SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549 
FORM 10-K

(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange 
    Act of 1934
For the fiscal year ended                      December 31, 1996               
   OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities 
    Exchange Act of 1934
For the transition period from                     to     
                Exact
               Name of                                                  
Commission     Registrant                                 IRS Employer    
File           as specified        State of               Identification  
Number         in its charter      Incorporation          Number                
- ----------     --------------      --------------         --------------     
1-3779         SAN DIEGO GAS &                                            
               ELECTRIC COMPANY      California           95-1184800       
                                                                                
1-11439        ENOVA CORPORATION     California           33-0643023       
                                                                                
101 ASH STREET, SAN DIEGO, CALIFORNIA                              92101       
- -----------------------------------------                        ----------
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code            (619)696-2000
                                                              --------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                                        Name of each exchange
Title of each class                                     on which registered
- -------------------                                     ---------------------
San Diego Gas & Electric Company
Preference Stock (Cumulative)
   Without Par Value (except $1.70 and $1.7625 Series)              American  
   Cumulative Preferred Stock, $20 Par Value (except 4.60% Series)  American  

Enova Corporation                                                              
Common Stock, Without Par Value                          New York and Pacific 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
San Diego Gas & Electric Company                                         None
Enova Corporation                                                        None

Indicate by check mark whether the registrant (1) has filed all reports  
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to 
such filing requirements for the past 90 days. 
Yes [ X ]   No  [   ]   
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K.  [  ]  

Exhibit Index on page 68.  Glossary on page 75. 

Aggregate market value of the voting stock held by non-affiliates of the 
registrant as of February 28, 1997:
Enova Corporation Common Stock                                $2.6 Billion
San Diego Gas & Electric Company Preferred Stock              $19 Million

Common Stock outstanding without par value as of February 28, 1997:

Enova Corporation:                                               116,614,314   

San Diego Gas & Electric Company:            Wholly owned by Enova Corporation

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the 1996 Annual Report to Shareholders are incorporated by 
reference into Parts I, II, and IV.

Portions of the March 1997 Proxy Statement prepared for the April 1997 annual
meeting of shareholders are incorporated by reference into Part III.


TABLE OF CONTENTS

PART I
Item 1.   Business . . . . . . . . . . . . . . . . . . . . . .  3
Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . 18
Item 3.   Legal Proceedings  . . . . . . . . . . . . . . . . . 19
Item 4.   Submission of Matters to a Vote of Security Holders. 22
          Executive Officers of the Registrant . . . . . . . . 23
PART II
Item 5.   Market for Registrant's Common Equity and Related
             Stockholder Matters . . . . . . . . . . . . . . . 24
Item 6.   Selected Financial Data  . . . . . . . . . . . . . . 25
Item 7.   Management's Discussion and Analysis of Financial  
             Condition and Results of Operations . . . . . . . 26
Item 8.   Financial Statements and Supplementary Data -- 
          Enova Corporation. . . . . . . . . . . . . . . . . . 27
          San Diego Gas & Electric Company . . . . . . . . . . 52
Item 9.   Changes in and Disagreements with Accountants on 
              Accounting and Financial Disclosure  . . . . . . 61

PART III
Item 10.  Directors and Executive Officers of the Registrant . 61
Item 11.  Executive Compensation . . . . . . . . . . . . . . . 61
Item 12.  Security Ownership of Certain Beneficial Owners 
              and Management . . . . . . . . . . . . . . . . . 61
Item 13.  Certain Relationships and Related Transactions . . . 61

PART IV
Item 14.  Exhibits, Financial Statement Schedule and Reports
              on Form 8-K  . . . . . . . . . . . . . . . . . . 62

Independent Auditors' Consent and Report on Schedule . . . . . 64
Supplemental Schedule. . . . . . . . . . . . . . . . . . . . . 65
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . 68
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . 75




PART I - Enova Corporation/San Diego Gas & Electric:

ITEM 1. BUSINESS

Description of Business
A description of Enova Corporation and its subsidiaries, including a 
discussion on the proposed business combination with Pacific Enterprises 
Inc., is given in "Management's Discussion and Analysis of Financial 
Condition and Results of Operations" beginning on page 20 of the 1996 
Annual Report to Shareholders. Additional information on the business 
combination is described in Note 1 of the "Notes to Consolidated 
Financial  Statements"  on page 37 of this 1996 Annual Report on Form 
10-K.

GOVERNMENT REGULATION

Local Regulation
San Diego Gas & Electric has separate electric and gas franchises with 
the two counties and the 25 cities in its service territory. These 
franchises allow SDG&E to locate facilities for the transmission and 
distribution of electricity and gas in the streets and other public 
places. The franchises do not have fixed terms, except for the electric 
and gas franchises with the cities of Chula Vista (expiring in 1997), 
Encinitas (2012), San Diego (2021) and Coronado (2028); and the gas 
franchises with the city of Escondido (2036) and the county of San Diego 
(2030). Negotiations for a new agreement with Chula Vista are currently 
in progress.

State Regulation
The California Public Utilities Commission consists of five members 
appointed by the governor and confirmed by the senate for six-year 
terms. The CPUC regulates SDG&E's rates and conditions of service, sales 
of securities, rate of return, rates of depreciation, uniform systems of 
accounts, examination of records, and long-term resource procurement. 
The CPUC also conducts various reviews of utility performance and 
conducts investigations into various matters, such as deregulation, 
competition and the environment, to determine its future policies. 

The California Energy Commission has discretion over electric-demand 
forecasts for the state and for specific service territories. Based upon 
these forecasts, the CEC determines the need for additional energy 
sources and for conservation programs. The CEC sponsors alternative-
energy research and development projects, promotes energy conservation 
programs, and maintains a state-wide plan of action in case of energy 
shortages. In addition, the CEC certifies power-plant sites and related 
facilities within California.

Federal Regulation
The Federal Energy Regulatory Commission regulates transmission access, 
the uniform systems of accounts, rates of depreciation and electric 
rates involving sales for resale. The FERC also regulates the interstate 
sale and transportation of natural gas.

The Nuclear Regulatory Commission oversees the licensing, construction 
and operation of nuclear facilities. NRC regulations require extensive 
review of the safety, radiological and environmental aspects of these 
facilities. Periodically, the NRC requires that newly developed data and 
techniques be used to reanalyze the design of a nuclear power plant and, 
as a result, requires plant modifications as a condition of continued 
operation in some cases.

Licenses and Permits
SDG&E obtains a number of permits, authorizations and licenses in 
connection with the construction and operation of its generating plants. 
Discharge permits, San Diego Air Pollution Control District permits and 
NRC licenses are the most significant examples. The licenses and permits 
may be revoked or modified by the granting agency if facts develop or 
events occur that differ significantly from the facts and projections 
assumed in granting the approval. Furthermore, discharge permits and 
other approvals are granted for a term less than the expected life of 
the facility. They require periodic renewal, which results in continuing 
regulation by the granting agency.

Other regulatory matters are described throughout this report.

SOURCES OF REVENUE

(In Millions of Dollars)                  1996      1995      1994
- -------------------------------------------------------------------
Utility revenue by type of customer:

Electric-
        Residential                      $  642    $  610    $  612
        Commercial                          621       589       600
        Industrial                          259       250       231
        Other                                69        55        67
                                         ------    ------    ------
           Total Electric                 1,591     1,504     1,510
                                         ------    ------    ------
Gas-
        Residential                         210       189       204
        Commercial                           69        60        65
        Industrial                           32        25        31
        Other                                37        36        46
                                         ------    ------    ------
           Total Gas                        348       310       346
                                         ------    ------    ------
           Total Utility                  1,939     1,814     1,856
                                         ------    ------    ------
Other                                        54        57        56
                                         ------    ------    ------
           Total                         $1,993    $1,871    $1,912
                                         ======    ======    ======

Industry segment information is contained in "Statements of Consolidated 
Financial Information by Segments of Business" on page 34 of this 1996 
Annual Report on Form 10-K.

CONSTRUCTION EXPENDITURES

Construction expenditures are described in "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" beginning on 
page 20 of the 1996 Annual Report to Shareholders.

ELECTRIC OPERATIONS

Introduction
In September 1996 the state of California enacted a law restructuring 
California's electric utility industry (AB 1890). The legislation adopts 
the December 1995 CPUC policy decision restructuring the industry to 
stimulate competition and reduce rates. This is discussed in 
"Management's Discussion and Analysis of Financial Condition and Results 
of Operations" beginning on page 20 of the 1996 Annual Report to 
Shareholders,  and in Note 10 of the "Notes to Consolidated Financial 
Statements"  beginning on page 37 of this 1996  Annual Report on Form 
10-K.

Resource Planning
SDG&E's ability to provide energy at the lowest possible cost has been 
based on a combination of production from its own plants and purchases 
from other producers. The purchases have been a combination of short-
term and long-term contracts and spot-market purchases. Most resource 
acquisitions are obtained through a competitive bidding process. In  
December 1994 the CPUC issued its Biennial Resource Plan Update decision 
ordering SDG&E, Pacific Gas & Electric, and Southern California Edison 
to allow qualified non-utility power producers that cogenerate or use 
renewable energy technologies to bid for a portion of the utilities' 
future capacity needs. As a result of the decision, SDG&E would be 
required to enter into contracts (ranging in term from 17 to 30 years) 
to purchase an additional 500 mw of power at an estimated cost of $2.3 
billion beginning in 1997. Prices under these contracts could 
significantly exceed the future market price. In February 1995 the FERC 
issued an order declaring the BRPU auction procedures unlawful under 
federal law. In July 1995 the CPUC issued a ruling encouraging SDG&E, 
PG&E and Edison to reach settlements with the auction winners. SDG&E has 
reached settlement with three auction winners, while settlement 
discussions with the other two are ongoing.

In 1996 SDG&E also negotiated contracts for 1,140 mw of short-term 
purchased power that will be available in 1997.

Additional information concerning resource planning is provided in 
"Management's Discussion and Analysis of Financial Condition and Results 
of Operations" beginning on page 20 of the 1996 Annual Report to 
Shareholders and in Notes 9 and 10 of the "Notes to Consolidated 
Financial Statements" beginning on page 37 of this 1996 Annual Report on 
Form 10-K.

Electric Resources
Based on generating plants in service and purchased-power contracts in 
place as of January 31, 1997, the net megawatts of electric power 
expected to be available to SDG&E during the next summer (normally the 
time of highest demand) are as follows:



    Source                               Net Megawatts
    --------------------------------------------------
    Gas/oil generating plants                    1,641
    Combustion turbines                            332
    Nuclear generating plants                      430
    Long-term contracts with other utilities       225
    Short-term contracts with other utilities      140
    Contracts with others                        1,158
                                                 -----
            Total                                3,926   
                                                 =====

SDG&E's 1996 system peak demand of 3,299 mw occurred on August 29, when 
the net system capability, including power purchases, was 3,753 mw. The 
all-time record is 3,335 mw which was reached on August 17, 1992.

Gas/Oil Generating Plants: SDG&E's South Bay (Chula Vista, California) 
and Encina (Carlsbad, California) power plants are equipped to burn 
either natural gas or fuel oil. The four South Bay units went into 
operation between 1960 and 1971 and can generate 690 mw. The five Encina 
units began operation between 1954 and 1978 and can generate 951 mw. 
SDG&E sold and leased back Encina Unit 5 (330 mw) in 1978. The lease 
term is through 2004, with renewal options for up to 15 additional 
years.

SDG&E has 19 combustion turbines that were placed in service from 1966 
to 1979. They are located at various sites and are used only in times of 
peak demand.

Nuclear Generating Plants: SDG&E owns 20 percent of the three nuclear 
units at San Onofre Nuclear Generating Station (south of San Clemente, 
California). The cities of Riverside and Anaheim own a total of 5 
percent of SONGS 2 and 3. Southern California Edison Company owns the 
remaining interests and operates the units.

SONGS 1 was removed from service in November 1992, when the CPUC issued 
a decision to permanently shut down the unit. At that time SDG&E began 
the recovery of its remaining capital investment, with full recovery 
completed in April 1996. SDG&E and Edison filed a decommissioning plan 
in November 1994, although final decommissioning will not occur until 
SONGS 2 and 3 are also decommissioned. The unit's spent nuclear fuel has 
been removed from the reactor and stored on-site. In March 1993 the NRC 
issued a Possession-Only License for SONGS 1, and the unit was placed in 
a long-term storage condition in May 1994.

SONGS 2 and 3 began commercial operation in August 1983 and April 1984, 
respectively. SDG&E's share of the capacity is 214 mw of SONGS 2 and 216 
mw of SONGS 3.

Between 1994 and 1996, SDG&E spent $46 million on capital modifications 
and additions and expects to spend $15 million in 1997. SDG&E deposits 
funds in an external trust to provide for the future dismantling and 
decontamination of the units. The shutdown of SONGS 1 does not affect 
contributions to the trust.

In 1983 the CPUC adopted performance-based incentive plans for SONGS 
that set a Target Capacity Factor range of 55 percent to 80 percent for 
Units 2 and 3. Energy costs or savings outside that range were shared 
equally by SDG&E and its customers. Since the TCF was adopted, these 
units have operated above 55 percent for each of their fuel cycles and 
have exceeded 80 percent a total of seven times in the fourteen 
completed cycles. In April 1996 the CPUC discontinued the TCF when it 
approved the accelerated recovery of the existing capital costs of Units 
2 and 3 (see below). 

Additional Information: Additional information concerning SDG&E's power 
plants, the SONGS units, nuclear decommissioning and the CPUC's industry 
restructuring proposal is provided in "Environmental Matters," "Electric 
Properties" and "Legal Proceedings" herein, in "Management's Discussion 
and Analysis of Financial Condition and Results of Operations" beginning 
on page 20 of the 1996 Annual Report to Shareholders, and in Notes 5, 9 
and 10 of the "Notes to Consolidated Financial Statements" beginning on 
page 37 of this 1996 Annual Report on Form 10-K.



Purchased Power: The following table lists contracts with the various 
suppliers:      

