our directors, including Mr. Martin who will become a director on May 1, 2018, are experts or have had decision-making roles in the areas reflected in the following chart:

Biographical information regarding each director nominee and his or her qualifications to serve as a director is set forth on the succeeding pages.

In each biography below, the year shown as election as a director is the year that the director was first elected as a director of Sempra Energy. Unless otherwise indicated, each director has held his or her principal occupation or other positions with the same or predecessor organizations for at least the last five years. In addition, the following charts summarize the diversity, tenure and independence of our directors standing for election. As reflected in the charts below, at May 1, 2018 (the date Mr. Martin will become a member of the board), 64 percent of our board members are women or people of color and 86 percent are independent. As of that date, our board has an average tenure of 6.9 years, with 50 percent of our directors standing for election having served less than five years.

Proposals to be Voted On

		Alan L. Boeckmann, 69, has been a director since 2011. In 2012, he retired as the Non-Executive Chairman of Fluor Corporation, a leading engineering, procurement, construction and maintenance services company. From 2002 to early 2011, Mr. Boeckmann was the Chairman and Chief Executive Officer of Fluor. Prior to that, he held a number of senior management and operating positions at Fluor. Mr. Boeckmann is a director of Archer-Daniels-Midland Company, BP p.l.c. and Davidson Academy of Nevada. He is also a former director of Fluor Corporation, BHP Billiton, Burlington Northern Santa Fe Corporation and the National Petroleum Council.   Mr. Boeckmann has been an outspoken business leader in promoting international standards for business ethics and was instrumental in the formation of the World Economic Forum’s Partnering Against Corruption Initiative in 2004. His extensive board, executive management and infrastructure construction experience, coupled with his commitment to ethical conduct in international business activities, makes him a valuable member of our board.
		Kathleen L. Brown, 72, has been a director since 2013. She is a partner of the law firm Manatt, Phelps & Phillips, LLP and serves as a director of Stifel Financial Corp., Five Point Holdings, LLC and Renew Financial. Prior to joining Manatt in September 2013, she worked in various leadership positions at Goldman Sachs Group, Inc., a global investment banking and securities firm. From 2011 to 2013, Ms. Brown served as the chairman of investment banking for Goldman’s Midwest division in Chicago and was managing director and head of the firm’s Los Angeles-based western region public sector and infrastructure group from 2003 to 2011. From 1995 to 2000, Ms. Brown was a senior executive at Bank of America where she served in various positions, including President of the Private Bank. She served as California state treasurer from 1991 to 1995. Ms. Brown currently serves on the boards of directors of the National Park Foundation and the Mayor’s Fund-Los Angeles and on the Investment Committee for the Annenberg Foundation. She is on the Advisory Boards of the Stanford Center on Longevity and the University of California Los Angeles (UCLA) Medical Center. Ms. Brown is a member of the Council on Foreign Relations and the Pacific Council on International Policy.   Ms. Brown has extensive experience in both the public and private financial sectors, as well as in-depth knowledge of California government processes. Her knowledge of the law and experience as a partner at Manatt give her insight into the effects of laws and regulations on our businesses. This combination of public and private financial experience, legal experience and public service in the State of California makes her a valuable member of our board.
		Andrés Conesa, Ph.D., 48, has been a director since 2017. He has been the Chief Executive Officer of Grupo Aeromexico, S.A.B. de C.V. since 2005 and is a director and member of its audit committee. Previously, Dr. Conesa held several positions in the Mexico Federal Government: from 2003 to 2005, he was Chairman of the Board of Directors of CINTRA (the holding company of Aeromexico and Mexicana), and from 1991 to 2004, he served in various capacities at the Mexican Ministry of Finance, most recently as Deputy Undersecretary of Public Credit. He has been a member of the Board of Governors of the International Air Transport Association since 2008 and served as its Chairman during the 2015 term. Dr. Conesa is a former director of Infraestructura Energética Nova, S.A.B. de C.V., Genomma Lab International and the Mexican Stock Exchange.   Dr. Conesa’s extensive experience and knowledge of transnational business activities and the Mexican regulatory and financial sectors make him a valuable member of the board, particularly as we look to expand our operations in Mexico and Latin America.
		Maria Contreras-Sweet, 62, has been a director since 2017. She became the Managing Partner of both Contreras-Sweet Enterprises and Rockway Equity Partners in October 2017. From April 7, 2014 through January 20, 2017, she served as the Administrator of the U.S. Small Business Administration and as a member of President Obama’s cabinet. Ms. Contreras-Sweet was a founder of ProAmerica Bank where she served as Executive Chairwoman from 2006 to 2014. She was Co-Founder and Managing Partner of Fortius Holdings from 2003 to 2006. Prior to that, she served as the California cabinet Secretary of the Business, Transportation and Housing Agency from 1999 to 2003. She was appointed chair to the finance committee of CA-ISO (California Independent System Operator) to help solve the state’s 2000-2001 energy crisis. Ms. Contreras-Sweet served as director of public affairs for Westinghouse Electric Company’s 7-Up/RC Bottling Company, where she rose to vice president and became an equity partner. She is a director of Regional Management Corp. and the Bipartisan Policy Center and is a distinguished fellow of the Larta Institute.   Ms. Contreras-Sweet possesses extensive knowledge and executive experience in both the public and private sectors. She brings a strong understanding of financial markets, infrastructure, supply chains, and global innovation, as well as Latin-American governments, and experience with small and medium-sized businesses, which makes her a valuable contributor to the board.