Megawatt Supplier Period Commitment Source - ------------------------------------------------------------------------------------ Long-Term Contracts with Other Utilities: Portland General Through December 1998 50 Hydro storage Electric Through December 2013 75 Coal Public Service Company Through April 2001 100 System supply of New Mexico ----- Total summer availability (see page 6) 225 ===== Short-Term Contracts with Other Utilities: Bonneville Power June through September 1997 140 System Supply Administration ----- Total summer availability (see page 6) 140 ===== Contracts with Others: Coastal Electric Services Through December 1997 100 System Supply Electric Clearinghouse Through December 1997 200 System Supply Enron Power Marketing Through December 1997 50 System Supply e prime July through September 1997 100 System Supply December 1997 75* Goal Line Limited Through December 2025 50 Cogeneration Partnership Illinova Power Marketing Through December 1997 475 System Supply January 1998 through 200* December 1999 Applied Energy Through December 2019 102 Cogeneration Yuma Cogeneration Through June 2024 50 Cogeneration Other Various 31 Cogeneration ------ Total summer availability (see page 6) 1,158 ====== * Not included in total 1997 summer availability.
Costs under contracts with qualifying facilities (identified above as sourced from cogeneration) are based on SDG&E's avoided cost. Contracts with power marketers are at market value at the time the contracts were negotiated. Charges under contracts with other utilities are based on the selling utility's costs, including a return on and depreciation of the utility's rate base (or lease payments in cases where the utility does not own the property), fuel expenses, operating and maintenance expenses, transmission expenses, administrative and general expenses, and state and local taxes. Long-Term Contracts with Other Utilities Portland General Electric: In 1985 SDG&E and PGE entered into an agreement for the purchase of 75 MW of capacity from PGE's Boardman Coal Plant from January 1989 through December 2013. SDG&E pays a monthly capacity charge plus a charge based upon the amount of energy received. In addition, SDG&E has 50 MW of available hydro storage service with PGE through December 1998. SDG&E has also purchased 75 MW of transmission service from PGE in the northern section of the Pacific Intertie through December 2013. Public Service Company of New Mexico: In 1985 SDG&E and PNM entered into an agreement for the purchase of 100 MW of capacity from PNM's system from June 1988 through April 2001. SDG&E pays a capacity charge plus a charge based on the amount of energy received. Short-Term Contracts with Other Utilities Bonneville Power Administration: In October 1996 SDG&E and BPA entered into an agreement for the purchase of 140 MW of firm energy from June through September 1997. The energy charge is based on the amount of energy received. Contracts with Others Coastal Electric Services: In December 1996 SDG&E and Coastal entered into an agreement for the purchase of 100 MW of firm energy through December 1997. The energy charge is based on the amount of energy received. Electric Clearinghouse: In December 1996 SDG&E and ECI entered into an agreement for the purchase of 200 MW of firm energy through December 1997. The energy charge is based on the amount of energy received. Enron Power Marketing: In November 1996 SDG&E and Enron entered into an agreement for the purchase of 50 MW of firm energy through December 1997. The energy charge is based on the amount of energy received. e prime: In November 1996 SDG&E and e prime entered into an agreement for the purchase of 100 MW of capacity from July through September 1997, and 75 MW of capacity in December 1997. SDG&E pays a capacity charge plus a charge based on the amount of energy received. Goal Line Limited Partnership: In December 1990 SDG&E and Goal Line entered into a 30-year agreement for the purchase of 50 MW of firm capacity, beginning in February 1995. SDG&E pays a firm capacity charge plus a charge based on the amount of energy received. Illinova Power Marketing: In October 1996 SDG&E and Illinova entered into an agreement for the purchase of 475 MW of firm energy from January 1997 through December 1997, and 200 MW of firm energy from January 1998 through December 1999. SDG&E pays a charge based on the amount of energy received. Applied Energy (subsidiary of Sithe Energies, USA): In April 1985 SDG&E entered into three 30-year agreements for the purchase of 102 MW of firm capacity from December 1989 through December 2019. SDG&E pays a firm capacity charge plus a charge based on the amount of energy received. Yuma Cogeneration: In March 1990 SDG&E and Yuma Cogeneration entered into a 30-year agreement for the purchase of 50 MW of firm capacity which began in June 1994. SDG&E pays a firm capacity charge plus a charge based on the amount of energy received. Other: SDG&E currently purchases capacity and energy from 85 as- available Qualifying Facilities. SDG&E pays a capacity charge plus a charge based on the amount of energy received. These account for 31 MW of capacity annually. Additional information concerning SDG&E's purchased-power contracts is described in "Legal Proceedings" herein, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders, and in Notes 9 and 10 of the "Notes to Consolidated Financial Statements" beginning on page 40 of the 1996 Annual Report to Shareholders. Power Pools In 1964 SDG&E, PG&E, and Edison entered into the California Power Pool Agreement. It provides for the transfer of electrical capacity and energy by purchase, sale or exchange during emergencies and at other mutually determined times. On December 20, 1996 the three utilities filed a request with the FERC to terminate the California Power Pool, effective December 31, 1996. The FERC's decision is still pending. In its place, SDG&E, PG&E and Edison have made an arrangement with the CPUC that will provide for the transfer of capacity and energy in the event of an emergency. SDG&E is a participant in the Western Systems Power Pool, which includes an electric power and transmission rate agreement with utilities and power agencies located throughout the United States and Canada. More than 150 investor-owned and municipal utilities, state and federal power agencies, energy brokers, and power marketers share power and information in order to increase efficiency and competition in the bulk power market. Participants are able to target and coordinate delivery of cost-effective sources of power from outside their service territories through a centralized exchange of information. Although the extent has not yet been determined, the status of the WSPP is likely to change due to industry restructuring, and the creation of a regional power exchange and an independent system operator (discussed below). Transmission Arrangements In addition to interconnections with other California utilities, SDG&E has firm transmission capabilities for purchased power from the Northwest, the Southwest and Mexico. It is expected that these arrangements will either change or be eliminated with the creation of the ISO (discussed below). Pacific Intertie: The Pacific Intertie, consisting of AC and DC transmission lines, enables SDG&E to purchase and receive surplus coal and hydroelectric power from the Northwest. SDG&E, PG&E, Edison and others share transmission capacity on the Pacific Intertie under an agreement that expires in July 2007. SDG&E's share of the intertie is 266 MW. Southwest Powerlink: SDG&E's 500-kilovolt Southwest Powerlink transmission line, which it shares with Arizona Public Service Company and Imperial Irrigation District, extends from Palo Verde, Arizona to San Diego and enables SDG&E to import power from the Southwest. SDG&E's share of the line is 931 MW, although it can be less, depending on specific system conditions. Mexico Interconnection: Mexico's Baja California Norte system is connected to SDG&E's system via two 230-kilovolt interconnections with firm capability of 408 MW. SDG&E uses this interconnection for transactions with Comision Federal de Electricidad. Additional Transmission Capabilities: Various studies have been undertaken or are ongoing to determine the extent to which various path ratings may be increased. SDG&E expects to receive an additional allocation of approximately 39 MW East-of-the-Colorado-River and 94 MW West-of-the-Colorado-River as a result of these various studies. Transmission Access As a result of the enactment of the National Energy Policy Act of 1992, the FERC has established rules to implement the Act's transmission- access provisions. These rules specify FERC-required procedures for others' requests for transmission service. Beginning in January 1998 the ISO will be responsible for the operation and control of the transmission lines. Additional information regarding the ISO and transmission access is discussed below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders. Power Exchange and Independent System Operator The CPUC's electric restructuring decision provides that, beginning in January 1998, customers will have the option to buy their electricity through a power exchange that will obtain power from the lowest-bidding suppliers. The power exchange will serve as a wholesale power pool allowing all energy producers to competitively participate. The ISO will schedule power transactions and access to the transmission system. Additional information regarding the power exchange and ISO is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders. Fuel and Purchased-Power Costs The following table shows the percentage of each electric fuel source used by SDG&E and compares the costs of the fuels with each other and with the total cost of purchased power: Percent of Kwhr Cents per Kwhr - ----------------------------------------------------------------------------- 1996 1995 1994 1996 1995 1994 ----- ----- ----- ---- ---- ---- Natural gas 22.8% 21.7% 22.4% 2.8 2.3 3.1 Nuclear fuel 19.6 16.5 21.8 0.5 0.5 0.5 Fuel oil 1.1 0.1 1.4 2.2 2.1 2.6 ----- ----- ----- Total generation 43.5 38.3 45.6 Purchased power-net 56.5 61.7 54.4 3.1 3.3 3.7 ----- ----- ----- Total 100.0% 100.0% 100.0% ===== ===== ===== The cost of purchased power includes capacity costs as well as the costs of fuel. The cost of natural gas includes transportation costs. The costs of natural gas, nuclear fuel and fuel oil do not include SDG&E's capacity costs. While fuel costs are significantly less for nuclear units than for other units, capacity costs are higher. Electric Fuel Supply Natural Gas: Information concerning natural gas is provided in "Natural Gas Operations" herein. Nuclear Fuel: The nuclear-fuel cycle includes services performed by others. These services and the dates through which they are under contract are as follows: Mining and milling of uranium concentrate 2003 Conversion of uranium concentrate to uranium hexafluoride 2003 Enrichment of uranium hexafluoride(1) 2003 Fabrication of fuel assemblies 2003 Storage and disposal of spent fuel(2) -- (1) The United States Enrichment Corporation, a government-owned corporation, is committed to offer any required enrichment services through 2014. (2) Spent fuel is being stored at SONGS, where storage capacity will be adequate at least through 2003. If necessary, modifications in fuel- storage technology can be implemented to provide on-site storage capacity for operation through 2014, the expiration date of the NRC operating license. The DOE's plan is to provide a permanent storage site for the spent nuclear fuel by 2010. Pursuant to the Nuclear Waste Policy Act of 1982, SDG&E entered into a contract with the DOE for spent-fuel disposal. Under the agreement, the DOE is responsible for the ultimate disposal of spent fuel. SDG&E is paying a disposal fee of $0.91 per megawatt-hour of net nuclear generation. Disposal fees average $2.7 million per year. To the extent not currently provided by contract, the availability and the cost of the various components of the nuclear-fuel cycle for SDG&E's nuclear facilities cannot be estimated at this time. Additional information concerning nuclear-fuel costs is discussed in Note 9 of the "Notes to Consolidated Financial Statements" beginning on page 37 of this 1996 Annual Report on Form 10-K. Fuel Oil: SDG&E has no long-term commitments to purchase fuel oil. The use of fuel oil is dependent upon price differences between it and natural gas, and air-emission limitations associated with the San Diego Air Pollution Control District's Rule 69. Additional information concerning air-emission restrictions, including Rule 69, is provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders. During 1996 SDG&E burned 356,000 barrels of fuel oil. NATURAL-GAS OPERATIONS SDG&E purchases natural gas for resale to its customers and for fuel in its generating plants. All natural gas is delivered to SDG&E under a transportation and storage agreement with Southern California Gas Company through two transmission pipelines with a combined capacity of 449 million cubic feet per day. During 1996 SDG&E purchased approximately 94 billion cubic feet of natural gas. The majority of SDG&E's natural-gas requirements are met through contracts of less than one year. SDG&E purchases natural gas primarily from various spot-market suppliers and from suppliers under short-term contracts. These supplies originate in New Mexico, Oklahoma and Texas, and are transported to the SoCal Gas Company pipeline at the California border by El Paso Natural Gas Company and by Transwestern Pipeline Company. SDG&E also has long-term contracts for natural gas with four Canadian suppliers. Three of these suppliers have ceased deliveries due to legal disputes. Natural gas from Canada is transported to SDG&E's system over Alberta Natural Gas, Pacific Gas Transmission, and PG&E pipelines. The natural-gas transportation contracts have varying terms through 2023. Additional information concerning SDG&E's gas operations is provided under "Legal Proceedings" herein, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders, and in Note 9 of the "Notes to Consolidated Financial Statements" beginning on page 37 of this 1996 Annual Report on Form 10-K. RATE REGULATION Industry Restructuring A description of electric industry restructuring occurring in the State of California is given in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders, and in Note 10 of the "Notes to Consolidated Financial Statements" beginning on page 37 of this 1996 Annual Report on Form 10-K. Cost of Capital A description of SDG&E's new cost of capital mechanism, the Market- Indexed Capital Adjustment Mechanism (MICAM), is provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders. MICAM eliminates the annual cost of capital application. SDG&E is required to file a report on MICAM's progress in March 2000 with recommendations for modifications, if any. Electric Fuel Costs and Sales Volumes Until the present time, rates to recover electric-fuel and purchased- power costs were determined in the Energy Cost Adjustment Clause proceeding. The Electric Revenue Adjustment Mechanism compensated for variations in sales volume compared to the estimates used for setting the non-fuel component of rates. However, both ECAC and ERAM may potentially be eliminated as part of electric industry restructuring. The elimination of ECAC and ERAM would cause the revenues associated with electric fuel costs and sales volumes to be market driven. Although no significant effect is expected for any full year, quarterly earnings would significantly fluctuate beginning with the first quarter of 1997. Additional information on balancing accounts is discussed below in "Balancing Accounts" and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders. Natural-Gas Costs and Sales Volumes Natural-gas commodity rates are currently set monthly based on market prices, subject to a cap for core customers. If the rates exceed the cap, the difference is applied to natural-gas balancing accounts. In February 1997 SDG&E filed a request with the CPUC to remove the cap to reflect the significant increase in natural-gas prices during the past year. Under traditional ratemaking, natural-gas rates were adjusted annually based on a forecast of natural-gas prices. This resulted in rate stability, but also contributed to significant accumulations in the Purchased Gas Account (PGA). Rates to recover the cost of transporting natural gas to SDG&E are determined in the Biennial Cost Allocation Proceeding. The BCAP proceeding normally occurs every two years and is updated in the interim year for purposes of amortizing any accumulation in the balancing accounts. The natural-gas balancing accounts include the PGA for natural-gas costs and the Gas Fixed Cost Account for sales volumes. Balancing account coverage includes both core customers (primarily residential and commercial customers) and noncore customers (primarily large industrial customers). However, SDG&E does not receive balancing account treatment on 25 percent of noncore GFCA overcollections and undercollections. Balancing Accounts Until the present time, the CPUC required balancing accounts for fuel and purchased energy costs and for sales volumes, setting balancing account rates based on estimated costs and sales volumes. Revenues were adjusted upward or downward to reflect the differences between authorized and actual volumes and costs. These differences were accumulated in the balancing accounts and represented amounts to be either recovered from customers or returned to them. After the application of $98 million of ECAC and ERAM overcollections to stranded investments in December 1996, these balancing accounts were overcollected by $35 million at December 31, 1996 and by $171 million at December 31, 1995. During late 1996 the CPUC ordered the three California investor-owned utilities to continue to make refunds to customers for fuel overcharges, disallowances by the CPUC and gas refunds from suppliers, stressing that utility disallowances should not be applied to transition costs. The disallowances are intended to benefit ratepayers by reducing rates and to discourage utilities from making imprudent expenditures. The utilities will establish an Electric Deferred Refund Account to be used if the CPUC rules that certain revenues collected in rates should be disallowed and refunded to customers. SDG&E does not currently have any refunds or disallowances that would be entered into this account. Performance-Based Ratemaking CPUC policies continue to move away from traditional cost-of-service regulation and toward incentive mechanisms. SDG&E implemented performance-based ratemaking in 1993 for natural-gas procurement and transportation, and for electric generation and purchased energy; and in 1994 for base rates. These mechanisms measure SDG&E's ability to purchase and transport natural gas, and to generate or purchase energy at the lowest possible cost, by comparing SDG&E's performance against various market benchmarks. SDG&E's shareholders and customers share in any savings or excess costs within predetermined ranges. A discussion of the current status of these PBR programs is contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders. Energy Conservation Programs Over the past several years, SDG&E has promoted conservation programs to encourage efficient use of energy. The programs are designed to conserve energy through the use of energy-efficiency measures that will reduce customers' energy costs and reduce the need to build additional power plants. The costs of these programs are recovered from customers. The programs contain an incentive mechanism that could increase or decrease SDG&E's earnings, depending upon the performance of the programs in meeting specified efficiency and expenditure targets. The CPUC has encouraged expansion of these programs, authorizing annual expenditures ranging from $54 million in 1993 to $60 million in 1996. However, consistent with the industry trend toward increased competition, in February 1997 the CPUC issued a decision removing the energy-efficiency programs from utility control and moving the programs into the competitive market. The decision directs the creation of an oversight board that will develop program policies and procedures and select program administrators. The utilities will no longer be involved with program delivery to customers, but will be allowed to bid to become administrators. The CPUC's goal is to have the transition complete by January 1, 1998. In the interim, the current programs and earnings mechanism will remain in effect. Low-Emission Vehicle Programs SDG&E has conducted a CPUC-approved natural-gas-vehicle program since 1991. The program includes building refueling stations, demonstrating new technology, providing incentives and converting portions of SDG&E's vehicle fleet to natural gas. The cost of this program is being recovered in natural-gas rates. In November 1995 the CPUC issued its decision authorizing funding for limited electric-vehicle and natural- gas-vehicle programs through the year 2000 to allow recovery of costs for operation and maintenance of SDG&E's EV and NGV fleets and NGV fueling stations, and to allow recovery of transition costs to meet existing commitments to customers. The decision requires the sale of SDG&E's NGV fueling stations located on customer property within six years. The CPUC approved a six-year program that provides a total of $5.3 million for SDG&E's electric-vehicle program and $6.7 million for its natural-gas-vehicle program over the six-year period. Electric Rates The average price per kilowatt-hour charged to electric customers was 9.6 cents in 1996, 9.8 cents in 1995 and 9.7 cents in 1994. Natural-Gas Rates The average price per therm of natural gas charged to customers was 58.4 cents in 1996, 55.7 cents in 1995 and 59.9 cents in 1994. ENVIRONMENTAL MATTERS Discussions about environmental issues affecting SDG&E, including electric and magnetic fields, hazardous substances, air quality, water quality and wood pole preservatives, are included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders. The following should be read in conjunction with those discussions. Hazardous Substances The Hazardous Waste Collaborative approved by the CPUC in 1994 allows utilities to recover 90 percent of certain costs to clean up hazardous waste contamination and 70 percent of their costs related to obtaining recovery of such cleanup costs from insurance carriers providing coverage for such costs. Due to the fact that SDG&E disposes of its hazardous wastes at facilities owned and operated by other entities, applicable environmental laws may impose an obligation on SDG&E and others to undertake corrective actions if the owner or operator of such a facility fails to complete any required corrective actions. This type of obligation has been imposed upon SDG&E with respect to a site in Pico Rivera, California. SDG&E and 10 other entities have been named potential responsible parties by the California Department of Toxic Substances Control (DTSC) and are liable for any required corrective action regarding contamination at the site. DTSC has taken this action because SDG&E and others sold used electrical transformers to the site's owner. The DTSC considers SDG&E to be responsible for 7.4 percent of the transformer-related contamination at the site. The estimate for the development of the cleanup plan is $850,000. SDG&E has contributed $43,000 to the effort. The estimate for the actual cleanup, which will commence in 1997, is in the $2 million to $8 million range. Underground Storage: California has enacted legislation to protect ground water from contamination by hazardous substances. Underground storage containers require permits, inspections and periodic reports, as well as specific requirements for new tanks, closure of old tanks and monitoring systems for all tanks. It is expected that cleanup of sites previously contaminated by underground tanks will occur for an unknown number of years. SDG&E cannot predict the cost of such cleanup. Specific known underground locations requiring assessment and/or remediation are indicated below: In May 1987 the San Diego Regional Water Quality Control Board issued SDG&E a cleanup and abatement order for gasoline contamination originating from an underground storage tank located at SDG&E's Mountain Empire Operation and Maintenance facility. SDG&E assessed the extent of the contamination, removed all contaminated soil and completed remediation of the site. Monitoring of the site confirms its remediation. SDG&E has applied for and is awaiting a site-closure letter from the Regional Water Quality Control Board. In January 1993 SDG&E was issued a Notice of Unauthorized Release by the San Diego County Division of Environmental Health Services relative to soil contamination from used motor oil associated with an underground tank located at SDG&E's South Bay Operation and Maintenance facility. SDG&E removed the tank and the associated contaminated soil. No actionable levels of contamination remain on the site. SDG&E received a site-closure letter in April 1996 from the San Diego County Division of Environmental Health Services. Station B: Station B is located in downtown San Diego and was operated as a steam and generating facility between 1911 and June 1993. Pursuant to a cleanup and abatement order, SDG&E remediated the hydrocarbon contamination discovered as a result of the removal of three 100,000- gallon underground diesel-fuel storage tanks from an adjacent substation. Encina Power Plant: During 1993 SDG&E discovered the presence of hydrocarbon contamination in subsurface soil at its Encina power plant. The contamination was located near fuel-storage facilities and believed to be fuel oil originating from a 1950s refueling spill. SDG&E has remediated the contamination to the extent required by the San Diego County Division of Environmental Health Services and received a site- closure letter in October 1996. OTHER Research, Development and Demonstration SDG&E conducts research and development in areas that provide value to SDG&E and its customers. Annual research, development and demonstration costs averaged $7 million over the past three years. The CPUC historically has permitted rate recovery of research, development and demonstration expenditures. Wages SDG&E and Local 465, International Brotherhood of Electrical Workers have two labor agreements, a generation contract that runs through February 28, 1998 and a utility contract (transmission and distribution) that runs through August 31, 1998. Employees of Registrant As of December 31, 1996 SDG&E had 3,688 employees, compared to 3,880 at December 31, 1995. Enova's other subsidiaries had 49 employees at December 31, 1996 compared to 13 at December 31, 1995. Foreign Operations SDG&E foreign operations in 1996 included power purchases and sales with CFE in Mexico; purchases of natural gas from suppliers in Canada; and purchases of uranium from suppliers in Canada and Russia. Enova International is part of a consortium that is developing a natural-gas distribution system in Mexico. Additional information concerning foreign operations is provided under "Electric Operations" and "Natural Gas Operations" herein, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders, and in Note 9 of the "Notes to Consolidated Financial Statements" beginning on page 37 of this 1996 Annual Report on Form 10-K. ITEM 2. PROPERTIES Substantially all utility plant is subject to the lien of the July 1, 1940 mortgage and deed of trust and its supplemental indentures between SDG&E and the First Trust of California N.A. as trustee, securing the outstanding first-mortgage bonds. Information concerning SDG&E's properties is provided below. Additional information is provided under "Electric Operations" and "Gas Operations" herein, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 20 of the 1996 Annual Report to Shareholders, and in Notes 2, 5, 9 and 10 of the "Notes to Consolidated Financial Statements" beginning on page 37 of this 1996 Annual Report on Form 10-K. Electric Properties SDG&E's generating capacity is described in "Electric Resources", herein. The 1996 system load factor was 59 percent and ranged from 56 percent to 64 percent for the past five years. SDG&E's electric transmission and distribution facilities include substations, and overhead and underground lines. Periodically various areas of the service territory require expansion to handle customer growth. SDG&E owns an approved nuclear power-plant site near Blythe, California. Natural-Gas Properties SDG&E's natural-gas facilities are located in San Diego and Riverside counties and consist of the Moreno and Rainbow compressor stations, various high-pressure transmission pipelines, high-pressure distribution mains, and service lines. SDG&E's natural-gas system is sufficient to meet customer demand and short-term growth. SDG&E is currently undergoing an expansion of its high-pressure transmission lines to accommodate expected long-term customer growth. Other SDG&E Properties The 21-story corporate office building at 101 Ash Street, San Diego is occupied pursuant to a capital lease through the year 2005. The lease has four separate five-year renewal options. SDG&E also occupies an office complex at Century Park Court in San Diego pursuant to an operating lease ending in the year 2007. The lease can be renewed for two five-year periods. In addition, SDG&E occupies eight operating and maintenance centers, two business centers, six district offices, and five branch offices. Non-utility Property Phase One Development, a subsidiary of Pacific Diversified Capital, holds one property in San Diego County, which will be sold for residential use. ITEM 3. LEGAL PROCEEDINGS The Covalt proceeding, described in SDG&E's 1995 Annual Report on Form 10-K, was concluded during the year ended December 31, 1996. Information concerning the conclusion of this proceeding is contained in SDG&E's Quarterly Report on Form 10-Q for the three-month period ended September 30, 1996. Other legal proceedings are discussed below. Management believes that these matters will not have a material adverse effect on Enova's results of operations, financial condition or liquidity. Public Service Company of New Mexico On October 27, 1993 SDG&E filed a complaint with the FERC against Public Service Company of New Mexico, alleging that charges under a 1985 power- purchase agreement are unjust, unreasonable and discriminatory. SDG&E requested that the FERC investigate the rates charged under the agreement and establish December 26, 1993 as the effective refund date. The relief, if granted, would reduce annual demand charges paid by SDG&E to PNM by up to $11 million per year through April 2001. If approved, the proceeds would be refunded principally to SDG&E customers. On December 8, 1993 PNM answered the complaint and moved that it be dismissed. PNM denied that the rates are unjust, unreasonable or discriminatory and asserted that SDG&E's claims were barred by certain orders issued by the FERC in 1988. On March 18, 1996 SDG&E filed a second complaint with FERC against PNM, alleging in part that applying the same methodology as SDG&E had used in the 1993 complaint, but based on more recent cost information, results in charges under the 1985 power purchase agreement that are unjust, unreasonable and discriminatory. SDG&E requested that the FERC investigate the rates charged under the 1985 agreement and establish May 17, 1996 as the effective refund date. The relief, if granted, would reduce annual demand charges paid by SDG&E to PNM, in addition to the amount from the first complaint, by up to $12 million per year. On April 26, 1996 PNM answered the second complaint and moved that it be dismissed for the same reasons stated in its answer to the 1993 complaint. Canadian Natural Gas During early 1991 SDG&E signed four long-term natural gas supply contracts with Husky Oil Ltd., Canadian Hunter Ltd. and Noranda Inc., Bow Valley Energy Inc., and Summit Resources Ltd. Canadian-sourced natural gas began flowing to SDG&E under these contracts on November 1, 1993. Disputes have arisen with each of these producers with respect to events which are alleged by the producers to have occurred justifying a revision to the pricing terms of each contract, and possibly their termination. Consequently, during December 1993 SDG&E filed complaints in the United States Federal District Court, Southern District of California, seeking a declaration of SDG&E's contract rights. Specifically, SDG&E states that neither price revision nor contract termination is warranted. On March 14, 1994 SDG&E voluntarily dismissed its complaint against Bow Valley without prejudice. On April 24, 1994 the court denied the other defendants' motions to dismiss SDG&E's complaints. These motions were based on jurisdictional grounds. Two of the defendants, Bow Valley and Husky Oil, filed claims on June 12, 1994 and June 29, 1994, respectively, against SDG&E with the Queens Bench in Alberta, Canada, seeking a declaration that they are entitled to damages or, in the alternative, that they may terminate their respective contracts with SDG&E. SDG&E has answered these claims. On March 1, 1995 SDG&E and Husky Oil reached an agreement dismissing all of their respective claims with prejudice. Bow Valley and Summit Resources gave SDG&E notice that their natural-gas supply contracts with SDG&E were terminated pursuant to provisions in the contract that purportedly give them the right to do so. SDG&E has responded that the notices were inappropriate and that it will seek both contract and tort damages. Bow Valley and Summit have subsequently ceased deliveries of natural gas to SDG&E. In May 1996 the U.S. District Court granted Canadian Hunter's and Summit's motion to dismiss the case, finding that the Alberta Sales of Goods Act rendered the gas-purchase agreements between SDG&E and the defendants voidable by either party. On June 1, 1996 Canadian Hunter ceased deliveries of gas to SDG&E. On September 11, 1996 SDG&E filed in the Ninth Circuit Federal Court of Appeals an appeal of the U.S. District Court's judgment granting Summit's motion to dismiss the case. A hearing date has not yet been established. North City West On June 14, 1993 the Peninsula at Del Mar Highlands Homeowners Association filed a complaint with the Superior Court of San Diego County against the City of San Diego and SDG&E to prevent SDG&E from constructing and operating an electric substation in an area which is known as North City West. In the complaint, the plaintiffs sought to have the city either revoke previously issued permits or reopen the hearing process to address alleged electric and magnetic field concerns. On July 6, 1993 the court denied the plaintiffs' motion for a temporary restraining order. On July 30, 1993 the court denied the plaintiffs' motion for a preliminary injunction. On September 28, 1993 the plaintiffs withdrew their complaint and the court dismissed it without prejudice. On August 18, 1993 the plaintiffs filed a complaint with the California Public Utilities Commission requesting that the CPUC conduct an environmental assessment. This complaint still is pending at the CPUC. SONGS Personal Injury Litigation SDG&E holds a 20-percent ownership interest in the San Onofre Nuclear Generation Station. There have been six radiation personal injury cases filed against various parties including Southern California Edison, SDG&E, Combustion Engineering, and the Institute of Nuclear Power Operations in Federal District Court, Southern District of California: James (filed July 12, 1994), McLandrich (February 6, 1995), Metler (July 5, 1995), Knapp (August 31, 1995), Kennedy (November 17, 1995), and Rock (November 28, 1995). The plaintiffs allege their various types of leukemia or other forms of cancers were caused by radiation exposure from "fuel fleas" (radioactive fuel particles). On October 12, 1995 the jury in the James case determined that there was no scientific link between the plaintiff's leukemia and the amount of radiation he was exposed to while employed at SONGS as an employee of a SONGS contractor. On August 15, 1996 the Ninth Circuit Court of Appeal upheld the decision. McLandrich, Metler and Knapp are wrongful death cases filed by the heirs of former SONGS employees seeking unspecified amounts in compensatory and punitive damages. Edison has been dismissed from McLandrich and Metler based upon the District Court's ruling that Edison is an employer and workers' compensation is the exclusive remedy for the plaintiffs. McLandrich is on appeal, with SDG&E challenging the Court's determination that SDG&E is not an employer and thus may not avail itself of the workers' compensation exclusivity rule. Metler and Knapp are stayed pending the outcome of the McLandrich appeal. The Kennedy and Rock cases involve family members of current or former SONGS employees who allege that the employees carried home fuel fleas which caused the family members' illnesses. The plaintiffs are alleging unspecified amounts of compensatory and punitive damages. SDG&E has not been named in these actions. Environmental and Regulatory Issues Other legal matters related to environmental and regulatory issues are described under "Environmental Matters" and "Rate Regulation" herein. ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS The shareholders of Enova Corporation approved the principal terms of a business combination of Enova Corporation and Pacific Enterprises, Inc. at a Special Meeting of Shareholders of Enova Corporation on March 11, 1997. The number of shares voted or withheld were as follows: In Favor 88,409,548 Opposed 1,895,808 Abstained 1,746,091 ITEM 4. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Positions* (1992 - Current) - ---------------------------------------------------------------------------------------------- Thomas A. Page 63 Chairman (Enova) since December 1994. Chairman since January 1983. President and Chief Executive Officer (Enova) from December 1994 through December 1995. Chief Executive Officer from January 1983 through December 1995. President from 1983 through 1991 and from January 1994 through December 1995. Stephen L. Baum 56 Vice Chairman since April 1996. President and Chief Executive Officer (Enova) since January 1996. Executive Vice President (Enova) from December 1994 through December 1995. Executive Vice President from January 1993 through December 1995. Senior Vice President - Law and Corporate Affairs and General Counsel from January 1992 through December 1992. Donald E. Felsinger 49 President and Chief Executive Officer since January 1996. Executive Vice President (Enova) from December 1994 through December 1995 and since April 1996. Executive Vice President from January 1993 through December 1995. Senior Vice President - Marketing and Resource Development from January 1992 through December 1992. Gary D. Cotton 56 Senior Vice President - Customer Operations since January 1993. Senior Vice President - Customer Services from January 1992 through December 1992. Edwin A. Guiles 47 Senior Vice President (Enova) from January 1997. Senior Vice President - Energy Supply from January 1993 through January 1997. Vice President - Engineering and Operations from January 1992 through December 1992. David R. Kuzma 51 Senior Vice President, Chief Financial Officer and Treasurer (Enova) since November 1995. Senior Vice President, Chief Financial Officer and Treasurer since June 1995. Chief Financial Officer, Senior Vice President and Treasurer of Florida Progress Corporation from 1991 to 1995. Frank H. Ault 52 Vice President and Controller (Enova) since December 1994. Vice President and Controller since January 1993. Controller from May 1986 through December 1992. Kathleen A. Flanagan 46 Vice President - Corporate Communications since July 1994. Manager - Corporate Communications at Southern California Edison from 1991 to 1994. Margot A. Kyd 43 Acting Vice President - Marketing and Customer Services since January 1996. Vice President - Human Resources (Enova) since January 1996. Vice President - Human Resources since January 1993. Vice President - Administrative Services from 1988 through 1992. William L. Reed 45 Vice President - Regulatory Affairs since January 1996. Vice President - Strategic Planning from August 1995 through December 1995. Division Manager - Strategic Plans & Projects from August 1994 through July 1995. Director - Energy Management from April 1993 through July 1994. Director - Regulatory Affairs from 1990 through March 1993. *All positions are at SDG&E unless otherwise noted.
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Enova Corporation Common stock of Enova Corporation is traded on the New York and Pacific stock exchanges. At December 31, 1996 there were 79,146 holders of common stock. The quarterly common stock information required by Item 5 is incorporated by reference from page 51 of the 1996 Annual Report to Shareholders. On March 11, 1997 Enova Corporation's board of directors authorized the repurchase of up to 3 million of its outstanding shares of common stock. Under the authorization, the purchases can be made periodically either in the open market or through private transactions. Enova does not anticipate that this repurchase will affect its ability to engage in future transactions that would be accounted for as poolings of interests, including the pending business combination with Pacific Enterprises. San Diego Gas & Electric Company All the common stock of San Diego Gas & Electric Company is owned by Enova Corporation and is not publicly traded. The following table sets forth the cash distributions on common stock paid to Enova Corporation by SDG&E: 1996 First Quarter $45,459,716 Second Quarter $45,460,652 Third Quarter $45,460,652 Fourth Quarter $45,485,207 Dividend Restrictions The CPUC regulates SDG&E's capital structure, limiting the dividends it may pay pay Enova. At December 31, 1996, $67 million of common equity was available for for future dividends. ITEM 6. SELECTED FINANCIAL DATA Enova Corporation In millions of dollars except per share amounts
1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- For the years ended December 31 Operating revenues $1,993.5 $1,870.7 $1,912.2 $1,897.5 $1,789.0 Operating income $335.0 $345.7 $317.2 $303.9 $308.9 Income from continuing operations $230.9 $225.6 $199.3 $219.0 $211.5 Earnings applicable to common shares $230.9 $225.8 $135.8 $210.2 $201.1 Earnings per common share from continuing operations $1.98 $1.94 $1.71 $1.89 $1.86 Earnings per common share $1.98 $1.94 $1.17 $1.81 $1.77 Dividends declared per common share $1.56 $1.56 $1.52 $1.48 $1.44 At December 31 Total assets $4,649.2 $4,748.6 $4,662.9 $4,694.7 $4,472.8 Long-term debt and preferred stock subject to mandatory redemption (excludes current portion)* $1,504.3 $1,490.1 $1,479.2 $1,523.6 $1,647.3
*Includes long-term debt redeemable within one year. This summary should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements beginning on page 27 27 of this 1996 Annual Report on Form 10-K. San Diego Gas & Electric Company In millions of dollars except per share amounts
1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- For the years ended December 31 Operating revenues $1,938.9 $1,814.1 $1,856.5 $1,861.3 $1,784.1 Operating income $308.8 $315.0 $302.6 $288.2 $307.4 Income from continuing operations $222.8 $219.0 $206.3 $215.9 $224.2 Net income (before preferred dividend requirement $222.8 $233.5 $143.5 $218.7 $210.7 Preferred dividends $6.6 $7.7 $7.7 $8.5 $9.6 Earnings applicable to common shares $216.2 $225.8 $135.8 $210.2 $201.1 At December 31 Total assets $4,160.5 $4,472.6 $4,353.3 $4,370.0 $4,046.1 Long-term debt and preferred stock subject to mandatory redemption (excludes current portion)* $1,309.8 $1,242.0 $1,239.1 $1,347.5 $1,509.8
*Includes long-term debt redeemable within one year. This summary should be read in conjunction with the San Diego Gas & Electric Company financial statements and notes to financial statements beginning on page 52 of this 1996 Annual Report on Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Enova Corporation/San Diego Gas & Electric Company The information required by Item 7 is incorporated by reference from pages 20 through 30 of the 1996 Annual Report to Shareholders. Item 8. Financial Statements and Supplementary Data - Enova Corporation ENOVA CORPORATION STATEMENTS OF CONSOLIDATED INCOME In thousands except per share amounts
For the years ended December 31 1996 1995 1994 ------------ ------------ ------------ Operating Revenues Electric $1,590,882 $1,503,926 $1,510,320 Gas 348,035 310,142 346,183 Other 54,557 56,608 55,742 ------------ ------------ ------------ Total operating revenues 1,993,474 1,870,676 1,912,245 ------------ ------------ ------------ Operating Expenses Electric fuel 134,350 100,256 143,339 Purchased power 310,731 341,727 342,612 Gas purchased for resale 152,408 113,355 146,579 Maintenance 57,652 91,740 70,776 Depreciation and decommissioning 332,490 278,239 262,238 Property and other taxes 44,764 45,566 44,746 General and administrative 262,058 210,207 207,908 Other 212,245 209,358 233,533 Income taxes 151,813 134,578 143,298 ------------ ------------ ------------ Total operating expenses 1,658,511 1,525,026 1,595,029 ------------ ------------ ------------ Operating Income 334,963 345,650 317,216 ------------ ------------ ------------ Other Income and (Deductions) Allowance for equity funds used during construction 5,898 6,435 6,274 Taxes on nonoperating income 3,339 (27) 7,299 Other - net (3,265) (5,876) (19,117) ------------ ------------ ------------ Total other income and (deductions) 5,972 532 (5,544) ------------ ------------ ------------ Income Before Interest Charges and Preferred Dividends 340,935 346,182 311,672 ------------ ------------ ------------ Interest Charges and Preferred Dividends Long-term debt 89,198 95,523 92,770 Short-term debt and other 17,516 20,215 14,619 Allowance for borrowed funds used during construction (3,288) (2,865) (2,658) Preferred dividend requirements of SDG&E 6,582 7,663 7,663 ------------ ------------ ------------ Net interest charges and preferred dividends 110,008 120,536 112,394 ------------ ------------ ------------ Income From Continuing Operations 230,927 225,646 199,278 Discontinued Operations, Net Of Income Taxes -- 148 (63,464) ------------ ------------ ------------ Earnings Applicable to Common Shares $ 230,927 $ 225,794 $ 135,814 ============ ============ ============ Average Common Shares Outstanding 116,572 116,535 116,484 ============ ============ ============ Earnings Per Common Share from Continuing operations $ 1.98 $ 1.94 $ 1.71 ============ ============ ============ Earnings Per Common Share $ 1.98 $ 1.94 $ 1.17 ============ ============ ============ Dividends Declared Per Common Share $ 1.56 $ 1.56 $ 1.52 ============ ============ ============ See notes to consolidated financial statements
ENOVA CORPORATION CONSOLIDATED BALANCE SHEETS In thousands of dollars
Balance at December 31 1996 1995 -------------- -------------- ASSETS Utility plant - at original cost $5,704,464 $5,533,554 Accumulated depreciation and decommissioning (2,630,093) (2,355,213) -------------- -------------- Utility plant-net 3,074,371 3,178,341 -------------- -------------- Investments and other property 650,188 532,289 -------------- -------------- Current assets Cash and temporary investments 173,079 96,429 Accounts receivable 186,529 178,155 Notes receivable 33,564 34,498 Inventories 63,437 67,959 Other 47,094 22,946 -------------- -------------- Total current assets 503,703 399,987 -------------- -------------- Deferred taxes recoverable in rates 189,193 298,748 -------------- -------------- Deferred charges and other assets 231,782 339,259 -------------- -------------- Total $4,649,237 $4,748,624 ============== ============== CAPITALIZATION AND LIABILITIES Capitalization (see Statements of Consolidated Capital Stock and of Long-Term Debt) Common equity $1,569,670 $1,520,070 Preferred stock not subject to mandatory redemption 78,475 93,475 Preferred stock subject to mandatory redemption 25,000 25,000 Long-term debt 1,479,338 1,350,094 -------------- -------------- Total capitalization 3,152,483 2,988,639 -------------- -------------- Current liabilities Long-term debt redeemable within one year -- 115,000 Current portion of long-term debt 69,902 36,316 Accounts payable 175,815 145,517 Dividends payable 47,213 47,383 Interest accrued 21,259 22,537 Regulatory balancing accounts overcollected-net 35,338 170,761 Other 158,317 125,438 -------------- -------------- Total current liabilities 507,844 662,952 -------------- -------------- Customer advances for construction 34,666 34,698 Accumulated deferred income taxes-net 497,400 523,335 Accumulated deferred investment tax credits 64,410 104,226 Deferred credits and other liabilities 392,434 434,774 Contingencies and commitments (Notes 9 and 10) -- -- -------------- -------------- Total $4,649,237 $4,748,624 ============== ============== See notes to consolidated financial statements
ENOVA CORPORATION STATEMENTS OF CONSOLIDATED CASH FLOWS
In thousands of dollars For the years ended December 31 1996 1995 1994 ------------ ------------ ------------ Cash Flows from Operating Activities Income from continuing operations $ 230,927 $ 225,646 $ 199,278 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and decommissioning 332,490 278,239 262,238 Amortization of deferred charges and other assets 6,556 12,068 12,944 Writedown of real property and other assets -- -- 37,000 Amortization of deferred credits and other liabilities (38,399) (32,975) (30,370) Allowance for equity funds used during construction (5,898) (6,435) (6,274) Deferred income taxes and investment tax credits (6,875) (42,237) (54,650) Other-net 73,850 57,475 57,734 Changes in working capital components Accounts and notes receivable (7,440) 7,141 (9,110) Regulatory balancing accounts (37,313) 59,030 78,552 Inventories 4,522 7,648 506 Other current assets (14,242) (5,609) (1,518) Interest and taxes accrued (28,199) 23,131 17,865 Accounts payable and other current liabilities 49,427 26,983 (9,271) Cash flows provided by discontinued operations -- 6,148 3,790 ----------- ------------- ------------ Net cash provided by operating activities 559,406 616,253 558,714 ----------- ------------- ------------ Cash Flows from Financing Activities Dividends paid (181,849) (180,625) (175,829) Issuance of long-term debt 228,946 124,641 -- Repayment of long-term debt (286,668) (165,871) (90,255) Short-term borrowings-net -- (89,325) (27,872) Redemption of preferred stock (15,155) (18) -- Redemption of common stock (480) (241) (558) ------------ ------------ ------------ Net cash used by financing activities (255,206) (311,439) (294,514) ------------ ------------ ------------ Cash Flows from Investing Activities Utility construction expenditures (208,850) (220,748) (263,709) Withdrawals from construction trust funds - net -- -- 58,042 Contributions to decommissioning funds (22,038) (22,038) (22,038) Other-net 3,338 3,874 (6,463) Discontinued operations -- 5,122 (17,338) ------------ ------------ ------------ Net cash used by investing activities (227,550) (233,790) (251,506) ------------ ------------ ------------ Net increase 76,650 71,024 12,694 Cash and temporary investments, beginning of year 96,429 25,405 12,711 ------------ ------------ ------------ Cash and temporary investments, end of year $ 173,079 $ 96,429 $ 25,405 ============ ============ ============ Supplemental Schedule of Noncash Investing and Financing Activities Real estate investments $ 96,832 $ 50,496 $ 28,311 Cash paid -- (2,550) (452) ------------ ------------ ------------ Liabilities assumed $ 96,832 $ 47,946 $ 27,859 ============ ============ ============ See notes to consolidated financial statements
ENOVA CORPORATION STATEMENTS OF CONSOLIDATED CHANGES IN CAPITAL STOCK AND RETAINED EARNINGS In thousands of dollars For the years ended December 31, 1994, 1995, 1996
Preferred Stock ----------------------------- Not Subject Subject to Premium on to Mandatory Mandatory Common Capital Retained Redemption Redemption Stock Stock Earnings --------- --------- --------- --------- --------- Balance, January 1, 1994 $ 93,493 $ 25,000 $ 291,288 $ 565,119 $ 659,833 Earnings applicable to common shares 135,814 Long-term incentive plan activity-net 53 (611) Common stock dividends declared (177,066) - -------------------------- --------- --------- --------- --------- --------- Balance, December 31, 1994 93,493 25,000 291,341 564,508 618,581 Earnings applicable to common shares 225,794 Long-term incentive plan activity-net 117 1,530 Preferred stock retired (880 shares) (18) 8 Common stock dividends declared (181,809) - -------------------------- --------- --------- --------- --------- --------- Balance, December 31, 1995 93,475 25,000 291,458 566,046 662,566 Earnings applicable to common shares 230,927 Long-term incentive plan activity-net 113 582 Preferred stock retired (150,000 shares) (15,000) (155) Common stock dividends declared (181,867) - -------------------------- --------- --------- --------- --------- --------- Balance, December 31, 1996 $ 78,475 $ 25,000 $ 291,571 $ 566,473 $ 711,626 ========================== ========= ========= ========= ========= ========= See notes to consolidated financial statements.
ENOVA CORPORATION STATEMENTS OF CONSOLIDATED CAPITAL STOCK In thousands of dollars except call price
Balance at December 31 1996 1995 ----------- ---------- COMMON EQUITY Common stock, without par value, authorized 255,000,000 shares, outstanding: 1996, 116,628,735 shares; 1995, 116,583,358 shares $ 291,571 $ 291,458 Premium on capital stock 566,473 566,046 Retained earnings 711,626 662,566 ----------- ---------- Total common equity $1,569,670 $1,520,070 =========== ========== PREFERRED STOCK (A) Trading Call Not subject to mandatory redemption Symbol(B) Price $20 par value, authorized 1,375,000 shares --------- -------- 5% Series, 375,000 shares outstanding SDOPrA $24.00 $ 7,500 $ 7,500 4.50% Series, 300,000 shares outstanding SDOPrB $21.20 6,000 6,000 4.40% Series, 325,000 shares outstanding SDOPrC $21.00 6,500 6,500 4.60% Series, 373,770 shares outstanding -- $20.25 7,475 7,475 Without par value (C) $7.20 Series, outstanding: 1995, 150,000 shares SDOPrG -- -- 15,000 $1.70 Series, 1,400,000 shares outstanding -- $25.85(D) 35,000 35,000 $1.82 Series, 640,000 shares outstanding SDOPrH $26.00(D) 16,000 16,000 ----------- ---------- Total not subject to mandatory redemption $ 78,475 $ 93,475 =========== ========== Subject to mandatory redemption Without par value (C) $1.7625 Series, 1,000,000 shares outstanding(E) -- $25.00(D) $ 25,000 $ 25,000 =========== ===========
(A) All series of preferred stock have cumulative preferences as to dividends. The $20 par value preferred stock has two votes per share, whereas the no par value preferred stock is nonvoting. The $20 par value preferred stock has a liquidation value at par. The no par value preferred stock has a liquidation value of $25 per share. (B) All listed shares are traded on the American Stock Exchange. (C) Authorized 10,000,000 shares total (both subject to and not subject to mandatory redemption). (D) The $1.70 and $1.7625 series are not callable until 2003; the $1.82 series is not callable until 1998. All other series are currently callable. (E) The $1.7625 series has a sinking fund requirement to redeem 50,000 shares per year from 2003 to 2007. The remaining 750,000 shares must be redeemed in 2008. See notes to consolidated financial statements. ENOVA CORPORATION STATEMENTS OF CONSOLIDATED LONG-TERM DEBT In thousands of dollars
First Call Balance at December 31 Date 1996 1995 ----------------- ---------- ---------- SDG&E First mortgage bonds 5.5% Series I, due March 1, 1997 4/15/67 $ 25,000 $ 25,000 4.00% Series CC, due May 1, 2008(A) 9/1/96 -- 53,000 4.00% Series DD, due December 1, 2008(A) 9/1/96 -- 27,000 3.95% Series FF, due December 1, 2007(A) 8/1/96 -- 35,000 7.625% Series GG, due July 1, 2021(B) 7/1/96 -- 44,250 7.375% Series HH, due December 1, 2021(B) 12/1/96 -- 81,350 8.75% Series II, due March 1, 2023(B) 9/1/97 25,000 25,000 9.625% Series JJ, due April 15, 2020 4/15/00 100,000 100,000 6.8% Series KK, due June 1, 2015(A) Non-callable 14,400 14,400 8.5% Series LL, due April 1, 2022 4/1/02 60,000 60,000 7.625% Series MM, due June 15, 2002 Non-callable 80,000 80,000 6.1% and 6.4% Series NN, due September 1, 2018 and 2019(B) 9/1/02 118,615 118,615 Various % Series OO, due December 1, 2027(C) (D) 250,000 250,000 5.9% Series PP, due June 1, 2018(B) 6/1/03 70,795 70,795 Variable % Series QQ, due June 1, 2018(B) (E) 14,915 14,915 5.85% Series RR, due June 1, 2021(A) 6/1/03 60,000 60,000 5.9% Series SS, due September 1, 2018(B) 9/1/03 92,945 92,945 Variable % Series TT, due September 1, 2020(B) (E) 57,650 57,650 Variable % Series UU, due September 1, 2020(B) (E) 16,700 16,700 -------------- ---------- ---------- Total 986,020 1,226,620 ---------- ---------- Unsecured bonds 5.90% Series CPCFA96A, due June 1, 2014(A) Non-callable 129,820 -- Variable % Series CV96A, due July 1, 2021(C) (E) 38,900 -- Variable % Series CV96B, due December 1, 2022(C) (E) 60,000 -- -------------- ---------- ----------- Total 228,720 -- ---------- ---------- Capitalized leases 105,315 105,365 Other long-term debt 528 15,207 Unamortized discount on long-term debt (2,128) (6,331) Long-term debt redeemable within one year -- (115,000) Current portion of long-term debt (33,639) (8,835) ---------- ---------- Total SDG&E 1,284,816 1,217,026 ---------- ----------- Other Subsidiaries Debt incurred to acquire limited partnerships, various rates, payable annually through 2007 219,051 142,198 Other long-term debt 11,734 18,351 Current portion of long-term debt (36,263) (27,481) -------- -------- Total Other Subsidiaries 194,522 133,068 -------- -------- Total Enova $1,479,338 $1,350,094 =========== ========== (A) Issued to secure SDG&E's obligation under a series of loan agreements with the California Pollution Control Financing Authority under which the Authority loaned proceeds from the sale of $115 million of variable-rate/demand (series CC, DD and FF) and $204 million in fixed-rate (series KK, RR and CPCFA96A) tax-exempt pollution control revenue bonds to the company to finance certain qualified facilities. (B) Issued to secure SDG&E's obligation under a series of loan agreements with the City of San Diego under which the city loaned the proceeds from the sale of industrial development revenue bonds to the company to finance certain qualified facilities. All series are tax-exempt except QQ and UU. (C) Issued to secure SDG&E's obligation under a series of loan agreements with the City of Chula Vista under which the city loaned the proceeds from the sale of $349 million in tax-exempt industrial development revenue bonds to the company to finance certain qualified facilities. (D) The first call date for $75 million is December 1, 2002. The remaining $175 million of the bonds is currently variable rate and is callable at various dates within one year. Of this, $45 million is subject to a floating-to-fixed rate swap, which expires December 15, 2002 (See Note 8). (E) Callable at various dates within one year. See notes to consolidated financial statements.
ENOVA CORPORATION STATEMENTS OF CONSOLIDATED FINANCIAL INFORMATION BY SEGMENTS OF BUSINESS
In thousands of dollars At December 31 or for the years then ended 1996 1995 1994 - ---------------------------------- ----------- ----------- ----------- Operating Revenues (A) $ 1,993,474 $ 1,870,676 $ 1,912,245 =========== =========== =========== Operating Income Electric operations $ 269,038 $ 263,346 $ 252,268 Gas operations 39,724 51,654 50,375 Other 26,201 30,650 14,573 ----------- ----------- ----------- Total $ 334,963 $ 345,650 $ 317,216 =========== =========== =========== Depreciation and Decommissioning Electric operations $ 279,251 $ 227,616 $ 220,811 Gas operations 35,027 33,225 31,009 Other 18,212 17,398 10,418 ----------- ----------- ----------- Total $ 332,490 $ 278,239 $ 262,238 =========== =========== =========== Utility Plant Additions (B) Electric operations $ 167,166 $ 171,151 $ 203,887 Gas operations 41,684 49,597 59,822 ----------- ----------- ----------- Total $ 208,850 $ 220,748 $ 263,709 =========== =========== =========== Identifiable Assets Utility plant-net Electric operations $ 2,625,620 $ 2,737,201 $ 2,790,167 Gas operations 448,751 441,140 423,468 ----------- ----------- ----------- Total 3,074,371 3,178,341 3,213,635 ----------- ----------- ----------- Inventories Electric operations 47,445 53,828 56,209 Gas operations 15,633 14,131 19,398 Other 359 -- -- ----------- ----------- ----------- Total 63,437 67,959 75,607 ----------- ----------- ----------- Other identifiable assets Electric operations 697,145 802,172 732,941 Gas operations 161,252 148,714 149,199 Other 488,102 434,940 373,076 ----------- ----------- ----------- Total 1,346,499 1,385,826 1,255,216 ----------- ----------- ----------- Other Utility Assets 164,930 116,498 118,521 ----------- ----------- ----------- Total Assets $ 4,649,237 $ 4,748,624 $ 4,662,979 =========== =========== =========== (A) The detail to operating revenues is provided in the Statements of Consolidated Income. The gas operating revenues shown therein include $9 million in 1996, $9 million in 1995 and $18 million in 1994, representing the gross margin on sales to the electric segment. These margins arose from interdepartmental transfers of $111 million in 1996, $85 million in 1995, and $119 million in 1994, based on transfer pricing approved by the California Public Utilities Commission in tariff rates. (B) Excluding allowance for equity funds used during construction. Utility income taxes and corporate expenses are allocated between electric and gas operations in accordance with regulatory accounting requirements. See notes to consolidated financial statements.
ENOVA CORPORATION QUARTERLY FINANCIAL DATA (UNAUDITED) In thousands except per share amounts
Quarter ended March 31 June 30 September 30 December 31 - --------------------------------------------------------------------------------------------- 1996 Operating revenues $ 465,897 $ 470,967 $ 507,593 $ 549,017 Operating expenses 372,905 396,442 420,307 468,857 ----------- ---------- ---------- ----------- Operating income 92,992 74,525 87,286 80,160 Other income 1,168 11 4,373 420 Net interest charges 28,108 27,186 28,914 25,800 ----------- ---------- ---------- ----------- Earnings applicable to common shares $ 66,052 $ 47,350 $ 62,745 $ 54,780 Average common shares outstanding 116,570 116,565 116,566 116,587 Earnings per common share $ 0.57 $ 0.41 $ 0.54 $ 0.47 1995 Operating revenues $ 477,955 $ 445,239 $ 478,689 $ 468,793 Operating expenses 384,300 365,751 388,387 386,588 ----------- ---------- ---------- ----------- Operating income 93,655 79,488 90,302 82,205 Other income and (deductions) 1,744 (499) (1,102) 389 Net interest charges 29,975 31,010 29,296 30,255 ----------- ---------- ---------- ----------- Income from continuing operations 65,424 47,979 59,904 52,339 Discontinued operations, net of income taxes (5,490) (678) -- 6,316 ----------- ---------- ---------- ----------- Earnings applicable to common shares $ 59,934 $ 47,301 $ 59,904 $ 58,655 Average common shares outstanding 116,533 116,534 116,538 116,545 Earnings per common share from continuing operations $ 0.56 $ 0.41 $ 0.51 $ 0.45 Earnings per common share $ 0.51 $ 0.41 $ 0.51 $ 0.50 These amounts are unaudited, but in the opinion of Enova reflect all adjustments necessary for a fair presentation.
ENOVA CORPORATION Quarterly Common Stock Data (Unaudited)
1996 1995 First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Market price High 24 3/4 23 1/8 23 23 21 5/8 22 7/8 23 1/4 23 7/8 Low 21 5/8 20 3/8 20 1/2 21 5/8 19 1/8 20 1/8 20 3/4 21 7/8 Dividends declared $0.39 $0.39 $0.39 $0.39 $0.39 $0.39 $0.39 $0.39
INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Enova Corporation: We have audited the accompanying consolidated balance sheets and the statements of consolidated capital stock and of consolidated long-term debt of Enova Corporation and subsidiaries as of December 31, 1996 and 1995, and the related statements of consolidated income, consolidated changes in capital stock and retained earnings, consolidated cash flows, and consolidated financial information by segments of business for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Enova Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP San Diego, California March 11, 1997 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ENOVA CORPORATION NOTE 1: BUSINESS COMBINATION On October 14, 1996, Enova Corporation and Pacific Enterprises, Inc., parent company of Southern California Gas Company, announced an agreement to combine the two companies. As a result of the combination, which was unanimously approved by the boards of directors of both companies, (i) each outstanding share of common stock of Enova will be converted into one share of common stock of the new company, (ii) each outstanding share of common stock of Pacific Enterprises will be converted into 1.5038 shares of common stock of the new company and (iii) the preferred stock and preference stock of SDG&E, Pacific Enterprises and Southern California Gas will remain outstanding. On March 11, 1997, the combination was approved by the shareholders of both companies. Consummation of the combination is conditional upon the approvals of the California Public Utilities Commission and various other regulatory bodies, with completion expected by the end of 1997. The combination will be a tax- free transaction and is expected to be accounted for as a pooling of interests. NOTE 2: SIGNIFICANT ACCOUNTING POLICIES Nature of Operations On January 1, 1996, Enova Corporation (referred to herein as Enova, which includes the parent and its wholly owned subsidiaries) became the parent of SDG&E and its unregulated subsidiaries (referred to herein as non-utility subsidiaries). SDG&E's outstanding common stock was converted on a share-for-share basis into Enova common stock. SDG&E's debt securities, preferred and preference stock were unaffected and remain with SDG&E. The consolidated financial statements include Enova and its wholly owned subsidiaries. The subsidiaries include SDG&E, Califia, Enova Financial, Enova Energy, Enova Technologies, Enova International and Pacific Diversified Capital. In 1996, non-utility subsidiaries contributed 8 percent to operating income (9 percent in 1995 and 8 percent in 1994). In June 1995, SDG&E sold its interest in Wahlco Environmental Systems. Prior periods have been restated to account for the net results of Wahlco as discontinued operations in accordance with Accounting Principles Board Opinion No. 30 "Reporting the Effects of a Disposal Disposal of a Segment of Business." Additional information concerning Wahlco is is described in Note 3. Utility Plant and Depreciation Utility plant represents the buildings, equipment and other facilities used by SDG&E to provide electric and gas service. The cost of utility plant includes labor, material, contract services and related items, and an allowance for funds used during construction. The cost cost of retired depreciable utility plant, plus removal costs minus salvage value is charged to accumulated depreciation. Information regarding industry restructuring and its effect on utility plant is included in Note 10. Utility plant in service by major functional categories at December 31, 1996, are: electric generation $1.8 billion, electric distribution $2.2 billion, electric transmission $0.7 billion, other electric $0.2 billion and gas operations $0.8 billion. The corresponding amounts at December 31, 1995, were essentially the same as 1996. Accumulated depreciation and decommissioning of electric and gas utility plant in service at December 31, 1996, are $2.2 billion and $0.4 billion, respectively and at December 31, 1995, were $2.1 billion and $0.3 billion, respectively. Depreciation expense is based on the straight-line method, over the useful lives of the assets or a shorter period prescribed by the CPUC (for SONGS, see below). The provisions for depreciation as a percentage of average depreciable utility plant (by major functional categories) in 1996 and (in 1995, 1994, respectively) are: electric generation 7.57 (4.04, 4.04), electric distribution 4.38 (4.36, 4.35), electric transmission 3.25 (3.21, 3.24), other electric 5.95 (5.89, 5.88) and gas operations 4.07 (4.06, 4.11). The increase for electric generation in 1996 reflects the accelerated recovery of San Onofre Nuclear Generating Station Units 2 and 3 approved by the California Public Utilities Commission in April 1996. Inventories Included in inventories at December 31, 1996, are SDG&E's $40 million of materials and supplies ($42 million in 1995), and $23 million of fuel oil and natural gas ($26 million in 1995). Materials and supplies are valued at average cost; fuel oil and natural gas are valued by the last-in first-out (LIFO) method. Other Current Assets Included in other current assets at December 31, 1996, is $33 million for SDG&E's deferred income taxes. Short-term Borrowings There were no short-term borrowings at December 31, 1996 and 1995. At December 31, 1996, SDG&E had $50 million of bank lines available to support commercial paper. Commitment fees are paid on the unused portion of the lines and there are no requirements for compensating balances. Other Current Liabilities Included in other current liabilities at December 31, 1996, is Califia's $33 million current portion of deferred lease revenue ($34 million in 1995) and $33 million for SDG&E's accrued vacation and sick leave ($26 million in 1995). The $21 million noncurrent portion ($54 million in 1995) of Califia's deferred lease revenue is included in "Deferred Credits and Other Charges." These deferred revenues are amortized over the lease terms. Allowance for Funds Used During Construction The allowance represents the cost of funds used to finance the construction of utility plant and is added to the cost of utility plant. AFUDC also increases income, as an offset to inter- est charges shown in the Statements of Consolidated Income, although it is not a current source of cash. The average rate used to compute AFUDC was 9.36 percent in 1996, 9.74 percent in 1995 and 8.80 percent in 1994. Effects of Regulation SDG&E's accounting policies conform with generally accepted accounting principles for regulated enterprises and reflect the policies of the California Public Utilities Commission and the Federal Energy Regulatory Commission. SDG&E prepares its financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 71, "Accounting For the Effects of Certain Types of Regulation," under which a regulated utility may record a regulatory asset if it is probable that, through the rate-making process, the utility will recover that asset from customers. Regulatory liabilities represent future reductions in revenues for amounts due to customers. To the extent that a portion of SDG&E's operations is no longer subject to SFAS No. 71, or recovery is no longer probable as a result of changes in regulation and/or SDG&E's competitive position, the related regulatory assets and liabilities would be written off. In addition, a new accounting standard, effective for 1996 financial statements, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," affects utility plant and regulatory assets such that a loss must be recognized whenever a regulator excludes all or part of an asset's cost from rate base. As discussed in Note 10, California recently enacted a law restructuring the electric-utility industry. The law adopts the December 1995 CPUC policy decision, and allows California utilities to recover existing utility plant and regulatory assets over a transition period that ends in 2001. SDG&E continues to evaluate the applicability of SFAS No. 71 and SFAS No. 121 as industry restructuring progresses, taking into consideration concerns from the Securities and Exchange Commission that California's investor-owned utilities may not meet the criteria of SFAS No. 71 with respect to their generation operations. Discussions with the SEC are ongoing. However, if SDG&E discontinues the application of SFAS No. 71 to its generation operations, the write-off of its generation-related regulatory assets and liabilities would not have a material impact on its financial condition or results of operations. Additional information concerning regulatory assets and liabilities is described below in "Revenues and Regulatory Balancing Accounts" and in Note 10. Revenues and Regulatory Balancing Accounts Revenues from utility customers consist of deliveries to customers and the changes in regulatory balancing accounts. Earnings fluctuations from changes in the costs of fuel oil, purchased energy and natural gas, and consumption levels for electricity and the majority of natural gas previously were eliminated by balancing accounts authorized by the California Public Utilities Commission. This is still the case for natural gas. However, as a result of California's electric restructuring law, the $98 million of overcollections recorded in the Energy Cost Adjustment Clause and Electric Revenue Adjustment Mechanism balancing accounts as of December 31, 1996 were credited to deferred charges and other assets; and the elimination of ECAC and ERAM will result in quarter-to-quarter earnings volatility in 1997 and future. years. Additional information on industry restructuring is included in Note 10. Deferred Charges and Other Assets Deferred charges include SDG&E's unrecovered premium on early retirement of debt and other regulatory-related expenditures that SDG&E expects to recover in future rates. These items are amortized as recovered in rates. Deferred charges at December 31, 1996, also include the net regulatory asset associated with SDG&E's generation operations, including the effect of the transfer of the balancing accounts discussed in the preceding paragraph. This classification arises from recent electric industry restructuring, which is discussed in Note 10. Writedowns In June 1994, Enova recorded writedowns related to SDG&E and non- utility subsidiaries. Enova recorded a $25 million writedown of various commercial properties, including $19 million of non-utility subsidiary proper- ties in Colorado Springs and in San Diego, to reflect continuing declines in commercial real estate values. SDG&E also recorded a $12 million writedown of various non-earning utility assets, including the South Bay Repower project. Other writedowns, associated with discontinued operations, are described in Note 3. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Statements of Consolidated Cash Flows Temporary investments are highly liquid investments with original maturities of three months or less. Basis of Presentation Certain prior-year amounts have been reclassified to conform to the current year's format. NOTE 3: DISCONTINUED OPERATIONS Enova's financial statements for periods prior to 1996 reflect the June 1995 sale of Wahlco Environmental Systems, Inc. as discontinued operations, in accordance with Accounting Principles Board Opinion No. 30, "Reporting the Effects of a Disposal of a Segment of Business." Discontinued operations are summarized in the table below: (Millions of dollars) 1995 1994 - ---------------------------------------------------------------------------- Revenues $ 24 $ 70 Loss from operations before income taxes - (70) Loss on disposal before income taxes (12) - Income tax benefits 12 7 The loss on disposal of Wahlco was recorded in 1995 and reflects the sale of Wahlco and Wahlco's net operating losses after 1994. The loss from discontinued operations for 1994 was primarily due to the $59 million writedown of Wahlco's goodwill and other intangible assets as a result of the depressed air pollution- control market and increasing competition. NOTE 4: LONG-TERM DEBT Amounts and due dates of long-term debt are shown on the Statements of Consolidated Long-Term Debt. Excluding capital leases, which are described in Note 9, maturities of long-term debt for SDG&E are $25 million due in 1997 and less than $1 million for each of the next four years. Total maturities of long- term debt for non-utility subsidiaries are $36 million for 1997, $42 million for 1998, $38 million for 1999, $27 million for 2000 and $23 million for 2001. SDG&E has CPUC authorization to issue an additional $210 million in long-term debt. First Mortgage Bonds First mortgage bonds are secured by a lien on substantially all of SDG&E's utility plant. Additional first mortgage bonds may be issued upon compliance with the provisions of the bond indenture, which provides for, among other things, the issuance of an additional $1.2 billion of first mortgage bonds at December 31, 1996. Certain of the first mortgage bonds may be called at SDG&E's option. First mortgage bonds totaling $264 million have variable-interest-rate provisions. During 1996, SDG&E retired $241 million of first mortgage bonds prior to scheduled maturity. Unsecured Bonds Unsecured bonds totaling $229 million were issued by SDG&E during 1996. Of these bonds, $99 million have variable-interest-rate provisions. Other At December 31, 1996 SDG&E had $330 million of bank lines, providing a committed source of long-term borrowings, with no debt outstanding. Bank lines, unless renewed by SDG&E, expire in 1997 ($50 million) and in 2000 ($280 million). Commitment fees are paid on the unused portion of the lines and there are no requirements for compensating balances. Non-utility loans of $231 million and $161 million at December 31, 1996, and 1995, respectively, are secured by equipment and real estate. SDG&E's interest payments, including those applicable to short-term borrowings, amounted to $93 million in 1996, $100 million in 1995 and $91 million in 1994. Non-utility interest payments amounted to $12 million in 1996, $14 million in 1995 and $11 million in 1994. SDG&E periodically enters into interest-rate swap-and-cap agreements to moderate its exposure to interest-rate changes and to lower its overall cost of borrowings. At December 31, 1996, SDG&E had such an agreement, maturing in 2002, with underlying debt of $45 million. See additional information in Note 8. Although holders of variable-rate bonds may elect to redeem them prior to scheduled maturity, for purposes of determining the maturities listed above, it is assumed the bonds will be held to maturity. NOTE 5: FACILITIES UNDER JOINT OWNERSHIP SONGS and the Southwest Powerlink transmission line are owned jointly with other utilities. SDG&E's interests at December 31, 1996, were: In millions of dollars - ---------------------------------------------------------------------------- Southwest Project SONGS Powerlink - ------------------------------------------------------------------------------- Percentage ownership 20 89 Utility plant in service $ 1,137 $ 217 Accumulated depreciation $ 487 $ 89 Construction work in progress $ 31 $ - SDG&E's share of operating expenses is included in the Statements of Consolidated Income. Each participant in the projects must provide its own financing. The amounts specified above for SONGS include nuclear production, transmission and other facilities. SONGS Decommissioning Objectives, work scope and procedures for the future dismantling and decontamination of the SONGS units must meet the requirements of the Nuclear Regulatory Commission, the Environmental Protection Agency, the California Public Utilities Code and other regulatory bodies. SDG&E's share of decommissioning costs for the SONGS units is estimated to be $354 million in current dollars and is based on studies performed and updated periodically by outside consultants. The most recent study was performed in 1993. Although electric industry restructuring legislation requires that stranded costs, which includes SONGS plant costs, be recovered by 2001, the recovery of decommissioning costs is allowed through 2013, the estimated last year of service. The amount accrued each year is based on the amount allowed by regulators and is currently being collected in rates. This amount is considered sufficient to cover SDG&E's share of future decommissioning costs. The depreciation and decommissioning expense reflected on the Statements of Consolidated Income includes $22 million of decommissioning expense for each of the years 1996, 1995 and 1994. The amounts collected in rates are invested in externally managed trust funds. In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the securities held by the trust are considered available for sale and are adjusted to market value ($328 million at December 31, 1996, and $270 million at December 31, 1995) and included in "Investments and Other Property" on the Consolidated Balance Sheets. The fair values reflect unrealized gains of $50 million and $25 million at December 31, 1996 and 1995, repectively. The corresponding accumulated accrual is included on the Consolidated Balance Sheets in "Accumulated Depreciation and Decommissioning" for SONGS Units 2 and 3 and in "Deferred Credits and Other Liabilities" for Unit 1. Accumulated depreciation and decommissioning of utility plant at December 31, 1995, has been restated to reflect the reclassification as deferred credits of the $78 million of accumulated decommissioning costs associated with Unit 1, which was permanently shut down in 1992. The Financial Accounting Standards Board is currently reviewing accounting for liabilities related to closure and removal of long-lived assets, such as nuclear power plants, including the recognition, measurement and classification of such costs. The Board could require, among other things, that SDG&E's future balance sheets include a liability for the estimated decommissioning costs, and a related increase in the cost of utility plant. Additional information regarding SONGS is included in Notes 9 and 10. NOTE 6: EMPLOYEE BENEFIT PLANS Pension Plan SDG&E has a defined-benefit pension plan, which covers substantially all of its employees. Benefits are related to the employees' compensation. Plan assets consist primarily of common stocks and bonds. SDG&E funds the plan based on the projected unit credit actuarial cost method. Net pension cost consisted of the following for the year ended December 31: In thousands of dollars 1996 1995 1994 - ------------------------------------------------------------------------------- Cost related to current service $18,547 $ 14,598 $18,733 Interest on projected benefit obligation 37,253 30,760 33,254 Return on plan assets (72,829) (132,674) (1,319) Net amortization and deferral 25,315 93,708 (34,253) - ------------------------------------------------------------------------------- Cost pursuant to general accounting standards 8,286 6,392 16,415 Regulatory adjustment (15,286) 608 (16,415) - ------------------------------------------------------------------------------- Net cost (benefit) $(7,000) $ 7,000 $ - =============================================================================== The plan's status was as follows at December 31: In thousands of dollars 1996 1995 - ------------------------------------------------------------------------------- Accumulated benefit obligation Vested $435,029 $357,089 Non-vested 12,321 8,880 - ------------------------------------------------------------------------------- Total $447,350 $365,969 =============================================================================== Plan assets at fair value $598,610 $542,336 Projected benefit obligation 539,391 481,450 - ------------------------------------------------------------------------------- Plan assets less projected benefit obligation 59,219 60,886 Unrecognized effect of accounting change (950) (1,139) Unrecognized prior service cost 31,315 11,869 Unrecognized actuarial gains (157,082) (130,828) - ------------------------------------------------------------------------------- Net liability $(67,498) $(59,212) =============================================================================== The projected benefit obligation assumes a 7.50 percent actuarial discount rate in 1996 (7.25 percent in 1995) and a 5.0 percent average annual compensation increase. The expected long-term rate of return on plan assets is 8.5 percent. The increase in the total accumulated benefit obligation and projected benefit obligation at December 31, 1996, is due primarily to a change in retirement age probabilities and a plan amendment to include incentive compensation in salary assumptions used to calculate the pension benefit. The effects of these changes were partially offset by changes in assumptions regarding employee turnover and the increase in the actuarial discount rate. SDG&E's cost for a supplemental retirement plan for a limited number of key employees was approximately $3 million in 1996, $3 million in 1995 and $2 million in 1994. Post-Retirement Health Benefits SDG&E provides certain health and life insurance benefits to retired employees. These benefits are accrued during the employee's years of service, up to the year of benefit eligibility. SDG&E is recovering the cost of these benefits based upon actuarial calculations and funding limitations. The costs for the benefits were $5 million in 1996, $5 million in 1995 and $6 million in 1994. These costs include $2 million of amortization per year for the unamortized transition obligation (arising from the initial implementation of this accounting policy) of approximately $33 million which is being amortized through 2013. Savings Plan Essentially all employees are eligible to participate in SDG&E's savings plan. Eligible employees may make a contribution of 1 percent to 15 percent of their base pay to the savings plan for investment in mutual funds or in Enova common stock. SDG&E contributes amounts equal to up to 3 percent of participants' compensation for investment in Enova common stock. SDG&E's annual compensation expense for this plan was $2 million in each of the last three years. Stock-Based Compensation Enova has a long-term incentive stock compensation plan that provides for aggregate awards of up to 2,700,000 shares of Enova common stock. The plan terminates in April 2005. In each of the last 10 years, 45,000 shares to 65,000 shares of stock were issued to officers and key employees, subject to forfeiture over four years if certain corporate goals are not met. The long-term incentive stock compensation plan also provides for the granting of stock options. In October 1996, Enova granted options for 272,540 shares of common stock. The options begin vesting one year after grant and continue to vest 25 percent each year over a four-year period, provided the participant remains an employee. The options are exercisable at $22.375 per share. The options, which were all outstanding at December 31, 1996, expire 10 years after the grant date of October 21, 1996. As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," SDG&E has adopted the disclosure-only requirements of SFAS No. 123 and continues to account for stock-based compensation by applying the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The differences between compensation cost included in net income and the related cost measured by the fair-value-based method defined in SFAS No. 123 are immaterial. SDG&E's compensation expense for this plan was approximately $1 million in 1996, $2 million in 1995 and $0.2 million in 1994. NOTE 7: INCOME TAXES Income tax payments totaled $176 million in 1996, $148 million in 1995 and $167 million in 1994. The components of accumulated deferred income taxes at December 31 are as follows: In thousands of dollars 1996 1995 - ------------------------------------------------------------------------------- Deferred tax liabilities Differences in financial and tax bases of utility plant $628,617 $583,664 Loss on reacquired debt 26,399 26,829 Other 80,033 69,864 - ------------------------------------------------------------------------------- Total deferred tax liabilities 735,049 680,357 - ------------------------------------------------------------------------------- Deferred tax assets Unamortized investment tax credits 66,729 71,451 Equipment leasing activities 22,333 36,493 Regulatory balancing accounts 37,010 41,368 Unbilled revenue 21,923 21,241 Other 123,158 83,399 - ------------------------------------------------------------------------------- Total deferred tax assets 271,153 253,952 - ------------------------------------------------------------------------------- Net deferred income tax liability 463,896 426,405 Current portion (net asset) 33,504 96,930 - ------------------------------------------------------------------------------- Non-current portion (net liability) $497,400 $523,335 =============================================================================== The components of income tax expense are as follows: In thousands of dollars 1996 1995 1994 - ------------------------------------------------------------------------------- Current Federal $115,410 $134,212 $149,361 State 39,939 42,630 41,288 - ------------------------------------------------------------------------------- Total current taxes 155,349 176,842 190,649 - ------------------------------------------------------------------------------- Deferred Federal 434 (23,914) (37,605) State (1,518) (13,464) (12,897) - ------------------------------------------------------------------------------- Total deferred taxes (1,084) (37,378) (50,502) - ------------------------------------------------------------------------------- Deferred investment tax credits - net (5,791) (4,859) (4,148) - ------------------------------------------------------------------------------- Total income tax expense $148,474 $134,605 $135,999 =============================================================================== Federal and state income taxes are allocated between operating income and other income. The reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows: 1996 1995 1994 - ------------------------------------------------------------------------------- Statutory federal income tax rate 35.0 % 35.0 % 35.0 % Depreciation 6.3 5.5 6.8 State income taxes - net of federal income tax benefit 6.9 5.5 5.5 Tax credits (9.5) (7.6) (5.5) Equipment leasing activities (2.8) (2.8) (3.3) Repair allowance (1.2) (3.0) (2.8) Other - net 4.4 4.8 4.9 - ------------------------------------------------------------------------------- Effective income tax rate 39.1 % 37.4 % 40.6 % =============================================================================== NOTE 8: FINANCIAL INSTRUMENTS Fair Value The fair values of financial instruments (cash, temporary investments, funds held in trust, notes receivable, investments in limited partnerships, dividends payable, short- and long-term debt, deposits from customers, and preferred stock subject to mandatory redemption) are not materially different from the carrying amounts. Off-Balance-Sheet Financial Instruments Enova's policy is to use derivative financial instruments to reduce its exposure to fluctuations in interest rates, foreign-currency exchange rates and natural gas prices. Enova does not use derivatives for trading or speculative purposes. These financial instruments expose Enova to market and credit risks which may at times be concentrated with certain counterparties, although counterparty non-performance is not anticipated. Interest-Rate-Swap Agreements SDG&E periodically enters into interest-rate- swap agreements to moderate its exposure to interest-rate changes and to lower its overall cost of borrowing. These swap agreements generally remain off the balance sheet as they involve the exchange of fixed- and variable-rate interest payments without the exchange of the underlying principal amounts. The related gains or losses are reflected in the income statement as part of interest expense. At December 31, 1996, SDG&E had one interest-rate swap agreement: a floating-to-fixed-rate swap associated with $45 million of variable-rate bonds maturing in 2002. SDG&E expects to hold this derivative financial instrument to its maturity. This swap agreement has effectively fixed the interest rate on the underlying variable-rate debt at 5.4 percent. SDG&E would be exposed to interest rate fluctuations on the underlying debt should the counterparty to the agreement not perform. Such non-performance is not anticipated. This agreement, if terminated, would result in an obligation of $2 million at December 31, 1996 ($3 million at December 31, 1995). Foreign Currency Forward Exchange Contracts SDG&E's pension fund periodically uses foreign currency forward contracts to reduce its exposure to exchange-rate fluctuations associated with certain investments in foreign equity securities. These contracts generally have maturities ranging from three to six months. At December 31, 1996, there were no forward contracts outstanding. Energy Derivatives On a limited basis Enova enters into forward contracts, swaps and other contracts to hedge price volatility of its natural gas requirements. Enova's accounting policy is to adjust the book value of these derivatives to market each month. No such contracts were open and outstanding at December 31, 1996. NOTE 9: CONTINGENCIES AND COMMITMENTS Purchased Power Contracts SDG&E buys electric power under several short-term and long-term contracts. Purchases are for 2 percent to 7 percent of plant output under contracts with other utilities and up to 100 percent of plant output under contracts with non-utility suppliers. No one supplier provides more than 3 percent of SDG&E's total system requirements. The contracts expire on various dates between 1997 and 2025. At December 31, 1996, the estimated future minimum payments under the contracts were: In millions of dollars - ------------------------------------------------------------------------------- 1997 $ 260 1998 193 1999 190 2000 157 2001 138 Thereafter 2,403 - ------------------------------------------------------------------------------- Total minimum payments $3,341 =============================================================================== These payments represent capacity charges and minimum energy purchases. SDG&E is required to pay additional amounts for actual purchases of energy under the contracts. Total payments, including energy payments, under the contracts were $296 million in 1996, $329 million in 1995 and $325 million in 1994. Natural Gas Contracts SDG&E has a contract with Southern California Gas Company that provides SDG&E with intrastate transportation capacity on SoCal's gas pipelines through December 1997. SDG&E's long-term contracts with interstate pipelines for transportation capacity expire on various dates between 2007 and 2023. SDG&E's contract with SoCal for 8 billion cubic feet of natural gas storage capacity expires in March 1998. SDG&E has long-term gas-supply contracts (included in the table below) with four Canadian suppliers that expire between 2001 and 2004. SDG&E has been involved in negotiations and litigation with the suppliers concerning the contracts' terms and prices. SDG&E has settled with one supplier, with gas being delivered under the terms of the settlement agreement. The remaining suppliers have ceased deliveries pending legal resolution. At December 31, 1996, the future minimum payments under natural gas contracts were: Transportation Natural In millions of dollars and Storage Gas - ------------------------------------------------------------------------------- 1997 $ 67 $ 21 1998 15 20 1999 14 17 2000 14 19 2001 14 21 Thereafter 247 48 - ------------------------------------------------------------------------------- Total minimum payments $371 $146 =============================================================================== Total payments under the contracts were $100 million in 1996, $95 million in 1995 and $125 million in 1994. Leases SDG&E has nuclear fuel, office buildings, a generating facility and other properties that are financed by long-term capital leases. Utility plant included $200 million at December 31, 1996, and $189 million at December 31, 1995, related to these leases. The associated accumulated amortization was $95 million and $86 million, respectively. SDG&E and non-utility subsidiaries also lease office facilities, computer equipment and vehicles under operating lease. Certain leases on office facilities contain escalation clauses requiring annual increases in rent ranging from 2 percent to 7 percent. The minimum rental commitments payable in future years under all noncancellable leases were: Operating Capitalized Leases Leases In millions of dollars Enova SDG&E SDG&E - ------------------------------------------------------------------------------- 1997 $ 50 $ 13 $ 26 1998 35 13 26 1999 12 12 22 2000 8 8 12 2001 7 7 12 Thereafter 40 40 33 - ------------------------------------------------------------------------------- Total future rental commitment $152 $93 131 - ------------------------------------------------------------------------------- Imputed interest (6% to 9%) (26) - ------------------------------------------------------------------------------- Net commitment $105 =============================================================================== Enova's rental payments totaled $88 million in 1996, $85 million in 1995 and $91 million in 1994. Included in these amounts are SDG&E payments of $46 million, $44 million and $49 million, respectively. Environmental Issues SDG&E's operations are conducted in accordance with federal, state and local environmental laws and regulations governing hazardous wastes, air and water quality, land use, and solid waste disposal. SDG&E incurs significant costs to operate its facilities in compliance with these laws and regulations. The costs of compliance with environmental laws and regulations are normally recovered in customer rates. Capital expenditures to comply with environmental laws and regulations were $6 million in 1996, $4 million in 1995 and $5 million in 1994, and are expected to be $34 million over the next 5 years. These expenditures include the estimated cost of retrofitting SDG&E's power plants to reduce air emissions. SDG&E has been associated with various sites which may require remediation under federal, state or local environmental laws. SDG&E is unable to determine the extent of its responsibility for remediation of these sites until assess- ments are completed. Furthermore, the number of others that also may be responsible and their ability to share in the cost of the cleanup, is not known. Environmental liabilities that may arise from these assessments are recorded when remedial efforts are probable, and the costs can be estimated. In 1994 the CPUC approved a mechanism allowing utilities to recover their hazardous waste costs, including those related to Superfund sites or similar sites requiring cleanup. The decision allows recovery of 90 percent of cleanup costs and related third-party litigation costs and 70 percent of the related insurance- litigation expenses. As discussed in Note 10, restructuring of the California electric utility industry will change the way utility rates are set and costs are recovered. Both the CPUC and state legislation have indicated that the California utilities will be allowed recovery of existing utility plant and regulatory assets over a transition period that ends in 2001. Depending on the final outcome of industry restructuring and the impact of competition, the costs of compliance with environmental regulations may not be fully recoverable. Nuclear Insurance SDG&E and the co-owners of SONGS have purchased primary insurance of $200 million, the maximum amount available, for public-liability claims. An additional $8.7 billion of coverage is provided by secondary financial protection required by the Nuclear Regulatory Commission and provides for loss sharing among utilities owning nuclear reactors if a costly accident occurs. SDG&E could be assessed retrospective premium adjustments of up to $32 million in the event of a nuclear incident involving any of the licensed, commercial reactors in the United States, if the amount of the loss exceeds $200 million. In the event the public liability limit stated above is insufficient, the Price-Anderson Act provides for Congress to enact further revenue-raising measures to pay claims, which could include an additional assessment on all licensed reactor operators. Insurance coverage is provided for up to $2.8 billion of property damage and decontamination liability. Coverage is also provided for the cost of replacement power, which includes indemnity payments for up to three years, after a waiting period of 21 weeks. Coverage is provided primarily through mutual insurance companies owned by utilities with nuclear facilities. If losses at any of the nuclear facilities covered by the risk-sharing arrangements were to exceed the accumulated funds available from these insurance programs, SDG&E could be assessed retrospective premium adjustments of up to $6 million. Department of Energy Decommissioning The Energy Policy Act of 1992 established a fund for the decontamination and decommissioning of the Department of Energy nuclear-fuel-enrichment facilities. Utilities using the DOE services are contributing a total of $2.3 billion, subject to adjustment for inflation, over a 15-year period ending in 2006. Each utility's share is based on its share of enrichment services purchased from the DOE. SDG&E's annual contribution is $1 million. Litigation Enova and its subsidiaries, including SDG&E, are involved in various legal matters, including those arising out of the ordinary course of business. Management believes that these matters will not have a material adverse effect on Enova's results of operations, financial condition or liquidity. Distribution System Conversion Under a CPUC-mandated program and through franchise agreements with various cities, SDG&E is committed, in varying amounts, to convert overhead distribution facilities to underground. As of December 31, 1996, the aggregate unexpended amount of this commitment was approximately $100 million. Capital expenditures for underground conversions were $15 million in 1996, $12 million in 1995 and $11 million in 1994. Concentration of Credit Risk SDG&E grants credit to its utility customers, substantially all of whom are located in its service territory, which covers all of San Diego County and an adjacent portion of Orange County. NOTE 10: INDUSTRY RESTRUCTURING In September 1996, the State of California enacted a law restructuring California's electric utility industry (AB 1890). The legislation adopts the December 1995 CPUC policy decision restructuring the industry to stimulate competition and reduce rates. The new law supersedes the CPUC policy decision when in conflict. Beginning in January 1998, customers will be able to buy their electricity through a power exchange that will obtain power from the lowest-bidding suppliers. The power exchange will serve as a wholesale power pool allowing all energy producers to participate competitively. An independent system operator will schedule power transactions and access to the transmission system. Consumers also may choose either to continue to purchase from their local utility under regulated tariffs or to enter into private contracts with generators, brokers or others. The local utility will continue to provide distribution service regardless of which source the consumer chooses. Utilities will be allowed a reasonable opportunity to recover their stranded costs through December 31, 2001. Stranded costs such as those related to the public goods charge (funding for renewables and demand-side management programs), reasonable employee-related costs directly caused by restructuring, and purchase-power contracts (including those with qualifying facilities) may be recovered beyond December 31, 2001. Outside of those exceptions, stranded costs not recovered through 2001 will not be collected from customers. Such costs, if any, would be written off as a charge against earnings. SDG&E's transition cost application filed in October 1996 identifies transition costs totaling $2 billion (net present value in 1998 dollars). These identified transition costs are subject to a CPUC audit, which began in December 1996. The amount includes sunk costs, as well as on-going costs the CPUC finds reasonable and necessary to maintain generation facilities through December 31, 2001. Both the CPUC policy decision and AB 1890 provide that above-market costs for existing power-purchase and QF contracts may be recovered over the terms of the contracts or sooner. Qualifying facilities purchases include approximately 100 existing contracts, which extend as far as 2025. Other power purchases consist of two long-term contracts expiring in 2001 and 2013. The amount also includes other items SDG&E has accrued under cost-of-service regulation. Nuclear decom- missioning costs are nonbypassable until fully recovered, but are not included as part of transition costs. However, recovery of these costs may be accelerated to the extent possible. This could prevent any rate reduction before 2002. The California legislation provides for a 10-percent reduction of residential and small commercial customers' rates beginning in January 1998 as a result of the utilities' receiving the proceeds of rate-reduction bonds issued by an agency of the State of California. SDG&E estimates that it will need $500 million of bond proceeds to enable it to effect a sufficient decrease in rate base to result in the desired rate reduction. These bonds will be repaid over 10 years by SDG&E's residential and small commercial customers via a charge on their electric bills. In addition, the California legislation includes a rate freeze for all customers. Until the earlier of March 31, 2002, or when transition cost recovery is complete, SDG&E's system average rate will be frozen at June 10, 1996 levels (9.64 cents per kwh), except for the impact of fuel cost changes and the 10- percent rate reduction described above. In any event, rates cannot be increased above 9.985 cents per kwh. Late-1996 natural gas prices were more than double early-1996 prices due to weather-related factors, storage levels, etc., resulting in electric rate increases in January and February 1997. The rate changes have increased SDG&E's system average rate from 9.64 cents per kwh to the 9.985 cents-per-kwh rate cap. As described in Note 2, SDG&E currently accounts for the economic effects of regulation in accordance with SFAS No. 71. The SEC has indicated a concern that the California investor-owned utilities may not meet the criteria of SFAS No. 71 with respect to their electric generation net regulatory assets. While discussions are ongoing with the SEC, if a decision is ultimately made that would result in the discontinuation of the application of SFAS No. 71 for electric-generation operations, the impact of a writeoff of these net regulatory assets would not be material to SDG&E's results of operations, financial position or liquidity. Item 8. Financial Statements and Supplementary Data - San Diego Gas & Electric Company SAN DIEGO GAS & ELECTRIC COMPANY STATEMENTS OF INCOME In thousands except per share amounts
For the years ended December 31 1996 1995 1994 ------------ ------------ ----------- Operating Revenues Electric $1,590,882 $1,503,926 $1,510,320 Gas 348,035 310,142 346,183 ------------ ------------ ----------- Total operating revenues 1,938,917 1,814,068 1,856,503 ------------ ------------ ----------- Operating Expenses Electric fuel 134,350 100,256 143,339 Purchased power 310,731 341,727 342,612 Gas purchased for resale 152,151 113,355 146,579 Maintenance 57,652 91,740 70,776 Depreciation and decommissioning 314,278 260,841 251,820 Property and other taxes 44,764 45,566 44,746 General and administrative 247,653 207,078 206,593 Other 166,391 166,303 169,037 Income taxes 202,185 172,202 178,358 ------------ ------------ ----------- Total operating expenses 1,630,155 1,499,068 1,553,860 ------------ ------------ ----------- Operating Income 308,762 315,000 302,643 ------------ ------------ ----------- Other Income and (Deductions) Allowance for equity funds used during construction 5,898 6,435 6,274 Taxes on nonoperating income 4,227 (827) 6,099 Other - net (5,431) 923 (16,131) ------------ ------------ ----------- Total other income and (deductions) 4,694 6,531 (3,758) ------------ ------------ ----------- Income Before Interest Charges 313,456 321,531 298,885 ------------ ------------ ----------- Interest Charges Long-term debt 76,463 82,591 81,749 Short-term debt and other 12,635 17,886 8,894 Amortization of debt discount and expense, less premium 4,881 4,870 4,604 Allowance for borrowed funds used during construction (3,288) (2,865) (2,658) ------------ ------------ ----------- Net interest charges 90,691 102,482 92,589 ------------ ------------ ----------- Income From Continuing Operations 222,765 219,049 206,296 Discontinued Operations, Net of Income Taxes -- 14,408 (62,819) ------------ ------------ ----------- Net Income (before preferred dividend requirements) 222,765 233,457 143,477 Preferred Dividend Requirements 6,582 7,663 7,663 ------------ ------------ ----------- Earnings Applicable to Common Shares $ 216,183 $ 225,794 $ 135,814 ============ ============ ============ See notes to financial statements.
SAN DIEGO GAS & ELECTRIC COMPANY BALANCE SHEETS In thousands of dollars
Balance at December 31 1996 1995 -------------- -------------- ASSETS Utility plant - at original cost $5,704,464 $5,533,554 Accumulated depreciation and decommissioning (2,630,093) (2,355,213) -------------- -------------- Utility plant-net 3,074,371 3,178,341 -------------- -------------- Investments and other property 337,520 448,860 -------------- -------------- Current assets Cash and temporary investments 81,409 20,755 Accounts receivable 187,986 178,091 Inventories 63,078 67,959 Other 33,227 11,353 -------------- -------------- Total current assets 365,700 278,158 -------------- -------------- Deferred taxes recoverable in rates 189,193 298,748 -------------- -------------- Deferred charges and other assets 193,732 268,506 -------------- -------------- Total $4,160,516 $4,472,613 ============== ============== CAPITALIZATION AND LIABILITIES Capitalization Common equity $1,404,136 $1,520,070 Preferred stock not subject to mandatory redemption 78,475 93,475 Preferred stock subject to mandatory redemption 25,000 25,000 Long-term debt 1,284,816 1,217,026 -------------- -------------- Total capitalization 2,792,427 2,855,571 -------------- -------------- Current liabilities Long-term debt redeemable within one year -- 115,000 Current portion of long-term debt 33,639 8,835 Accounts payable 174,884 145,273 Due to affiliates 7,214 -- Dividends payable 47,131 47,383 Interest accrued 12,824 23,621 Regulatory balancing accounts overcollected-net 35,338 170,761 Other 110,743 90,119 -------------- -------------- Total current liabilities 421,773 600,992 -------------- -------------- Customer advances for construction 34,666 34,698 Accumulated deferred income taxes-net 487,119 536,324 Accumulated deferred investment tax credits 64,410 104,226 Deferred credits and other liabilities 360,121 340,802 Contingencies and commitments (notes 9 and 10) -- -- -------------- -------------- Total $4,160,516 $4,472,613 ============== ============== See notes to financial statements.
SAN DIEGO GAS & ELECTRIC COMPANY STATEMENTS CASH FLOWS
In thousands of dollars For the years ended December 31 1996 1995 1994 ---------- ----------- ---------- Cash Flows from Operating Activities Income from continuing operations $ 222,765 $ 219,049 $ 206,296 Adjustments to reconcile income from continuing operations to net cash provided by operating activities Depreciation and decommissioning 314,278 260,841 251,820 Amortization of deferred charges and other assets 5,926 12,068 12,944 Writedown of real property and other assets -- -- 12,000 Amortization of deferred credits and other liabilities (3,901) (1,169) (1,169) Allowance for equity funds used during construction (5,898) (6,435) (6,274) Deferred income taxes and investment tax credits (16,369) (42,046) (51,353) Other-net 25,570 21,108 24,554 Changes in working capital components Accounts and notes receivable 19,573 9,159 (6,179) Regulatory balancing accounts (37,313) 59,030 78,552 Inventories 4,881 7,648 506 Other current assets (14,119) (5,550) 523 Interest and taxes accrued (24,897) 15,737 12,963 Accounts payable and other current liabilities 50,235 25,288 (12,449) Cash flows provided (used) by discontinued operations (11,544) 49,188 43,643 ----------- ------------- --------- Net cash provided by operating activities 529,187 623,916 566,377 ----------- ------------- --------- Cash Flows from Financing Activities Dividends paid (188,700) (188,288) (183,441) Issuance of long-term debt 226,646 123,734 -- Repayment of long-term debt (257,772) (126,164) (68,697) Short-term borrowings-net -- (58,325) (32,875) Sale (redemption) of common stock -- (241) (558) Redemption of preferred stock (15,155) (18) -- ------------ ------------ --------- Net cash used by financing activities (234,981) (249,302) (285,571) ------------ ------------ --------- Cash Flows from Investing Activities Construction expenditures (208,850) (220,748) (263,709) Withdrawals from construction trust funds - net -- -- 58,042 Contributions to decommissioning funds (22,038) (22,038) (22,038) Other-net (2,664) (2,456) (3,890) Discontinued operations -- (120,222) (41,181) ------------ ------------ --------- Net cash used by investing activities (233,552) (365,464) (272,776) ------------ ------------ --------- Net increase 60,654 9,150 8,030 Cash and temporary investments, beginning of year 20,755 11,605 3,575 ------------ ------------ --------- Cash and temporary investments, end of year $ 81,409 $ 20,755 $ 11,605 ============ ============ ========= Supplemental Disclosure of Cash Flow Information Income tax payments $ 244,810 $ 199,891 $ 210,902 =========== =========== ========= Interest payments, net of amounts capitalized $ 93,652 $ 104,373 $ 92,031 =========== =========== ========= Net assets of affiliates transferred to parent $ 150,095 $ -- $ -- =========== =========== ========= See notes to financial statements.
SAN DIEGO GAS & ELECTRIC COMPANY STATEMENTS OF CHANGES IN CAPITAL STOCK AND RETAINED EARNINGS
In thousands of dollars For the years ended December 31, 1994, 1995, 1996 Preferred Stock ----------------------------- Not Subject Subject to Premium on to Mandatory Mandatory Common Capital Retained Redemption Redemption Stock Stock Earnings --------- --------- --------- --------- -------- Balance, January 1, 1994 $ 93,493 $ 25,000 $ 291,288 $ 565,119 $ 659,833 Earnings applicable to common shares 135,814 Long-term incentive plan activity-net 53 (611) Common stock dividends declared (177,066) - -------------------------- --------- --------- --------- --------- --------- Balance, December 31, 1994 93,493 25,000 291,341 564,508 618,581 Earnings applicable to common shares 225,794 Long-term incentive plan activity-net 117 1,530 Preferred stock retired (880 shares) (18) 8 Common stock dividends declared (181,809) - -------------------------- --------- --------- --------- --------- --------- Balance, December 31, 1995 93,475 25,000 291,458 566,046 662,566 Earnings applicable to common shares 216,183 Transfer to Enova Corporation 342 (150,437) Long-term incentive plan activity-net Preferred stock retired (150,000 shares) (15,000) (155) Common stock dividends declared (181,867) - -------------------------- --------- --------- --------- --------- --------- Balance, December 31, 1996 $ 78,475 $ 25,000 $ 291,458 $ 566,233 $ 546,445 ========================== ========= ========= ========= ========= ========= See notes to financial statements.
INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of San Diego Gas & Electric Company: We have audited the accompanying balance sheets of San Diego Gas & Electric Company as of December 31, 1996 and 1995, and the related statements of income, changes in capital stock and retained earnings, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of San Diego Gas & Electric Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP San Diego, California March 11, 1997 NOTES TO FINANCIAL STATEMENTS SAN DIEGO GAS & ELECTRIC COMPANY Except as modified below, the Notes to Consolidated Financial Statements of Enova Corporation beginning on page 37 on this 1996 Annual Report on Form 10-K are incorporated herein by reference insofar as they relate to San Diego Gas & Electric Company: Note 1 -- Business Combination Note 2 -- Significant Accounting Policies Note 4 -- Long-Term Debt Note 5 -- Facilities Under Joint Ownership Note 6 -- Employee Benefit Plans Note 8 -- Financial Instruments Note 9 -- Contingencies and Commitments Note 10 -- Industry Restructuring NOTE 3: DISCONTINUED OPERATIONS In January 1996 Enova Corporation became the parent of SDG&E and its subsidiaries. At that time SDG&E's ownership interests in its subsidiaries were transferred to Enova Corporation at book value. SDG&E's financial statements for periods prior to 1996 reflect the results of that transfer as discontinued operations in accordance with Accounting Principles Board Opinion No. 30, "Reporting the Effects of a Disposal of a Segment of Business." Discontinued operations are summarized in the table below: Year Ended December 31, 1995 1994 - -------------------------------------------------------- (millions of dollars) Revenues $81 $126 Loss from operations before income taxes (24) (105) Loss on disposal before income taxes (12) -- Income tax benefits 32 43 - --------------------------------------------------------- The net assets of subsidiaries (included in "Investments and Other Property" on SDG&E's Balance Sheets) at December 31, 1995 are summarized as follows: Current assets $122 Non-current assets 286 Current liabilities (62) Long-term debt and other liabilities (214) ----- $132 ===== NOTE 4: LONG-TERM DEBT The information contained in Enova Corporation's Statements of Consolidated Long-Term Debt on page 32 of this 1996 Annual Report on Form 10-K is incorporated herein by reference. NOTE 7: INCOME TAXES Income tax payments totaled $245 million in 1996, $200 million in 1995 and $211 million in 1994. The components of accumulated deferred income taxes at December 31 are as follows: in thousands of dollars 1996 1995 - ------------------------------------------------------------------ Deferred tax liabilities Differences in financial and tax bases of utility plant $628,617 $583,664 Loss on reacquired debt 26,399 26,829 Other 63,081 58,219 - ------------------------------------------------------------------ Total deferred tax liabilities 718,097 668,712 - ------------------------------------------------------------------ Deferred tax assets Unamortized investment tax credits 68,239 72,567 Regulatory balancing accounts 37,010 41,368 Unbilled revenue 21,923 21,241 Other 123,534 79,982 - ------------------------------------------------------------------ Total deferred tax assets 250,706 215,158 - ------------------------------------------------------------------ Net deferred income tax liability 467,391 453,554 Current portion (net asset) 19,728 82,770 - ------------------------------------------------------------------ Non-current portion (net liability) $487,119 $536,324 ================================================================== The components of income tax expense are as follows: in thousands of dollars 1996 1995 1994 - --------------------------------------------------------------- Current Federal $169,309 $170,212 $179,012 State 45,018 44,863 44,600 - -------------------------------------------------------------- Total current taxes 214,327 215,075 223,612 - -------------------------------------------------------------- Deferred Federal (8,666) (23,647) (33,458) State (1,518) (13,464) (12,897) - -------------------------------------------------------------- Total deferred taxes (10,184) (37,111) (46,355) - -------------------------------------------------------------- Deferred investment tax credits - net (6,185) (4,935) (4,998) - -------------------------------------------------------------- Total income tax expense $197,958 $173,029 $172,259 ============================================================== Federal and state income taxes are allocated between operating income and other income. The reconciliation of the statutory federal income tax rate to effective income tax rate is as follows: 1996 1995 1994 - ------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% Depreciation 5.7 5.0 6.0 State income taxes - net of federal income tax benefit 6.1 4.8 5.0 Tax credits (2.1) (1.8) (1.9) Repair allowance (1.1) (2.8) (2.5) Other - net 3.4 3.9 3.9 - ------------------------------------------------------------- Effective income tax rate 47.0% 44.1% 45.5% ============================================================= NOTE 11: CAPITAL STOCK The information contained in SDG&E's Statements of Changes in Capital Stock and Retained Earnings on page 55 of this 1996 Annual Report on Form 10-K is incorporated herein by reference. The information contained in Enova Corporation's Statements of Consolidated Capital Stock on page 31 of this 1996 Annual Report on Form 10-K as it relates to preferred and preference stock is incorporated herein by reference. NOTE 12: SEGMENTS OF BUSINESS The information contained in Enova Corporation's Statements of Consolidated Financial Information by Segments of Business on page 34 of this 1996 Annual Report on Form 10-K is incorporated herein by reference. Note 13: Quarterly Financial Information (unaudited) In thousands
Quarter ended March 31 June 30 September 30 December 31 1996 Operating revenues $ 451,942 $ 458,221 $ 493,485 $ 535,269 Operating expenses 367,772 388,379 411,657 462,347 --------- --------- --------- --------- Operating income 84,170 69,842 81,828 72,922 Other income and (deductions) 1,396 (884) 4,372 (190) Net interest charges 22,994 22,786 24,073 20,838 --------- --------- --------- --------- Net income (before preferred dividend requirements) 62,572 46,172 62,127 51,894 Preferred dividend requirements 1,646 1,645 1,646 1,645 --------- --------- --------- --------- Earnings applicable to common shares $ 60,926 $ 44,527 $ 60,481 $ 50,249 ========= ========= ========= ========= 1995 Operating revenues $ 463,866 $ 431,461 $ 465,100 $ 453,641 Operating expenses 377,234 357,072 383,887 380,875 --------- --------- --------- --------- Operating income 86,632 74,389 81,213 72,766 Other income and (deductions) 1,092 563 3,135 1,741 Net interest charges 25,179 25,201 25,982 26,120 --------- --------- --------- --------- Income from continuing operations 62,545 49,751 58,366 48,387 Discontinued operations (net of income taxes) (695) (535) 3,454 12,184 --------- --------- --------- --------- Net income (before preferred dividend requirements) 61,850 49,216 61,820 60,571 Preferred dividend requirements 1,916 1,915 1,916 1,916 --------- --------- --------- --------- Earnings applicable to common shares $ 59,934 $ 47,301 $ 59,904 $ 58,655 ========= ========= ========= ========= These amounts are unaudited, but in the opinion of SDG&E reflect all adjustments necessary for a fair presentation. Previously reported amounts have been restated to reflect discontinued operations.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - Enova Corporation/San Diego Gas & Electric Company None. PART III Item 10. Directors and Executive Officers of the Registrant Enova Corporation The information required on Identification of Directors is incorporated by reference from "Election of Directors" in the March 1997 Enova Corporation Proxy Statement. The information required on executive officers is incorporated by reference from Item 4 herein. San Diego Gas & Electric Company The information required on Identification of Directors is incorporated by reference from "Election of Directors" in the March 1997 SDG&E Proxy Statement. The information required on executive officers is incorporated by reference from Item 4 herein. Item 11. Executive Compensation Enova Corporation The information required by Item 11 is incorporated by reference from "Executive Compensation and Transactions with Management and Others" in the March 1997 Enova Corporation Proxy Statement. San Diego Gas & Electric Company The information required by Item 11 is incorporated by reference from "Executive Compensation and Transactions with Management and Others" in the March 1997 SDG&E Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management Enova Corporation The information required by Item 12 is incorporated by reference from "Security Ownership of Management and Certain Beneficial Holders" in the March 1997 Enova Corporation Proxy Statement. San Diego Gas & Electric Company The information required by Item 12 is incorporated by reference from "Security Ownership of Management and Certain Beneficial Holders" in the March 1997 SDG&E Proxy Statement. Item 13. Certain Relationships and Related Transactions None. PART IV - Enova Corporation/San Diego Gas & Electric Company: Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. Financial statements Enova Corporation SDG&E Independent Auditors' Report. . . . . . . . . . . . . . 36 56 Statements of Income for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . 27 52 Balance Sheets at December 31, 1996 and 1995. . . . . . 28 53 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . 29 54 Statements of Changes in Capital Stock and Retained Earnings for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . 30 55 Statements of Capital Stock at December 31, 1996 and 1995 . . . . . . . . . . . . . . 31 -- Statements of Long-Term Debt at December 31, 1996 and 1995 . . . . . . . . . . . . . . 32 -- Statements of Financial Information by Segments of Business for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . 34 -- Notes to Financial Statements . . . . . . . . . . . . . 37 57 Quarterly Financial Data (Unaudited). . . . . . . . . . 35 60 2. Financial Statement Schedule The following documents may be found in this report at the indicated page numbers. Independent Auditors' Consent and Report on Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . .64 Schedule I--Condensed Financial Information of Parent . . . . . . .65 Schedules I through V, inclusive, except those referred to above, are omitted as not required, immaterial or not applicable. 3. Exhibits See Exhibit Index on page 68 of this report. (b) Reports on Form 8-K A Current Report on Form 8-K was filed on February 2, 1996 to report that on January 31, 1996 SDG&E's ownership interests in its subsidiaries were transferred to Enova Corporation at book value, completing the organizational restructuring into the new parent company framework. A Current Report on Form 8-K was filed on September 24, 1996 announcing a bill on restructuring the electric utility industry signed into law by California Governor Wilson. A Current Report on Form 8-K was filed on October 15, 1996 announcing an agreement entered into by Enova Corporation and Pacific Enterprises to combine the two companies. A Current Report on Form 8-K was filed on January 29, 1997 announcing Enova Corporation's consolidated net income for the year ended December 31, 1996. INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE To the Shareholders and Boards of Directors of Enova Corporation and San Diego Gas & Electric Company: We consent to the incorporation by reference in Post-Effective Amendment No. 2 to Registration Statement No. 33-59681 on Form S-3 and Post-Effective Amendment No. 1 to Registration Statement Nos. 33-59683 and 33-7108 on Form S-8 of Enova Corporation; in Registration Statement Nos. 33-45599, 33-52834 and 33-49837 on Form S-3 of San Diego Gas & Electric Company; and in Registration Statement No. 33-21229 on Form S-4 of Mineral Energy Company of our reports dated March 11, 1997 on Enova Corporation and San Diego Gas & Electric Company, appearing in this Annual Report on Form 10-K of Enova Corporation and San Diego Gas & Electric Company for the year ended December 31, 1996. Our audits of the financial statements referred to in our aforementioned reports also included the financial statement schedule of Enova Corporation, listed in Item 14. This financial statement schedule is the responsibility of the management of Enova Corporation. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP San Diego, California March 11, 1997 Schedule I -- CONDENSED FINANCIAL INFORMATION OF PARENT Condensed Statement of Income For the Year Ended December 31, 1996 (In thousands, except per-share amount) Operating revenues and other income $ 2,528 Operating expenses, interest and income taxes 2,594 ------------ Loss before subsidiary earnings 66 Subsidiary earnings 230,993 ------------ Earnings applicable to common shares $ 230,927 ============ Average common shares outstanding 116,572 ------------ Earnings per common share $ 1.98 ============ Condensed Balance Sheet At December 31, 1996 (In thousands, except per-share amount) Assets: Cash and temporary investments $ 11,927 Other current assets 16,612 ----------- Total current assets 28,539 Investments in subsidiaries 1,609,741 Deferred charges and other assets 2,695 ----------- Total Assets $ 1,640,975 =========== Liabilities and Shareholders' Equity: Dividends payable $ 45,485 Other current liabilities 25,006 ----------- Total current liabilities 70,491 Common equity 1,570,484 ----------- Total Liabilities and Shareholders' Equity $ 1,640,975 =========== Schedule I (continued) CONDENSED FINANCIAL INFORMATION OF PARENT Condensed Statement of Cash Flows For the Year Ended December 31, 1996 (In thousands, except per-share amount) Cash flows from operating activities $ 1,536 Cash flows from financing activities (163,389) Cash flows from investing activities 173,780 ---------- Net cash flow 11,927 Cash and temporary investments, beginning of year -- ---------- Cash and temporary investments, end of year $ 11,927 ========== Dividends received from San Diego Gas & Electric $ 181,849 ========== Net assets of affiliates transferred from SDG&E to Enova Corp $ 150,095 ========== SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. The signatures of the undersigned companies relate only to matters having reference to such companies and their respective subsidiaries. ENOVA CORPORATION SAN DIEGO GAS & ELECTRIC COMPANY By: /s/ Stephen L. Baum By: /s/ Donald E. Felsinger _____________________ ________________________ Stephen L. Baum Donald E. Felsinger President and Chief President and Chief Executive Officer Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report is signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. The signatures of the undersigned companies relate only to matters having reference to such companies and their respective subsidiaries. Signature Title Date Principal Executive Officers: /s/ Stephen L. Baum _____________________________________________________________________________ Stephen L. Baum President and Chief Executive March 11, 1997 Officer (Enova), Vice Chairman (SDG&E) and a Director (Enova and SDG&E) /s/ Donald E. Felsinger ______________________________________________________________________________ Donald E. Felsinger President and Chief Executive Officer March 11, 1997 and a Director (SDG&E) and Executive Vice President (Enova) Principal Financial Officer: /s/ David R. Kuzma _____________________________________________________________________________ David R. Kuzma Senior Vice President, Chief Financial March 11, 1997 Officer and Treasurer (Enova and SDG&E) Principal Accounting Officer: /s/ Frank H. Ault _____________________________________________________________________________ Frank H. Ault Vice President and Controller (Enova and SDG&E) March 11, 1997 Directors (Enova and SDG&E): /s/ Thomas A. Page _____________________________________________________________________________ Thomas A. Page Chairman March 11, 1997 /s/ Ann L. Burr _____________________________________________________________________________ Ann L. Burr Director March 11, 1997 /s/ Richard A. Collato _____________________________________________________________________________ Richard A. Collato Director March 11, 1997 /s/ Daniel W. Derbes _____________________________________________________________________________ Daniel W. Derbes Director March 11, 1997 /s/ Robert H. Goldsmith _____________________________________________________________________________ Robert H. Goldsmith Director March 11, 1997 /s/ William D. Jones _____________________________________________________________________________ William D. Jones Director March 11, 1997 /s/ Ralph R. Ocampo _____________________________________________________________________________ Ralph R. Ocampo Director March 11, 1997 /s/ Thomas C. Stickel _____________________________________________________________________________ Thomas C. Stickel Director March 11, 1997 EXHIBIT INDEX The Forms 8, 8-B/A, 8-K, S-4, 10-K and 10-Q referred to herein were filed under Commission File Number 1-3779 (SDG&E) and/or Commission File Number 1-11439 (Enova Corporation). Exhibit 3 -- Bylaws and Articles of Incorporation Bylaws 3.1 Restated Bylaws (Incorporated by reference from the Registration Statement on Form 8-B/A of Enova Corporation (Exhibit 3.2)). Articles of Incorporation 3.2 Restated Articles of Incorporation of Enova Corporation (Incorporated by reference from the Registration Statement on Form 8-B/A of Enova Corporation (Exhibit 3.1)). Exhibit 4 -- Instruments Defining the Rights of Security Holders, Including Indentures 4.1 Mortgage and Deed of Trust dated July 1, 1940. (Incorporated by reference from SDG&E Registration No. 2-49810, Exhibit 2A.) 4.2 Second Supplemental Indenture dated as of March 1, 1948. (Incorporated by reference from SDG&E Registration No. 2-49810, Exhibit 2C.) 4.3 Ninth Supplemental Indenture dated as of August 1, 1968. (Incorporated by reference from SDG&E Registration No. 2-68420, Exhibit 2D.) 4.4 Tenth Supplemental Indenture dated as of December 1, 1968. (Incorporated by reference from SDG&E Registration No. 2-36042, Exhibit 2K.) 4.5 Sixteenth Supplemental Indenture dated August 28, 1975. (Incorporated by reference from SDG&E Registration No. 2-68420, Exhibit 2E.) 4.6 Thirtieth Supplemental Indenture dated September 28, 1983. (Incorporated by reference from SDG&E Registration No. 33-34017, Exhibit 4.3.) Exhibit 10 -- Material Contracts (Previously filed exhibits are incorporated by reference from Forms 8-K, S-4, 10-K or 10-Q as referenced below). 10.1 Agreement and Plan of Merger and Reorganization, dated as of October 12, 1996, among Enova Corporation, Pacific Enterprises, Mineral Energy Company, G Mineral Energy Sub and B Mineral Energy Sub (8-K filed October 15, 1996, Exhibit 10.1). 10.2 Employment contract, dated as of October 12, 1996 between Mineral Energy Company and Stephen L. Baum (8-K filed October 15, 1996, Exhibit 10.2). 10.3 Employment contract, dated as of October 12, 1996 between Mineral Energy Company and Richard D. Farman (8-K filed October 15, 1996, Exhibit 10.3). 10.4 Employment contract, dated as of October 12, 1996 between Mineral Energy Company and Donald E. Felsinger (8-K filed October 15, 1996, Exhibit 10.4). 10.5 Employment contract, dated as of October 12, 1996 between Mineral Energy Company and Warren I. Mitchell (8-K filed October 15, 1996, Exhibit 10.5). Compensation 10.6 Form of Amendment to San Diego Gas & Electric Company Deferred Compensation Agreements for Officers #1 and #3. 10.7 Form of Enova Corporation 1997 Deferred Compensation Agreement for Officers #1 (1997 compensation, 1998 bonus). 10.8 Form of San Diego Gas & Electric Company Deferred Compensation Agreement for Officers #1 (1996 compensation, 1997 bonus)(1995 SDG&E Form 10-K Exhibit 10.1). 10.9 Form of San Diego Gas & Electric Company Deferred Compensation Agreement for Officers #1 (1995 compensation, 1996 bonus)(1994 SDG&E Form 10-K Exhibit 10.2). 10.10 Form of Enova Corporation 1997 Deferred Compensation Agreement for Officers #3 (1997 compensation, 1998 bonus). 10.11 Form of San Diego Gas & Electric Company Deferred Compensation Agreement for Officers #3 (1996 compensation, 1997 bonus)(1995 SDG&E Form 10-K Exhibit 10.3). 10.12 Form of San Diego Gas & Electric Company Deferred Compensation Agreement for Officers #3 (1995 compensation, 1996 bonus)(1994 SDG&E Form 10-K Exhibit 10.1). 10.13 Form of Enova Corporation 1997 Deferred Compensation Agreement for Nonemployee Directors. 10.14 Form of San Diego Gas & Electric Company Deferred Compensation Agreement for Nonemployee Directors (1996 compensation)(1995 SDG&E Form 10-K Exhibit 10.5). 10.15 Form of San Diego Gas & Electric Company Deferred Compensation Agreement for Nonemployee Directors (1995 compensation)(1994 SDG&E Form 10-K Exhibit 10.3). 10.16 Form of Enova Corporation 1986 Long-Term Incentive Plan 1996 restricted stock award agreement. 10.17 Form of San Diego Gas & Electric Company 1986 Long-Term Incentive Plan 1995 restricted stock award agreement (1995 SDG&E Form 10-K Exhibit 10.7). 10.18 Form of San Diego Gas & Electric Company 1986 Long-Term Incentive Plan Special 1995 restricted stock award agreement (1995 SDG&E Form 10-K Exhibit 10.8). 10.19 Form of San Diego Gas & Electric Company 1986 Long-Term Incentive Plan 1994 restricted stock award agreement two- year vesting (1995 SDG&E Form 10-K Exhibit 10.9). 10.20 Form of San Diego Gas & Electric Company 1986 Long-Term Incentive Plan 1994 restricted stock award agreement (1994 SDG&E Form 10-K Exhibit 10.4). 10.21 Form of San Diego Gas & Electric Company 1986 Long-Term Incentive Plan 1993 restricted stock award agreement (1993 SDG&E Form 10-K Exhibit 10.4). 10.22 Amended 1986 Long-Term Incentive Plan, amended and restated effective April 25, 1995 (SDG&E's Amendment No. 2 to Form S-4 filed February 28, 1995). 10.23 Amended 1986 Long-Term Incentive Plan, Restatement as of October 25, 1993 (1993 SDG&E Form 10-K Exhibit 10.6). 10.24 San Diego Gas & Electric Company Severance Plan effective October 22, 1996. 10.25 San Diego Gas & Electric Company Severance Plan effective on the date of the Enova Corporation -- Pacific Enterprises business combination. 10.26 San Diego Gas & Electric Company Retirement Plan for Directors, restated as of October 24, 1994 (1994 SDG&E Form 10-K Exhibit 10.5). 10.27 Executive Incentive Plan dated April 23, 1985 (1991 SDG&E Form 10-K Exhibit 10.39). 10.28 Employment agreement between San Diego Gas & Electric Company and Thomas A. Page, dated June 15, 1988 (1988 SDG&E Form 10-K Exhibit 10E). 10.29 Supplemental Pension Agreement with Thomas A. Page, dated as of April 3, 1978 (1988 SDG&E Form 10-K Exhibit 10V). 10.30 Supplemental Executive Retirement Plan restated as of July 1, 1994 (1994 SDG&E Form 10-K Exhibit 10.14). Financing 10.31 Loan agreement with the City of Chula Vista in connection with the issuance of $38.9 million of Industrial Development Bonds, dated as of August 1, 1996. 10.32 Loan agreement with the City of Chula Vista in connection with the issuance of $60 million of Industrial Development Bonds, dated as of November 1, 1996. 10.33 Loan agreement with the City of San Diego in connection with the issuance of $16.7 million of Industrial Development Bonds, dated as of June 1, 1995 (June 30, 1995 SDG&E Form 10-Q Exhibit 10.2). 10.34 Loan agreement with the City of San Diego in connection with the issuance of $57.7 million of Industrial Development Bonds, dated as of June 1, 1995 (June 30, 1995 SDG&E Form 10-Q Exhibit 10.3). 10.35 Loan agreement with the City of San Diego in connection with the issuance of $92.9 million of Industrial Development Bonds 1993 Series C dated as of July 1, 1993 (June 30, 1993 SDG&E Form 10-Q Exhibit 10.2). 10.36 Loan agreement with the City of San Diego in connection with the issuance of $70.8 million of Industrial Development Bonds 1993 Series A dated as of April 1, 1993 (March 31, 1993 SDG&E Form 10-Q Exhibit 10.3). 10.37 Loan agreement with the City of San Diego in connection with the issuance of $14.9 million of Industrial Development Bonds 1993 Series B dated as of April 1, 1993 (March 31, 1993 SDG&E Form 10-Q Exhibit 10.4). 10.38 Loan agreement with the City of San Diego in connection with the issuance of $118.6 million of Industrial Development Bonds dated as of September 1, 1992 (Sept. 30, 1992 SDG&E Form 10-Q Exhibit 10.1). 10.39 Loan agreement with the City of Chula Vista in connection with the issuance of $250 million of Industrial Development Bonds, dated as of December 1, 1992 (1992 SDG&E Form 10-K Exhibit 10.5). 10.40 Loan agreement with the City of San Diego in connection with the issuance of $25 million of Industrial Development Bonds, dated as of September 1, 1987 (1992 SDG&E Form 10-K Exhibit 10.6). 10.41 Loan agreement with the California Pollution Control Financing Authority in connection with the issuance of $129.82 million of Pollution Control Bonds, dated as of June 1, 1996. 10.42 Loan agreement with the California Pollution Control Financing Authority in connection with the issuance of $60 million of Pollution Control Bonds dated as of June 1, 1993 (June 30, 1993 SDG&E Form 10-Q Exhibit 10.1). 10.43 Loan agreement with the California Pollution Control Financing Authority, dated as of December 1, 1991, in connection with the issuance of $14.4 million of Pollution Control Bonds (1991 SDG&E Form 10-K Exhibit 10.11). Natural Gas Commodity, Transportation and Storage 10.44 Long-Term Natural Gas Storage Service Agreement dated January 12, 1994 between Southern California Gas Company and SDG&E (1994 SDG&E Form 10-K Exhibit 10.42). 10.45 Amendment to San Diego Gas & Electric Company and Southern California Gas Company Restated Long-Term Wholesale Natural Gas Service Contract dated March 26, 1993 (1993 SDG&E Form 10-K Exhibit 10.53). 10.46 San Diego Gas & Electric Company and Southern California Gas Company Restated Long-Term Wholesale Natural Gas Service Contract, dated September 1, 1990 (1990 SDG&E Form 10-K Exhibit 10.9). 10.47 Gas Purchase Agreement, dated March 12, 1991 between Husky Oil Operations Limited and San Diego Gas & Electric Company (1991 SDG&E Form 10-K Exhibit 10.1). 10.48 Gas Purchase Agreement, dated March 12, 1991 between Canadian Hunter Marketing Limited and San Diego Gas & Electric Company (1991 SDG&E Form 10-K Exhibit 10.2). 10.49 Gas Purchase Agreement, dated March 12, 1991 between Bow Valley Industries Limited and San Diego Gas & Electric Company (1991 SDG&E Form 10-K Exhibit 10.3). 10.50 Gas Purchase Agreement, dated March 12, 1991 between Summit Resources Limited and San Diego Gas & Electric Company (1991 SDG&E Form 10-K Exhibit 10.4). 10.51 Service Agreement Applicable to Firm Transportation Service under Rate Schedule FS-1, dated May 31, 1991 between Alberta Natural Gas Company Ltd. and San Diego Gas & Electric Company (1991 SDG&E Form 10-K Exhibit 10.5). 10.52 Firm Transportation Service Agreement, dated December 31, 1991 between Pacific Gas and Electric Company and San Diego Gas & Electric Company (1991 SDG&E Form 10-K Exhibit 10.7). 10.53 Firm Transportation Service Agreement, dated April 25, 1991 between Pacific Gas Transmission Company and San Diego Gas & Electric Company (March 31, 1991 SDG&E Form 10-Q Exhibit 28.2). Nuclear 10.54 Uranium enrichment services contract between the U.S. Department of Energy (DOE assigned its rights to the U.S. Enrichment Corporation, a U.S. government-owned corporation, on July 1, 1993) and Southern California Edison Company, as agent for SDG&E and others; Contract DE-SC05-84UEO7541, dated November 5, 1984, effective June 1, 1984, as amended (1991 SDG&E Form 10-K Exhibit 10.9). 10.55 Fuel Lease dated as of September 8, 1983 between SONGS Fuel Company, as Lessor and San Diego Gas & Electric Company, as Lessee, and Amendment No. 1 to Fuel Lease, dated September 14, 1984 and Amendment No. 2 to Fuel Lease, dated March 2, 1987 (1992 SDG&E Form 10-K Exhibit 10.11). 10.56 Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station, approved November 25, 1987 (1992 SDG&E Form 10-K Exhibit 10.7). 10.57 Amendment No. 1 to the Qualified CPUC Decommissioning Master Trust Agreement dated September 22, 1994 (see Exhibit 10.56 herein)(1994 SDG&E Form 10-K Exhibit 10.56). 10.58 Second Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.56 herein)(1994 SDG&E Form 10-K Exhibit 10.57). 10.59 Third Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.56 herein). 10.60 Fourth Amendment to the San Diego Gas & Electric Company Nuclear Facilities Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.56 herein). 10.61 Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station, approved November 25, 1987 (1992 SDG&E Form 10-K Exhibit 10.8). 10.62 First Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.61 herein). 10.63 Second Amendment to the San Diego Gas & Electric Company Nuclear Facilities Non-Qualified CPUC Decommissioning Master Trust Agreement for San Onofre Nuclear Generating Station (see Exhibit 10.61 herein). 10.64 Second Amended San Onofre Agreement among Southern California Edison Company, SDG&E, the City of Anaheim and the City of Riverside, dated February 26, 1987 (1990 SDG&E Form 10-K Exhibit 10.6). 10.65 U. S. Department of Energy contract for disposal of spent nuclear fuel and/or high-level radioactive waste, entered into between the DOE and Southern California Edison Company, as agent for SDG&E and others; Contract DE-CR01-83NE44418, dated June 10, 1983 (1988 SDG&E Form 10-K Exhibit 10N). Purchased Power 10.66 Public Service Company of New Mexico and San Diego Gas & Electric Company 1988-2001 100 mw System Power Agreement dated November 4, 1985 and Letter of Agreement dated April 28, 1986, June 4, 1986 and June 18, 1986 (1988 SDG&E Form 10-K Exhibit 10H). 10.67 San Diego Gas & Electric Company and Portland General Electric Company Long-Term Power Sale and Transmission Service agreements dated November 5, 1985 (1988 SDG&E Form 10-K Exhibit 10I). Other 10.68 U. S. Navy contract for electric service, Contract N62474-70-C-1200-P00414, dated September 29, 1988 (1988 SDG&E Form 10-K Exhibit 10C). 10.69 City of San Diego Electric Franchise (Ordinance No. 10466) (1988 SDG&E Form 10-K Exhibit 10Q). 10.70 City of San Diego Gas Franchise (Ordinance No. 10465) (1988 SDG&E Form 10-K Exhibit 10R). 10.71 County of San Diego Electric Franchise (Ordinance No. 3207) (1988 SDG&E Form 10-K Exhibit 10S). 10.72 County of San Diego Gas Franchise (Ordinance No. 5669) (1988 SDG&E Form 10-K Exhibit 10T). 10.73 Lease agreement dated as of March 25, 1992 with American National Insurance Company as lessor of an office complex at Century Park (1994 SDG&E Form 10-K Exhibit 10.70). 10.74 Lease agreement dated as of June 15, 1978 with Lloyds Bank California, as owner-trustee and lessor - Exhibit B to financing agreement of SDG&E's Encina Unit 5 equipment trust (1988 SDG&E Form 10-K Exhibit 10W). 10.75 Amendment to Lease agreement dated as of July 1, 1993 with Sanwa Bank California, as owner-trustee and lessor - Exhibit B to secured loan agreement of SDG&E's Encina Unit 5 equipment trust (See Exhibit 10.74 herein)(1994 SDG&E Form 10-K Exhibit 10.72). 10.76 Lease agreement dated as of July 14, 1975 with New England Mutual Life Insurance Company, as lessor (1991 SDG&E Form 10-K Exhibit 10.42). 10.77 Assignment of Lease agreement dated as of November 19, 1993 to Shapery Developers as lessor by New England Mutual Life Insurance Company (See Exhibit 10.76 herein)(1994 SDG&E Form 10-K Exhibit 10.74). Exhibit 12 -- Statement re: computation of ratios 12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends for the years ended December 31, 1996, 1995, 1994, 1993 and 1992. Exhibit 13 -- Management's Discussion and Analysis of Financial Condition and Results of Operations listed under Part II Item 7 of this Form 10-K is incorporated by reference from the 1996 Annual Report to Shareholders. Exhibit 22 - Subsidiaries - See "Part I, Item 1. Description of Business." Exhibit 23 - Independent Auditors' Consent and Report on Schedule, page 64. Exhibit 27 - Financial Data Schedules 27.1 Financial Data Schedule for the year ended December 31, 1996. GLOSSARY AB 1890 Assembly Bill 1890 - California's electric restructuring law AFUDC Allowance for Funds Used During Construction APCD Air Pollution Control District BCAP Biennial Cost Allocation Proceeding BPA Bonneville Power Administration BRPU Biennial Resource Plan Update CEC California Energy Commission CFE Comision Federal de Electricidad Coastal Coastal Electric Services CPUC California Public Utilities Commission CTC Competition transition charge DOE Department of Energy DTSC Department of Toxic Substances Control ECI Electric Clearinghouse ECAC Energy Cost Adjustment Clause Edison Southern California Edison Company and/or its parent, Edison International EMF Electric and magnetic fields Enova Enova Corporation and its wholly owned subsidiaries Enron Enron Power Marketing ERAM Electric Revenue Adjustment Mechanism EV Electric vehicle FERC Federal Energy Regulatory Commission GFCA Gas Fixed Cost Account Goal Line Goal Line Limited Partnership Illinova Illinova Power Marketing ISO Independent System Operator kv Kilovolt kwhr Kilowatt hour MICAM Market Indexed Capital Adjustment Mechanism mw Megawatt NGV Natural-Gas Vehicle NRC Nuclear Regulatory Commission PBR Performance-Based Ratemaking PCB Polychlorinated Biphenyl PGA Purchased Gas Account PG&E Pacific Gas and Electric Company PGE Portland General Electric Company PNM Public Service Company of New Mexico QF Qualifying Facility RECLAIM Regional Clean Air Incentive Market RWQCB Regional Water Quality Control Board SDG&E San Diego Gas & Electric Company SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standard SoCal Gas Southern California Gas Company SONGS/San Onofre San Onofre Nuclear Generating Station Southwest Powerlink A transmission line connecting San Diego to Phoenix and intermediate points TCF Target Capacity Factor WSPP Western Systems Power Pool