Proposals to be Voted On

		Pablo A. Ferrero, 55, has been a director since 2013. He is an independent energy consultant. From 2006 to 2011, Mr. Ferrero served as Executive Vice President for the Southern Cone at AEI Energy, a power generation and distribution and gas transmission and distribution company. From 2004 to 2006, he was the Chief Executive Officer of Transportadora de Gas del Sur S.A. He is a director of RDA Renting S.A. and MSU Energy S.A. (UGEN, UENSA, Rio Energy). He is a former director of Metrogas, Pampa Energía, TGS, Transener Edesur, Petrobras Energía, Emdersa, EDESA Holding, EDEN, Emgasud, Servicios Petroleros Argentina, Refinor, Oldelval, Termap, Chilquinta Energía (Chile), Luz del Sur (Peru), Petrolera Andina (Bolivia) and Promigas (Colombia).   Mr. Ferrero has a deep understanding of the energy industry and in particular energy operations in South America. This understanding of international energy operations along with his extensive executive and board experience make him a valuable member of our board.
		William D. Jones, 62, has been a director since Sempra Energy’s inception in 1998. He is the President and Chief Executive Officer and a director of CityLink Investment Corporation, a real estate investment, development and management firm, and City Scene Management Company. From 1989 to 1993, Mr. Jones served as General Manager/Senior Asset Manager and Investment Manager with certain real estate subsidiaries of The Prudential. Prior to joining The Prudential, he served as a San Diego City Council member from 1982 to 1987. Mr. Jones is a director and Board Chair of certain funds under management by Capital Research and Management Company and is a member of the University of California San Diego (UCSD) Real Estate Advisory Council. He is a former Chairman of the Board of Trustees of the Francis Parker School and former board trustee of the University of San Diego. He is a member of the National Association of Corporate Directors and Corporate Directors Forum. Mr. Jones is a former director of The Price Real Estate Investment Trust, Southwest Water Company, the Federal Reserve Bank of San Francisco, and the San Diego Padres baseball club and former Chairman of the Board of the Los Angeles Branch of the Federal Reserve Bank of San Francisco. Mr. Jones has extensive experience as a real estate developer in San Diego, where he built the City Heights Urban Village, an award-winning redevelopment project.   Mr. Jones’s background in the public and financial arenas, along with his real estate expertise, has been helpful to our board as it considers the development of large infrastructure projects, which requires extensive amounts of land and an understanding of the construction and real estate industries. His expertise in these areas makes him a vital member of our board.
		Jeffrey W. Martin, 56, will be a director effective May 1, 2018. Mr. Martin has served as Executive Vice President and Chief Financial Officer of the company since January 2017 and, effective May 1, 2018, will succeed Debra L. Reed as Chief Executive Officer. Previously, Mr. Martin served at SDG&E as the Chief Executive Officer and a director from January 2014 to December 2016, as the Chairman from November 2015 to December 2016 and and as the President from October 2015 to December 2016. From 2010 to 2013, Mr. Martin served as the President and Chief Executive Officer of Sempra U.S. Gas & Power (USGP), a business unit of the company, and USGP’s predecessor organization, Sempra Generation. Before that, he served as the company’s Vice President—Investor Relations. Prior to joining Sempra in December 2004, Mr. Martin served as the President and a director of TruePricing, Inc., an energy technology and advanced metering company. Mr. Martin currently serves as a director of Sempra’s regulated California utilities, SDG&E and Southern California Gas Company (SoCalGas), and of Oncor, of which Sempra indirectly owns approximately 80 percent. Mr. Martin serves on the California Chamber of Commerce board of directors and the University of San Diego board of trustees.   Mr. Martin’s position, effective May 1, 2018, as Chief Executive Officer of Sempra overseeing the management of all aspects of its business, his performance and leadership in previous senior executive positions at Sempra, his experience as an employee of the company and its subsidiaries for more than 13 years and his broad understanding of the energy industry, make him a valuable addition to the board.

Proposals to be Voted On

		Bethany J. Mayer, 56, has been a director since 2017. In January 2018, she became an Executive Partner with Siris Capital Group LLC. From April to December 2017, she was the Senior Vice President of Keysight Technologies and President of its Ixia Solutions Group. From 2014 until its acquisition by Keysight Technologies in 2017, she was the President and Chief Executive Officer and a director of Ixia, a provider of testing, visibility and security solutions for physical and virtual networks. Prior to joining Ixia, Ms. Mayer held several key executive roles at HP since 2010, including as Senior Vice President and General Manager of HP’s Network Business Unit. Prior to joining HP, Ms. Mayer served as Senior Vice President, Worldwide Marketing and Corporate Development at Blue Coat Systems and, before that, she held roles at Cisco Systems, Apple Computer and Lockheed Martin. Ms. Mayer is a director of Pulse Secure LLC and former director of Delphi Automotive plc.   Ms. Mayer’s extensive technology background and deep understanding of network security, together with her executive and public company board experience, make her a valuable member of the board.
		William G. Ouchi, Ph.D., 74, has been a director since Sempra Energy’s inception in 1998. He was the Co-Director of the Health Innovations Board and Professor Emeritus of the David Geffen School of Medicine at UCLA until 2017. Prior to that appointment, he was the Sanford and Betty Sigoloff Distinguished Professor in Corporate Renewal in the Anderson Graduate School of Management at UCLA until 2015. Professor Ouchi is the former lead director of AECOM Technology Corporation and a former director of FirstFed Financial Corp. He is a director of the Alliance for College Ready Public Schools, the Conrad N. Hilton Foundation, the Riordan Foundation and RX for Learning.   Professor Ouchi is a renowned academic and an expert in corporate management and organization. He is a best-selling author and has published numerous books on promoting effective corporate management. Professor Ouchi’s academic background and practical knowledge of national and state public institutions, and his understanding of corporate governance in both theory and practice, make him a valuable member of our board.
		Debra L. Reed, 61, was appointed Chairman of the Board of Directors in 2012 and has been a director and the Chief Executive Officer of the company since 2011 and President since March 1, 2017. Previously, Ms. Reed served as an Executive Vice President of the company. From 2006 to 2010, she was President and Chief Executive Officer of SDG&E and SoCalGas, Sempra Energy’s regulated California utilities. From 2004 to 2006, Ms. Reed was President and Chief Operating Officer of SDG&E and SoCalGas and, before that, she was President of SDG&E and Chief Financial Officer of both companies. Ms. Reed serves on the boards of directors of Halliburton Company and Caterpillar Inc. She is also a director of Oncor. She is a member of The Business Council and serves on the energy and environment and tax and fiscal policy committees of the Business Roundtable. Both associations are composed of chief executive officers of leading U.S. corporations. Ms. Reed also is a member of The Trusteeship, an affiliate of the International Women’s Forum, and the Chairman’s Competitiveness Council of the San Diego Regional Economic Development Corporation. She serves on the University of Southern California Viterbi Engineering School Board of Councilors and on the National Petroleum Council. Ms. Reed is a member of the Rady Children’s Hospital and Health Center Board of Trustees and of the Rady Children’s Hospital—San Diego Board of Directors. She has formerly served as Chair of the San Diego Regional Economic Development Corporation and is a former director of Genentech, Inc. and Avery Dennison Corporation.   Ms. Reed, in her current position as our Chairman, President and Chief Executive Officer, oversees the management of all aspects of our business. She brings decades of service to our company and its subsidiaries and has benefitted from years of hands-on experience with utility and energy infrastructure operations. That experience, coupled with current and prior service as a board member of other large publicly traded companies, brings a multifaceted perspective and in-depth industry understanding to the board.
		William C. Rusnack, 73, has been a director since 2001. He was the President and Chief Executive Officer and a director of Premcor Inc., an independent oil refiner, from 1998 to 2002. Prior to 1998, Mr. Rusnack was an executive of Atlantic Richfield Company, an integrated petroleum company. He is a former director of Flowserve Corporation, Peabody Energy Corporation, and Solutia Inc. Mr. Rusnack is a member of the Dean’s Advisory Council of the Graduate School of Business at the University of Chicago and the National Council of the Olin School of Business at the Washington University in St. Louis.   Mr. Rusnack brings a deep understanding of the energy industry to our board. He spent 31 years at Atlantic Richfield Company, many of which he worked in a senior leadership capacity. Mr. Rusnack also offers knowledge and insight gained as a senior executive with the oil refinery company, Premcor. This specialized energy industry experience, along with his deep understanding of effective executive management development, makes him a valuable member of our board.

Proposals to be Voted On

		Lynn Schenk, 73, has been a director since 2008. She is an attorney in private practice. Ms. Schenk served as Chief of Staff to the Governor of California from 1999 to 2003 and was elected to the U.S. House of Representatives representing San Diego, California, from 1993 to 1995, serving on the House Energy and Commerce Committee. From 1978 to 1983, she served as the Deputy and then Secretary of California’s Business, Transportation and Housing Agency; prior to that she was on the in-house counsel staff of SDG&E and a California Deputy Attorney General. Ms. Schenk is a director of Biogen, where she chairs the Risk Committee and serves on the Compensation Committee. She is a member of the Board of Overseers of The Scripps Research Institute and served on its Governance Committee, a member of the California High Speed Rail Authority, a trustee of the UCSD Foundation, a member of the University of San Diego School of Law, Board of Visitors and a fellow of the Graduate Program, UCLA Luskin School of Public Affairs. She is an NACD Board Leadership Fellow and a member of the NACD Advisory Council on Risk Oversight.   Ms. Schenk has an extensive history of government, political and public service and an in-depth knowledge of the inner workings of federal and state governmental processes. Along with her insight and experience in government, Ms. Schenk’s legal background within our business sector has equipped her with the tools to help our board identify and manage risk. She also has served on the boards of a number of publicly listed companies. This combination enables Ms. Schenk to provide our board with unique perspective on matters pertaining to California’s complex government and regulatory environment, as well as corporate governance.
		Jack T. Taylor, 66, has been a director since 2013. He was the Chief Operating Officer-Americas and Executive Vice Chair of U.S. Operations for KPMG LLP from 2005 to 2010. From 2001 to 2005, he served as the Vice Chairman of U.S. Audit and Risk Advisory Services for KPMG. Mr. Taylor is an NACD Board Leadership Fellow and a member of the NACD Audit Committee Chair Advisory Council. He is a director of Genesis Energy LP and Murphy USA Inc.   Mr. Taylor has extensive experience with financial and public accounting issues as well as a deep knowledge of the energy industry. He spent over 35 years as a public accountant at KPMG LLP, many of which he worked in a leadership capacity. This experience with financial and public accounting issues, together with his executive experience and knowledge of the energy industry, makes him a valuable member of the board.
		James C. Yardley, 66, has been a director since 2013. He was Executive Vice President of El Paso Corporation and President of its Pipeline Group from 2006 through 2012. Mr. Yardley was also the President and Chief Executive Officer of El Paso Pipeline GP Company LLC, the general partner of El Paso Pipeline Partners, L.P., a master limited partnership that owned and operated interstate natural gas transportation pipelines, storage and other midstream assets, from 2007 through 2012. From 1998 through 2006, he was the President of Southern Natural Gas Company, previously a unit of El Paso Corporation and now a unit held jointly by Kinder Morgan Inc. and The Southern Company. Mr. Yardley was formerly a director of El Paso Pipeline GP Company LLC, and of Scorpion Offshore Ltd.   Mr. Yardley has extensive experience in the natural gas industry and in particular the midstream portion of that industry. He has spent over 34 years in the energy sector, many of which he worked in a leadership capacity, and has public company board experience. This specialized energy industry experience, together with Mr. Yardley’s executive and public company board experience, makes him a valuable member of our board.