                                 AMENDMENT TO
                        SAN DIEGO GAS & ELECTRIC COMPANY
                         DEFERRED COMPENSATION AGREEMENTS
                            FOR OFFICERS #1 AND #3


     THIS AMENDMENT is made and entered into this _____ day of December, 
1996, by and between San Diego Gas & Electric Company, (hereinafter 
"Company") and _________________________________ (hereinafter 
"Officer"), an elected Officer of Company.

 .....All outstanding SAN DIEGO GAS & ELECTRIC COMPANY DEFERRED 
COMPENSATION AGREEMENTS FOR OFFICERS #1 and SAN DIEGO GAS & ELECTRIC 
COMPANY DEFERRED COMPENSATION AGREEMENTS FOR OFFICERS #3 entered into 
between Company and Officer ("Deferred Compensation Agreements") are 
hereby amended as follows:
 
     1.  A new paragraph is added at the end of each Deferred 
         Compensation Agreement as follows:

         All amounts credited to Officer's account pursuant to this 
         Agreement may be used to purchase common stock of Enova 
         Corporation or other equity securities, subject to the 
         following conditions:

 ....a...All such purchases must be made through a stock equivalent 
tracking.device, a "rabbi trust" or other similar instrument that causes 
the deferred amount not to become taxable;

 .....b.. Equity securities of other entities may be purchased only if 
the Officer has met or is expected to meet, under the normal course of 
events, the Company's Enova Corporation stock ownership requirement;

 .....c....If the Officer becomes subject to a higher Enova Corporation 
stock ownership requirement, the Officer may retain any then current 
investment in equity securities of other entities, but shall not make 
additional purchases of other equity securities until the higher Enova 
Corporation stock ownership requirement has been met or is expected to 
be met under the normal course of events; and

 .....d....All such purchases must be made in accordance with applicable 
Company procedures, as they may be amended from time to time.

      2....All other provisions of the Deferred Compensation Agreements 
shall remain in full force and effect.

      IN WITNESS WHEREOF, this Amendment has been executed on the day 
and year written above.

OFFICER                                   COMPANY


_______________________________________   By____________________________
Signature of Officer                      Company_______________________
                                          Title_________________________
 


                             ENOVA CORPORATION
                     1997 DEFERRED COMPENSATION AGREEMENT
                              FOR OFFICERS #1

                          (1997 BASE COMPENSATION)
                               (1998 BONUS)


 ......THIS AGREEMENT is made and entered into this _____ day of 
December, 1996, by and between Enova Corporation or any of its 
subsidiaries, (hereinafter "Company") and ________________________ 
(hereinafter "Officer"), an elected Officer of Company.

                                WITNESSETH:

 ......WHEREAS, in addition to 1997 base compensation, incentive 
compensation payable in the form of a single sum cash bonus may be paid 
to Officer in 1998 for outstanding performance in 1997 ("1998 Bonus");

 ......WHEREAS, Officer and Company desire that the payment of said 1997 
base compensation and/or 1998 bonus to Officer be deferred, pursuant to 
the terms and provisions of this Agreement; and

 ......NOW, THEREFORE, the parties hereto hereby agree as follows:

 ......1....This Agreement shall be effective on the first date after its 
execution upon which Officer's bonus would otherwise be payable to 
Officer for outstanding performance and shall continue in effect until 
this Agreement is terminated as provided herein.

 ......2....Company shall credit to an account on Company's books, in 
Officer's name, that portion of such Officer's bonus otherwise payable 
to Officer as may be specified by Officer on an Election Form submitted 
to Company simultaneously with the execution of this Agreement.  If an 
Officer has elected to defer 100% of such Officer's bonus (pursuant to 
Deferred Compensation Agreements for Officers #1 and #3) and the Officer 
is also participating in the Savings Plan of San Diego Gas & Electric, 
which has been adopted by the Company, to the maximum extent 
permissible, such Officer may also elect to defer, and Company shall 
credit to the Officer's account, a portion of such Officer's base 
compensation (in equal bi-weekly installments of whole dollar amounts).

 ......3....There shall be credited to Officer's account an additional 
amount equal to seven and eighty-five one-hundredths percent (7.85%) per 
annum computed on the balance in Officer's account as of the end of each 
month; provided, however, that Company reserves the right to increase or 
decrease from time to time such amounts to be credited to the account 
after the date of such increase or decrease, provided that upon a 
"change-in-control" (as defined in the Enova Corporation 1986 Long-Term 
Incentive Plan) the percentage used shall not decrease to less than the 
last published percentage shown in Moody's Average of Yields on Public 
Utility Bonds for a utility having a rating equivalent to SDG&E.

 ......4....All amounts credited to Officer's account pursuant to 
paragraphs 2 and 3 hereof shall be paid to Officer on the date(s) 
specified by Officer on this Agreement's Election Form.  In the event of 
Officer's death after installment payments to Officer have commenced 
hereunder, installment payments shall continue to be paid to the 
person(s) specified by Officer on the Election Form for the remainder of 
the period selected by Officer on this Agreement's Election Form.  In 
the event of Officer's death before any payment has been made under this 
Agreement, Officer's account shall be distributed or commence to be 
distributed, as soon as administratively practicable after Officer's 
death, to the person(s) specified by Officer on this Agreement's 
Election Form in the form and over the period selected on such Election 
Form.  The Company's Board of Directors or Executive Compensation 
Committee may, in its sole discretion, provide instead for payment of 
the amount in Officer's account to Officer's beneficiary in a form and 
over a period determined by the Board or Committee except that the Board 
or Committee's authority and discretion to change the form or period of 
distribution shall terminate upon such a "change-in-control."  If 
Officer's spouse is the beneficiary, the annual amount of any 
installment payments under this paragraph 4 shall at least equal the 
entire annual income earned by the account and if the spouse dies prior 
to distribution of all amounts in Officer's account, all undistributed 
income on such account shall be distributed to the spouse's estate.  
Upon the death of Officer's beneficiary, the balance in Officer's 
account (after the application of the previous sentence, if the spouse 
is the beneficiary)  shall be distributed to the person(s) designated by 
the beneficiary on a form provided by Company or, if no designation is 
made, to the beneficiary's estate.

 ......5.....All amounts credited to Officer's account pursuant to 
paragraphs 2 and 3 hereof may be used to purchase common stock of Enova 
Corporation or other equity securities, subject to the following 
conditions:

 ...........a.....All such purchases must be made through a stock 
equivalent tracking device, a "rabbi trust" or other similar instrument 
that causes the deferred amount not to become taxable;

 ...........b.....Equity securities of other entities may be purchased 
only if the Officer has met or is expected to meet, under the normal 
course of events, the Company's Enova Corporation stock ownership 
requirement;

 ...........c.....If the Officer becomes subject to a higher Enova 
Corporation stock ownership requirement, the Officer may retain any then 
current investment in equity securities of other entities, but shall not 
make additional purchases of other equity securities until the higher 
Enova Corporation stock ownership requirement has been met or is 
expected to be met under the normal course of events; and

 ...........d.....All such purchases must be made in accordance with 
applicable Company procedures, as they may be amended from time to time.

 ......6.....No amounts credited to Officer's account may be assigned, 
transferred, encumbered, or made subject to any legal process for the 
payment of any claim against Officer, Officer's spouse or beneficiary.  
In no event shall Officer, Officer's spouse or beneficiary have the 
right to recover any amounts credited to Officer's account other than in 
accordance with this Agreement.

 ......7.....Nothing contained in this Agreement and no action taken 
pursuant to the provisions of this Agreement shall create or be 
construed to create a trust of any kind, or a fiduciary relationship 
between Company and the Officer or any other person.   To the extent 
that any person acquires a right to receive payments from Company under 
this Agreement, such right shall be no greater than the right of any 
unsecured general creditor of Company.  Except as provided in paragraph 
5 of this Agreement, title to and beneficial ownership of any assets, 
whether cash or investments which Company may earmark to pay the 
deferred compensation hereunder, shall at all times remain assets of 
Company and neither the Officer nor any other person shall, under this 
Agreement, have any property interest whatsoever in any specific assets 
of Company.

 .....8.....The existence of this Agreement shall not confer upon any 
Officer any right to continue to serve as an Officer for any period of 
time.

 .....9.....This Agreement  may be terminated by Company upon 30 days 
written notice to the Officer.  Such termination shall be applicable 
only with respect to bonuses and/or base compensation payable to Officer 
on and after the first day of the calendar year following the date of 
termination.  Funds previously deferred and credited (and income earned 
on such funds) will continue to be governed by the applicable year's 
Officer's Deferred Compensation Agreement Election Form and paragraph 3 
of this Agreement.

 ......10.....Officer acknowledges that Officer has been advised that 
Officer may confer with and seek advice from a tax or financial advisor 
of Officer's choice concerning this deferral.  Officer further 
acknowledges that Officer has not received tax advice from Company nor 
has Officer relied upon information provided by Company in electing to 
make this deferral.

 ......IN WITNESS WHEREOF, this Agreement has been executed on the day 
and year written above.

OFFICER..............................COMPANY



________________________________.....By __________________________
Signature of Officer............ ....Company _____________________
 .....................................Title _______________________



                         ENOVA CORPORATION
                1997 DEFERRED COMPENSATION AGREEMENT
                          FOR OFFICERS #3


     THIS AGREEMENT is made and entered into this ___ day of December, 
1996, by and between Enova Corporation or any of its subsidiaries 
(hereinafter "Company") and ____________________ (hereinafter 
"Officer"), an elected Officer of Company.

                            WITNESSETH:

     WHEREAS, Company desires to provide Officer with the opportunity to 
defer base compensation and bonus that is payable for services to be 
rendered after the date of this Agreement and which, as a result of 
amendments to the Internal Revenue Code ("Code") made by the Tax Reform 
Act of 1986 ("1986 Tax Act"), cannot be contributed on Officer's behalf 
as Pretax Contributions to the San Diego Gas & Electric Company Savings 
Plan, which has been adopted by Company ("Savings Plan"); and

     WHEREAS, Company desires to match, as an additional Company 
contribution, a percentage of the Officer's base compensation and bonus 
deferred pursuant to this Agreement; and

     WHEREAS, Officer and Company desire that the payment of a portion 
of Officer's base compensation and bonus and the additional matching 
contribution be deferred pursuant to the terms and provisions of this 
Agreement.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     1.  This Agreement shall be effective upon its execution by Company 
and Officer with respect to base compensation and bonus which would 
otherwise be payable to Officer for services rendered after such 
execution and shall continue in effect until this Agreement is 
terminated as provided herein.  Officer shall be eligible to enter into 
this Agreement only if Officer has elected the maximum Basic 
Contribution under the Savings Plan for which Officer is eligible.

     2.  Company shall credit to an account on Company's books, in 
Officer's name, that percentage of Officer's 1997 base compensation (in 
equal biweekly installments of whole dollar amounts) and 1998 bonus 
otherwise payable to Officer as may be specified by Officer in this 
Agreement's Election Form.  The amount credited under this paragraph 2 
may not exceed the percentage of Officer's 1997 base compensation and 
1998 bonus that may be contributed as Pretax Contributions or After-tax 
Contributions under the terms of the Savings Plan (determined prior to 
any reduction of such percentage required under applicable law), reduced 
by any amount contributed by Officer as After-tax Contributions or on 
Officer's behalf as Pretax Contributions to the Savings Plan.  Further, 
the amount credited under this paragraph 2 shall be limited to an amount 
which, when added to Company's matching contribution under paragraph 3 
of this Agreement and all allocations to his or her accounts under the 
Savings Plan, does not exceed the maximum amount that could have been 
allocated to Officer's Savings Plan accounts pursuant to Section 415 of 
the Code, as in effect prior to the enactment of the 1986 Tax Act.  For 
purposes of this paragraph 2, "base compensation and bonus" shall 
include Officer's Pretax Contributions to the Savings Plan.  Company 
shall have the sole and complete authority to determine the maximum 
amount that may be credited under this paragraph 2.

     3.  In addition, as amounts are credited to Officer's account under 
paragraph 2, Company shall also credit to Officer's account, as a 
matching contribution, an amount equal to the Company Matching 
Contributions that would have been contributed on Officer's behalf to 
the Savings Plan, if any, (reduced by Matching Contributions actually 
made to the Savings Plan for Officer) under the provisions of the Code 
prior to enactment of the 1986 Tax Act, if the amount deferred under 
paragraph 2 had been contributed to the Savings Plan as Pretax 
Contributions or After-tax Contributions.

     4.  There shall be credited to Officer's account an additional 
amount equal to seven and eighty-five one-hundreths percent (7.85%) per 
annum computed on the balance in Officer's account as of the end of each 
month.  Company reserves the right to increase or decrease from time to 
time such percentage credited with respect to amounts to be credited 
under paragraphs 2 and 3 to the account after the date of such increase 
or decrease, provided that upon a "change-in-control" (as defined in the 
Enova Corporation 1986 Long-Term Incentive Plan) no decrease will result 
in a percentage credited under the previous sentence of less than the 
last published interest rate shown in Moody's Average of Yields on 
Public Utility Bonds for a utility having a rating equivalent to 
Company.

     5.  All amounts credited to Officer's account pursuant to 
paragraphs 2, 3, and 4 hereof shall be paid to Officer upon his or her 
termination of services as an Officer in the form and over the period 
specified by Officer on this Agreement's Election Form; provided, 
however, the Company's Board of Directors or Executive Compensation 
Committee may, in its sole discretion, provide instead for payment of 
the amount in Officer's account in a form and over a period determined 
by such Board or Committee except that the Board or Committee's 
authority and discretion to change the form or period of distribution 
shall terminate upon such a "change-in-control."

     6.  In the event of Officer's death after installment payments to 
Officer have commenced hereunder, installment payments shall continue to 
be paid to the person(s) specified by Officer on the Election Form for 
the remainder of the period selected by Officer on the Election Form.  
In the event of Officer's death before any payment has been made under 
this Agreement, Officer's account shall be distributed or commence to be 
distributed, as soon as administratively practicable after Officer's 
death, to the person(s) specified by Officer on this Agreement's 
Election Form in the form and over the period selected on such Election 
Form.  The Board or Committee may, in its sole discretion, provide 
instead for payment of the amount in Officer's account to Officer's 
beneficiary in a form and over a period determined by the Board or 
Committee except that the Board or Committee's authority and discretion 
to change the form or period of distribution shall terminate upon such a 
"change-in-control."

     If Officer's spouse is the beneficiary, the annual amount of any 
installment payments under this paragraph 6 shall at least equal the 
entire annual income earned by the account and if the spouse dies prior 
to distribution of all amounts in Officer's account, all undistributed 
income on such account shall be distributed to the spouse's estate.  
Upon the death of Officer's beneficiary, the balance in Officer's 
account (after the application of the previous sentence, if the spouse 
is the beneficiary) shall be distributed to the person(s) designated by 
the beneficiary on a form provided by Company or, if no designation is 
made, to the beneficiary's estate.

     7.  All amounts credited to Officer's account pursuant to 
paragraphs 2, 3 and 4 hereof may be used to purchase common stock of 
Enova Corporation or other equity securities, subject to the following 
conditions:

          a.  All such purchases must be made through a stock equivalent 
tracking device, a "rabbi trust" or other similar instrument that causes 
the deferred amount not to become taxable;

          b.  Equity securities of other entities may be purchased only 
if the Officer has met or is expected to meet, under the normal course 
of events, the Company's Enova Corporation stock ownership requirement;

          c.  If the Officer becomes subject to a higher Enova 
Corporation stock ownership requirement, the Officer may retain any then 
current investment in equity securities of other entities, but shall not 
make additional purchases of other equity securities until the higher 
Enova Corporation stock ownership requirement has been met or is 
expected to be met under the normal course of events; and

          d.  All such purchases must be made in accordance with 
applicable Company procedures, as they may be amended from time to time.

     8.  No amounts credited to Officer's account may be assigned, 
transferred, encumbered, or made subject to any legal process for the 
payment of any claim against Officer, Officer's spouse or other 
beneficiary.  In no event shall Officer, Officer's spouse, or other 
beneficiary have the right to recover any amount credited to Officer's 
account other than in accordance with this Agreement.

     9.  Nothing contained in this Agreement and no action taken 
pursuant to the provisions of this Agreement shall create or be 
construed to create a trust of any kind, or a fiduciary relationship 
between Company and Officer or any other person.  To the extent that any 
person acquires a right to receive payments from Company under this 
Agreement, such right shall be no greater than the right of any 
unsecured general creditor of Company.  Except as provided in paragraph 
7 of this Agreement, title to and beneficial ownership of any assets, 
whether cash or investments, which Company may earmark to pay the 
deferred compensation hereunder, shall at all times remain assets of 
Company and neither Officer nor any other person shall, under this 
Agreement, have any property interest whatsoever in any specific assets 
of Company.

     10.  The existence of this Agreement shall not confer upon Officer 
the right to continue to serve as an Officer for any period of time.

     11.  This Agreement shall be deemed to modify any provisions in an 
employment agreement between Officer and Company pertaining to the 
timing of payment of base compensation and bonus and, in the event of 
any conflict between this Agreement and such provisions of the 
employment agreement, this Agreement shall control.

     12.  This Agreement may be terminated by Company upon thirty days' 
written notice to Officer.  This Agreement will also terminate upon 
Officer's filing of an election of a Basic Contribution percentage which 
is less than the maximum for which he or she is eligible under the 
Savings Plan.  Termination of the Agreement shall be applicable only 
with respect to base compensation and bonus payable to Officer on and 
after the first day of the calendar year following the date of 
termination.  Funds previously deferred and credited (and income earned 
on such funds)  will continue to be governed by the applicable year's 
Officer's Deferred Compensation Agreement Election Form and Section 4 of 
this Agreement.

     13.  Officer acknowledges that Officer has been advised that 
Officer may confer with and seek advice from a tax or financial advisor 
of Officer's choice concerning this deferral.  Officer further 
acknowledges that Officer has not received tax advice from Company nor 
has Officer relied upon information provided by Company in electing to 
make this deferral.

     IN WITNESS WHEREOF,  this Agreement has been executed on the day 
and year written above.

OFFICER                             COMPANY



_______________________________     By ____________________________
Signature of Officer                Company _______________________
                                    Title _________________________




                               ENOVA CORPORATION
 .....................1997 DEFERRED COMPENSATION AGREEMENT
 ............................FOR NONEMPLOYEE DIRECTORS


 .....THIS AGREEMENT, made and entered into this _____ day of December, 
1996, by and between Enova Corporation or any of its subsidiaries, 
(hereinafter "Company") and ______________________________________ 
(hereinafter "Director"), a member of the Board of Directors of Company 
(hereinafter the "Board"),

 .................................WITNESSETH:

 ......WHEREAS, fees are paid to Directors as a retainer; and 

 ......WHEREAS, Director and Company desire that the payment of said fees 
to Director be deferred, pursuant to the terms and provisions of this 
Agreement;

 ......NOW, THEREFORE, the parties hereto hereby agree as follows:

 ......1....This Agreement shall be effective on the first date 
subsequent to its execution upon which Director's fees would otherwise 
be payable to Director for service as a member of the Board and shall 
continue in effect until this Agreement is terminated as provided 
herein.

 ......2....Company shall credit to an account on Company's books, in 
Director's name, that portion of such Director's fees otherwise payable 
to Director as may be specified by Director on an election form 
submitted to Company simultaneously with the execution of this 
Agreement.