Proposals to be Voted On

Proposal 2: Ratification of Independent Registered Public Accounting Firm

The Audit Committee of the Board of Directors has retained Deloitte & Touche LLP as the independent registered public accounting firm to audit our financial statements and the effectiveness of our internal control over financial reporting for 2018. Deloitte & Touche LLP has served as our independent public accounting firm continuously since our inception in 1998. Deloitte & Touche LLP or its predecessors have continuously served as the independent public accounting firm of SDG&E and SoCalGas or their parent companies since 1935 and 1937, respectively. Representatives of Deloitte & Touche LLP are expected to attend the Annual Shareholders Meeting and will have the opportunity to make a statement if they desire to do so and to respond to appropriate questions from shareholders.

The following table shows Deloitte & Touche LLP fees for 2017 and 2016.

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of our independent registered public accounting firm, including the oversight of the audit fee negotiations. Except where pre-approval is not required by SEC rules, the committee pre-approves all audit and permissible non-audit services provided by Deloitte & Touche LLP. The committee’s pre-approval policies and procedures provide for the general pre-approval of specific types of services and give detailed guidance to management as to the services that are eligible for general pre-approval. They require specific pre-approval of all other permitted services. For both types of pre-approval, the committee considers whether the services to be provided are consistent with maintaining the firm’s independence. The policies and procedures also delegate authority to the chair of the committee to address any requests for pre-approval of services between committee meetings, with any pre-approval decisions to be reported to the committee at its next scheduled meeting.

The Audit Committee regularly meets in executive session with only committee members present and with Deloitte & Touche LLP’s lead engagement partner without members of management present. This provides an opportunity for the Audit Committee to assess Deloitte & Touche LLP’s effectiveness and independence for determining reappointment as well as consideration of rotating audit firms. The Audit Committee considers various factors in determining whether to reappoint Deloitte & Touche LLP, including: the firm’s level of service, quality, professional integrity and objectivity in executing audits; professional qualifications; understanding of our businesses and industry and capability and expertise in handling the breadth and complexity of our business; independence policies and processes for maintaining independence; and external data such as peer reviews and recent Public Company Accounting Oversight Board reports on the firm. The Audit Committee also considers the firm’s tenure in serving as our independent registered public accounting firm. While the Public Company Accounting Oversight Board has acknowledged that there is no conclusive linkage between tenure and audit quality, auditor tenure may be one data point. Deloitte & Touche LLP’s tenure as our independent public accounting firm has allowed it to gain institutional knowledge and a deep understanding of our businesses, accounting policies, and internal control over financial reporting, which is considered beneficial. In addition, in conjunction with mandated five-year rotation of the audit firm’s lead engagement partner, the Audit Committee and its chairman are directly involved in the selection of the new lead engagement partner.

Proposals to be Voted On

We are asking our shareholders to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2018. Ratification would be advisory only, but the Audit Committee would reconsider the appointment if it were not ratified. The members of the Audit Committee and the Board of Directors believe the continued retention of Deloitte & Touche LLP as our independent registered public accounting firm is in the best interests of the company and our shareholders. Ratification requires the receipt of “FOR” votes constituting a majority of the shares represented and voting at the Annual Shareholders Meeting at which a quorum is present, and the approving majority also must represent more than 25 percent of our outstanding shares.

Proposal 3: Advisory Approval of Our Executive Compensation

Our board recognizes that performance-based executive compensation is an important element in driving long-term shareholder value. Pursuant to Section 14A of the Securities Exchange Act of 1934, we are asking our shareholders to approve an advisory resolution on the compensation of the named executive officers, as reported in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our 2017 executive compensation program.

We are asking our shareholders to indicate their support for the compensation of our named executive officers as described in this proxy statement by voting in favor of the following resolution.

“RESOLVED, as an advisory matter, the shareholders of Sempra Energy approve the compensation paid to the company’s named executive officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.”

Approval requires the receipt of “FOR” votes constituting a majority of the shares represented and voting at the Annual Shareholders Meeting at which a quorum is present, and the approving majority must represent more than 25 percent of our outstanding shares.

Even though the say-on-pay vote is advisory and will not be binding on the company, the Compensation Committee and the Board of Directors value the opinions of our shareholders. Accordingly, to the extent there is a significant vote against the compensation of our named executive officers, we will consider our shareholders’ concerns, and the Compensation Committee will evaluate what actions may be necessary or appropriate to address those concerns.

Proposals to be Voted On

Shareholder Proposal

Proposal 4 was submitted for inclusion in this proxy statement at the direction of shareholder Mr. John Chevedden. The board recommends that you vote “AGAINST” Proposal 4.

Proposal 4: Shareholder Proposal on Enhanced Shareholder Proxy Access

Mr. Chevedden has advised us that he intends to introduce the resolution included below at the Annual Shareholders Meeting. In accordance with SEC rules, the proposal and supporting statement are being reprinted as they were submitted to Sempra Energy by the proponent. Sempra Energy takes no responsibility for them.

The Proposal

Proposal 4 – Enhanced Shareholder Proxy Access

RESOLVED: Stockholders ask the board of directors to amend its proxy access bylaw provisions and any associated documents, to include the following changes for the purpose of decreasing the average amount of Company common stock the average member of a nominating group would be required to hold for 3-years to satisfy the aggregate ownership requirements to form a nominating group and to increase the possible number of proxy access director candidates:

No limitation shall be placed on the number of stockholders that can aggregate their shares to achieve the 3% of common stock required to nominate directors under our Company’s proxy access provisions.

The number of shareholder-nominated candidates eligible to appear in proxy materials will not be less than 2 when our board has less than 12 members. The number of shareholder-nominated candidates eligible to appear in proxy materials will not be less than 3 when our board has more than 12 members.

Even if the 20 largest public pension funds were able to aggregate their shares, they would not meet the current 3% criteria for a continuous 3-years at most companies according to the Council of Institutional Investors. This proposal addresses the situation that our company now has with proxy access potentially for only the largest shareholders who are the most unlikely shareholders to make use of it.

It is especially important to improve a shareholder right, such as proxy access, when there seems to be a board refreshment problem at Sempra that needs to be addressed after the 2018 annual meeting. Three Sempra directors had more than 19-years long-tenure: William Jones, William Ouchi and William Rusnack. Long-tenure can detract from the independence of a director no matter how well qualified. Plus these three 19-year directors, with a potential independence deficit, have greater influence with 4 seats on our most important board committees.

It is upsetting to furthermore have Mr. Rusnack in the role of Lead Director—which demands more independence than a director without this important responsibility. This responsibility has added weight since Mr. Rusnack is charged with additional oversight of our Chairman/CEO who received the highest negative vote of any Sempra director—up to 10-times the negative vote of other of Sempra directors.

Please vote to improve proxy access to give shareholders greater standing to address our board refreshment problem:

Enhanced Shareholder Proxy Access—Proposal 4

Board of Directors’ Statement Opposing the Shareholder Proposal on Enhanced Shareholder Proxy Access

The Board of Directors recommends a vote “AGAINST” this proposal because it believes that the company is best served by retaining the terms of the proxy access bylaw adopted on December 15, 2015. Our proxy access bylaw permits a group of up to 20 shareholders owning an aggregate of 3 percent or more of the company’s common stock continuously for at least three years to nominate candidates for election of up to 20 percent of our board (or a minimum of two directors). The proxy access terms adopted by the company take into consideration the views expressed by most of our largest shareholders during our annual outreach, our existing strong corporate governance structure and guidance from governance professionals. In addition, the key terms of our proxy access bylaw described above are consistent with the vast majority of companies that have adopted proxy access bylaws since 2015.

Proposals to be Voted On

We have adopted a carefully considered proxy access framework that we believe strikes the appropriate balance between enhancing shareholder rights and adequately protecting the best interests of all of our shareholders.

During our 2015 annual shareholder engagement process, we spoke with many shareholders who expressed support for proxy access but had varying perspectives on an appropriate framework. Among the reasons given for supporting proxy access was the belief that such rights would increase accountability of directors to shareholders and give shareholders a more meaningful voice in nominating and electing directors. However, some shareholders expressed concern that proxy access could undermine the role of the company’s independent Corporate Governance Committee, lead to unnecessary expense and distraction, and result in a less experienced, fragmented and, potentially, less effective board.

In evaluating the adoption of proxy access, our board also carefully considered trends and leading practices market-wide. It reviewed the broad variety of proxy access terms included in both shareholder and company proposals, as well as the published guidelines of many of the company’s institutional investors.

Based on the information available to the board and after careful deliberations on the topic, the board concluded that the best course of action for the company and our shareholders was to proactively adopt a proxy access bylaw that struck the appropriate balance between enhancing shareholder rights and adequately protecting the best interests of all of our shareholders. Since our adoption of the proxy access bylaw, we have had further discussions regarding proxy access with a number of our shareholders. Based on their feedback as well as a benchmarking review of proxy access rights adopted by other companies, the board continues to believe that the proxy access framework currently in place provides fair and equitable terms that not only achieve the objectives of our shareholders who support proxy access by providing a meaningful right to shareholders to include their nominees in company proxy materials, but also address concerns expressed by our shareholders about protecting our company from potential abuse of this right.

Our proxy access bylaw permits 20 shareholders (counting as one shareholder a group of funds (i) under common management and investment control or (ii) publicly offered as part of the same family of funds) to aggregate their holdings to reach the 3 percent ownership threshold. The board believes that this limit of 20—rather than no limit as requested by the shareholder proposal—is necessary in order to make the proxy access right manageable, is consistent with the vast majority of companies that adopted proxy access bylaws in 2015 and thereafter and is widely endorsed among institutional shareholders. In addition, with our current ownership structure, there are a number of combinations of 20 shareholders that collectively own at least 3 percent of our shares that can exercise their rights using our current proxy access bylaw.

Our proxy access bylaw provides that the number of director candidates nominated by shareholders can be as high as 20 percent of the number of directors on our board or a minimum of two. As a result, our proxy access bylaw already satisfies the request in the shareholder proposal that the number of shareholder-nominated candidates will not be less than two when our board has less than twelve members. The board believes that it is not necessary to change the proxy access bylaw’s current approach to determining the permissible number of shareholder-nominated candidates because the current approach is consistent with the right provided by a majority of companies that have adopted proxy access and is materially consistent with the proponent’s request.

The board adopted the existing proxy access bylaw because it believes that these terms appropriately balance offering a meaningful and manageable proxy access right while ensuring that such a right will not cause the board to be fragmented and less effective or be used to take control of the company.

We have a strong track record of board refreshment.