 ......3....There shall be credited to Director's account an additional 
amount equal to seven and eighty-five one-hundredths percent (7.85%) per 
annum computed on the balance in Director's account as of the end of 
each month; provided, however, that Company reserves the right to 
increase or decrease from time to time such amount with respect to 
amounts to be credited to the account subsequent to the date of such 
increase or decrease, provided that upon a "change-in-control" (as 
defined in the Enova Corporation 1986 Long-Term Incentive Plan) the 
percentage used shall not decrease to less than the last published rate 
shown in Moody's Average of Yields on Public Utility Bonds for a utility 
having a rating equivalent to Company.

 ......4....All amounts credited to Director's account pursuant to 
paragraphs 2 and 3 hereof shall be paid to Director in a lump sum on the 
date specified by Director on the Director's election form.  In the 
event of Director's death before any payment due under this paragraph 4 
has been paid, such payment due shall be paid in a lump sum to the 
person specified by the Director on the election form as soon as 
administratively practicable.

 ......5....No amounts credited to Director's account may be assigned, 
transferred, encumbered, or made subject to any legal process for the 
payment of any claim against Director, Director's spouse or beneficiary.  
In no event shall Director, Director's spouse or beneficiary have the 
right to recover any fees credited to Director's account other than in 
accordance with this Agreement.

 ......6....Nothing contained in this Agreement and no action taken 
pursuant to the provisions of this Agreement shall create or be 
construed to create a trust of any kind, or a fiduciary relationship 
between Company and the Director or any other person.  To the extent 
that any person acquires a right to receive payments from Company under 
this Agreement, such right shall be no greater than the right of any 
unsecured general creditor of Company.  Title to and beneficial 
ownership of any assets, whether cash or investments which Company may 
earmark to pay the deferred compensation hereunder, shall at all times 
remain assets of Company and neither the Director nor any other person 
shall, under this Agreement, have any property interest whatsoever in 
any specific assets of Company.

 ......7....The existence of this Agreement shall not confer upon any 
Director any right to continue to serve as a Director for any period of 
time.

 ......8....This Agreement may be terminated by Company upon 30 days 
written notice to the Director.  Such termination shall be applicable 
only with respect to fees payable to Director on and after the first day 
of the calendar year following the date of termination.  Funds 
previously deferred and credited (and income earned on such funds) will 
continue to be governed by the applicable year's director election form 
and Section 3 of this Agreement.

 ......9....Director acknowledges that Director has been advised that 
Director may confer with and seek advice from a tax or financial advisor 
of Director's choice concerning this deferral.  Director further 
acknowledges that Director has not received tax advice from Company nor 
has Director relied upon information provided by Company in electing to 
make this deferral.

 .......IN WITNESS WHEREOF, this Agreement has been executed on the day 
and year written above.


NONEMPLOYEE DIRECTOR..............COMPANY



____________________________......   By ___________________________
Signature of Nonemployee Director.   Company_______________________
 .....................................Title ________________________


                            ENOVA CORPORATION
                      1986 LONG-TERM INCENTIVE PLAN
                   1996 RESTRICTED STOCK AWARD AGREEMENT


   THIS RESTRICTED STOCK AWARD AGREEMENT (the "Agreement") is entered 
into this _____ day of ________, 1996, by and between ENOVA CORPORATION, 
a California corporation ("Enova") and ________________________ 
("Participant").

 ......WHEREAS, the Boards of Directors of Enova and San Diego Gas & 
Electric Company ("SDG&E") ("the Boards") have adopted the Enova 
Corporation 1986 Long-Term Incentive Plan (the "Plan"), which provides 
for the granting to selected employees of Enova and its subsidiaries of 
awards of Common Stock of Enova Corporation ("Restricted Stock Awards");

 ......WHEREAS, the grant of Restricted Stock Awards is intended as an 
incentive which will attract and retain highly competent persons as 
officers and key employees of Enova and its subsidiaries;

 ......WHEREAS, Participant is a selected employee of Enova and/or one of 
its subsidiaries; and

 ......WHEREAS, the Executive Compensation Committees of the Boards of 
Enova and SDG&E (the "Committees") have authorized, and the Boards have 
approved, the grant of a Restricted Stock Award to Participant pursuant 
to the terms of the Plan.

 ......NOW, THEREFORE, in consideration of the foregoing and of the 
mutual covenants hereinafter set forth and other good and valuable 
consideration, the receipt of which is hereby acknowledged, the parties 
hereto agree as follows:

1.....Grant of Restricted Stock Award

 ......Enova hereby grants to Participant, on the terms, conditions and 
restrictions hereinafter set forth, and in accordance with the Plan 
which is incorporated herein, as a matter of separate inducement to 
achieve a certain goal set by the Boards and not in lieu of any salary 
or other compensation for Participant's services, a Restricted Stock 
Award consisting of ____________________________________________ 
(_________) shares of the authorized but unissued shares of Enova 
Corporation Common Stock, (the "Shares").

2.....Receipt and Transfer of Shares

 ......Participant hereby acquires the Shares, and Enova hereby transfers 
the Shares to Participant. Concurrently with the execution hereof, Enova 
has delivered to Participant, and Participant acknowledges receipt into 
escrow of, a certificate or certificates evidencing the Shares, duly 
issued to Participant by Enova Corporation.  Concurrently with the 
execution hereof, Participant acknowledges that the Secretary or 
Assistant Secretary of Enova, holds on behalf of Participant all 
certificates evidencing the Shares. Participant also acknowledges prior 
receipt of a prospectus for the Plan, a copy of the Plan, and the most 
recent Annual Report of Enova Corporation.  Participant shall execute 
all such stock powers and other instruments of transfer in favor of 
Enova as are necessary at any time in the future to perform this 
contract.

3.....Shareholder of Record

 ......Enova agrees that Participant shall be deemed a shareholder of 
record with respect to the Shares on the date first written above.

4.....Restricted Term

 ......The Restricted Term with respect to the Shares shall commence on 
the date first above written.  The restrictions will be removed from and 
the restricted term will expire on one quarter of the restricted shares 
after the end of each of the years 1997, 1998, 1999 and 2000:
 .............
 ......a......If, at the end of each of such year the Corporation's 
earnings per share meet or exceed the target earnings per share as set 
by the Executive Compensation Committee.

 ......b......If, beginning in 1998, at the end of any quarter, the 
published quarterly earnings meet or exceed the previous year's target 
earnings plus 25% of the annual target increase per quarter.

 ......c......At the end of 2000, the remaining restricted shares not 
released previously may be released in the discretion of the Board 
dependent upon the impact on 1997 through 2000 earnings of industry and 
corporate restructuring during such period.

 ......d......The Board, in response to industry or corporate 
restructuring, may elect to change the Plan design and performance goals 
to align the Plan with a new long term direction.

5....Voting and Other Rights

 ......During the Restricted Term, Participant shall, except as otherwise 
provided herein, have all of the rights of a stockholder with respect to 
all of the Shares subject to the Restricted Term, including without 
limitation the right to vote such Shares and the right to receive all 
dividends or other distributions with respect to such Shares.  In 
connection with the payment of such dividends or other distributions, 
there shall be deducted any taxes or other amounts required by any 
governmental authority to be withheld and paid over to such authority 
for the account of Participant.

6.....Restrictions On Inter Vivos Transfer

 ......During the Restricted Term, the Shares subject to the Restricted 
Term shall not be sold, assigned, transferred, hypothecated or otherwise 
alienated, disposed of or encumbered except as provided in the Plan.  
The certificate for such Shares shall bear the following legend, or any 
other similar legend as may be required by Enova:

 ......"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE MAY NOT BE 
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE 
ENCUMBERED OR DISPOSED OF EXCEPT AS PERMITTED BY ENOVA 
CORPORATION'S 1986 LONG-TERM INCENTIVE PLAN OR THE COMMITTEE WHICH 
ADMINISTERS THAT PLAN."

7.....Termination of Participant's Employment

 ......In the event Participant ceases to be employed by Enova and/or one 
of its subsidiaries at any time before the end of the Restricted Term 
for any reason, Participant shall deliver to Enova all certificates 
evidencing the Shares subject to the Restricted Term, accompanied by 
stock powers and other instruments of transfer duly executed by 
Participant to transfer such shares to Enova.

8.....Election to Recognize Income

 ......Check one:

 ......a....___..Participant elects, pursuant to the Internal Revenue 
Code as amended, and the comparable provisions of state tax law, to 
include in gross income in connection with the grant of this Restricted 
Stock Award, all amounts now recognizable.

 ......b....___  Participant shall not elect, pursuant to the Internal 
Revenue Code as amended, or comparable provisions of any state tax law, 
to include any amount in gross income in connection with the grant of 
this Restricted Stock Award.

9.....Withholding and Registration

 .....a.....Upon recognition of income as elected in paragraph 8 above, 
Participant shall, with respect to such Shares, make payment, in the 
form of cash or a cashier's check or in the manner stated in paragraph 
9(b) below, to Enova in an amount sufficient to satisfy any taxes or 
other amounts Enova determines is required by any governmental authority 
to be withheld and paid over by Enova or any of its subsidiaries to such 
authority for the account of Participant (collectively, "Withholding 
Taxes"), or shall otherwise make arrangements satisfactory to Enova for 
the payment of such amounts through withholding or otherwise.  For 
purposes of paragraph 8(a), such payment or arrangements shall be made 
by December 6, 1996.  For purposes of paragraph 8(b), the date shall be 
30 days after the restrictions are removed.  Participant shall, if 
requested by Enova, make appropriate representations in a form 
satisfactory to Enova that such Shares will not be sold other than 
pursuant to an effective registration statement under the Securities Act 
of 1933, as amended, or an applicable exemption from the registration 
requirements of such Act.

 .....b......Subject to the restrictions set forth in paragraph 9(c) and 
such rules as the Committee may from time to time adopt and upon 
approval by the Committee in its sole discretion, Participant may elect 
to satisfy all or any portion of such Participant's tax withholding 
obligations set forth in paragraph 9(a) by electing (i) to have Enova 
withhold from delivery of any Shares otherwise deliverable to 
Participant in the manner set forth in paragraph 10 hereof, a portion of 
such Shares to satisfy Withholding Taxes or (ii) to deliver to Enova 
shares of Common Stock, no par value, of Enova, other than those 
delivered to Participant in the manner set forth in paragraph 10 hereof, 
to satisfy all or any portion of such Participant's Withholding Taxes.  
The number of Shares withheld from delivery or such other shares 
delivered shall equal the number of shares the Committee, in its sole 
discretion, determines to have a fair market value equal to the amount 
of such Participant's Withholding Taxes required to be withheld or paid 
over by Enova or any of its subsidiaries and which Participant elected 
to be satisfied by withholding or delivery of shares.

 .....c......Participant's election to satisfy all or any portion of 
Participants Withholding Taxes under paragraph 9(b) is subject to the 
following restrictions:

 ............(i)  such election must be made in writing on or before the 
date when the amount of Withholding Taxes is required to be 
determined (the "Tax Date");

 ............(ii)  such election shall be irrevocable;

 ............(iii).such election shall be subject to the approval or 
disapproval of the Committee, in its sole discretion;

 ............(iv)  the fair market value of the Shares to be withheld or 
other shares of Common Stock to be delivered to Enova for the 
purposes of satisfying all or any portion of such Participant's 
Withholding Taxes shall be deemed to be the average of the highest 
and lowest selling prices of such stock as reported on the New 
York Stock Exchange Composite Transactions Tape on the Tax Date, 
or if such stock is not traded that day, then on the next 
preceding day on which such stock was traded; and

 ............(v).. if Participant is or becomes subject to Section 16(b) 
of the Securities Exchange Act of 1934, as amended (the "1934 
Act"), such election must be made in compliance with Rule 16b-3(e) 
promulgated under said Section 16(b) or any successor regulation 
promulgated thereunder.

10....Delivery of Shares

 ......Upon expiration of the Restricted Term applicable to any shares as 
provided in the manner stated in paragraph 4 above and payment by the 
Participant as required in paragraph 9 above, the Secretary or Assistant 
Secretary of Enova shall deliver to Participant all certificates 
evidencing the Shares free of legend and no longer subject to the 
Restricted Term and all restrictions set forth herein with respect to 
such Shares shall terminate.

 ......If at the end of 2000 the restrictions have not been removed from 
and the Restricted Term has not expired on any of the shares received by 
Participant under this Agreement, Participant shall deliver to Enova all 
certificates evidencing such shares accompanied by stock powers and 
other instruments of transfer duly executed by Participant to transfer 
such shares to Enova.

11....Effects On Participant's Continued Employment

 ......Participant's right, if any, to continue to serve Enova and/or its 
subsidiaries as an officer or employee shall not be enlarged or 
otherwise affected by the grant to him or her of this Restricted Stock 
Award, nor shall such grant in any way restrict the right of Enova 
and/or any of its subsidiaries to terminate Participant's employment at 
any time.

12....Further Action

 ......Each party hereto agrees to perform any further acts and to 
execute and deliver any documents which may be reasonably necessary to 
carry out the provisions hereof.

13....Parties in Interest and Governing Law

 ......This Agreement shall be binding upon and inure to the benefit of 
the parties hereto and their respective assigns and successors-in-
interest, and shall be governed by and interpreted in accordance with 
the laws of the State of California.

14....Entire Agreement

 ......This Agreement contains the entire agreement and understanding 
between the parties as to the subject matter hereof.

15....Invalid Provisions

 ......The invalidity or unenforceability of any particular provision 
hereto shall not affect the other provisions hereof, and this Agreement 
shall be construed in all respects as if such invalid or unenforceable 
provisions were omitted.

16....Amendment

 ......No amendment or modification hereof shall be valid unless it shall 
be in writing and signed by both parties hereto.

17....Counterparts

 ......This Agreement may be executed in counterparts, each of which 
shall be deemed to be an original, and taken together shall constitute 
one and the same document.

18....Notices

 ......All notices or other communications required or permitted 
hereunder shall be in writing, and shall be sufficient in all respects 
only if delivered in person or sent via certified mail, postage prepaid, 
addressed as follows:

 ...If to Enova:.........Enova Corporation
 ........................P. O. Box 129400
 ........................San Diego, CA 92112-9400

 ........................Attention:  Corporate Secretary

 ...If to Participant:...________________________________________

 ........................________________________________________

 ........................________________________________________

or such other address as shall be furnished in writing by any such 
party.  Any such notice or communication shall be deemed to have been 
delivered when delivered in person or 48 hours after the date it has 
been mailed in the manner described above.

 ...IN WITNESS WHEREOF, the parties hereto have executed this Restricted 
Stock Award Agreement on the day and year first above written.


PARTICIPANT.........................ENOVA CORPORATION



____________________________________By:_________________________________
Signature of Participant	
 ....................................Title:______________________________


                      (Effective Until Closing of 
               Transaction with Pacific Enterprises, Inc.) 
 
                   SAN DIEGO GAS & ELECTRIC COMPANY 
                            SEVERANCE PLAN 
 
 
I.          PURPOSE AND OBJECTIVE 
 
            To provide a separation pay allowance to help meet Eligible 
            Employees' immediate financial burden associated with being 
            involuntarily and permanently terminated under conditions 
            described in the Plan.  This Plan supersedes the previous 
            Severance Plan dated August 22, 1994, as of the Effective 
            Date. 
 
II.         RESPONSIBILITY 
 
            The Company, through its Division and Department heads, is 
            responsible for administering the Plan. 
 
            The Company, through its Human Resources Division, is 
            responsible for providing further interpretation and 
            guidance. 
 
            The business decisions, the manner in which they are carried 
            out that may result in the termination of an employee, and 
            the reason for termination (including resignation in lieu of 
            discharge) are decisions to be made by the Company in its 
            sole discretion.  In making these decisions, the Company is 
            not required to treat similarly situated employees in the 
            same manner. 
 
III.        ELIGIBILITY 
 
            A.  "Eligible Employee" includes an employee whose job is 
                terminated by the Company, who is not covered by any 
                other severance plan adopted by the Company, and who: 
 
                1.    is a regular non-bargaining unit employee working 
                      as a full-time, part-time, or call-in employee of 
                      the Company, or a regular non-bargaining unit 
                      full-time, part-time or call-in employee on 
                      medical leave, military leave or long-term 
                      disability; 
 
                2.    has received written notice that employment will 
                      be terminated; 
 
                3.    continues as a satisfactory employee until 
                      released by the Company in accordance with its 
                      business needs; 
 
 
                4.    abides by such other written terms and conditions 
                      as the Company has established as a condition for 
                      participation in, or payment of, benefits from the 
                      Plan; and 
 
                5.    is not excluded as provided below. 
 
 
            B.  Eligible Employees exclude employees: 
 
                1.    whose employment terminates due to death; 
 
                2.    whose employment terminates because of 
                      unsatisfactory performance, the employee is 
                      discharged for cause, and/or resigns in lieu of 
                      discharge for cause, all as determined by the 
                      Company; 
 
                3.    who accept employment with an organization that is 
                      affiliated (directly or indirectly) with the 
                      Company; 
 
                4.    who voluntarily terminate employment with the 
                      Company for any reason except as provided in IV.C 
                      below; or 
 
                5.    who are temporary workers (agency or independent), 
                      interns, independent contractors, employment 
                      contract employees, student employees, or 
                      employees covered by a collective bargaining 
                      agreement that does not provide for Plan 
                      participation. 
 
            C.  Participation in the Plan commences when an 
                EligibleEmployee receives the notice of employment 
                termination referred to above.  An Eligible Employee who 
                commences participation in the Plan is called a 
                "Participant" in the Plan. 
 
 
IV.         BENEFITS 
 
            A.  Introduction.  For purposes of determining Plan 
                Benefits, the following shall apply: 
 
                1.   "Annual Pay" means Base Salary multiplied by 52. 
 
                2.   "Base Salary" means average regular straight time 
                     weekly base pay in effect during the month 
                     preceding termination of employment with the 
                     Company, excluding overtime, shift differentials, 
                     Bonus Awards and other special payments determined 
                     by the Company in its sole discretion. 
 
                3.   "Years of Continuous Service" means the number of 
                     years since Hire Date a person has been 
                     continuously employed as an active regular full- 
                     time, part-time or call-in employee of the Company 
                     or its predecessors, as determined by the Company. 
 
                     An Eligible Employee who is a call-in or regular 
                     part-time employee entitled to these benefits will 
                     receive pro-rated severance benefits as follows: 
 
                     a.  Add the total number of hours worked during the 
                         preceding ten (10) years. 
 
                     b.  Divide by 2,087 hours for non-exempt employees 
                         and 2,080 hours for exempt employees. 
 
                     c.  The resulting number, excluding fraction, will 
                         constitute Years of Continuous Service 
                         completed under the Plan. 
 
                4.   "Hire Date" shall be, except as provided in a 
                     collective bargaining agreement, the date a person 
                     was hired by SDG&E as a non-bargaining unit regular 
                     full-time employee, a non-bargaining unit regular 
                     part-time employee, or a non-bargaining unit call- 
                     in Employee, whichever occurred first. 
 
                5.   "Final Salary" means the Participant's Base Salary 
                     plus his or her Bonus Awards. 
 
                6.   "Bonus Awards" means the gross cash amounts awarded  
                     under the San Diego Gas & Electric Company Senior 
                     Management Incentive Compensation Plan or 
                     Compensation Incentive Plan during the 12-month 
                     period ending on the date of the Participant's 
                     termination of employment divided by 52. 
 
                7.   If, in the sole judgment of the Company, an 
                     Eligible Employee is terminated, and the Eligible 
                     Employee's services can be used for a period equal 
                     to the weeks of Plan Benefits or if there is a 
                     reasonable possibility that a job for which the 
                     Eligible Employee is qualified may become open 
                     within such period, the Company may, in its sole 
                     discretion, permit an Eligible Employee to elect 
                     between remaining on the payroll for the period of 
                     time equal to the Plan Benefits or receiving the 
                     actual Plan Benefits. 
 
 
 
 
 
 
            B.       Benefits Without Change in Control or Other 
                     Corporate Events. 
 
                     1.  Basic Benefit.  In the absence of termination 
                         in connection with certain corporate events 
                         described in Section IV.C., Plan Benefits will 
                         be paid in one lump sum at termination  
                         accordance with one of the following schedules, 
                         as determined in Paragraph 2. 
 
 
                               Schedule A                    Schedule B 
                             Without Release                With Release 
Years of Continuous             Weeks of                      Weeks of 
Service Completed            Base Salary Paid          Final Salary Paid 
 
Less than 2                           1                           2 
 
At least 2, but less than 4           1                           3 
 
At least 4, but less than 6           2                           4 
 
At least 6, but less than 8           2                           5 
 
At least 8, but less than 10          2                           6 
 
At least 10, but less than 12         3                           7 
 
At least 12, but less than 14         4                           8 
 
At least 14, but less than 15         5                           9 
 
At least 15, but less than 16         5                          10 
 
At least 16, but less than 17         5                          11 
 
At least 17, but less than 18         6                          12 
 
At least 18, but less than 19         6                          13 
 
At least 19, but less than 20         6                          14 
 
At least 20, but less than 21         7                          15 
 
At least 21, but less than 22         7                          16 
 
At least 22, but less than 23         7                          17 
 
At least 23, but less than 24         8                          18 
 
At least 24, but less than 25         8                          19 
 
At least 25, but less than 26         8                          20 
 
At least 26, but less than 27         9                          21 
 
At least 27, but less than 28         9                          22 
 
At least 28, but less than 29         10                         23 
 
At least 29, but less than 30         10                         24 
 
         30 or more                   10                         26 
 
 
                     2.  Release from Claims.  Participants who sign a 
                         release of all known and unknown claims in such 
                         form as the Company determines shall receive 
                         Plan Benefits under Schedule B of Paragraph 1. 
                         Other Participants shall receive Plan Benefits 
                         under Schedule A of Paragraph 1. 
 
                         a.  As an additional benefit, Participants 
                             under age 40 who sign such a release will 
                             receive continuation of all group medical 
                             insurance, and 50% of the AD&D and 50% of 
                             the life insurance in force as of the  
                             of termination for the Participant and 
                             existing covered dependents for the number 
                             of weeks of Final Salary (minimum of four) 
                             represented by Schedule B of Paragraph 1. 
                             The Company will continue to pay its share 
                             of the premiums, and the Company will 
                             deduct the Participant's share of such 
                             premiums from the Participant's lump sum 
                             check. 
 
                         b.  As an additional benefit, Participants over 
                             age 40 who sign such a release which waives 
                             claims under the Age Discrimination in 
                             Employment Act will receive continuation of 
                             all group medical insurance, and 50% of the 
                             AD&D and 50% of the life insurance in force 
                             as of the date of termination for the 
                             employee and existing covered dependents 
                             for the number of weeks of Final Salary 
                             (minimum of four) represented by Schedule B 
                             of Paragraph 1.  The Company will continue 
                             to pay its share of the premiums, and the 
                             Company will also pay the Participant's 
                             share of such premiums.  Company will not 
                             pay for dependent coverage for life and 
                             AD&D. 
 
 
                         c.  For purposes of computing Plan Benefits 
                             under this Section IV.B., Participants who 
                             are participants in the Senior Management 
                             Incentive Plan and who sign such release 
                             shall receive, at a minimum, the same Plan 
                             Benefits as Participants who have completed 
                             exactly 18 Years of Continuous Service. 
 
            C.       Benefits Upon Change in Control and Other Corporate 
                     Events. 
 
                     1.  In General. 
 
                          a.  Involuntary Termination upon Change in 
                              Control.  An otherwise Eligible Employee 
                              who is involuntarily terminated for other 
                              than cause, death, or disability within 
                              two years after a Change in Control will 
                              receive a Plan Benefit based upon Final 
                              Salary, pursuant to Paragraph 2 below.  A 
                              Change in Control shall mean: 
 
                              i.  a reorganization, merger or 
                                  consolidation of the Company with one 
                                  or more corporations; 
 
                              ii. the acquisition of beneficial 
                                  ownership, directly or indirectly, of 
                                  more than 30 percent of the voting 
                                  power of the outstanding stock of the 
                                  Company by one person, group, 
                                  association, corporation or  
                                  entity coupled with the election to 
                                  the Board of Directors of new members 
                                  who were not originally nominated by 
                                  the Board at the last annual meeting 
                                  and who constitute a new majority of 
                                  the Board; or 
 
                             iii. the sale of all or substantially all 
                                  the property of the Company. 
 
                              iv. Notwithstanding i., ii., or iii. 
                                  above, no Change in Control shall be 
                                  deemed to occur with respect to any 
                                  reorganization, merger, consolidation 
                                  or sale entered into voluntarily by 
                                  the Company: 
 
                                  (a)  in which the Company survives  
                                       a direct or indirect subsidiary 
                                       of a public company, or 
 
                                  (b)  in which members of the company's 
                                       Board of Directors constitute a 
                                       majority of the members of  
                                       Board of Directors of the 
                                       surviving company, and the 
                                       shareholders of the Company 
                                       constitute a majority of the 
                                       shareholders of the surviving 
                                       company. 
 
                          b.  Voluntary Termination for Good Reason.  An 
                              otherwise Eligible Employee who 
                              voluntarily terminates employment for Good 
                              Reason within two years following a Change 
                              in Control (as defined in Paragraph 2 
                              above), will receive a Plan Benefit based 
                              upon Final Salary, pursuant to Paragraph 2 
                              below.  Good Reason shall mean: 
 
                              i.  a significant reduction in Base 
                                  Salary for reasons not related to 
                                  performance, 
 
                              ii. elimination or significant reduction 
                                  of the aggregate value of health, 
                                  dental, disability and life coverage, 
                                  or 
 
                             iii. involuntary transfer to a new business 
                                  location outside the San Diego Gas & 
                                  Electric Company service territory. 
 
                          c.  Sale of Work Unit.  A Participant will 
                              receive a Plan Benefit based upon Final 
                              Salary, pursuant to Paragraph 2, below, if 
                              he or she is terminated under the 
                              following circumstances:  unless the 
                              purchaser of a work unit assumes the 
                              obligations of this Plan, such benefits 
                              will be paid to a Participant employed by 
                              such work unit who is either: (i) 
                              terminated following the sale of the work 
                              unit and not rehired by the purchaser 
                              within two months from the date of the 
                              sale and retained for a period of at least  
                              unacceptable performance is not an issue. 
 
                     2.  Corporate Event Benefit. 
 
                         In the event of termination in connection with 
                         certain corporate events described in this 
                         Section IV.C., Plan Benefits shall be paid in 
                         one lump sum at termination in an amount equal 
                         to Final Salary multiplied by the number of 
                         credits determined below and under Paragraph 3: 
 
 
 
                               Weeks of Final Salary 
 
Years of Continuous                   Schedule A              Schedule B 
Service Completed                  Without Release          With Release 
 
   Less than 2                           2                           4 
 
At least 2, but less than 4              2                           6 
 
At least 4, but less than 6              3                           8 
 
At least 6, but less than 8              3                          10 
 
At least 8, but less than 10             3                          12 
 
At least 10, but less than 12            4                          17 
 
At least 12, but less than 14            5                          21 
 
At least 14, but less than 15            6                          24 
 
At least 15, but less than 16            7                          27 
 
At least 16, but less than 17            8                          30 
 
At least 17, but less than 18            9                          33 
 
At least 18, but less than 19           10                          36 
 
At least 19, but less than 20           11                          39 
 
At least 20, but less than 21           12                          44 
 
At least 21, but less than 22           13                          47 
 
At least 22, but less than 23           14                          50 
 
At least 23, but less than 24           15                          53 
 
At least 24, but less than 25           16                          56 
 
At least 25, but less than 26           17                          61 
 
At least 26, but less than 27           18                          64 
 
At least 27, but less than 28           19                          67 
 
At least 28, but less than 29           20                          70 
 
At least 29, but less than 30           21                          73 
 
   30 or more                            22                         78 
 
 
                     3.  Release from Claims.  If Participantvoluntarily 
                         signs a release of all known and unknown claims 
                         in such form as the Company prepares, then the 
                         Participant shall be entitled to the severance 
                         payment under Schedule B of Paragraph 2, or, if 
                         greater, the amount in Schedule B of IV.B.1.   
                         Other Participants will receive benefits under 
                         Schedule A of Paragraph 2. 
 
                         a.  As an additional benefit, a Participant 
                             under age 40 who signs such a release will 
                             receive continuation of all group medical 
                             insurance, and 50% of the AD&D and 50% of 
                             the life insurance in force as of the date 
                             of termination for the Participant and 
                             existing covered dependents for the number 
                             of weeks of Final Salary (minimum of four) 
                             represented in Schedule B of Paragraph 2.   
                             The Company will continue to pay its share 
                             of the premiums, and the Company will 
                             deduct the employee's share of such 
                             premiums from the Participant's lump  
                             check. 
 
                         b.  As an additional benefit, a Participant 
                             over age 40 who signs such a release which 
                             waives claims under the Age Discrimination 
                             in Employment Act will receive continuation 
                             of all group medical insurance, and 50% of 
                             the AD&D and 50% of the life insurance in 
                             force as of the date of termination for the 
                             Participant and existing covered dependents 
                             for the number of weeks of Final Salary 
                             (minimum of four) represented in Schedule B 
                             of Paragraph 2.  The Company will continue 
                             to pay its share of the premiums, and the 
                             Company will also pay the Participant's 
                             share of such premiums.  The Company will 
                             not pay for dependent coverage for life and 
                             AD&D. 
 
                         c.  For purposes of computing severance 
                             allowances pursuant to this IV.C., 
                             Participants who are participants in the 
                             Senior Management Incentive Plan and who 
                             sign such release will receive, at a 
                             minimum, the same Plan Benefits  
                             Paragraph 2 as Participants who have 
                             completed exactly 19 years of Continuous 
                             Service. 
 
 
 
 
V.     GENERAL 
 
       A.  The Board of Directors reserves the right to change, amend or 
           terminate the Plan at any time for any reason, however no 
           such amendment or termination shall affect the right to any 
           unpaid Plan Benefit of any Participant whose employment was 
           terminated prior to the adoption of the amendment or 
           resolution to terminate the Plan. 
 
       B.  The Company is the Plan Administrator and the Plan Sponsor 
           for purposes of the Employee Retirement Income Security Act 
           of 1974 ("ERISA").  The Company has the complete discretion 
           and responsibility to interpret the Plan.  All actions by the 
           Company are final, binding, and conclusive. 
 
       C.  As to participants in the Savings Plan and/or the Pension 
           Plan, participation will stop on the termination date.  The 
           employee will receive information about rights under those 
           plans. 
 
       D.  If an employee who is eligible for a Plan Benefit dies after 
           termination and prior to the payment of the Plan Benefit, the 
           Plan Benefit will be paid in a single lump sum to the spouse, 
           if any.  If no spouse survives, the payment will be made to 
           the employee's estate. 
 
       E.  To the full extent permitted by law, except as provided in 
           the Plan, no Plan Benefit hereunder shall be subject to 
           anticipation, alienation, sale, transfer, assignment, pledge, 
           encumbrance or change, and any attempt to do so shall be 
           void. 
 
       F.  The Effective Date of this Plan is October 12, 1996.  This 
           Plan is drawn under and shall be construed in accordance with 
           ERISA and, to the extent not preempted by ERISA, with the 
           laws of the State of California. 
 
       G.  The Company shall be responsible for paying all benefits 
           under the Plan.  The Plan shall be unfunded and benefits 
           hereunder shall be paid only from the general assets of the 
           Company.  All or part of any benefits paid under the Plan may 
           be credited to any statutory amounts to which employees are 
           entitled upon termination to the extent allowed by applicable 
           law. 
 
       H.  Claims for benefits should be made in writing to the Company 
           Attention: Human Resources Department, pursuant to the claims 
           procedure set forth in the Employee Handbook.  For a 
           discussion of other plan information and your ERISA rights, 
           please see the Employee Handbook. 
 
 
 
 
Adopted the _______ of October, 1996 
 
 
 
 
                                                                             
                                          Margot Kyd, Vice President 
                                          Human Resources 
 
 
 
 
 



                         (Effective as of Closing of
                   Transaction with Pacific Enterprises, Inc.)

                        SAN DIEGO GAS & ELECTRIC COMPANY
                                SEVERANCE PLAN


I.          PURPOSE AND OBJECTIVE

            To provide a separation pay allowance to help meet Eligible
            Employees' immediate financial burden associated with being
            involuntarily and permanently terminated under conditions
            described in the Plan.  This Plan supersedes the previous
            Severance Plan dated October 12, 1996, as of the Effective
            Date.

II.         RESPONSIBILITY

            The Company, through its Division and Department heads, is
            responsible for administering the Plan.

            The Company, through its Human Resources Division, is
            responsible for providing further interpretation and
            guidance.

            The business decisions, the manner in which they are carried
            out that may result in the termination of an employee, and
            the reason for termination (including resignation in lieu of
            discharge) are decisions to be made by the Company in its
            sole discretion.  In making these decisions, the Company is
            not required to treat similarly situated employees in the
            same manner.

III.        ELIGIBILITY

            A.  "Eligible Employee" includes an employee whose job is
                terminated by the Company, who is not covered by any
                other severance plan adopted by the Company, and who:

                1.  is a regular non-bargaining unit employee working as
                    a full-time, part-time, or call-in employee of the
                    Company, or a regular non-bargaining unit full-time,
                    part-time or call-in employee on medical
                    leave,military leave or long-term disability;


                2.  has received written notice that employment will be
                    terminated;

                3.  continues as a satisfactory employee until released
                    by the Company in accordance with its business
                    needs;

                4.  abides by such other written terms and conditions as
                    the Company has established as a condition for
                    participation in, or payment of, benefits from the
                    Plan; and

                5.  is not excluded as provided below.

            B.  Eligible Employees exclude employees:

                1.  whose employment terminates due to death;

                2.  whose employment terminates because of
                    unsatisfactory performance, the employee is
                    discharged for cause, and/or resigns in lieu of
                    discharge for cause, all as determined by the
                    Company;

                3.  who accept employment with an organization that is
                    affiliated (directly or indirectly) with the
                    Company;

                4.  who voluntarily terminate employment with the
                    Company for any reason except as provided in IV.C
                    below; or

                5.  who are temporary workers (agency or independent),
                    interns, independent contractors, employment
                    contract employees, student employees, or employees
                    covered by a collective bargaining agreement that
                    does not provide for Plan participation.


            C.  Participation in the Plan commences when an Eligible
                Employee receives the notice of employment termination
                referred to above.  An Eligible Employee who commences
                participation in the Plan is called a "Participant" in
                the Plan.

IV.         BENEFITS

            A.  Introduction.  For purposes of determining Plan
                Benefits, the following shall apply:

                1.  "Annual Pay" means Base Salary multiplied by 52.

                2.  "Base Salary" means average regular straight time
                    weekly base pay in effect during the month
                    preceding termination of employment with the
                    Company, excluding overtime, shift differentials,
                    Bonus Awards and other special payments determined
                    by the Company in its sole discretion.

                3.  "Years of Continuous Service" means the number of
                    years since Hire Date a person has been continuously
                    employed as an active regular full-time, part-time
                    or call-in employee of the Company or its
                    predecessors, as determined by the Company.

                    An Eligible Employee who is a call-in or regular
                    part-time employee entitled to these benefits 
                    receive pro-rated severance benefits as follows:

                    a.  Add the total number of hours worked during 
                        preceding ten (10) years.

                    b.  Divide by 2,087 hours for non-exempt employees
                        and 2,080 hours for exempt employees.

                    c.  The resulting number, excluding fraction, will
                        constitute Years of Continuous Service completed
                        under the Plan.

               4.  "Hire Date" shall be, except as provided in a
                   collective bargaining agreement, the date a person
                   was hired by SDG&E as a non-bargaining unit regular
                   full-time employee, a non-bargaining unit regular
                   part-time employee, or a non-bargaining unit call-in
                   Employee, whichever occurred first.

               5.  "Final Salary" means the Participant's Base Salary
                   plus his or her Bonus Awards.

               6.  "Bonus Awards" means the gross cash amounts awarded
                   under the San Diego Gas & Electric Company Senior
                   Management Incentive Compensation Plan or
                   Compensation Incentive Plan during the 12-month
                   period ending on the date of the Participant's
                   termination of employment divided by 52.

               7.  If, in the sole judgment of the Company, an Eligible
                   Employee is terminated, and the Eligible Employee's
                   services can be used for a period equal to the weeks
                   of Plan Benefits or if there is a reasonable
                   possibility that a job for which the Eligible
                   Employee is qualified may become open within such
                   period, the Company may, in its sole discretion,
                   permit an Eligible Employee to elect between
                   remaining on the payroll for the period of time equal
                   to the Plan Benefits or receiving the actual Plan
                   Benefits.


            B.  Benefits Without Change in Control or Other Corporate
                Events.

                1.  Basic Benefits.  In the absence of termination in
                    connection with certain corporate events described
                    in Section IV.C., Plan Benefits will be paid in one
                    lump sum at termination in accordance with one of
                    the following schedules, as determined in Paragraph
                    2.

                Schedule A, Without Signed Release.  Plan Benefits are
                determined by multiplying Base Salary by the number of
                credits determined as follows.

               Years of Continuous
               Service Completed                                 Credits

                Less than 4                                            1

At least 4, but less than 10                                           2

At least 10, but less than 12                                          3

At least 12, but less than 14                                          4

At least 14, but less than 17                                          5

At least 17, but less than 20                                          6

At least 20, but less than 23                                          7

At least 23, but less than 26                                          8

At least 26, but less than 28                                          9

                At least 28                                           10


                Schedule B, with Signed Release.  Plan Benefits are
                determined by multiplying Final Salary by the number of
                credits determined as the sum of the following:  (1) one
                credit for each Year of Continuous Service; (2) one
                credit for each full $10,000 of Annual Pay; and (3) one
                credit for each full $10,000 of Annual Pay in excess of
                $40,000.  Notwithstanding the above, the minimum number
                of total credits shall be six and the maximum number of
                total credits shall be 52.

                2.  Participants who sign a release of all known and
                    unknown claims in such form as the Company
                    determines shall receive Plan Benefits under
                    Schedule B of Paragraph 1.  Other Participants shall
                    receive Plan Benefits under Schedule A of Paragraph
                    1.

                    a.  As an additional benefit, Participants under age
                        40 who sign such a release will receive
                        continuation of all group medical insurance, and
                        50% of the AD&D and 50% of the life insurance in
                        four) represented by item 1, Schedule B of
                        Paragraph 1.  The Company will continue to pay
                        its share of the premiums, and the Company will
                        deduct the Participant's share of such premiums
                        from the Participant's lump sum check.

                    b.  As an additional benefit, Participants over age
                        40 who sign such a release which waives claim
                        under the Age Discrimination in Employment Act
                        will receive continuation of all group medical
                        insurance, and 50% of the AD&D and 50% of the
                        life insurance in force as of the date of
                        termination for the employee and existing
                        covered dependents for the number of weeks of
                        Base Salary (minimum of four) represented by
                        item 1, Schedule B of Paragraph 1.  The Company
                        will continue to pay its share of the premiums,
                        and the Company will also pay the Participant's
                        share of such premiums.  Company will not pay
                        for dependent coverage for life and AD&D.

                    c.  For purposes of computing Plan Benefits under
                        this Section IV.B., Participants who are
                        participants in the Senior Management Incentive
                        Plan and who sign such release shall receive, at
                        a minimum, 13 credits under Schedule B of
                        Paragraph 1.


            C.  Benefits Upon Change in Control and Other Corporate
                Events.

                1.  In General.

                    a.  Involuntary Termination Upon Change in Control.
                        An otherwise Eligible Employee who is
                        involuntarily terminated for other than cause,
                        death, or disability within two years after a
                        Change in Control will receive a Plan Benefit
                        based upon Final Salary, pursuant to Paragraph 2
                        below.  A Change in Control shall mean:

                        i.  a reorganization, merger or consolidation of
                            the Company with one or more corporations;

                        ii. the acquisition of beneficial ownership,
                            directly or indirectly, of more than 30
                            percent of the voting power of the
                            outstanding stock of the Company by one
                            person, group, association, corporation or
                            other entity coupled with the election to
                            the Board of Directors of new members who
                            were not originally nominated by the Board
                            at the last annual meeting and who
                            constitute a new majority of the Board; or

                       iii. the sale of all or substantially all the
                            property of the Company.

                        iv. Notwithstanding i., ii., or iii. above, no
                            Change in Control shall be deemed to occur
                            with respect to any reorganization, merger,
                            consolidation or sale entered into
                            voluntarily by the Company:

                            (a)  in which the Company survives as a
                                 direct or indirect subsidiary of a
                                 public company, or

                            (b)  in which members of the company's Board
                                 of Directors constitute a majority of
                                 the members of the Board of Directors
                                 of the surviving company, and the
                                 shareholders of the Company constitute
                                 a majority of the shareholders of the
                                 surviving company.

                    b.  Voluntary Termination for Good Reason.  An
                        otherwise Eligible Employee who voluntarily
                        terminates employment for Good Reason within two
                        years following a Change in Control (as defined
                        above), will receive a Plan Benefit based upon
                        Final Salary, pursuant to Paragraph 2 below.Good
                        Reason shall mean:

                        i.  a significant reduction in Base Salary for
                            reasons not related to performance,

                        ii. elimination or significant reduction of the
                            aggregate value of health, dental,
                            disability and life coverage, or

                       iii. involuntary transfer to a new business
                            location outside the San Diego Gas &
                            Electric Company's service territory.

                        c.  Sale of Work Unit.  A Participant will
                            receive a Plan Benefit based upon Final
                            Salary, pursuant to Paragraph 2 below, if he
                            or she is terminated under the following
                            circumstances:  unless the purchaser of a
                            work unit assumes the obligations of this
                            Plan, such benefits will be paid to a
                            Participant employed by such work unit who
                            is either: (i) terminated following the sale
                            of the work unit and not rehired by 
                            purchaser within two months from the date of
                            the sale and retained for a period of at
                            least six months, or (ii) not retained by
                            the purchaser for a period of at least six
                            months beyond the date of sale, in either
                            case where unacceptable performance is not
                            an issue.

                2.  Corporate Event Benefit.  In the event of
                    termination in connection with certain corporate
                    events described in this Section IV.C., Plan
                    Benefits shall be paid in one lump sum at
                    termination in an amount equal to Final 
                    multiplied by the number of credits determined below
                    and under Paragraph 3:


                                     Schedule A,            Schedule B,
Years of Continuous               Credits Without              Credits
Service Completed                    Release                With Release

Less than 2 Yrs.                        2                          4

2 Yrs. but less than 4                  2                          6

4 Yrs. but less than 6                  3                          8

6 Yrs. but less than 8                  3                         10

8 Yrs. but less than 10                 3                         12

10 Yrs. but less than 15                4                         17

12 Yrs. but less than 14                5                         21

14 Yrs. but less than 15                6                         24

15 Yrs. but less than 16                7                         27

16 Yrs. but less than 17                8                         30

17 Yrs. but less than 18                9                         33

18 Yrs. but less than 19               10                         36

19 Yrs. but less than 20               11                         39

20 Yrs. but less than 21               12                         44

21 Yrs. but less than 22               13                         47

22 Yrs. but less than 23               14                         50

23 Yrs. but less than 24               15                         53

24 Yrs. but less than 25               16                         56

25 Yrs. but less than 26               17                         61

26 Yrs. but less than 27               18                         64

27 Yrs. but less than 28               19                         67

28 Yrs. but less than 29               20                         70

29 Yrs. but less than 30               21                         73

30 Yrs. or more                        22                         78


               3.  Release from Claims.  If Participant voluntarily
                   signs a release of all known and unknown claims in
                   such form as the Company prepares, then the
                   Participant shall be entitled to the severance
                   payment under Schedule B of Paragraph 2, or, if
                   greater, the amount in Schedule B of IV.B.1.  Other
                   Participants will receive benefits under Schedule A
                   of Paragraph 2.

                   a.  As an additional benefit, a Participant under age
                       40 who signs such a release will receive
                       continuation of all group medical insurance, and
                       50% of the AD&D and 50% of the life insurance in
                       force as of the date of termination for the
                       Participant and existing covered dependents for
                       the number of weeks of Final Salary (minimum of
                       four) represented in Schedule B of Paragraph 2. 
                       The Company will continue to pay its share of the
                       premiums, and the Company will deduct the
                       employee's share of such premiums from the
                       Participant's lump sum check.

                   b.  As an additional benefit, a Participant over
                       age 40 who signs such a release which waives
                       claims under the Age Discrimination in Employment
                       Act will receive continuation of all group
                       medical insurance, and 50% of the AD&D and 50% of
                       the life insurance in force as of the date of
                       termination for the Participant and existing
                       covered dependents for the number of weeks of
                       Final Salary (minimum of four) represented in
                       Schedule B of Paragraph 2.  The Company will
                       continue to pay its share of the premiums, and
                       the Company will also pay the Participant's share
                       of such premiums.  The Company will not pay for
                       dependent coverage for life and AD&D.

                   c.  For purposes of computing severance allowances
                       pursuant to this IV.C., Participants who are
                       participants in the Senior Management Incentive
                       Plan and who sign such release will receive, at a
                       minimum, the same Plan Benefits under Paragraph 2
                       as Participants who have completed exactly 19
                       years of Continuous Service.


V.         GENERAL

           A.  The Board of Directors reserves the right to change,
               amend or terminate the Plan at any time for any reason,
               however no such amendment or termination shall affect the
               right to any unpaid Plan Benefit of any Participant whose
               employment was terminated prior to the adoption of the
               amendment or resolution to terminate the Plan.

           B.  The Company is the Plan Administrator and the Plan
               Sponsor for purposes of the Employee Retirement Income
               Security Act of 1974 ("ERISA").  The Company has the
               complete discretion and responsibility to interpret the
               Plan.  All actions by the Company are final, binding, 
               conclusive.

           C.  As to participants in the Savings Plan and/or the Pension
               Plan, participation will stop on the termination date.
               The employee will receive information about rights under
               those plans.

           D.  If an employee who is eligible for a Plan Benefit dies
               after termination and prior to the payment of the Plan
               Benefit, the Plan Benefit will be paid in a single lump
               sum to the spouse, if any.  If no spouse survives, 
               payment will be made to the employee's estate.

           E.  To the full extent permitted by law, except as provided
               in the Plan, no Plan Benefit hereunder shall be subject
               to anticipation, alienation, sale, transfer, assignment,
               pledge, encumbrance or change, and any attempt to do so
               shall be void.

           F.  The Effective Date of this Plan is as of the closing of a
               transaction whereunder Enova Corporation becomes a wholly
               owned subsidiary of a public company which also owns all
               shares of Pacific Enterprises, Inc.  In the event such
               transaction does not occur by January 1, 1999, the terms
               of this amended and restated Plan shall not apply.  This
               Plan is drawn under and shall be construed in accordance
               with ERISA and, to the extent not preempted by ERISA,
               with the laws of the State of California.

           G.  The Company shall be responsible for paying all benefits
               under the Plan.  The Plan shall be unfunded and benefits
               hereunder shall be paid only from the general assets of
               the Company.  All or part of any benefits paid under the
               Plan may be credited to any statutory amounts to which
               employees are entitled upon termination to the extent
               allowed by applicable law.

           H.  Claims for benefits should be made in writing to the
               Company, Attention: Human Resources Department, pursuant
               to the claims procedure set forth in the 
               Employee Handbook.  For a discussion of other plan
               information and your ERISA rights, please see the
               Employee Handbook.




Adopted the _______ of October, 1996




                                                                    
                                          Margot Kyd, Vice President
                                          Human Resources








                                    LOAN AGREEMENT     

                                        Between



                                  CITY OF CHULA VISTA

                                           And

                             SAN DIEGO GAS & ELECTRIC COMPANY

                                Dated as of August 1, 1996




                                      Relating to

                                      $38,900,000
                                  City of Chula Vista
                         Industrial Development Revenue Bonds
                          (San Diego Gas & Electric Company)
                                     1996 Series A








                                    LOAN AGREEMENT

                                   TABLE OF CONTENTS

                                                                    Page

PARTIES                                                                1
PREAMBLES                                                               
 1


                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.1               DEFINITION OF TERMS                          2
SECTION 1.2.              NUMBER AND GENDER                            2
SECTION 1.3               ARTICLES, SECTIONS, ETC                      2

                                    ARTICLE II

                                 REPRESENTATIONS

SECTION 2.1.              REPRESENTATIONS OF THE CITY                  2
SECTION 2.2.              REPRESENTATIONS OF THE BORROWER              3

                                   ARTICLE III

                   ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS

SECTION 3.1.       AGREEMENT TO ISSUE BONDS; APPLICATION OF
                   BOND PROCEEDS                                       4
SECTION 3.2.       INVESTMENT OF MONEYS IN FUNDS                       4
SECTION 3.3.       AMENDMENT OF DESCRIPTION OF THE PROJECT             4

                                   ARTICLE IV

                      LOAN TO BORROWER; REPAYMENT PROVISIONS

SECTION 4.1.       LOAN TO BORROWER                                    5
SECTION 4.2.       REPAYMENT AND PAYMENT OF OTHER 
                   AMOUNTS PAYABLE                                     5
SECTION 4.3.       UNCONDITIONAL OBLIGATION                            7
SECTION 4.4.       ASSIGNMENT OF CITY'S RIGHTS                         7
SECTION 4.5.       AMOUNTS REMAINING IN FUNDS                          7
SECTION 4.6.       CREDIT FACILITY                                     8

                                   ARTICLE V

                         SPECIAL COVENANTS AND AGREEMENTS

SECTION 5.1.       RIGHT OF ACCESS TO THE PROJECT                      8
SECTION 5.2.       THE BORROWER'S MAINTENANCE OF ITS
                   EXISTENCE; ASSIGNMENTS                              8
SECTION 5.3.       RECORDS AND FINANCIAL STATEMENTS OF 
                   BORROWER                                            9
SECTION 5.4.       MAINTENANCE AND REPAIR                              9
SECTION 5.5.       QUALIFICATION IN CALIFORNIA                        10
SECTION 5.6.       TAX EXEMPT STATUS OF BONDS                         10
SECTION 5.7        NOTICE OF RATE PERIODS                             11
SECTION 5.8        REMARKETING OF THE BONDS                           11
SECTION 5.9        NOTICES TO TRUSTEE AND CITY                        12
SECTION 5.10       CONTINUING DISCLOSURE                              12

                                  ARTICLE VI

                        EVENTS OF DEFAULT AND REMEDIES

SECTION 6.1.       EVENTS OF DEFAULT                                  13
SECTION 6.2.       REMEDIES ON DEFAULT                                14
SECTION 6.3.       AGREEMENT TO PAY ATTORNEYS' FEES AND
                   EXPENSES                                           15
SECTION 6.4.       NO REMEDY EXCLUSIVE                                15
SECTION 6.5.       NO ADDITIONAL WAIVER IMPLIED BY ONE 
                   WAIVER                                             16

                                   ARTICLE VII

                                   PREPAYMENT

SECTION 7.1.       REDEMPTION OF BONDS WITH PREPAYMENT
                   MONEYS                                             16
SECTION 7.2.       OPTIONS TO PREPAY INSTALLMENTS                     16
SECTION 7.3.       MANDATORY PREPAYMENT                               16
SECTION 7.4.       AMOUNT OF PREPAYMENT                               17
SECTION 7.5.       NOTICE OF PREPAYMENT                               17

                                    ARTICLE VIII

                   NON-LIABILITY OF CITY; EXPENSES; INDEMNIFICATION

SECTION 8.1.       NON-LIABILITY OF CITY                             18
SECTION 8.2.       EXPENSES                                           18
SECTION 8.3.       INDEMNIFICATION                                    18

                                  ARTICLE IX

                                MISCELLANEOUS

SECTION 9.1.       NOTICES                                            19
SECTION 9.2.       SEVERABILITY                                       19
SECTION 9.3.       EXECUTION OF COUNTERPARTS                          19
SECTION 9.4.       AMENDMENTS, CHANGES AND MODIFICATIONS              19
SECTION 9.5.       GOVERNING LAW                                      19
SECTION 9.6.       AUTHORIZED BORROWER REPRESENTATIVE                 20
SECTION 9.7.       TERM OF THE AGREEMENT                              20
SECTION 9.8.       BINDING EFFECT                                     20

TESTIMONIUM                                                           21

SIGNATURES AND SEALS                                                  21

EXHIBIT A   Description of the Project                               A-1



                                 LOAN AGREEMENT


                 THIS LOAN AGREEMENT, dated as of August 1, 1996, by and 
between the CITY OF CHULA VISTA, a municipal corporation and charter 
city duly organized and existing under the laws and Constitution of the 
State of California (the "City"), and SAN DIEGO GAS & ELECTRIC COMPANY, 
a corporation organized and existing under the laws of the State of 
California (the "Borrower"),

                               W I T N E S S E T H :

                 WHEREAS, the City is a municipal corporation and 
charter city, duly organized and existing under a freeholders' charter 
pursuant to which the City has the right and power to make and enforce 
all laws and regulations in accordance with and as more particularly 
provided in Sections 3, 5 and 7 of Article XI of the Constitution of the 
State of California and Section 200 of the Charter of the City (the 
"Charter"); and

                 WHEREAS, the City Council of the City, acting under and 
pursuant to the powers reserved to the City under Sections 3, 5 and 7 of 
Article XI of the Constitution and Section 200 of the Charter, has 
enacted Chapter 3.48 of the Chula Vista Municipal Code, pursuant to 
Ordinance No. 1970 adopted on February 9, 1982, as amended from time to 
time (the "Law"), establishing a program to provide financial assistance 
for the acquisition, construction and installation of facilities for 
industrial, commercial or public utility purposes; and

                 WHEREAS, the Borrower has duly applied to the City for 
financial assistance to refinance the costs of acquisition, construction 
and installation of certain facilities for the distribution of electric 
energy as more fully described in Exhibit A hereto (the "Project") by 
prepaying a loan (the "Prior Loan") made to the Borrower with the 
proceeds of The City of San Diego Industrial Development Revenue Bonds 
(San Diego Gas & Electric Company) 1986 Series A (the "Prior Bonds"), 
resulting in the refunding of the Prior Bonds; and

                 WHEREAS, the City after due investigation and 
deliberation has determined that the Project and the refinancing 
thereof, and the resulting refunding of the Prior Bonds, will directly 
benefit the citizens of the City by substantially promoting the public 
interests recited in the Law and has adopted its resolutions authorizing 
the provision or lending of financial assistance to the Borrower to 
refinance the costs of acquisition, construction and installation of the 
Project and to prepay the Prior Loan, and the issuance and sale of its 
bonds, including its Industrial Development Revenue Bonds (San Diego Gas 
& Electric Company) 1996 Series A (the "Bonds"), for such purposes; and

                WHEREAS, the City proposes to assist in such refinancing 
upon the terms and conditions set forth herein;

                NOW, THEREFORE, in consideration of the premises and the 
respective representations and covenants herein contained, the parties 
hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

                   SECTION 1.1.  DEFINITION OF TERMS.  Unless the 
context otherwise requires, the terms used in this Agreement shall have 
the meanings specified in Section 1.01 of the Indenture of Trust, of 
even date herewith relating to the Bonds (the "Indenture"), by and 
between the City and First Trust of California, National Association, as 
trustee (the "Trustee"), as originally executed or as it may from time 
to time be supplemented or amended as provided therein.

                   SECTION 1.2.  NUMBER AND GENDER.  The singular form 
of any word used herein, including the terms defined in Section 1.01 of 
the Indenture, shall include the plural, and vice versa.  The use herein 
of a word of any gender shall include all genders.

                   SECTION 1.3.  ARTICLES, SECTIONS, ETC.  Unless 
otherwise specified, references to Articles, Sections and other 
subdivisions of this Agreement are to the designated Articles, Sections 
and other subdivisions of this Agreement as originally executed.  The 
words "hereof," "herein," "hereunder" and words of similar import refer 
to this Agreement as a whole.  The headings or titles of the several 
articles and sections, and the table of contents appended to copies 
hereof, shall be solely for convenience of reference and shall not 
affect the meaning, construction or effect of the provisions hereof.


                                    ARTICLE II

                                  REPRESENTATIONS

                   SECTION 2.1.  REPRESENTATIONS OF THE CITY.  The City 
makes the following representations as the basis for its undertakings 
herein contained:

                   (a)       The City is a municipal corporation and 
charter city in the State of California.  Under the provisions of the 
Law, the City has the power to enter into the transactions contemplated 
by this Agreement and to carry out its obligations hereunder.  The 
Project constitutes a "project" as that term is defined in the Law.  By 
proper action, the City has been duly authorized to execute, deliver and 
duly perform this Agreement and the Indenture.

                   (b)       To refinance the cost of the Project, the 
City will issue the Bonds which will mature, bear interest and be 
subject to redemption as set forth in the Indenture.

                   (c)       The Bonds will be issued under and secured 
by the Indenture, pursuant to which the City's interest in this 
Agreement (except certain rights of the City to give approvals and 
consents and to receive payment for expenses and indemnification and 
certain other payments) will be pledged to the Trustee as security for 
payment of the principal of, premium, if any, and interest on the Bonds.

                   (d)       The City has not pledged and will not 
pledge its interest in this Agreement for any purpose other than to 
secure the Bonds under the Indenture.

                   (e)      The City is not in default under any of the 
provisions of the laws of the State of California or the City's Charter 
which default would affect its existence or its powers referred to in 
subsection (a) of this Section 2.1.

                   (f)       The City has found and determined and 
hereby finds and determines that all requirements of the Law with 
respect to the issuance of the Bonds and the execution of this Agreement 
and the Indenture have been complied with and that refinancing the 
Project by issuing the Bonds, refunding or replacing the Prior Bonds and 
entering into this Agreement and the Indenture will be in furtherance of 
the purposes of the Law.

                   (g)      On May 21, 1996, the City Council of the 
City adopted Resolution No. 18302 authorizing the issuance and sale of 
the Bonds.

                   (h)       On July 23, 1996, the City Council adopted 
Resolution No. 18384 authorizing the execution and delivery of a bond 
purchase agreement and official statement in connection with the sale of 
the Bonds.

                    SECTION 2.2.  REPRESENTATIONS OF THE BORROWER.  The 
Borrower makes the following representations as the basis for its 
undertakings herein contained:

                    (a)       The Borrower is a corporation duly formed 
under the laws of the State of California, is in good standing in the 
State of California and has the power to enter into and has duly 
authorized, by proper corporate action, the execution and delivery of 
this Agreement and all other documents contemplated hereby to be 
executed by the Borrower.

                    (b)       Neither the execution and delivery of this 
Agreement, the consummation of the transactions contemplated hereby, nor 
the fulfillment of or compliance with the terms and conditions hereof 
and thereof, conflicts with or results in a breach of any of the terms, 
conditions or provisions of the Borrower's Articles of Incorporation or 
By-laws or of any corporate actions or of any agreement or instrument to 
which the Borrower is now a party or by which it is bound, or 
constitutes a default (with due notice or the passage of time or both) 
under any of the foregoing, or results in the creation or imposition of 
any prohibited lien, charge or encumbrance whatsoever upon any of the 
property or assets of the Borrower under the terms of any instrument or 
agreement to which the Borrower is now a party or by which it is bound.

                    (c)        The Project consists and will consist of 
those facilities described in Exhibit A hereto, and the Borrower shall 
make no changes to such portion of the Project or to the operation 
thereof which would affect the qualification of the Project as a 
"project" under the Law or impair the exemption from gross income of the 
interest on the Bonds for federal income tax purposes.  In particular, 
the Borrower shall comply with all requirements of the San Diego Gas & 
Electric Company Engineering Certificate, dated the Issue Date (the 
"Engineering Certificate"), which is hereby incorporated by reference 
herein.  The Project consists of facilities for the local furnishing of 
electric energy as described in the Engineering Certificate.  The 
Borrower intends to utilize such portion of the Project as facilities 
for the local furnishing of electric energy throughout the foreseeable 
future.

                    (d)        The Borrower has and will have title to 
the Project sufficient to carry out the purposes of this Agreement.

                    (e)         The economic useful life of the Project 
is as set forth in the Engineering Certificate.

                    (f)          All certificates, approvals, permits 
and authorizations with respect to the construction of the Project of 
agencies of applicable local governmental agencies, the State of 
California and the federal government have been obtained; and pursuant 
to such certificates, approvals, permits and authorizations the Project 
has been constructed and is in operation.


                                   ARTICLE III

                   ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS

                    SECTION 3.1.  AGREEMENT TO ISSUE BONDS; APPLICATION 
OF BOND PROCEEDS.  To provide funds to enable the Borrower to refinance 
a portion of the cost of the Project by prepaying the Prior Loan, the 
City agrees that it will issue under the Indenture, sell and cause to be 
delivered to the purchasers thereof, the Bonds, bearing interest as 
provided and maturing on the date set forth in the Indenture.  The City 
will thereupon apply the proceeds received from the sale of the Bonds as 
provided in Section 3.02 of the Indenture.

                    SECTION 3.2.  INVESTMENT OF MONEYS IN FUNDS.  Any 
moneys in any fund held by the Trustee shall, at the written request of 
an Authorized Borrower Representative, be invested or reinvested by the 
Trustee as provided in the Indenture.  Such investments shall be held by 
the Trustee and shall be deemed at all times a part of the fund from 
which such investments were made, and the interest accruing thereon and 
any profit or loss realized therefrom shall, except as otherwise 
provided in the Indenture, be credited or charged to such fund.

                    SECTION 3.3.  AMENDMENT OF DESCRIPTION OF THE 
PROJECT.   In the event that the Borrower desires to amend or supplement 
the Project, as described in Exhibit A hereto, and the City approves of 
such amendment or supplement, the City will enter into, and will 
instruct the Trustee to consent to, such amendment or supplement upon 
receipt of:

                         (i) a certificate of an Authorized Borrower 
Representative describing in detail the proposed changes and 
stating that they will not have the effect of disqualifying any 
component of the Project as a facility that may be financed 
pursuant to the Law;

                         (ii) a copy of the proposed form of amended or 
supplemented Exhibit A hereto; and

                        (iii)  an Opinion of Bond Counsel that such 
proposed changes will not affect the exclusion from gross income 
of interest on the Bonds for federal income tax purposes.


                                   ARTICLE IV

                     LOAN TO BORROWER; REPAYMENT PROVISIONS

                    SECTION 4.1.  LOAN TO BORROWER.  The City and the 
Borrower agree that the application of the proceeds of sale of the Bonds 
to refund and retire a portion of the Prior Bonds and the first mortgage 
bonds of the Borrower relating thereto will be deemed to be and treated 
for all purposes as a loan to the Borrower of an amount equal to the 
principal amount of the Bonds.

                    SECTION 4.2.  REPAYMENT AND PAYMENT OF OTHER AMOUNTS 
PAYABLE.  

                    (a)   The Borrower covenants and agrees to pay to 
the Trustee as a Repayment Installment on the loan to the Borrower 
pursuant to Section 4.1 hereof, on each date provided in or pursuant to 
the Indenture for the payment of principal (whether at maturity or upon 
redemption or acceleration) of, premium, if any, and/or interest on the 
Bonds, until the principal of, premium, if any, and interest on the 
Bonds shall have been fully paid or provision for the payment thereof 
shall have been made in accordance with the Indenture, in immediately 
available funds, for deposit in the Bond Fund, a sum equal to the amount 
then payable as principal (whether at maturity or upon redemption or 
acceleration), premium, if any, and interest upon the Bonds as provided 
in the Indenture.

                     Each payment required to be made pursuant to this 
Section 4.2(a) shall at all times be sufficient to pay the total amount 
of interest and principal (whether at maturity or upon redemption or 
acceleration) and premium, if any, then payable on the Bonds; provided 
that any amount held by the Trustee in the Bond Fund on any due date for 
a Repayment Installment hereunder shall be credited against the 
installment due on such date to the extent available for such purpose; 
and provided further that, subject to the provisions of this paragraph, 
if at any time the amounts held by the Trustee in the Bond Fund are 
sufficient to pay all of the principal of and interest and premium, if 
any, on the Bonds as such payments become due, the Borrower shall be 
relieved of any obligation to make any further payments under the 
provisions of this Section.  Notwithstanding the foregoing, if on any 
date the amount held by the Trustee in the Bond Fund is insufficient to 
make any required payments of principal of (whether at maturity or upon 
redemption or acceleration) and interest and premium, if any, on the 
Bonds as such payments become due, the Borrower shall forthwith pay such 
deficiency as a Repayment Installment hereunder.

                   The obligation of the Borrower to make any payment 
under this Section 4.2(a) with respect to the Bonds shall be deemed to 
have been satisfied to the extent of any corresponding payment by the 
Credit Provider under the Credit Facility, if any, for such Bonds.

                  (b)    The Borrower also agrees to pay to the Trustee 
until the principal of, premium, if any, and interest on the Bonds shall 
have been fully paid or provision for the payment thereof shall have 
been made as required by the Indenture, (i) the annual fee of the 
Trustee for its ordinary services rendered as trustee, and its ordinary 
expenses incurred under the Indenture, as and when the same become due, 
(ii) the reasonable fees, charges and expenses of the Trustee, the 
Registrar and the reasonable fees of any paying agent on the Bonds as 
provided in the Indenture, as and when the same become due, (iii) the 
reasonable fees, charges and expenses of the Trustee for the necessary 
extraordinary services rendered by it and extraordinary expenses 
incurred by it under the Indenture, as and when the same become due.  
The Borrower shall also pay the cost of printing any Bonds required to 
be furnished by the City.

                  (c)    The Borrower also agrees to pay, within 60 days 
after receipt of request for payment thereof, all expenses required to 
be paid by the Borrower under the terms of the bond purchase agreement 
executed by it in connection with the sale of the Bonds, and all 
reasonable expenses of the City related to the financing of the Project 
which are not otherwise required to be paid by the Borrower under the 
terms of this Agreement; provided that the City shall have obtained the 
prior written approval of the Authorized Borrower Representative for any 
expenditures other than those provided for herein or in said bond 
purchase agreement.

                         The Borrower also agrees to pay to the City 
within five days following the Issue Date an issuance fee in the amount 
of $97,250.00.

                 (d)    The Borrower hereby agrees to provide or cause 
to be provided in immediately available funds, for deposit into the Bond 
Purchase Fund maintained by the Tender Agent, all amounts necessary to 
purchase Bonds tendered for purchase in accordance with Sections 2.01(d) 
and 2.01(e) of the Indenture.

                 (e)    In the event the Borrower should fail to make 
any of the payments required by subsections (a) through (d) of this 
Section, such payments shall continue as obligations of the Borrower 
until such amounts shall have been fully paid.  The Borrower agrees to 
pay such amounts, together with interest thereon until paid, to the 
extent permitted by law, at the rate of one percent (1%) per annum over 
the rate borne by any Bonds in respect of which such payments are 
required to be made pursuant to said subsection (a), and one percent 
(1%) per annum over the average rate then borne by the Bonds as to all 
other payments.  Interest on overdue payments required under subsection 
(a) or (d) above shall be paid to Bondholders as provided in the 
Indenture.

                 (f)    Upon written request of the Trustee, the 
Borrower shall pay any Repayment Installment directly to the Paying 
Agent.

                 (g)   Any unpaid obligation of the Borrower under 
subsections (b) through (e) of this Section 4.2 shall survive the 
payment and discharge of the Bonds and the termination of this 
Agreement.

                   SECTION 4.3.  UNCONDITIONAL OBLIGATION.  The 
obligations of the Borrower to make the payments required by Section 4.2 
hereof and to perform and observe the other agreements on its part 
contained herein shall be absolute and unconditional, irrespective of 
any defense or any rights of set-off, recoupment or counterclaim it 
might otherwise have against the City, and during the term of this 
Agreement, the Borrower shall pay absolutely net the payments to be made 
on account of the loan as prescribed in Section 4.2 and all other 
payments required hereunder, free of any deductions and without 
abatement, diminution or set-off.  Until such time as the principal of, 
premium, if any, and interest on the Bonds shall have been fully paid, 
or provision for the payment thereof shall have been made as required by 
the Indenture, the Borrower (i) will not suspend or discontinue any 
payments provided for in Section 4.2 hereof; (ii) will perform and 
observe all of its other covenants contained in this Agreement; and 
(iii) will not terminate this Agreement for any cause, including, 
without limitation, the occurrence of any act or circumstances that may 
constitute failure of consideration, destruction of or damage to the 
Project, commercial frustration of purpose, any change in the tax or 
other laws of the United States of America or of the State of California 
or any political subdivision of either of these, or any failure of the 
City or the Trustee to perform and observe any covenant, whether express 
or implied, or any duty, liability or obligation arising out of or 
connected with this Agreement or the Indenture, except to the extent 
permitted by this Agreement.

                   SECTION 4.4.  ASSIGNMENT OF CITY'S RIGHTS.  As 
security for the payment of the Bonds, the City will assign to the 
Trustee the City's rights, but not its obligations, under this 
Agreement, including the right to receive payments hereunder (except (i) 
the rights of the City to receive notices under this Agreement, (ii) the 
right of the City to receive certain payments, if any, with respect to 
fees, expenses and indemnification and certain other purposes under 
Sections 4.2(c), 4.2(e), 6.3, 8.2 and 8.3 hereof, and (iii) the right of 
the City to give approvals or consents pursuant to this Agreement) and 
the City hereby directs the Borrower to make the payments required 
hereunder (except such payments for fees, expenses and indemnification) 
directly to the Trustee.  The Borrower hereby assents to such assignment 
and agrees to pay the Repayment Installments directly to the Trustee 
(subject to the provisions of Section 4.2(f)) without defense or set-off 
by reason of any dispute between the Borrower and the City or the 
Trustee.

                   SECTION 4.5.  AMOUNTS REMAINING IN FUNDS.  It is 
agreed by the parties hereto that after payment in full of (i) the 
Bonds, or after provision for such payment shall have been made as 
provided in the Indenture, (ii) the fees and expenses of the City in 
accordance with this Agreement, (iii) the fees, charges and expenses of 
the Trustee, the Registrar and Paying Agents in accordance with the 
Indenture and this Agreement and (iv) all other amounts required to be 
paid under this Agreement and the Indenture, any amounts remaining in 
any fund held by the Trustee under the Indenture shall belong, subject 
to the requirements of Section 6.06 of the Indenture, to the Borrower 
and be paid to the Borrower by the Trustee.

                   SECTION 4.6.  CREDIT FACILITY.  No initial Credit 
Facility shall be provided with respect to the Bonds.  The Borrower may 
provide and subsequently terminate or remove a Credit Facility with 
respect to the Bonds pursuant to the provisions of Section 5.07 of the 
Indenture; provided, however, that, except in connection with the 
redemption of Bonds, the Borrower shall not intentionally cause the 
termination or substitution of any Credit Facility with respect to Bonds 
during a Term Rate Period or a Variable Term Segment with respect to 
such Bonds.  Not less than twenty-five days prior to the termination, 
removal, substitution or delivery of any Credit Facility with respect to 
the Bonds, the Borrower shall mail written notice of such termination, 
removal, substitution or delivery to the Trustee.  Not less than fifteen 
days prior to the delivery of any substitute or new Credit Facility for 
the Bonds, the Borrower shall mail written notice of such substitution 
or delivery to each Rating Agency.


                                   ARTICLE V

                        SPECIAL COVENANTS AND AGREEMENTS

                  SECTION 5.1.  RIGHT OF ACCESS TO THE PROJECT.  The 
Borrower agrees that during the term of this Agreement the City, the 
Trustee and the duly authorized agents of either of them shall have the 
right at all reasonable times during normal business hours to enter upon 
the site of the Project described in Exhibit A hereto to examine and 
inspect such Project; provided, however, that this right is subject to 
federal and State of California laws and regulations applicable to such 
site.  The rights of access hereby reserved to the City and the Trustee 
may be exercised only after such agent shall have executed release of 
liability (which release shall not limit any of the Borrower's 
obligations hereunder) and secrecy agreements if requested by the 
Borrower in the form then currently used by the Borrower, and nothing 
contained in this Section or in any other provision of this Agreement 
shall be construed to entitle the City or the Trustee to any information 
or inspection involving the confidential know-how of the Borrower.

                   SECTION 5.2.  THE BORROWER'S MAINTENANCE OF ITS 
EXISTENCE; ASSIGNMENTS.  (a)  The Borrower agrees that during the term 
of this Agreement it will maintain its corporate existence in good 
standing and will not dissolve or otherwise dispose of all or 
substantially all of its assets and will not consolidate with or merge 
into another corporation or permit one or more other corporations to 
consolidate or merge into it; provided, that the Borrower may, without 
violating the covenants contained in this Section, consolidate with or 
merge into another corporation, or permit one or more other corporations 
to consolidate with or merge into it, or sell or otherwise transfer to 
another corporation all or substantially all of its assets and 
thereafter dissolve, provided that (1) either (A) the Borrower is the 
surviving corporation or (B) the surviving, resulting or transferee 
corporation, as the case may be, (i) assumes and agrees in writing to 
pay and perform all of the obligations of the Borrower hereunder and 
(ii) qualifies to do business in the State of California; and (2) the 
Borrower shall deliver to the Trustee an Opinion of Bond Counsel to the 
effect that such consolidation, merger or transfer and dissolution does 
not in and of itself adversely affect the exclusion from gross income 
for federal income tax purposes of interest on the Bonds.

                 (b)   With the prior written consent of the City (which 
consent shall not be unreasonably withheld), the rights and obligations 
of the Borrower under this Agreement may be assigned by the Borrower, in 
whole or in part, subject, however, to each of the following conditions:

                          (i)   No assignment (other than pursuant to a 
merger, consolidation or combination described in Section 5.2(a)) shall 
relieve the Borrower from primary liability for any of its obligations 
hereunder, and in the event of any assignment not pursuant to 
Section 5.2(a), the Borrower shall continue to remain primarily liable 
for the payments specified in Section 4.2 hereof and for performance and 
observance of the other agreements on its part herein provided to be 
performed and observed by it.

                         (ii)   Any assignment from the Borrower shall 
retain for the Borrower such rights and interests as will permit it to 
perform its obligations under this Agreement, and any assignee from the 
Borrower shall assume the obligations of the Borrower hereunder to the 
extent of the interest assigned.

                        (iii)    The Borrower shall, within thirty days 
after delivery of such assignment, furnish or cause to be furnished to 
the City and the Trustee a true and complete copy of each such 
assignment together with an instrument of assumption.

                         (iv)    The Borrower shall cause to be 
delivered to the City and the Trustee an Opinion of Bond Counsel that 
such assignment will not, in and of itself, result in the interest on 
the Bonds being determined to be includable in the gross income for 
federal income tax purposes of the owners thereof (other than a 
"substantial user" of the Project or a "related person" within the 
meaning of Section 103(b)(13) of the 1954 Code).

                   SECTION 5.3.  RECORDS AND FINANCIAL STATEMENTS OF 
BORROWER.  The Borrower agrees (a) to keep and maintain full and 
accurate accounts and records of its operations in accordance with 
generally accepted accounting principles, (b) to permit the Trustee for 
itself or on behalf of the holders of the Bonds and its designated 
officers, employees, agents and representatives to have access to such 
accounts and records and to make examinations thereof at all reasonable 
times and (c) upon request of the Trustee, to provide the Trustee with 
the Borrower's most recent audited financial statements.

                   SECTION 5.4.  MAINTENANCE AND REPAIR.  The Borrower 
agrees that as long as it owns the Project it will (i) maintain, or 
cause to be maintained, the Project in as reasonably safe condition as 
its operations shall permit and (ii) maintain, or cause to be 
maintained, the Project in good repair and in good operating condition, 
ordinary wear and tear excepted, making from time to time all necessary 
repairs thereto and renewals and replacements thereof.

                   SECTION 5.5.  QUALIFICATION IN CALIFORNIA.  The 
Borrower agrees that throughout the term of this Agreement it, or any 
successor or assignee as permitted by Section 5.2, will be qualified to 
do business in the State of California.

                   SECTION 5.6.  TAX EXEMPT STATUS OF BONDS.  (a) It is 
the intention of the parties hereto that interest on the Bonds shall be 
and remain excluded from gross income for federal income tax purposes.  
To that end, the covenants and agreements of the City and the Borrower 
in this Section and in the Tax Certificate are for the benefit of the 
Trustee and each and every person who at any time will be a holder of 
the Bonds.  Without limiting the generality of the foregoing, the 
Borrower and the City agree that there shall be paid from time to time 
all amounts required to be rebated to the United States pursuant to 
Section 148(f) of the Code and any temporary, proposed or final Treasury 
Regulations as may be applicable to the Bonds from time to time.  This 
covenant shall survive payment in full or defeasance of the Bonds.  The 
Borrower specifically covenants to pay or cause to be paid for and on 
behalf of the City to the United States at the times and in the amounts 
determined under Section 6.06 of the Indenture the Rebate Requirement as 
described in the Tax Certificate.  The City shall not be liable to make 
any such payment except from funds provided by the Borrower for such 
purpose.

                 (b)   The City covenants and agrees that it has not 
taken and will not take any action which results in interest to be paid 
on the Bonds being included in gross income of the holders of the Bonds 
for federal income tax purposes, and the Borrower covenants and agrees 
that it has not taken or permitted to be taken and will not take or 
permit to be taken any action which will cause the interest on the Bonds 
to become includable in gross income for federal income tax purposes; 
provided that neither the Borrower nor the City shall have violated 
these covenants if interest on any of the Bonds becomes taxable to a 
person solely because such person is a "substantial user" of the Project 
or a "related person" within the meaning of Section 103(b)(13) of the 
1954 Code; and provided further that none of the covenants and 
agreements herein contained shall require either the Borrower or the 
City to enter an appearance or intervene in any administrative, 
legislative or judicial proceeding in connection with any changes in 
applicable laws, rules or regulations or in connection with any 
decisions of any court or administrative agency or other governmental 
body affecting the taxation of interest on the Bonds.  The Borrower 
acknowledges having read Section 6.06 of the Indenture and agrees to 
perform all duties imposed on it by such Section, by this Section and by 
the Tax Certificate.  Insofar as Section 6.06 of the Indenture and the 
Tax Certificate impose duties and responsibilities on the City or the 
Borrower, they are specifically incorporated herein by reference.

                   (c)   Notwithstanding any provision of this Section 
5.6 or Section 6.06 of the Indenture, if the Borrower shall provide to 
the City and the Trustee an Opinion of Bond Counsel to the effect that 
any specified action required under this Section 5.6 and Section 6.06 of 
the Indenture is no longer required or that some further or different 
action is required to maintain the exclusion from federal income tax of 
interest on the Bonds, the Borrower, the Trustee and the City may 
conclusively rely on such opinion in complying with the requirements of 
this Section, and the covenants set forth in this Section 5.6 shall be 
deemed to be modified to that extent.

                   SECTION 5.7.  NOTICE OF RATE PERIODS.  The Borrower 
shall designate and give timely written notice to the Trustee as 
required by the Indenture prior to any change in Rate Periods for the 
Bonds.  In addition, if the Borrower shall elect to change Rate Periods 
in accordance with the Indenture and the Bonds under circumstances 
requiring the delivery of an Opinion of Bond Counsel, the Borrower shall 
deliver such opinion to the Trustee concurrently with the giving of 
notice with respect thereto, and no such change shall be effective 
without an Opinion of Bond Counsel to the effect that such change is 
authorized or permitted by the Indenture and the Law and will not 
adversely affect the Tax-Exempt status of the interest on the Bonds.

                   SECTION 5.8.  REMARKETING OF THE BONDS.

                  (a)    The Borrower agrees to perform all obligations 
and duties required of it by the Indenture with respect to the 
remarketing of the Bonds, and, to appoint as set forth below a 
Remarketing Agent and a Tender Agent meeting the qualifications and 
otherwise meeting the requirements set forth in this Section 5.8.

                  (b)    Tender Agent.

                  (i)    Appointment and Duties:  In order to carry out 
the duties and obligations of the Tender Agent contained in the 
Indenture, the Borrower shall appoint a Tender Agent or Tender Agents in 
order to carry out such duties and obligations, subject to the 
conditions set forth below.  Each Tender Agent shall designate to the 
Trustee its principal office and signify its acceptance of the duties 
and obligations imposed upon it under the Indenture by entering into a 
Tender Agreement with the Borrower and such other parties as shall be 
appropriate, which may be combined with a Remarketing Agreement into a 
single document, delivered to the City, the Trustee, the Borrower and 
the Remarketing Agent, under which the Tender Agent shall agree, 
particularly (but without limitation):  (A) to perform the duties and 
comply with the requirements imposed upon it by the Tender Agreement, 
the Indenture and this Agreement; and (B) to keep such books and records 
with respect to its activities as Tender Agent as shall be consistent 
with prudent industry practice and to make such books and records 
available for inspection by the City, the Trustee and the Borrower at 
all reasonable times.

                  (ii)   Qualifications:  The Tender Agent shall be a 
financial institution organized and doing business under the laws of the 
United States or of a state thereof, authorized under such laws to 
exercise corporate trust powers, having a combined capital and surplus 
of at least Fifty Million Dollars ($50,000,000), and subject to 
supervision or examination by federal or state authority.  If such 
financial institution publishes a report of condition at least annually, 
pursuant to law or to the requirements of any supervising or examining 
authority above referred to, then for the purposes of this Section the 
combined capital and surplus of such financial institution shall be 
deemed to be its combined capital and surplus as set forth in its most 
recent report of condition so published.

                 (c)    Remarketing Agent.  In order to carry out the 
duties and obligations contained in the Indenture, the Borrower, by an 
instrument in writing (which may be the Remarketing Agreement) signed by 
an Authorized Borrower Representative, shall select the Remarketing 
Agent for the Bonds subject to the conditions set forth below.  The 
Remarketing Agent shall designate to the Trustee its principal office 
and signify its acceptance of the duties and obligations imposed upon it 
under the Indenture by a written instrument of acceptance (which may be 
the execution of a Remarketing Agreement) delivered to the City, the 
Trustee and the Borrower under which the Remarketing Agent shall agree, 
particularly (but without limitation):  (i) to perform the duties and 
comply with the requirements imposed upon it by the Remarketing 
Agreement, the Indenture and this Agreement; and (ii) to keep such books 
and records with respect to its activities as Remarketing Agent as shall 
be consistent with prudent industry practice and to make such books and 
records available for inspection by the City, the Trustee and the 
Borrower at all reasonable times.