In support of his position, the proponent of the shareholder proposal suggests that the company has a board refreshment problem, citing three directors that have more than “19-years long-tenure.” Further, the proponent claims that these three directors have a potential independence deficit and have greater influence with four seats on our most important board committees. In fact, we have only two directors with more than 19-year tenure and we do not believe there is any “independence deficit” with these directors. Our board routinely reviews board and committee composition to help ensure that they have the right balance of experience, competencies and backgrounds to fulfill their oversight obligations for shareholders. As part of that process, the Corporate Governance Committee and the board consider current tenure and potential retirements. Over the last several years our board has been refreshing naturally, including seven new independent directors since 2013, three of whom were added in 2017. Also, rather than focusing simply on the longest tenured directors, we believe that average tenure of the entire board and the range of the directors’ tenures are more relevant. The average tenure of our independent directors is 7.6 years, which is below the average tenure of S&P 500 boards in 2017. In our view, it would be counterproductive to consider independent directors as not independent after a certain length of tenure. We believe that shareholders are best served by having a board composed, in part, of a select group of very experienced directors that can serve on particular committees where their expertise may be most valuable.

Our strong corporate governance structure promotes responsiveness to shareholders.

The company’s existing corporate governance structure reflects our ongoing commitment to strong and effective governance practices as well as our responsiveness and accountability to shareholders. We review our corporate governance guidelines annually and, as necessary, refine them to take into account evolving best practices and address feedback provided by our shareholders and other stakeholders.

Proposals to be Voted On

In addition to adopting a proxy access bylaw in 2015, we have numerous other corporate governance measures in place to drive accountable, independent board oversight, including:

In light of the board’s continuing commitment to ensuring effective corporate governance, as evidenced by the adoption of a proxy access bylaw and by the other practices described above and elsewhere in this proxy statement, the board believes that adoption of this proposal is not necessary.

The Board of Directors recommends that you vote “AGAINST” Proposal 4.

Executive Compensation

Compensation Discussion and Analysis

Executive Summary

In this Compensation Discussion and Analysis, we:

Table 1

This Compensation Discussion and Analysis focuses on the compensation of our named executive officers:

Table 2

Executive Compensation

Business Overview

Sempra Energy is an energy services holding company. Our companies invest in, develop and operate energy infrastructure, and provide natural gas and electricity services to customers in North and South America. Our investments across these businesses are focused on long-term opportunities that we believe should deliver higher returns than our utility peers with a commensurate risk profile.

Sempra Energy’s two types of businesses are:

Our operations extend beyond those of a typical utility and we have growing international operations. Thus, we evaluate our performance against the S&P 500 Utilities Index as well as the broader market. Our labor market for senior management talent also extends beyond the utility industry, as discussed under Labor Market Benchmarking on page 39. Some significant events over the past 10 years include:

In August 2017, we entered into an agreement to acquire an approximate 80-percent indirect ownership interest in Oncor, a regulated electric distribution and transmission business that operates the largest distribution and transmission system in Texas. The transaction closed on March 9, 2018. Oncor will provide a new platform for expansion in the U.S. Gulf Coast and cross-border energy markets.

We anticipate that our business model will continue to become more diversified. We expect to deliver balanced, solid growth across our portfolio of businesses, which provides us with a broad spectrum of opportunities to deploy capital at attractive terms. Our current five-year (2018-2022) capital plan for Sempra Energy and its subsidiaries totals approximately $25 billion, including the approximately $9.45 billion purchase price for our approximate 80 percent interest in Oncor, and includes new investment opportunities in utility operations and infrastructure projects in the U.S. and Latin America that we believe should yield attractive returns consistent with our strategy.

Performance Highlights

Financial Performance

GAAP earnings for 2017, which like many businesses’, were impacted by the enactment of the Tax Cuts and Jobs Act of 2017, were $256 million, or $1.01 per diluted share (a decrease of 81 percent compared to 2016 earnings of $1,370 million, or $5.46 per diluted share). We achieved 2017 adjusted earnings of $5.42 per diluted share, compared to 2016 adjusted earnings of $5.05 per diluted share. The 2017 impact of the enactment of tax reform legislation accounted for $3.45 per diluted share of the difference between GAAP and adjusted earnings. Our 2017 adjusted earnings exceeded 2016 adjusted earnings by 8 percent. Our higher adjusted earnings in 2017 were driven by strong operational results across our businesses, including several pipelines being placed in service in Mexico, increased earnings from projects at SoCalGas and disciplined cost management.

Our long-term growth has been strong, with market capitalization increasing by almost $11 billion over the past 10 years. Our stock has provided investors with solid long-term returns, outperforming both the S&P 500 Utilities Index and the S&P 500 Index over a 10-year period. Our GAAP earnings per diluted share were $4.16 in 2007, $3.48 in 2012 and $1.01 in 2017. As discussed above, our 2017 GAAP earnings were significantly impacted by tax reform. On an adjusted basis, earnings per diluted share increased from $4.16 in 2007 to $4.35 in 2012 and to $5.42 in 2017.⁽¹⁾

We also have continued to grow our common stock dividend. The compound annual growth rate (CAGR) of our common stock dividend exceeded the median CAGR for companies in the S&P 500 Utilities Index over the past one, three, five and 10 years. From 2007 to 2017, we increased our dividend by 165 percent. On February 22, 2018, the Board of Directors approved an additional increase of approximately 9 percent in our dividend to $3.58 per common share on an annualized basis.

Executive Compensation

Performance Highlights

Figure 1 (1) See footnote (1) on prior page. (2) For periods ending December 31, 2007, December 31, 2012 and December 31, 2017. (3) For periods ending December 31, 2017. 2017 and Recent Accomplishments and Highlights Oncor Acquisition Announced in August 2017 the planned $9.45 billion acquisition of ~80% interest in Oncor Reached all-party settlement among Texas stakeholders confirming transaction is in public interest Secured financing to close transaction Received approval of transaction from the Public Utilities Commission of Texas Closed acquisition on March 9, 2018 Largest transmission and distribution system in Texas Texas is the top energy growth market in the U.S. Represents a significant addition to our Gulf Coast growth platform Oncor announced $8.4 billion capital plan Sempra Utilities Two-year cost of capital extension was approved for SDG&E and SoCalGas, increasing earnings visibility SDG&E and SoCalGas filed their 2019 General Rate Cases, which include requests for significant capital spending programs to continue to enhance safety and reliability SDG&E placed 30-MW lithium-ion battery storage facility into service, one of the largest of its kind SoCalGas received approval from the California Public Utilities Commission (CPUC) and the California Department of Conservation, Division of Oil, Gas, and Geothermal Resources to resume limited injections at Aliso Canyon San Onofre Nuclear Generating Station (SONGS) settlement reached in August 2017, subject to CPUC approval Sempra Infrastructure Cameron LNG joint venture continued construction of Trains 1-3 Cameron LNG joint venture reached constructive settlement agreement with engineering, procurement and construction (EPC) contractor IEnova placed three natural gas pipelines into service IEnova signed agreements with Valero to build out three liquid fuels storage facilities for an estimated $275 million IEnova closed acquisition of an additional 25 percent indirect interest in the Los Ramones Norte pipeline IEnova benefited from a full year of earnings from Gasoductos de Chihuahua (now IEnova Pipelines) and the 252-MW Ventika wind facility, which were acquired by IEnova in late 2016

Executive Compensation

Compensation Program Overview for 2017

Our executive compensation program is designed to attract, motivate and retain key executive talent and promote strong, sustainable long-term performance. The three components of total direct compensation delivered in our program are 1) Base Salary; 2) Performance-Based Annual Bonus; and 3) Long-Term Equity-Based Incentives. We place an emphasis on variable performance-based pay, with approximately 86 percent of our Chief Executive Officer’s total target compensation based on achievement of performance objectives. Each component promotes value creation and aligns our management team’s compensation with our long-term strategic objectives.

Table 3

Shareholder Engagement and Compensation Program Changes for 2017

Incorporating shareholder feedback into the decision-making process is a critical component of our corporate governance philosophy. Our board and management have a long-standing commitment to engaging our shareholders and soliciting their perspectives on key performance, governance, and compensation matters.

Following our 2016 Annual Meeting “say-on-pay” vote, we conducted extensive shareholder engagement to gather feedback on our compensation program and changes the Compensation Committee was considering for 2017. Our Lead Director participated in many of these meetings to strengthen the communication of feedback directly to the board. Based on an evaluation of our business strategy, consultation with our independent compensation consultant, the result of our annual “say-on-pay” vote, and input received during our shareholder engagement process, the Compensation Committee made a number of key refinements to our compensation program for 2017. These refinements were discussed in our 2017 proxy statement and during in-season shareholder engagement meetings, but in some cases applied to compensation decisions made for 2017, while the “say on pay” vote at our 2017 Annual Meeting was a vote on our 2016 compensation program and practices. Our 2017 Annual Meeting “say-on-pay” vote received over 97 percent approval.

During our shareholder engagement campaign in 2017, we contacted shareholders representing 50 percent of Sempra Energy’s total outstanding shares, and held telephonic meetings with shareholders representing 37 percent of our total outstanding shares (approximately 45 percent of our institutional share ownership). These engagement efforts were in addition to our normal investor relations outreach done on an ongoing basis. During these meetings, we reviewed our compensation program (among other topics), including those refinements that had been disclosed in the 2017 proxy statement. Feedback from our shareholders on the 2017 compensation program refinements generally has been very positive.

Executive Compensation

An overview of the 2017 Compensation Program changes is provided below.

CEO Target Compensation Summary

Ms. Reed’s target compensation did not significantly increase in 2016 and remained unchanged in 2017. Her salary was increased nominally in 2016 to retain alignment to the peer median, following an increase in 2015 to adjust target compensation from the 25^th percentile to the median. As discussed above under “Shareholder Engagement and Compensation Program Changes for 2017,” the Compensation Committee did not increase our Chief Executive Officer’s base salary or total target compensation for 2017, which was the first annual salary and incentive plan target determination following our 2016 Annual Shareholders Meeting.

Table 4

2017 Compensation Program Changes For the relative TSR portion of the long-term incentive plan (LTIP), performance against the S&P 500 Utilities Index and S&P 500 Index is now measured separately. Consistent with our business mix, we created two measures of performance: 70% of the Relative Total Shareholder Return LTIP awards (or 56% of total LTIP awards) is earned based on performance against the S&P 500 Utilities Index 30% of such awards (or 24% of total LTIP awards) is earned based on performance against the S&P 500 Index Performance results for earnings per share growth excludes the impact of stock buybacks not contemplated in the financial plans publicly communicated prior to the grant date Compensation Committee maintained strong alignment to the median of our general industry peer group for our CEO total target compensation for 2017 with no 2017 increase in salary or total target compensation Beginning with the 2017 proxy statement, added proxy statement tables summarizing: Key metrics in our compensation program and their alignment to our long-term strategy Compensation Committee’s target-setting process CEO target compensation

Executive Compensation

Pay for Performance Alignment

The Compensation Committee believes that pay should be structured to align executive compensation with company performance and with the interests of our shareholders. Approximately 86 percent of Ms. Reed’s 2017 total target compensation was performance-based. Our incentive plans deliver payouts that are aligned with company performance. This is demonstrated by comparing the performance outcomes of our recent LTIP payouts for our relative TSR-based awards, which comprise 80 percent of our LTIP grant date award value (100 percent for our 2012-2015 and 2013-2016 awards) and directly tie our stock price performance to our payouts.