                 (d)    Remarketing Agreement.  In order to provide for 
the remarketing of the Bonds, the Borrower shall enter into a 
Remarketing Agreement with the Remarketing Agent and such other parties 
as shall be appropriate, which may be combined with a Tender Agreement 
into a single document.  The Remarketing Agreement shall include the 
following:  (i) a requirement that the Remarketing Agreement shall not 
be terminated by the Borrower without cause for a period of at least six 
months after the effective date thereof; and (ii) a statement to the 
effect that the Remarketing Agent is not acting in an agency capacity 
with respect to the Borrower in establishing interest rates and Rate 
Periods as described in Section 2.01 of the Indenture, but is acting as 
agent of the City pursuant to the Law with respect to such functions.

                   SECTION 5.9.  NOTICES TO TRUSTEE AND CITY.  The 
Borrower hereby agrees to provide the Trustee and the City with notice 
of any event of which it has knowledge which, with the passage of time 
or the giving of notice, would be an Event of Default, such notice to 
include a description of the nature of such event and what steps are 
being taken to remedy such Event of Default.

                   SECTION 5.10.  CONTINUING DISCLOSURE.  The Borrower 
hereby covenants and agrees, upon the adjustment of the Rate Period for 
the Bonds to a Term Rate Period pursuant to Section 2.01(c)(iv) of the 
Indenture and the remarketing of such Bonds in accordance with the 
Indenture, to comply with the continuing disclosure requirements for the 
Bonds as promulgated under Rule 15c2-12, as it may from time to time 
hereafter be amended or supplemented.  Notwithstanding any other 
provision of this Agreement, failure of the Borrower to comply with the 
requirements of Rule 15c2-12 applicable to the Bonds, as it may from 
time to time hereafter be amended or supplemented, shall not be 
considered an Event of Default hereunder or under the Indenture; 
however, the Trustee may (and, at the request of the Remarketing Agent 
or the holders of at least 25% aggregate principal amount of Outstanding 
Bonds, shall) or any Bondholder or beneficial owner of any Bonds may 
take such actions as may be necessary and appropriate, including seeking 
mandate or specific performance by court order, to cause the Borrower to 
comply with its obligations pursuant to this Section 5.10.


                                   ARTICLE VI

                        EVENTS OF DEFAULT AND REMEDIES

                   SECTION 6.1.  EVENTS OF DEFAULT.  Any one of the 
following which occurs and continues shall constitute an Event of 
Default pursuant to this Agreement:

                 (a)    failure by the Borrower to pay any amounts 
required to be paid under Section 4.2(a) or 4.2(d) hereof at the 
times required to avoid causing an Event of Default pursuant to 
the Indenture; or

                 (b)    failure of the Borrower to observe and perform 
any covenant, condition or agreement on its part required to be 
observed or performed by this Agreement, other than making the 
payments referred to in (a) above, which continues for a period of 
60 days after written notice, which notice shall specify such 
failure and request that it be remedied, given to the Borrower by 
the City or the Trustee, unless the City and the Trustee shall 
agree in writing to an extension of such time; provided, however, 
that if the failure stated in the notice cannot be corrected 
within such period, the City and the Trustee will not unreasonably 
withhold their consent to an extension of such time if corrective 
action is instituted within such period and diligently pursued 
until the default is corrected; or

                 (c)    an Act of Bankruptcy of the Borrower; or

                 (d)    a default under any Credit Facility if the 
Credit Provider notifies the Trustee in writing that such default 
shall be treated as an Event of Default hereunder.

The provisions of subsection (b) of this Section are subject to the 
limitation that the Borrower shall not be deemed in default if and so 
long as the Borrower is unable to carry out its agreements hereunder by 
reason of strikes, lockouts or other industrial disturbances; acts of 
public enemies; orders of any kind of the government of the United 
States or of the State of California or any of their departments, 
agencies, or officials, or any civil or military authority; 
insurrections, riots, epidemics, landslides; lightning; earthquake; 
fire; hurricanes; storms; floods; washouts; droughts; arrests; restraint 
of government and people; civil disturbances; explosions; breakage or 
accident to machinery, transmission pipes or canals; partial or entire 
failure of utilities; or any other cause or event not reasonably within 
the control of the Borrower; it being agreed that the settlement of 
strikes, lockouts and other industrial disturbances shall be entirely 
within the discretion of the Borrower, and the Borrower shall not be 
required to make settlement of strikes, lockouts and other industrial 
disturbances by acceding to the demands of the opposing party or parties 
when such course is, in the judgment of the Borrower, unfavorable to the 
Borrower.  This limitation shall not apply to any default under 
subsections (a), (c) or (d) of this Section.

                SECTION 6.2.  REMEDIES ON DEFAULT.  Whenever any Event 
of Default shall have occurred and shall continue, the following 
remedies may be pursued:

                 (a)    The Trustee may, and upon the written request of 
any Credit Provider or the holders of not less than 25% in 
aggregate principal amount of Bonds then outstanding, shall, by 
notice in writing delivered to the Borrower with copies of such 
notice being sent to the City and each Credit Provider, declare 
the unpaid balance of the loan payable under Section 4.2(a) of 
this Agreement and the interest accrued thereon to be immediately 
due and payable and such principal and interest shall thereupon 
become and be immediately due and payable.  Upon any such 
acceleration, the Bonds shall be subject to mandatory redemption 
as provided in Section 4.01(b)(3) of the Indenture.  After any 
such declaration of acceleration, the Trustee shall immediately 
take such actions as necessary to realize moneys under any Credit 
Facility.

                 (b)    The Trustee shall have access to and the right 
to inspect, examine and make copies of the books and records and 
any and all accounts, data and federal income tax and other tax 
returns of the Borrower.

                 (c)    The City or the Trustee may take whatever action 
at law or in equity as may be necessary or desirable to collect 
the payments and other amounts then due and thereafter to become 
due or to enforce performance and observance of any obligation, 
agreement or covenant of the Borrower under this Agreement.

                The provisions of clause (a) of the preceding paragraph, 
however, are subject to the condition that if, at any time after the 
loan shall have been so declared due and payable, and before any 
judgment or decree for the payment of the moneys due shall have been 
obtained or entered as hereinafter provided, there shall have been 
deposited with the Trustee a sum sufficient (together with any amounts 
held in the Bond Fund) to pay all the principal of the Bonds matured 
prior to such declaration and all matured installments of interest (if 
any) upon all the Bonds, with interest on such overdue installments of 
principal as provided herein, and the reasonable expenses of the 
Trustee, and any and all other defaults known to the Trustee (other than 
in the payment of principal of and interest on the Bonds due and payable 
solely by reason of such declaration) shall have been made good or cured 
to the satisfaction of the Trustee or provision deemed by the Trustee to 
be adequate shall have been made therefor, then, and in every such case, 
the holders of at least a majority in aggregate principal amount of the 
Bonds then outstanding, by written notice to the City and to the 
Trustee, may, on behalf of the holders of all the Bonds, rescind and 
annul such declaration and its consequences and waive such default; 
provided that no such rescission and annulment shall extend to or shall 
affect any subsequent default, or shall impair or exhaust any right or 
power consequent thereon; and provided further that there shall not be 
rescinded or annulled any such declaration which follows an event 
described in Section 6.1(d) without the written consent of the Credit 
Provider.

                 In case the Trustee or the City shall have proceeded to 
enforce its rights under this Agreement and such proceedings shall have 
been discontinued or abandoned for any reason or shall have been 
determined adversely to the Trustee or the City, then, and in every such 
case, the Borrower, the Trustee and the City shall be restored 
respectively to their several positions and rights hereunder, and all 
rights, remedies and powers of the Borrower, the Trustee and the City 
shall continue as though no such action had been taken (provided, 
however, that any settlement of such proceedings duly entered into by 
the City, the Trustee or the Borrower shall not be disturbed by reason 
of this provision).

                 In case the Borrower shall fail forthwith to pay 
amounts due by reason of this Section 6.2 upon demand of the Trustee, 
the Trustee shall be entitled and empowered to institute any action or 
proceeding at law or in equity for the collection of the sums so due and 
unpaid, and may prosecute any such action or proceeding to judgment or 
final decree, and may enforce any such judgment or final decree against 
the Borrower and collect in the manner provided by law the moneys 
adjudged or decreed to be payable.

                In case proceedings shall be pending for the bankruptcy 
or for the reorganization of the Borrower under the federal bankruptcy 
laws or any other applicable law, or in case a receiver or trustee shall 
have been appointed for the property of the Borrower or in the case of 
any other similar judicial proceedings relative to the Borrower, or the 
creditors or property of the Borrower, then the Trustee shall be 
entitled and empowered, by intervention in such proceedings or 
otherwise, to file and prove a claim or claims for the whole amount 
owing and unpaid pursuant to this Agreement and, in case of any judicial 
proceedings, to file such proofs of claim and other papers or documents 
as may be necessary or advisable in order to have the claims of the 
Trustee allowed in such judicial proceedings relative to the Borrower, 
its creditors or its property, and to collect and receive any moneys or 
other property payable or deliverable on any such claims, and to 
distribute such amounts as provided in the Indenture after the deduction 
of its charges and expenses.  Any receiver, assignee or trustee in 
bankruptcy or reorganization is hereby authorized to make such payments 
to the Trustee, and to pay to the Trustee any amount due it for 
compensation and expenses, including expenses and fees of counsel 
incurred by it up to the date of such distribution.

                SECTION 6.3.  AGREEMENT TO PAY ATTORNEYS' FEES AND 
EXPENSES.  In the event the Borrower should default under any of the 
provisions of this Agreement and the City or the Trustee should employ 
attorneys or incur other expenses for the collection of the payments due 
under this Agreement or the enforcement of performance or observance of 
any obligation or agreement on the part of the Borrower herein 
contained, the Borrower agrees to pay to the City or the Trustee the 
reasonable fees of such attorneys and such other expenses so incurred by 
the City or the Trustee.

                SECTION 6.4.  NO REMEDY EXCLUSIVE.  No remedy herein 
conferred upon or reserved to the City or the Trustee is intended to be 
exclusive of any other available remedy or remedies, but each and every 
such remedy shall be cumulative and shall be in addition to every other 
remedy given under this Agreement or now or hereafter existing at law or 
in equity or by statute.  No delay or omission to exercise any right or 
power accruing upon any default shall impair any such right or power or 
shall be construed to be a waiver thereof, but any such right and power 
may be exercised from time to time and as often as may be deemed 
expedient.  In order to entitle the City or the Trustee to exercise any 
remedy reserved to it in this Article, it shall not be necessary to give 
any notice, other than such notice as may be herein expressly required. 
 Such rights and remedies as are given the City hereunder shall also 
extend to the Trustee, and the Trustee and the holders of the Bonds 
shall be deemed third party beneficiaries of all covenants and 
agreements herein contained.

                SECTION 6.5.  NO ADDITIONAL WAIVER IMPLIED BY ONE 
WAIVER.  In the event any agreement or covenant contained in this 
Agreement should be breached by the Borrower and thereafter waived by 
the City or the Trustee, such waiver shall be limited to the particular 
breach so waived and shall not be deemed to waive any other breach 
hereunder.


                                    ARTICLE VII

                                     PREPAYMENT

                SECTION 7.1.  REDEMPTION OF BONDS WITH PREPAYMENT 
MONEYS.  By virtue of the assignment of certain of the rights of the 
City under this Agreement to the Trustee as is provided in Section 4.4 
hereof, the Borrower agrees to and shall pay directly to the Trustee any 
amount permitted or required to be paid by it under this Article VII.  
The Trustee shall use the moneys so paid to it by the Borrower to effect 
redemption of the Bonds in accordance with Article IV of the Indenture 
on the date specified for such redemption pursuant to Section 7.5 
hereof.

                SECTION 7.2.  OPTIONS TO PREPAY INSTALLMENTS.  The 
Borrower shall have the option to prepay the amounts payable under 
Section 4.2 hereof, in whole or in part, by paying to the Trustee, for 
deposit in the Bond Fund, the amount set forth in Section 7.4 hereof, 
under the circumstances set forth in Section 4.01(a) of the Indenture; 
provided, however, that if any event specified in Section 4.01(a)(1)(A) 
through (D) of the Indenture gives rise to the Borrower's exercise of 
its option to prepay such amounts payable hereunder, the amount of such 
loan payment prepaid shall not exceed the original cost of the portion 
of the Project affected by such event.

                SECTION 7.3.  MANDATORY PREPAYMENT.  (a) The Borrower 
shall have and hereby accepts the obligation to prepay Repayment 
Installments to the extent mandatory redemption of the Bonds is required 
pursuant to Section 4.01(b) of the Indenture.  The Borrower shall 
satisfy its obligation hereunder by prepaying such Repayment 
Installments within one hundred eighty (180) days after the occurrence 
of any event set forth in paragraphs (1) through (3) of said 
Section 4.01(b) giving rise to such required prepayment, and immediately 
upon the occurrence of any event set forth in paragraph (3) thereof 
giving rise to such required prepayment.  The amount payable by the 
Borrower in the event of a prepayment required by this Section shall be 
determined as set forth in Section 7.4 and shall be deposited in the 
Bond Fund.

                SECTION 7.4.  AMOUNT OF PREPAYMENT.  In the case of a 
prepayment of the entire amount due hereunder pursuant to Section 7.2 or 
7.3 hereof, the amount to be paid shall be a sum sufficient, together 
with other funds and the yield on any securities deposited with the 
Trustee and available for such purpose, to pay (1) the principal of all 
Bonds outstanding on the redemption date specified in the notice of 
redemption, plus interest accrued and to accrue to the payment or 
redemption date of the Bonds, plus premium, if any, pursuant to the 
Indenture, (2) all reasonable and necessary fees and expenses of the 
City, the Trustee, the Registrar, the Tender Agent and any Paying Agent 
accrued and to accrue through final payment of the Bonds, and (3) all 
other liabilities of the Borrower accrued and to accrue under this 
Agreement.

                 In the case of partial prepayment of the Repayment 
Installments, the amount payable shall be a sum sufficient, together 
with other funds deposited with the Trustee and available for such 
purpose, to pay the principal amount of and premium, if any, and accrued 
interest on the Bonds to be redeemed, as provided in the Indenture, and 
to pay expenses of redemption of such Bonds.

                SECTION 7.5.  NOTICE OF PREPAYMENT.  The Borrower shall 
give forty-five days' prior written notice to the City and the Trustee 
specifying the date upon which any prepayment pursuant to this 
Article VII will be made.  If, in the case of a mandatory prepayment 
pursuant to Section 7.3 hereof, the Borrower fails to give such notice 
of a prepayment required by this Section 7.5, such notice may be given 
by the City or by any holder or holders of ten percent (10%) or more in 
aggregate principal amount of the Bonds Outstanding, and shall be given 
by the Trustee, but solely at the times and under the circumstances 
provided in Section 4.01(b) of the Indenture.  The City and the Trustee, 
at the request of the Borrower or any such Bondholder or Bondholders, 
shall forthwith take all steps necessary under the applicable provisions 
of the Indenture (except that the City shall not be required to make 
payment of any money required for such redemption) to effect redemption 
of all or part of the then outstanding Bonds, as the case may be, on the 
earliest practicable date thereafter on which such redemption may be 
made under applicable provisions of the Indenture.

                Notwithstanding anything to the contrary in this 
Agreement, each notice contemplated in this Section 7.5 that is given 
with respect to an optional prepayment pursuant to Section 7.2 hereof 
may state that it is subject to and conditional upon receipt by the 
Trustee on or prior to the proposed prepayment date of amounts 
sufficient to effect such prepayment and, if a notice so states, such 
notice shall be of no force and effect and the prepayment need not be 
made and the Repayment Installments will not become due and payable on 
the proposed prepayment date unless such amounts are so received on or 
prior to the proposed prepayment date.


                                    ARTICLE VIII

                    NON-LIABILITY OF CITY; EXPENSES; INDEMNIFICATION

                SECTION 8.1.  NON-LIABILITY OF CITY.  The City shall not 
be obligated to pay the principal of, or premium, if any, or interest on 
the Bonds, or to discharge any other financial liability (including but 
not limited to financial liability under Section 5.6 hereof) in 
connection herewith, except from Revenues.  The Borrower hereby 
acknowledges that the City's sole source of moneys to repay the Bonds 
will be provided by the payments made by the Borrower pursuant to this 
Agreement (excluding payments to the City or the Trustee pursuant to 
Section 4.2(b), 4.2(c), 4.2(e), 5.6, 6.3, 8.2 and 8.3 of this 
Agreement), together with other Revenues, including investment income on 
certain funds and accounts held by the Trustee under the Indenture, and 
hereby agrees that if the payments to be made hereunder shall ever prove 
insufficient to pay all principal of, and premium, if any, and interest 
on the Bonds as the same shall become due (whether by maturity, 
redemption, acceleration or otherwise), then upon notice from the 
Trustee, the Borrower shall pay such amounts as are required from time 
to time to prevent any deficiency or default in the payment of such 
principal, premium or interest, including, but not limited to, any 
deficiency caused by acts, omissions, nonfeasance or malfeasance on the 
part of the Trustee, the Borrower, the City or any third party.

                SECTION 8.2.  EXPENSES.  The Borrower covenants and 
agrees to pay within fifteen (15) days after billing therefor and to 
indemnify the City and the Trustee against all costs and charges, 
including fees and disbursements of attorneys, accountants, consultants, 
including financial consultants, engineers and other experts incurred, 
in the absence of willful misconduct, in connection with this Agreement, 
the Bonds or the Indenture.  The City shall notify the Borrower in 
writing prior to engaging any professional or expert for which the City 
plans to bill the Borrower.

                SECTION 8.3.  INDEMNIFICATION.  The Borrower releases 
the City and the Trustee from, and covenants and agrees that neither the 
City nor the Trustee shall be liable for, and covenants and agrees, to 
the extent permitted by law, to indemnify, defend and hold harmless the 
City and the Trustee and their officers, employees and agents from and 
against, any and all losses, claims, damages, liabilities or expenses, 
of every conceivable kind, character and nature whatsoever arising out 
of, resulting from or in any way connected with (1) the Project, or the 
conditions, occupancy, use, possession, conduct or management of, or 
work done in or about, or from the planning, design, acquisition, 
installation or construction of the Project or any part thereof; (2) the 
issuance of any Bonds or any certifications, covenants or 
representations made in connection therewith and the carrying out of any 
of the transactions contemplated by the Bonds, the Indenture and this 
Agreement;  (3) the Trustee's acceptance or administration of the trusts 
under the Indenture, or the exercise or performance of any of its powers 
or duties under the Indenture or this Agreement; or (4) any untrue 
statement or alleged untrue statement of any material fact or omission 
or alleged omission to state a material fact necessary to make the 
statements made, in light of the circumstances under which they were 
made, not misleading, in any official statement or other offering 
circular utilized by the City or any underwriter or placement agent in 
connection with the sale of any Bonds; provided that such indemnity 
shall not be required for damages that result from negligence or willful 
misconduct on the part of the party seeking such indemnity.  The 
indemnity of the Trustee required by this Section shall be only to the 
extent that any loss sustained by the Trustee exceeds the net proceeds 
the Trustee receives from any insurance carried with respect to the loss 
sustained.  The Borrower further covenants and agrees, to the extent 
permitted by law, to pay or to reimburse the City and the Trustee and 
their officers, employees and agents for any and all reasonable costs, 
including but not limited to attorneys fees, liabilities or expenses 
incurred in connection with investigating, defending against or 
otherwise in connection with any such losses, claims, damages, 
liabilities, expenses or actions, except to the extent that the same 
arise out of the negligence or willful misconduct of the party claiming 
such payment or reimbursement.  The provisions of this Section shall 
survive the retirement of the Bonds or resignation or removal of the 
Trustee.


                                    ARTICLE IX

                                  MISCELLANEOUS

                SECTION 9.1.  NOTICES.  All notices, certificates or 
other communications shall be deemed sufficiently given on the second 
day following the day on which the same have been mailed by first class 
mail, postage prepaid, addressed to the City, the Borrower or the 
Trustee, as the case may be, as set forth in the Indenture.  A duplicate 
copy of each notice, certificate or other communication given hereunder 
by either the City or the Borrower to the other shall also be given to 
the Trustee.  The City, the Borrower and the Trustee may, by notice 
given hereunder, designate any different addresses to which subsequent 
notices, certificates or other communications shall be sent.

                SECTION 9.2.  SEVERABILITY.  If any provision of this 
Agreement shall be held or deemed to be, or shall in fact be, illegal, 
inoperative or unenforceable, the same shall not affect any other 
provision or provisions herein contained or render the same invalid, 
inoperative, or unenforceable to any extent whatever.

                SECTION 9.3.  EXECUTION OF COUNTERPARTS.  This Agreement 
may be simultaneously executed in several counterparts, each of which 
shall be an original and all of which shall constitute but one and the 
same instrument; provided, however, that for purposes of perfecting a 
security interest in this Agreement under Article 9 of the California 
Uniform Commercial Code, only the counterpart delivered, pledged, and 
assigned to the Trustee shall be deemed the original.

                SECTION 9.4.  AMENDMENTS, CHANGES AND MODIFICATIONS.  
Except as otherwise provided in this Agreement or the Indenture, 
subsequent to the initial issuance of Bonds and prior to their payment 
in full, or provision for such payment having been made as provided in 
the Indenture, this Agreement may not be effectively amended, changed, 
modified, altered or terminated without the written consent of the 
Trustee.

                SECTION 9.5.  GOVERNING LAW.  This Agreement shall be 
governed exclusively by and construed in accordance with the applicable 
laws of the State of California.

                SECTION 9.6.  AUTHORIZED BORROWER REPRESENTATIVE.  
Whenever under the provisions of this Agreement the approval of the 
Borrower is required or the City or the Trustee is required to take some 
action at the request of the Borrower, such approval or such request 
shall be given on behalf of the Borrower by an Authorized Borrower 
Representative, and the City and the Trustee shall be authorized to act 
on any such approval or request and neither party hereto shall have any 
complaint against the other or against the Trustee as a result of any 
such action taken.

                SECTION 9.7.  TERM OF THE AGREEMENT.  This Agreement 
shall be in full force and effect from the date hereof and shall 
continue in effect as long as any of the Bonds are outstanding or the 
Trustee holds any moneys under the Indenture, whichever is later; 
provided, however, that the rights of the Trustee and the City under 
Section 8.2 and 8.3 hereof shall survive the termination of this 
Agreement, the retirement of the Bonds and the removal or resignation of 
the Trustee.  All representations and certifications by the Borrower as 
to all matters affecting the Tax-Exempt status of the Bonds shall 
survive the termination of this Agreement.

                SECTION 9.8.  BINDING EFFECT.  This Agreement shall 
inure to the benefit of and shall be binding upon the City, the 
Borrower, the Trustee and their respective successors and assigns; 
subject, however, to the limitations contained in Section 5.2 hereof.


                IN WITNESS WHEREOF, the City of Chula Vista has caused 
this Agreement to be executed in its name and its seal to be hereunto 
affixed and attested by its duly authorized officers, and San Diego 
Gas & Electric Company has caused this Agreement to be executed in its 
name and its seal to be hereunto affixed by its duly authorized 
officers, all as of the date first above written.

                                                     CITY OF CHULA VISTA




                                   By___________________________________
                                                    Mayor
[SEAL]

Attest:



____________________________________
City Clerk

APPROVED AS TO FORM:



Ann Y. Moore
Acting City Attorney



By__________________________________

                                        SAN DIEGO GAS & ELECTRIC COMPANY



                                        By______________________________
                                              Senior Vice President,
[SEAL]                                       Chief Financial Officer and 
Treasurer

Attest:



__________________________________
Assistant Secretary


                                    EXHIBIT A

                           Description of the Project

Local Electric Facilities

                    Acquisition and construction of additions and 
improvements to the Borrower's electric distribution facilities (12 KV 
and under) and related substations, and customer service connections 
located within the Borrower's electric retail service area, required by 
the Borrower to provide for the transfer and distribution of electric 
energy to its customers located therein, including all necessary poles, 
foundations, cable, conduit, transformers, switches, controls, meters, 
substations, land and land-rights and other like facilities and 
equipment, as well as necessary other equipment required for the proper 
installation, protection, maintenance, control and operation of the 
foregoing local electric distribution facilities.  These facilities will 
be required to meet the needs of new customers, maintain and improve 
system capabilities, and make overhead to underground conversions.

Local Gas Facilities

                     Acquisition and construction of additions and 
improvements to the Borrower's gas distribution (operating at pressures 
at or below 400 psig) facilities, located within its gas retail service 
area in San Diego County, required for the distribution of gas for 
delivery to the Borrower's customers located therein.  Such facilities 
include the acquisition and construction of new, high-pressure 
distribution mains, and new customer service lines or the extension, 
replacement or relocation of such existing mains or portions or 
components thereof, regulator stations controlling the passage of gas 
from distribution mains of higher pressure to distribution mains of 
lower pressure and the volume and pressure of gas within the mains, 
together with all necessary valves, controls, meters, and other 
measuring and regulating devices, and facilities, plant, property, and 
other equipment and improvements (including land and land-rights) 
necessary for the installation, protection, maintenance, control and 
operation of the foregoing.
 



                                   LOAN AGREEMENT



                                       Between



                                 CITY OF CHULA VISTA

                                          And

                           SAN DIEGO GAS & ELECTRIC COMPANY



                             Dated as of November 1, 1996




                                   Relating to

                                   $60,000,000
                               City of Chula Vista
                      Industrial Development Revenue Bonds
                       (San Diego Gas & Electric Company)
                                  1996 Series B






                                   LOAN AGREEMENT

                                 TABLE OF CONTENTS

                                                                    Page

PARTIES                                                                1
PREAMBLES                                                              1


                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.1.         DEFINITION OF TERMS                               2
SECTION 1.2.         NUMBER AND GENDER                                 2
SECTION 1.3.         ARTICLES, SECTIONS, ETC.                          2

                                    ARTICLE II

                                 REPRESENTATIONS

SECTION 2.1.         REPRESENTATIONS OF THE CITY                       2
SECTION 2.2.         REPRESENTATIONS OF THE BORROWER                   3

                                    ARTICLE III

                    ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS

SECTION 3.1.         AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND
                     PROCEEDS                                          4
SECTION 3.2.         INVESTMENT OF MONEYS IN FUNDS                     4
SECTION 3.3.         AMENDMENT OF DESCRIPTION OF THE PROJECT           4

                                      ARTICLE IV

                          LOAN TO BORROWER; REPAYMENT PROVISIONS

SECTION 4.1.        LOAN TO BORROWER                                   5
SECTION 4.2.        REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE     5
SECTION 4.3.        UNCONDITIONAL OBLIGATION                           6
SECTION 4.4.        ASSIGNMENT OF CITY'S RIGHTS                        7
SECTION 4.5.        AMOUNTS REMAINING IN FUNDS                         7
SECTION 4.6.        CREDIT FACILITY                                    7

                                    ARTICLE V

                           SPECIAL COVENANTS AND AGREEMENTS

SECTION 5.1.        RIGHT OF ACCESS TO THE PROJECT                     8
SECTION 5.2.        THE BORROWER'S MAINTENANCE OF ITS EXISTENCE;
                    ASSIGNMENTS                                        8
SECTION 5.3.        RECORDS AND FINANCIAL STATEMENTS OF BORROWER       9
SECTION 5.4.        MAINTENANCE AND REPAIR                             9
SECTION 5.5.        QUALIFICATION IN CALIFORNIA                        9
SECTION 5.6.        TAX EXEMPT STATUS OF BONDS                         9
SECTION 5.7.        NOTICE OF RATE PERIODS                            10
SECTION 5.8.        REMARKETING OF THE BONDS                          11
SECTION 5.9.        NOTICES TO TRUSTEE AND CITY                       12
SECTION 5.10.       CONTINUING DISCLOSURE                             12

                                      ARTICLE VI

                          EVENTS OF DEFAULT AND REMEDIES

SECTION 6.1.        EVENTS OF DEFAULT                                 12
SECTION 6.2.        REMEDIES ON DEFAULT                               13
SECTION 6.3.        AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES     15
SECTION 6.4.        NO REMEDY EXCLUSIVE                               15
SECTION 6.5.        NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER        15

                                     ARTICLE VII

                                     PREPAYMENT

SECTION 7.1.       REDEMPTION OF BONDS WITH PREPAYMENT MONEYS         15
SECTION 7.2.       OPTIONS TO PREPAY INSTALLMENTS                     16
SECTION 7.3.       MANDATORY PREPAYMENT                               16
SECTION 7.4.       AMOUNT OF PREPAYMENT                               16
SECTION 7.5.       NOTICE OF PREPAYMENT                               16

                                     ARTICLE VIII

                  NON-LIABILITY OF CITY; EXPENSES; INDEMNIFICATION

SECTION 8.1.       NON-LIABILITY OF CITY                             17
SECTION 8.2.       EXPENSES                                           17
SECTION 8.3.       INDEMNIFICATION                                    18

                                      ARTICLE IX

                                     MISCELLANEOUS

SECTION 9.1.       NOTICES                                            18
SECTION 9.2.       SEVERABILITY                                       18
SECTION 9.3.       EXECUTION OF COUNTERPARTS                          19
SECTION 9.4.       AMENDMENTS, CHANGES AND MODIFICATIONS              19
SECTION 9.5.       GOVERNING LAW                                      19
SECTION 9.6.       AUTHORIZED BORROWER REPRESENTATIVE                 19
SECTION 9.7.       TERM OF THE AGREEMENT                              19
SECTION 9.8.       BINDING EFFECT                                     19

TESTIMONIUM                                                           20

SIGNATURES AND SEALS                                                  20

EXHIBIT A          Description of the Project                        A-1



                               LOAN AGREEMENT


                THIS LOAN AGREEMENT, dated as of November 1, 1996, by and 
between the CITY OF CHULA VISTA, a municipal corporation and charter city 
duly organized and existing under the laws and Constitution of the State 
of California (the "City"), and SAN DIEGO GAS & ELECTRIC COMPANY, a 
corporation organized and existing under the laws of the State of 
California (the "Borrower"),

                               W I T N E S S E T H :

                WHEREAS, the City is a municipal corporation and charter 
city, duly organized and existing under a freeholders' charter pursuant 
to which the City has the right and power to make and enforce all laws 
and regulations in accordance with and as more particularly provided in 
Sections 3, 5 and 7 of Article XI of the Constitution of the State of 
California and Section 200 of the Charter of the City (the "Charter"); 
and

                WHEREAS, the City Council of the City, acting under and 
pursuant to the powers reserved to the City under Sections 3, 5 and 7 of 
Article XI of the Constitution and Section 200 of the Charter, has 
enacted Chapter 3.48 of the Chula Vista Municipal Code, pursuant to 
Ordinance No. 1970 adopted on February 9, 1982, as amended from time to 
time (the "Law"), establishing a program to provide financial assistance 
for the acquisition, construction and installation of facilities for 
industrial, commercial or public utility purposes; and

              WHEREAS, the Borrower has duly applied to the City for 
financial assistance to refinance the costs of acquisition, construction 
and installation of certain facilities for the distribution of electric 
energy and gas, as more fully described in Exhibit A hereto (the 
"Project"), by prepaying a loan (the "Prior Loan") made to the Borrower 
with the proceeds of The City of San Diego Industrial Development Revenue 
Bonds (San Diego Gas & Electric Company) 1986 Series B (the "Prior 
Bonds"), resulting in the refunding of the Prior Bonds; and

               WHEREAS, the City after due investigation and deliberation 
has determined that the Project and the refinancing thereof, and the 
resulting refunding of the Prior Bonds, will directly benefit the 
citizens of the City by substantially promoting the public interests 
recited in the Law and has adopted its resolutions authorizing the 
provision or lending of financial assistance to the Borrower to refinance 
the costs of acquisition, construction and installation of the Project 
and to prepay the Prior Loan, and the issuance and sale of its bonds, 
including its Industrial Development Revenue Bonds (San Diego Gas & 
Electric Company) 1996 Series B (the "Bonds"), for such purposes; and

               WHEREAS, the City proposes to assist in such refinancing 
upon the terms and conditions set forth herein;

               NOW, THEREFORE, in consideration of the premises and the 
respective representations and covenants herein contained, the parties 
hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

              SECTION 1.1.  DEFINITION OF TERMS.  Unless the context 
otherwise requires, the terms used in this Agreement shall have the 
meanings specified in Section 1.01 of the Indenture of Trust, of even 
date herewith relating to the Bonds (the "Indenture"), by and between the 
City and First Trust of California, National Association, as trustee (the 
"Trustee"), as originally executed or as it may from time to time be 
supplemented or amended as provided therein.

              SECTION 1.2.  NUMBER AND GENDER.  The singular form of any 
word used herein, including the terms defined in Section 1.01 of the 
Indenture, shall include the plural, and vice versa.  The use herein of a 
word of any gender shall include all genders.

              SECTION 1.3.  ARTICLES, SECTIONS, ETC.  Unless otherwise 
specified, references to Articles, Sections and other subdivisions of 
this Agreement are to the designated Articles, Sections and other 
subdivisions of this Agreement as originally executed.  The words 
"hereof," "herein," "hereunder" and words of similar import refer to this 
Agreement as a whole.  The headings or titles of the several articles and 
sections, and the table of contents appended to copies hereof, shall be 
solely for convenience of reference and shall not affect the meaning, 
construction or effect of the provisions hereof.


                                   ARTICLE II

                                REPRESENTATIONS

              SECTION 2.1.  REPRESENTATIONS OF THE CITY.  The City makes 
the following representations as the basis for its undertakings herein 
contained:

               (a)  The City is a municipal corporation and charter city 
in the State of California.  Under the provisions of the Law, the City 
has the power to enter into the transactions contemplated by this 
Agreement and to carry out its obligations hereunder.  The Project 
constitutes a "project" as that term is defined in the Law.  By proper 
action, the City has been duly authorized to execute, deliver and duly 
perform this Agreement and the Indenture.

               (b)  To refinance the cost of the Project, the City will 
issue the Bonds which will mature, bear interest and be subject to 
redemption as set forth in the Indenture.

               (c)  The Bonds will be issued under and secured by the 
Indenture, pursuant to which the City's interest in this Agreement 
(except certain rights of the City to give approvals and consents and to 
receive payment for expenses and indemnification and certain other 
payments) will be pledged to the Trustee as security for payment of the 
principal of, premium, if any, and interest on the Bonds.

               (d)  The City has not pledged and will not pledge its 
interest in this Agreement for any purpose other than to secure the Bonds 
under the Indenture.

               (e)  The City is not in default under any of the 
provisions of the laws of the State of California or the City's Charter 
which default would affect its existence or its powers referred to in 
subsection (a) of this Section 2.1.

               (f)  The City has found and determined and hereby finds 
and determines that all requirements of the Law with respect to the 
issuance of the Bonds and the execution of this Agreement and the 
Indenture have been complied with and that refinancing the Project by 
issuing the Bonds, refunding or replacing the Prior Bonds and entering 
into this Agreement and the Indenture will be in furtherance of the 
purposes of the Law.

               (g)  On May 21, 1996, the City Council of the City adopted 
Resolution No. 18302 authorizing the issuance and sale of the Bonds.

               (h)  On July 23, 1996, the City Council adopted Resolution 
No. 18384 authorizing the execution and delivery of a bond purchase 
agreement and official statement in connection with the sale of the 
Bonds.

             SECTION 2.2.  REPRESENTATIONS OF THE BORROWER.  The Borrower 
makes the following representations as the basis for its undertakings 
herein contained:

              (a)  The Borrower is a corporation duly formed under the 
laws of the State of California, is in good standing in the State of 
California and has the power to enter into and has duly authorized, by 
proper corporate action, the execution and delivery of this Agreement and 
all other documents contemplated hereby to be executed by the Borrower.

              (b)  Neither the execution and delivery of this Agreement, 
the consummation of the transactions contemplated hereby, nor the 
fulfillment of or compliance with the terms and conditions hereof and 
thereof, conflicts with or results in a breach of any of the terms, 
conditions or provisions of the Borrower's Articles of Incorporation or 
By-laws or of any corporate actions or of any agreement or instrument to 
which the Borrower is now a party or by which it is bound, or constitutes 
a default (with due notice or the passage of time or both) under any of 
the foregoing, or results in the creation or imposition of any prohibited 
lien, charge or encumbrance whatsoever upon any of the property or assets 
of the Borrower under the terms of any instrument or agreement to which 
the Borrower is now a party or by which it is bound.

              (c)  The Project consists and will consist of those 
facilities described in Exhibit A hereto, and the Borrower shall make no 
changes to such portion of the Project or to the operation thereof which 
would affect the qualification of the Project as a "project" under the 
Law or impair the exemption from gross income of the interest on the 
Bonds for federal income tax purposes.  In particular, the Borrower shall 
comply with all requirements of the San Diego Gas & Electric Company 
Engineering Certificate, dated the Issue Date (the "Engineering 
Certificate"), which is hereby incorporated by reference herein.  The 
Project consists of facilities for the local furnishing of electric 
energy and gas as described in the Engineering Certificate.  The Borrower 
intends to utilize such portion of the Project as facilities for the 
local furnishing of electric energy and gas throughout the foreseeable 
future.

              (d)  The Borrower has and will have title to the Project 
sufficient to carry out the purposes of this Agreement.

              (e)  The economic useful life of the Project is as set 
forth in the Engineering Certificate.

              (f)  All certificates, approvals, permits and 
authorizations with respect to the construction of the Project of 
agencies of applicable local governmental agencies, the State of 
California and the federal government have been obtained; and pursuant to 
such certificates, approvals, permits and authorizations the Project has 
been constructed and is in operation.


                                   ARTICLE III

                    ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS

              SECTION 3.1.  AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND 
PROCEEDS.  To provide funds to enable the Borrower to refinance a portion 
of the cost of the Project by prepaying the Prior Loan, the City agrees 
that it will issue under the Indenture, sell and cause to be delivered to 
the purchasers thereof, the Bonds, bearing interest as provided and 
maturing on the date set forth in the Indenture.  The City will thereupon 
apply the proceeds received from the sale of the Bonds as provided in 
Section 3.02 of the Indenture.

            SECTION 3.2.  INVESTMENT OF MONEYS IN FUNDS.  Any moneys in 
any fund held by the Trustee shall, at the written request of an 
Authorized Borrower Representative, be invested or reinvested by the 
Trustee as provided in the Indenture.  Such investments shall be held by 
the Trustee and shall be deemed at all times a part of the fund from 
which such investments were made, and the interest accruing thereon and 
any profit or loss realized therefrom shall, except as otherwise provided 
in the Indenture, be credited or charged to such fund.

            SECTION 3.3.  AMENDMENT OF DESCRIPTION OF THE PROJECT.   In 
the event that the Borrower desires to amend or supplement the Project, 
as described in Exhibit A hereto, and the City approves of such amendment 
or supplement, the City will enter into, and will instruct the Trustee to 
consent to, such amendment or supplement upon receipt of:

                (i)  a certificate of an Authorized Borrower 
Representative describing in detail the proposed changes and 
stating that they will not have the effect of disqualifying any 
component of the Project as a facility that may be financed 
pursuant to the Law;

               (ii)  a copy of the proposed form of amended or 
supplemented Exhibit A hereto; and

              (iii)  an Opinion of Bond Counsel that such proposed 
changes will not affect the exclusion from gross income of interest 
on the Bonds for federal income tax purposes.


                                   ARTICLE IV
                     LOAN TO BORROWER; REPAYMENT PROVISIONS

              SECTION 4.1.  LOAN TO BORROWER.  The City and the Borrower 
agree that the application of the proceeds of sale of the Bonds to refund 
and retire a portion of the Prior Bonds and the first mortgage bonds of 
the Borrower relating thereto will be deemed to be and treated for all 
purposes as a loan to the Borrower of an amount equal to the principal 
amount of the Bonds.

            SECTION 4.2.  REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE.

            (a)  The Borrower covenants and agrees to pay to the Trustee 
as a Repayment Installment on the loan to the Borrower pursuant to 
Section 4.1 hereof, on each date provided in or pursuant to the Indenture 
for the payment of principal (whether at maturity or upon redemption or 
acceleration) of, premium, if any, and/or interest on the Bonds, until 
the principal of, premium, if any, and interest on the Bonds shall have 
been fully paid or provision for the payment thereof shall have been made 
in accordance with the Indenture, in immediately available funds, for 
deposit in the Bond Fund, a sum equal to the amount then payable as 
principal (whether at maturity or upon redemption or acceleration), 
premium, if any, and interest upon the Bonds as provided in the 
Indenture.

              Each payment required to be made pursuant to this Section 
4.2(a) shall at all times be sufficient to pay the total amount of 
interest and principal (whether at maturity or upon redemption or 
acceleration) and premium, if any, then payable on the Bonds; provided 
that any amount held by the Trustee in the Bond Fund on any due date for 
a Repayment Installment hereunder shall be credited against the 
installment due on such date to the extent available for such purpose; 
and provided further that, subject to the provisions of this paragraph, 
if at any time the amounts held by the Trustee in the Bond Fund are 
sufficient to pay all of the principal of and interest and premium, if 
any, on the Bonds as such payments become due, the Borrower shall be 
relieved of any obligation to make any further payments under the 
provisions of this Section.  Notwithstanding the foregoing, if on any 
date the amount held by the Trustee in the Bond Fund is insufficient to 
make any required payments of principal of (whether at maturity or upon 
redemption or acceleration) and interest and premium, if any, on the 
Bonds as such payments become due, the Borrower shall forthwith pay such 
deficiency as a Repayment Installment hereunder.

              The obligation of the Borrower to make any payment under 
this Section 4.2(a) with respect to the Bonds shall be deemed to have 
been satisfied to the extent of any corresponding payment by the Credit 
Provider under the Credit Facility, if any, for such Bonds.

              (b)  The Borrower also agrees to pay to the Trustee until 
the principal of, premium, if any, and interest on the Bonds shall have 
been fully paid or provision for the payment thereof shall have been made 
as required by the Indenture, (i) the annual fee of the Trustee for its 
ordinary services rendered as trustee, and its ordinary expenses incurred 
under the Indenture, as and when the same become due, (ii) the reasonable 
fees, charges and expenses of the Trustee, the Registrar and the 
reasonable fees of any paying agent on the Bonds as provided in the 
Indenture, as and when the same become due, (iii) the reasonable fees, 
charges and expenses of the Trustee for the necessary extraordinary 
services rendered by it and extraordinary expenses incurred by it under 
the Indenture, as and when the same become due.  The Borrower shall also 
pay the cost of printing any Bonds required to be furnished by the City.

             (c)  The Borrower also agrees to pay, within 60 days after 
receipt of request for payment thereof, all expenses required to be paid 
by the Borrower under the terms of the bond purchase agreement executed 
by it in connection with the sale of the Bonds, and all reasonable 
expenses of the City related to the financing of the Project which are 
not otherwise required to be paid by the Borrower under the terms of this 
Agreement; provided that the City shall have obtained the prior written 
approval of the Authorized Borrower Representative for any expenditures 
other than those provided for herein or in said bond purchase agreement.

             The Borrower also agrees to pay to the City within five days 
following the Issue Date an issuance fee in the amount of $150,000.00.

             (d)  The Borrower hereby agrees to provide or cause to be 
provided in immediately available funds, for deposit into the Bond 
Purchase Fund maintained by the Tender Agent, all amounts necessary to 
purchase Bonds tendered for purchase in accordance with Sections 2.01(d) 
and 2.01(e) of the Indenture.

             (e)  In the event the Borrower should fail to make any of 
the payments required by subsections (a) through (d) of this Section, 
such payments shall continue as obligations of the Borrower until such 
amounts shall have been fully paid.  The Borrower agrees to pay such 
amounts, together with interest thereon until paid, to the extent 
permitted by law, at the rate of one percent (1%) per annum over the rate 
borne by any Bonds in respect of which such payments are required to be 
made pursuant to said subsection (a), and one percent (1%) per annum over 
the average rate then borne by the Bonds as to all other payments.  
Interest on overdue payments required under subsection (a) or (d) above 
shall be paid to Bondholders as provided in the Indenture.

            (f)  Upon written request of the Trustee, the Borrower shall 
pay any Repayment Installment directly to the Paying Agent.

            (g)  Any unpaid obligation of the Borrower under subsections 
(b) through (e) of this Section 4.2 shall survive the payment and 
discharge of the Bonds and the termination of this Agreement.

             SECTION 4.3.  UNCONDITIONAL OBLIGATION.  The obligations of 
the Borrower to make the payments required by Section 4.2 hereof and to 
perform and observe the other agreements on its part contained herein 
shall be absolute and unconditional, irrespective of any defense or any 
rights of set-off, recoupment or counterclaim it might otherwise have 
against the City, and during the term of this Agreement, the Borrower 
shall pay absolutely net the payments to be made on account of the loan 
as prescribed in Section 4.2 and all other payments required hereunder, 
free of any deductions and without abatement, diminution or set-off.  
Until such time as the principal of, premium, if any, and interest on the 
Bonds shall have been fully paid, or provision for the payment thereof 
shall have been made as required by the Indenture, the Borrower (i) will 
not suspend or discontinue any payments provided for in Section 4.2 
hereof; (ii) will perform and observe all of its other covenants 
contained in this Agreement; and (iii) will not terminate this Agreement 
for any cause, including, without limitation, the occurrence of any act 
or circumstances that may constitute failure of consideration, 
destruction of or damage to the Project, commercial frustration of 
purpose, any change in the tax or other laws of the United States of 
America or of the State of California or any political subdivision of 
either of these, or any failure of the City or the Trustee to perform and 
observe any covenant, whether express or implied, or any duty, liability 
or obligation arising out of or connected with this Agreement or the 
Indenture, except to the extent permitted by this Agreement.

               SECTION 4.4.  ASSIGNMENT OF CITY'S RIGHTS.  As security 
for the payment of the Bonds, the City will assign to the Trustee the 
City's rights, but not its obligations, under this Agreement, including 
the right to receive payments hereunder (except (i) the rights of the 
City to receive notices under this Agreement, (ii) the right of the City 
to receive certain payments, if any, with respect to fees, expenses and 
indemnification and certain other purposes under Sections 4.2(c), 4.2(e), 
6.3, 8.2 and 8.3 hereof, and (iii) the right of the City to give 
approvals or consents pursuant to this Agreement) and the City hereby 
directs the Borrower to make the payments required hereunder (except such 
payments for fees, expenses and indemnification) directly to the Trustee. 
 The Borrower hereby assents to such assignment and agrees to pay the 
Repayment Installments directly to the Trustee (subject to the provisions 
of Section 4.2(f)) without defense or set-off by reason of any dispute 
between the Borrower and the City or the Trustee.

              SECTION 4.5.  AMOUNTS REMAINING IN FUNDS.  It is agreed by 
the parties hereto that after payment in full of (i) the Bonds, or after 
provision for such payment shall have been made as provided in the 
Indenture, (ii) the fees and expenses of the City in accordance with this 
Agreement, (iii) the fees, charges and expenses of the Trustee, the 
Registrar and Paying Agents in accordance with the Indenture and this 
Agreement and (iv) all other amounts required to be paid under this 
Agreement and the Indenture, any amounts remaining in any fund held by 
the Trustee under the Indenture shall belong, subject to the requirements 
of Section 6.06 of the Indenture, to the Borrower and be paid to the 
Borrower by the Trustee.

              SECTION 4.6.  CREDIT FACILITY.  No initial Credit Facility 
shall be provided with respect to the Bonds.  The Borrower may provide 
and subsequently terminate or remove a Credit Facility with respect to 
the Bonds pursuant to the provisions of Section 5.07 of the Indenture; 
provided, however, that, except in connection with the redemption of 
Bonds, the Borrower shall not intentionally cause the termination or 
substitution of any Credit Facility with respect to Bonds during a Term 
Rate Period or a Variable Term Segment with respect to such Bonds.  Not 
less than twenty-five days prior to the termination, removal, 
substitution or delivery of any Credit Facility with respect to the 
Bonds, the Borrower shall mail written notice of such termination, 
removal, substitution or delivery to the Trustee.  Not less than fifteen 
days prior to the delivery of any substitute or new Credit Facility for 
the Bonds, the Borrower shall mail written notice of such substitution or 
delivery to each Rating Agency.


                                     ARTICLE V

                         SPECIAL COVENANTS AND AGREEMENTS

                SECTION 5.1.  RIGHT OF ACCESS TO THE PROJECT.  The 
Borrower agrees that during the term of this Agreement the City, the 
Trustee and the duly authorized agents of either of them shall have the 
right at all reasonable times during normal business hours to enter upon 
the site of the Project described in Exhibit A hereto to examine and 
inspect such Project; provided, however, that this right is subject to 
federal and State of California laws and regulations applicable to such 
site.  The rights of access hereby reserved to the City and the Trustee 
may be exercised only after such agent shall have executed release of 
liability (which release shall not limit any of the Borrower's 
obligations hereunder) and secrecy agreements if requested by the 
Borrower in the form then currently used by the Borrower, and nothing 
contained in this Section or in any other provision of this Agreement 
shall be construed to entitle the City or the Trustee to any information 
or inspection involving the confidential know-how of the Borrower.

                SECTION 5.2.  THE BORROWER'S MAINTENANCE OF ITS 
EXISTENCE; ASSIGNMENTS.  (a)  The Borrower agrees that during the term of 
this Agreement it will maintain its corporate existence in good standing 
and will not dissolve or otherwise dispose of all or substantially all of 
its assets and will not consolidate with or merge into another 
corporation or permit one or more other corporations to consolidate or 
merge into it; provided, that the Borrower may, without violating the 
covenants contained in this Section, consolidate with or merge into 
another corporation, or permit one or more other corporations to 
consolidate with or merge into it, or sell or otherwise transfer to 
another corporation all or substantially all of its assets and thereafter 
dissolve, provided that (1) either (A) the Borrower is the surviving 
corporation or (B) the surviving, resulting or transferee corporation, as 
the case may be, (i) assumes and agrees in writing to pay and perform all 
of the obligations of the Borrower hereunder and (ii) qualifies to do 
business in the State of California; and (2) the Borrower shall deliver 
to the Trustee an Opinion of Bond Counsel to the effect that such 
consolidation, merger or transfer and dissolution does not in and of 
itself adversely affect the exclusion from gross income for federal 
income tax purposes of interest on the Bonds.

              (b)  With the prior written consent of the City (which 
consent shall not be unreasonably withheld), the rights and obligations 
of the Borrower under this Agreement may be assigned by the Borrower, in 
whole or in part, subject, however, to each of the following conditions:

                (i)  No assignment (other than pursuant to a merger, 
consolidation or combination described in Section 5.2(a)) shall relieve 
the Borrower from primary liability for any of its obligations hereunder, 
and in the event of any assignment not pursuant to Section 5.2(a), the 
Borrower shall continue to remain primarily liable for the payments 
specified in Section 4.2 hereof and for performance and observance of the 
other agreements on its part herein provided to be performed and observed 
by it.

               (ii)  Any assignment from the Borrower shall retain for 
the Borrower such rights and interests as will permit it to perform its 
obligations under this Agreement, and any assignee from the Borrower 
shall assume the obligations of the Borrower hereunder to the extent of 
the interest assigned.

              (iii)  The Borrower shall, within thirty days after 
delivery of such assignment, furnish or cause to be furnished to the City 
and the Trustee a true and complete copy of each such assignment together 
with an instrument of assumption.

               (iv)  The Borrower shall cause to be delivered to the City 
and the Trustee an Opinion of Bond Counsel that such assignment will not, 
in and of itself, result in the interest on the Bonds being determined to 
be includable in the gross income for federal income tax purposes of the 
owners thereof (other than a "substantial user" of the Project or a 
"related person" within the meaning of Section 103(b)(13) of the 1954 
Code).

                SECTION 5.3.  RECORDS AND FINANCIAL STATEMENTS OF 
BORROWER.  The Borrower agrees (a) to keep and maintain full and accurate 
accounts and records of its operations in accordance with generally 
accepted accounting principles, (b) to permit the Trustee for itself or 
on behalf of the holders of the Bonds and its designated officers, 
employees, agents and representatives to have access to such accounts and 
records and to make examinations thereof at all reasonable times and 
(c) upon request of the Trustee, to provide the Trustee with the 
Borrower's most recent audited financial statements.

                SECTION 5.4.  MAINTENANCE AND REPAIR.  The Borrower 
agrees that as long as it owns the Project it will (i) maintain, or cause 
to be maintained, the Project in as reasonably safe condition as its 
operations shall permit and (ii) maintain, or cause to be maintained, the 
Project in good repair and in good operating condition, ordinary wear and 
tear excepted, making from time to time all necessary repairs thereto and 
renewals and replacements thereof.

                SECTION 5.5.  QUALIFICATION IN CALIFORNIA.  The Borrower 
agrees that throughout the term of this Agreement it, or any successor or 
assignee as permitted by Section 5.2, will be qualified to do business in 
the State of California.

                SECTION 5.6.  TAX EXEMPT STATUS OF BONDS.  (a) It is the 
intention of the parties hereto that interest on the Bonds shall be and 
remain excluded from gross income for federal income tax purposes.  To 
that end, the covenants and agreements of the City and the Borrower in 
this Section and in the Tax Certificate are for the benefit of the 
Trustee and each and every person who at any time will be a holder of the 
Bonds.  Without limiting the generality of the foregoing, the Borrower 
and the City agree that there shall be paid from time to time all amounts 
required to be rebated to the United States pursuant to Section 148(f) of 
the Code and any temporary, proposed or final Treasury Regulations as may 
be applicable to the Bonds from time to time.  This covenant shall 
survive payment in full or defeasance of the Bonds.  The Borrower 
specifically covenants to pay or cause to be paid for and on behalf of 
the City to the United States at the times and in the amounts determined 
under Section 6.06 of the Indenture the Rebate Requirement as described 
in the Tax Certificate.  The City shall not be liable to make any such 
payment except from funds provided by the Borrower for such purpose.

                (b)  The City covenants and agrees that it has not taken 
and will not take any action which results in interest to be paid on the 
Bonds being included in gross income of the holders of the Bonds for 
federal income tax purposes, and the Borrower covenants and agrees that 
it has not taken or permitted to be taken and will not take or permit to 
be taken any action which will cause the interest on the Bonds to become 
includable in gross income for federal income tax purposes; provided that 
neither the Borrower nor the City shall have violated these covenants if 
interest on any of the Bonds becomes taxable to a person solely because 
such person is a "substantial user" of the Project or a "related person" 
within the meaning of Section 147(a) of the Code; and provided further 
that none of the covenants and agreements herein contained shall require 
either the Borrower or the City to enter an appearance or intervene in 
any administrative, legislative or judicial proceeding in connection with 
any changes in applicable laws, rules or regulations or in connection 
with any decisions of any court or administrative agency or other 
governmental body affecting the taxation of interest on the Bonds.  The 
Borrower acknowledges having read Section 6.06 of the Indenture and 
agrees to perform all duties imposed on it by such Section, by this 
Section and by the Tax Certificate.  Insofar as Section 6.06 of the 
Indenture and the Tax Certificate impose duties and responsibilities on 
the City or the Borrower, they are specifically incorporated herein by 
reference.

                (c)  Notwithstanding any provision of this Section 5.6 or 
Section 6.06 of the Indenture, if the Borrower shall provide to the City 
and the Trustee an Opinion of Bond Counsel to the effect that any 
specified action required under this Section 5.6 and Section 6.06 of the 
Indenture is no longer required or that some further or different action 
is required to maintain the exclusion from federal income tax of interest 
on the Bonds, the Borrower, the Trustee and the City may conclusively 
rely on such opinion in complying with the requirements of this Section, 
and the covenants set forth in this Section 5.6 shall be deemed to be 
modified to that extent.

                SECTION 5.7.  NOTICE OF RATE PERIODS.  The Borrower shall 
designate and give timely written notice to the Trustee as required by 
the Indenture prior to any change in Rate Periods for the Bonds.  In 
addition, if the Borrower shall elect to change Rate Periods in 
accordance with the Indenture and the Bonds under circumstances requiring 
the delivery of an Opinion of Bond Counsel, the Borrower shall deliver 
such opinion to the Trustee concurrently with the giving of notice with 
respect thereto, and no such change shall be effective without an Opinion 
of Bond Counsel to the effect that such change is authorized or permitted 
by the Indenture and the Law and will not adversely affect the Tax-Exempt 
status of the interest on the Bonds.

                SECTION 5.8.  REMARKETING OF THE BONDS  .

                (a)    The Borrower agrees to perform all obligations and 
duties required of it by the Indenture with respect to the remarketing of 
the Bonds, and, to appoint as set forth below a Remarketing Agent and a 
Tender Agent meeting the qualifications and otherwise meeting the 
requirements set forth in this Section 5.8.

                (b)     Tender Agent.

                (i)  Appointment and Duties:  In order to carry out the 
duties and obligations of the Tender Agent contained in the Indenture, 
the Borrower shall appoint a Tender Agent or Tender Agents in order to 
carry out such duties and obligations, subject to the conditions set 
forth below.  Each Tender Agent shall designate to the Trustee its 
principal office and signify its acceptance of the duties and obligations 
imposed upon it under the Indenture by entering into a Tender Agreement 
with the Borrower and such other parties as shall be appropriate, which 
may be combined with a Remarketing Agreement into a single document, 
delivered to the City, the Trustee, the Borrower and the Remarketing 
Agent, under which the Tender Agent shall agree, particularly (but 
without limitation):  (A) to perform the duties and comply with the 
requirements imposed upon it by the Tender Agreement, the Indenture and 
this Agreement; and (B) to keep such books and records with respect to 
its activities as Tender Agent as shall be consistent with prudent 
industry practice and to make such books and records available for 
inspection by the City, the Trustee and the Borrower at all reasonable 
times.

                 (ii)  Qualifications:  The Tender Agent shall be a 
financial institution organized and doing business under the laws of the 
United States or of a state thereof, authorized under such laws to 
exercise corporate trust powers, having a combined capital and surplus of 
at least Fifty Million Dollars ($50,000,000), and subject to supervision 
or examination by federal or state authority.  If such financial 
institution publishes a report of condition at least annually, pursuant 
to law or to the requirements of any supervising or examining authority 
above referred to, then for the purposes of this Section the combined 
capital and surplus of such financial institution shall be deemed to be 
its combined capital and surplus as set forth in its most recent report 
of condition so published.

                 (c)     Remarketing Agent.  In order to carry out the 
duties and obligations contained in the Indenture, the Borrower, by an 
instrument in writing (which may be the Remarketing Agreement) signed by 
an Authorized Borrower Representative, shall select the Remarketing Agent 
for the Bonds subject to the conditions set forth below.  The Remarketing 
Agent shall designate to the Trustee its principal office and signify its 
acceptance of the duties and obligations imposed upon it under the 
Indenture by a written instrument of acceptance (which may be the 
execution of a Remarketing Agreement) delivered to the City, the Trustee 
and the Borrower under which the Remarketing Agent shall agree, 
particularly (but without limitation):  (i) to perform the duties and 
comply with the requirements imposed upon it by the Remarketing 
Agreement, the Indenture and this Agreement; and (ii) to keep such books 
and records with respect to its activities as Remarketing Agent as shall 
be consistent with prudent industry practice and to make such books and 
records available for inspection by the City, the Trustee and the 
Borrower at all reasonable times.

                   (d)    Remarketing Agreement.  In order to provide for 
the remarketing of the Bonds, the Borrower shall enter into a Remarketing 
Agreement with the Remarketing Agent and such other parties as shall be 
appropriate, which may be combined with a Tender Agreement into a single 
document.  The Remarketing Agreement shall include the following:  (i) a 
requirement that the Remarketing Agreement shall not be terminated by the 
Borrower without cause for a period of at least six months after the 
effective date thereof; and (ii) a statement to the effect that the 
Remarketing Agent is not acting in an agency capacity with respect to the 
Borrower in establishing interest rates and Rate Periods as described in 
Section 2.01 of the Indenture, but is acting as agent of the City 
pursuant to the Law with respect to such functions.

                SECTION 5.9.  NOTICES TO TRUSTEE AND CITY.  The Borrower 
hereby agrees to provide the Trustee and the City with notice of any 
event of which it has knowledge which, with the passage of time or the 
giving of notice, would be an Event of Default, such notice to include a 
description of the nature of such event and what steps are being taken to 
remedy such Event of Default.

                SECTION 5.10.  CONTINUING DISCLOSURE.  The Borrower 
hereby covenants and agrees, upon the adjustment of the Rate Period for 
the Bonds to a Term Rate Period pursuant to Section 2.01(c)(iv) of the 
Indenture and the remarketing of such Bonds in accordance with the 
Indenture, to comply with the continuing disclosure requirements for the 
Bonds as promulgated under Rule 15c2-12, as it may from time to time 
hereafter be amended or supplemented.  Notwithstanding any other 
provision of this Agreement, failure of the Borrower to comply with the 
requirements of Rule 15c2-12 applicable to the Bonds, as it may from time 
to time hereafter be amended or supplemented, shall not be considered an 
Event of Default hereunder or under the Indenture; however, any 
Bondholder or beneficial owner of any Bonds may take such actions as may 
be necessary and appropriate, including seeking mandate or specific 
performance by court order, to cause the Borrower to comply with its 
obligations pursuant to this Section 5.10.


                                    ARTICLE VI

                         EVENTS OF DEFAULT AND REMEDIES

                SECTION 6.1.  EVENTS OF DEFAULT.  Any one of the 
following which occurs and continues shall constitute an Event of Default 
pursuant to this Agreement:

                (a)  failure by the Borrower to pay any amounts required 
to be paid under Section 4.2(a) or 4.2(d) hereof at the times 
required to avoid causing an Event of Default pursuant to the 
Indenture; or

                (b)  failure of the Borrower to observe and perform any 
covenant, condition or agreement on its part required to be 
observed or performed by this Agreement, other than making the 
payments referred to in (a) above, which continues for a period of 
60 days after written notice, which notice shall specify such 
failure and request that it be remedied, given to the Borrower by 
the City or the Trustee, unless the City and the Trustee shall 
agree in writing to an extension of such time; provided, however, 
that if the failure stated in the notice cannot be corrected within 
such period, the City and the Trustee will not unreasonably 
withhold their consent to an extension of such time if corrective 
action is instituted within such period and diligently pursued 
until the default is corrected; or

                (c)  an Act of Bankruptcy of the Borrower; or

                (d)  a default under any Credit Facility if the Credit 
Provider notifies the Trustee in writing that such default shall be 
treated as an Event of Default hereunder.

The provisions of subsection (b) of this Section are subject to the 
limitation that the Borrower shall not be deemed in default if and so 
long as the Borrower is unable to carry out its agreements hereunder by 
reason of strikes, lockouts or other industrial disturbances; acts of 
public enemies; orders of any kind of the government of the United States 
or of the State of California or any of their departments, agencies, or 
officials, or any civil or military authority; insurrections, riots, 
epidemics, landslides; lightning; earthquake; fire; hurricanes; storms; 
floods; washouts; droughts; arrests; restraint of government and people; 
civil disturbances; explosions; breakage or accident to machinery, 
transmission pipes or canals; partial or entire failure of utilities; or 
any other cause or event not reasonably within the control of the 
Borrower; it being agreed that the settlement of strikes, lockouts and 
other industrial disturbances shall be entirely within the discretion of 
the Borrower, and the Borrower shall not be required to make settlement 
of strikes, lockouts and other industrial disturbances by acceding to the 
demands of the opposing party or parties when such course is, in the 
judgment of the Borrower, unfavorable to the Borrower.  This limitation 
shall not apply to any default under subsections (a), (c) or (d) of this 
Section.

                SECTION 6.2.  REMEDIES ON DEFAULT.  Whenever any Event of 
Default shall have occurred and shall continue, the following remedies 
may be pursued:

                   (a)  The Trustee may, and upon the written request of 
any Credit Provider or the holders of not less than 25% in 
aggregate principal amount of Bonds then outstanding, shall, by 
notice in writing delivered to the Borrower with copies of such 
notice being sent to the City and each Credit Provider, declare the 
unpaid balance of the loan payable under Section 4.2(a) of this 
Agreement and the interest accrued thereon to be immediately due 
and payable and such principal and interest shall thereupon become 
and be immediately due and payable.  Upon any such acceleration, 
the Bonds shall be subject to mandatory redemption as provided in 
Section 4.01(b)(3) of the Indenture.  After any such declaration of 
acceleration, the Trustee shall immediately take such actions as 
necessary to realize moneys under any Credit Facility.

                  (b)  The Trustee shall have access to and the right to 
inspect, examine and make copies of the books and records and any 
and all accounts, data and federal income tax and other tax returns 
of the Borrower.

                  (c)  The City or the Trustee may take whatever action 
at law or in equity as may be necessary or desirable to collect the 
payments and other amounts then due and thereafter to become due or 
to enforce performance and observance of any obligation, agreement 
or covenant of the Borrower under this Agreement.

               The provisions of clause (a) of the preceding paragraph, 
however, are subject to the condition that if, at any time after the loan 
shall have been so declared due and payable, and before any judgment or 
decree for the payment of the moneys due shall have been obtained or 
entered as hereinafter provided, there shall have been deposited with the 
Trustee a sum sufficient (together with any amounts held in the Bond 
Fund) to pay all the principal of the Bonds matured prior to such 
declaration and all matured installments of interest (if any) upon all 
the Bonds, with interest on such overdue installments of principal as 
provided herein, and the reasonable expenses of the Trustee, and any and 
all other defaults known to the Trustee (other than in the payment of 
principal of and interest on the Bonds due and payable solely by reason 
of such declaration) shall have been made good or cured to the 
satisfaction of the Trustee or provision deemed by the Trustee to be 
adequate shall have been made therefor, then, and in every such case, the 
holders of at least a majority in aggregate principal amount of the Bonds 
then outstanding, by written notice to the City and to the Trustee, may, 
on behalf of the holders of all the Bonds, rescind and annul such 
declaration and its consequences and waive such default; provided that no 
such rescission and annulment shall extend to or shall affect any 
subsequent default, or shall impair or exhaust any right or power 
consequent thereon; and provided further that there shall not be 
rescinded or annulled any such declaration which follows an event 
described in Section 6.1(d) without the written consent of the Credit 
Provider.

                In case the Trustee or the City shall have proceeded to 
enforce its rights under this Agreement and such proceedings shall have 
been discontinued or abandoned for any reason or shall have been 
determined adversely to the Trustee or the City, then, and in every such 
case, the Borrower, the Trustee and the City shall be restored 
respectively to their several positions and rights hereunder, and all 
rights, remedies and powers of the Borrower, the Trustee and the City 
shall continue as though no such action had been taken (provided, 
however, that any settlement of such proceedings duly entered into by the 
City, the Trustee or the Borrower shall not be disturbed by reason of 
this provision).

               In case the Borrower shall fail forthwith to pay amounts 
due by reason of this Section 6.2 upon demand of the Trustee, the Trustee 
shall be entitled and empowered to institute any action or proceeding at 
law or in equity for the collection of the sums so due and unpaid, and 
may prosecute any such action or proceeding to judgment or final decree, 
and may enforce any such judgment or final decree against the Borrower 
and collect in the manner provided by law the moneys adjudged or decreed 
to be payable.

                In case proceedings shall be pending for the bankruptcy 
or for the reorganization of the Borrower under the federal bankruptcy 
laws or any other applicable law, or in case a receiver or trustee shall 
have been appointed for the property of the Borrower or in the case of 
any other similar judicial proceedings relative to the Borrower, or the 
creditors or property of the Borrower, then the Trustee shall be entitled 
and empowered, by intervention in such proceedings or otherwise, to file 
and prove a claim or claims for the whole amount owing and unpaid 
pursuant to this Agreement and, in case of any judicial proceedings, to 
file such proofs of claim and other papers or documents as may be 
necessary or advisable in order to have the claims of the Trustee allowed 
in such judicial proceedings relative to the Borrower, its creditors or 
its property, and to collect and receive any moneys or other property 
payable or deliverable on any such claims, and to distribute such amounts 
as provided in the Indenture after the deduction of its charges and 
expenses.  Any receiver, assignee or trustee in bankruptcy or 
reorganization is hereby authorized to make such payments to the Trustee, 
and to pay to the Trustee any amount due it for compensation and 
expenses, including expenses and fees of counsel incurred by it up to the 
date of such distribution.

                SECTION 6.3.  AGREEMENT TO PAY ATTORNEYS' FEES AND 
EXPENSES.  In the event the Borrower should default under any of the 
provisions of this Agreement and the City or the Trustee should employ 
attorneys or incur other expenses for the collection of the payments due 
under this Agreement or the enforcement of performance or observance of 
any obligation or agreement on the part of the Borrower herein contained, 
the Borrower agrees to pay to the City or the Trustee the reasonable fees 
of such attorneys and such other expenses so incurred by the City or the 
Trustee.

                SECTION 6.4.  NO REMEDY EXCLUSIVE.  No remedy herein 
conferred upon or reserved to the City or the Trustee is intended to be 
exclusive of any other available remedy or remedies, but each and every 
such remedy shall be cumulative and shall be in addition to every other 
remedy given under this Agreement or now or hereafter existing at law or 
in equity or by statute.  No delay or omission to exercise any right or 
power accruing upon any default shall impair any such right or power or 
shall be construed to be a waiver thereof, but any such right and power 
may be exercised from time to time and as often as may be deemed 
expedient.  In order to entitle the City or the Trustee to exercise any 
remedy reserved to it in this Article, it shall not be necessary to give 
any notice, other than such notice as may be herein expressly required.  
Such rights and remedies as are given the City hereunder shall also 
extend to the Trustee, and the Trustee and the holders of the Bonds shall 
be deemed third party beneficiaries of all covenants and agreements 
herein contained.

              SECTION 6.5.  NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER.  
In the event any agreement or covenant contained in this Agreement should 
be breached by the Borrower and thereafter waived by the City or the 
Trustee, such waiver shall be limited to the particular breach so waived 
and shall not be deemed to waive any other breach hereunder.


                                  ARTICLE VII

                                   PREPAYMENT

                 SECTION 7.1.  REDEMPTION OF BONDS WITH PREPAYMENT 
MONEYS.  By virtue of the assignment of certain of the rights of the City 
under this Agreement to the Trustee as is provided in Section 4.4 hereof, 
the Borrower agrees to and shall pay directly to the Trustee any amount 
permitted or required to be paid by it under this Article VII.  The 
Trustee shall use the moneys so paid to it by the Borrower to effect 
redemption of the Bonds in accordance with Article IV of the Indenture on 
the date specified for such redemption pursuant to Section 7.5 hereof.

               SECTION 7.2.  OPTIONS TO PREPAY INSTALLMENTS.  The 
Borrower shall have the option to prepay the amounts payable under 
Section 4.2 hereof, in whole or in part, by paying to the Trustee, for 
deposit in the Bond Fund, the amount set forth in Section 7.4 hereof, 
under the circumstances set forth in Section 4.01(a) of the Indenture; 
provided, however, that if any event specified in Section 4.01(a)(1)(A) 
through (D) of the Indenture gives rise to the Borrower's exercise of its 
option to prepay such amounts payable hereunder, the amount of such loan 
payment prepaid shall not exceed the original cost of the portion of the 
Project affected by such event.

               SECTION 7.3.  MANDATORY PREPAYMENT.  (a) The Borrower 
shall have and hereby accepts the obligation to prepay Repayment 
Installments to the extent mandatory redemption of the Bonds is required 
pursuant to Section 4.01(b) of the Indenture.  The Borrower shall satisfy 
its obligation hereunder by prepaying such Repayment Installments within 
one hundred eighty (180) days after the occurrence of any event set forth 
in paragraphs (1) through (3) of said Section 4.01(b) giving rise to such 
required prepayment, and immediately upon the occurrence of any event set 
forth in paragraph (3) thereof giving rise to such required prepayment.  
The amount payable by the Borrower in the event of a prepayment required 
by this Section shall be determined as set forth in Section 7.4 and shall 
be deposited in the Bond Fund.

              SECTION 7.4.  AMOUNT OF PREPAYMENT.  In the case of a 
prepayment of the entire amount due hereunder pursuant to Section 7.2 or 
7.3 hereof, the amount to be paid shall be a sum sufficient, together 
with other funds and the yield on any securities deposited with the 
Trustee and available for such purpose, to pay (1) the principal of all 
Bonds outstanding on the redemption date specified in the notice of 
redemption, plus interest accrued and to accrue to the payment or 
redemption date of the Bonds, plus premium, if any, pursuant to the 
Indenture, (2) all reasonable and necessary fees and expenses of the 
City, the Trustee, the Registrar, the Tender Agent and any Paying Agent 
accrued and to accrue through final payment of the Bonds, and (3) all 
other liabilities of the Borrower accrued and to accrue under this 
Agreement.

              In the case of partial prepayment of the Repayment 
Installments, the amount payable shall be a sum sufficient, together with 
other funds deposited with the Trustee and available for such purpose, to 
pay the principal amount of and premium, if any, and accrued interest on 
the Bonds to be redeemed, as provided in the Indenture, and to pay 
expenses of redemption of such Bonds.

              SECTION 7.5.  NOTICE OF PREPAYMENT.  The Borrower shall 
give forty-five days' prior written notice to the City and the Trustee 
specifying the date upon which any prepayment pursuant to this 
Article VII will be made.  If, in the case of a mandatory prepayment 
pursuant to Section 7.3 hereof, the Borrower fails to give such notice of 
a prepayment required by this Section 7.5, such notice may be given by 
the City or by any holder or holders of ten percent (10%) or more in 
aggregate principal amount of the Bonds Outstanding, and shall be given 
by the Trustee, but solely at the times and under the circumstances 
provided in Section 4.01(b) of the Indenture.  The City and the Trustee, 
at the request of the Borrower or any such Bondholder or Bondholders, 
shall forthwith take all steps necessary under the applicable provisions 
of the Indenture (except that the City shall not be required to make 
payment of any money required for such redemption) to effect redemption 
of all or part of the then outstanding Bonds, as the case may be, on the 
earliest practicable date thereafter on which such redemption may be made 
under applicable provisions of the Indenture.

               Notwithstanding anything to the contrary in this 
Agreement, each notice contemplated in this Section 7.5 that is given 
with respect to an optional prepayment pursuant to Section 7.2 hereof may 
state that it is subject to and conditional upon receipt by the Trustee 
on or prior to the proposed prepayment date of amounts sufficient to 
effect such prepayment and, if a notice so states, such notice shall be 
of no force and effect and the prepayment need not be made and the 
Repayment Installments will not become due and payable on the proposed 
prepayment date unless such amounts are so received on or prior to the 
proposed prepayment date.


                                  ARTICLE VIII

                  NON-LIABILITY OF CITY; EXPENSES; INDEMNIFICATION

                SECTION 8.1.  NON-LIABILITY OF CITY.  The City shall not 
be obligated to pay the principal of, or premium, if any, or interest on 
the Bonds, or to discharge any other financial liability (including but 
not limited to financial liability under Section 5.6 hereof) in 
connection herewith, except from Revenues.  The Borrower hereby 
acknowledges that the City's sole source of moneys to repay the Bonds 
will be provided by the payments made by the Borrower pursuant to this 
Agreement (excluding payments to the City or the Trustee pursuant to 
Section 4.2(b), 4.2(c), 4.2(e), 5.6, 6.3, 8.2 and 8.3 of this Agreement), 
together with other Revenues, including investment income on certain 
funds and accounts held by the Trustee under the Indenture, and hereby 
agrees that if the payments to be made hereunder shall ever prove 
insufficient to pay all principal of, and premium, if any, and interest 
on the Bonds as the same shall become due (whether by maturity, 
redemption, acceleration or otherwise), then upon notice from the 
Trustee, the Borrower shall pay such amounts as are required from time to 
time to prevent any deficiency or default in the payment of such 
principal, premium or interest, including, but not limited to, any 
deficiency caused by acts, omissions, nonfeasance or malfeasance on the 
part of the Trustee, the Borrower, the City or any third party.

                SECTION 8.2.  EXPENSES.  The Borrower covenants and 
agrees to pay within fifteen (15) days after billing therefor and to 
indemnify the City and the Trustee against all costs and charges, 
including fees and disbursements of attorneys, accountants, consultants, 
including financial consultants, engineers and other experts incurred, in 
the absence of willful misconduct, in connection with this Agreement, the 
Bonds or the Indenture.  The City shall notify the Borrower in writing 
prior to engaging any professional or expert for which the City plans to 
bill the Borrower.

               SECTION 8.3.  INDEMNIFICATION.  The Borrower releases the 
City and the Trustee from, and covenants and agrees that neither the City 
nor the Trustee shall be liable for, and covenants and agrees, to the 
extent permitted by law, to indemnify, defend and hold harmless the City 
and the Trustee and their officers, employees and agents from and 
against, any and all losses, claims, damages, liabilities or expenses, of 
every conceivable kind, character and nature whatsoever arising out of, 
resulting from or in any way connected with (1) the Project, or the 
conditions, occupancy, use, possession, conduct or management of, or work 
done in or about, or from the planning, design, acquisition, installation 
or construction of the Project or any part thereof; (2) the issuance of 
any Bonds or any certifications, covenants or representations made in 
connection therewith and the carrying out of any of the transactions 
contemplated by the Bonds, the Indenture and this Agreement;  (3) the 
Trustee's acceptance or administration of the trusts under the Indenture, 
or the exercise or performance of any of its powers or duties under the 
Indenture or this Agreement; or (4) any untrue statement or alleged 
untrue statement of any material fact or omission or alleged omission to 
state a material fact necessary to make the statements made, in light of 
the circumstances under which they were made, not misleading, in any 
official statement or other offering circular utilized by the City or any 
underwriter or placement agent in connection with the sale of any Bonds; 
provided that such indemnity shall not be required for damages that 
result from negligence or willful misconduct on the part of the party 
seeking such indemnity.  The indemnity of the Trustee required by this 
Section shall be only to the extent that any loss sustained by the 
Trustee exceeds the net proceeds the Trustee receives from any insurance 
carried with respect to the loss sustained.  The Borrower further 
covenants and agrees, to the extent permitted by law, to pay or to 
reimburse the City and the Trustee and their officers, employees and 
agents for any and all reasonable costs, including but not limited to 
attorneys fees, liabilities or expenses incurred in connection with 
investigating, defending against or otherwise in connection with any such 
losses, claims, damages, liabilities, expenses or actions, except to the 
extent that the same arise out of the negligence or willful misconduct of 
the party claiming such payment or reimbursement.  The provisions of this 
Section shall survive the retirement of the Bonds or resignation or 
removal of the Trustee.


                                    ARTICLE IX

                                   MISCELLANEOUS

               SECTION 9.1.  NOTICES.  All notices, certificates or other 
communications shall be deemed sufficiently given on the second day 
following the day on which the same have been mailed by first class mail, 
postage prepaid, addressed to the City, the Borrower or the Trustee, as 
the case may be, as set forth in the Indenture.  A duplicate copy of each 
notice, certificate or other communication given hereunder by either the 
City or the Borrower to the other shall also be given to the Trustee.  
The City, the Borrower and the Trustee may, by notice given hereunder, 
designate any different addresses to which subsequent notices, 
certificates or other communications shall be sent.

                SECTION 9.2.  SEVERABILITY.  If any provision of this 
Agreement shall be held or deemed to be, or shall in fact be, illegal, 
inoperative or unenforceable, the same shall not affect any other 
provision or provisions herein contained or render the same invalid, 
inoperative, or unenforceable to any extent whatever.

               SECTION 9.3.  EXECUTION OF COUNTERPARTS.  This Agreement 
may be simultaneously executed in several counterparts, each of which 
shall be an original and all of which shall constitute but one and the 
same instrument; provided, however, that for purposes of perfecting a 
security interest in this Agreement under Article 9 of the California 
Uniform Commercial Code, only the counterpart delivered, pledged, and 
assigned to the Trustee shall be deemed the original.

               SECTION 9.4.  AMENDMENTS, CHANGES AND MODIFICATIONS.  
Except as otherwise provided in this Agreement or the Indenture, 
subsequent to the initial issuance of Bonds and prior to their payment in 
full, or provision for such payment having been made as provided in the 
Indenture, this Agreement may not be effectively amended, changed, 
modified, altered or terminated without the written consent of the 
Trustee.

               SECTION 9.5.  GOVERNING LAW.  This Agreement shall be 
governed exclusively by and construed in accordance with the applicable 
laws of the State of California.

               SECTION 9.6.  AUTHORIZED BORROWER REPRESENTATIVE.  
Whenever under the provisions of this Agreement the approval of the 
Borrower is required or the City or the Trustee is required to take some 
action at the request of the Borrower, such approval or such request 
shall be given on behalf of the Borrower by an Authorized Borrower 
Representative, and the City and the Trustee shall be authorized to act 
on any such approval or request and neither party hereto shall have any 
complaint against the other or against the Trustee as a result of any 
such action taken.

               SECTION 9.7.  TERM OF THE AGREEMENT.  This Agreement shall 
be in full force and effect from the date hereof and shall continue in 
effect as long as any of the Bonds are outstanding or the Trustee holds 
any moneys under the Indenture, whichever is later; provided, however, 
that the rights of the Trustee and the City under Section 8.2 and 8.3 
hereof shall survive the termination of this Agreement, the retirement of 
the Bonds and the removal or resignation of the Trustee.  All 
representations and certifications by the Borrower as to all matters 
affecting the Tax-Exempt status of the Bonds shall survive the 
termination of this Agreement.

               SECTION 9.8.  BINDING EFFECT.  This Agreement shall inure 
to the benefit of and shall be binding upon the City, the Borrower, the 
Trustee and their respective successors and assigns; subject, however, to 
the limitations contained in Section 5.2 hereof.


               IN WITNESS WHEREOF, the City of Chula Vista has caused 
this Agreement to be executed in its name and its seal to be hereunto 
affixed and attested by its duly authorized officers, and San Diego Gas & 
Electric Company has caused this Agreement to be executed in its name and 
its seal to be hereunto affixed by its duly authorized officers, all as 
of the date first above written.

                                    CITY OF CHULA VISTA



                                    By___________________________________
                                                     Mayor
[SEAL]

Attest:



________________________________________
City Clerk

APPROVED AS TO FORM:

JOHN M. KAHENY
CITY ATTORNEY



By______________________________________
  Deputy City Attorney


                                     SAN DIEGO GAS & ELECTRIC COMPANY



                                     By__________________________________
                                               Senior Vice President,
[SEAL]                                       Chief Financial Officer and 
Treasurer

Attest:



___________________________________
Assistant Secretary


                                   EXHIBIT A

                           Description of the Project

Local Electric Facilities

                Acquisition and