LTIP Award		Performance Result				Payout
2012 – 2015 TSR-Based Award		96th Percentile TSR vs. S&P 500 Utilities Index				150% of Target
2013 – 2016 TSR-Based Award		40th Percentile TSR vs. S&P 500 Utilities Index				38% of Target
2014 – 2017 TSR-Based Award		27th Percentile TSR vs. S&P 500 Utilities Index				No Payout
2015 – 2017 TSR-Based Award		24th Percentile TSR vs. S&P 500 Utilities Index				No Payout

Table 5

Note: The 2012-2015 TSR-Based Award vested in January 2016, the 2013-2016 TSR-Based Award vested in January 2017, and the 2014-2017 and 2015-2017 awards did not vest and were forfeited in January 2018. For additional information, see “Executive Compensation – Compensation Tables – Option Exercises and Stock Vested” following this Compensation Discussion and Analysis.

Executive Compensation

Figure 3

Components Base Salary Actual Performance-Based Annual Bonus Relative TSR-Based Restricted Stock Units Reported: Valued based on grant date closing stock price Realized (2014 and 2015): Actual value realized Realizable value as of 12/31/17 (2016 and 2017): Based on relative TSR performance through 12/31/17 and closing stock price on 12/31/17 EPS Growth-Based Restricted Stock Units Reported: Valued based on grant date closing stock price Realized (2014 and 2015): Actual value realized Realizable value as of 12/31/17 (2016 and 2017): Based on target(1) performance through 12/31/17 and closing stock price on 12/31/17 TSR-Based Awards Detail Chart TSR-based restricted stock unit awards are the largest component of Ms. Ree’s target total direct compensation. There was no payout for the 2014 and 2015 TSR-based awards. Based on relative TSR performance through 12/31/17, the current value of the 2016 award is $0 and the current value of the 2017 award is below target. Tight alignment exists between CEO’s compensation and company’s relative TSR performance. There are opportunities and significant incentive to improve TSR performance, which directly aligns management with the interests of shareholders.

Executive Compensation

Rigor of Incentive Targets

At the start of each year, our Compensation Committee sets challenging yet achievable incentive targets, with a focus on motivating our team to drive industry-leading performance and sustained value creation.

Performance-Based Annual Bonus Plan

For 2017, the Compensation Committee selected earnings (85 percent weighting) and employee and public safety and customer service (15 percent weighting) for the measurement of annual corporate performance under the performance-based annual bonus plan. The committee utilizes earnings as the basis of its primary annual bonus metric because it believes the measure provides an accurate and comprehensive picture of annual company financial performance that plan participants, shareholders, analysts and other parties clearly understand. The committee makes certain pre-established adjustments to earnings as described in Appendix D to calculate earnings for annual bonus plan purposes. For 2017, the committee set a challenging earnings target for the performance-based annual bonus plan, based on the company’s financial plan, of $1,282 million in earnings, an increase of $40 million over our 2016 target earnings for annual bonus plan purposes of $1,242 million.

Our 2017 GAAP earnings were $256 million. Actual 2017 earnings adjusted for annual bonus plan purposes were $1,377 million. The most significant differences between GAAP earnings and earnings adjusted for annual bonus plan purposes were an $870 million income tax expense related to the 2017 impact of the enactment of tax reform legislation and a $208 million after-tax charge related to a negative regulatory decision (which the company is disputing). The regulatory decision, which relates to the 2007 San Diego wildfires, resulted in the write-off of a regulatory asset at SDG&E. Both of these adjustments were pre-established at the time the Compensation Committee determined the 2017 annual bonus plan goals. For a reconciliation of GAAP earnings to earnings adjusted for annual bonus plan purposes, see “Adjustments to 2017 GAAP Earnings for Annual Bonus Plan Purposes” on page 44.

Long-Term Equity-Based Incentives

Based on shareholder feedback received during our shareholder outreach in the Fall of 2016, the Compensation Committee moved from an integrated award design that measured performance against both the S&P 500 Utilities Index and the S&P 500 Index within one award to a bifurcated award design that measures relative total shareholder return performance against these two indices independently under separate award components. The 2017 performance measures and weightings for the long-term incentive plan awards are:

Figure 4

The 2017 long-term incentive plan awards included two performance measures—relative total shareholder return (80 percent total weighting with 56 percent based on performance against the S&P 500 Utilities Index and 24 percent based on performance against the S&P 500 Index) and earnings per share growth (20 percent weighting). The Compensation Committee measures performance against challenging targets in order to drive long-term growth and closely align executives’ interests with those of our shareholders.

In the event that Sempra Energy’s total shareholder return does not exceed the 25^th percentile of the relevant index (S&P 500 Utilities Index or S&P 500 Index), participants will receive zero shares for that portion of the award. In addition, performance at or above the 90^th percentile of the relevant index (S&P 500 Utilities Index or S&P 500 Index) is required to achieve the maximum payout. For the earnings per share CAGR portion of the LTIP, zero payout is made if our earnings per share CAGR is at or below the 25^th percentile of consensus expectations for our S&P 500 Utilities Index peers. To achieve maximum payout, performance at or above the 90^th percentile of

Executive Compensation

consensus expectations for utility peers is required. We believe that the structure of our payouts is particularly rigorous relative to the LTIP designs of many of our S&P 500 Utilities Index peers, where in many cases: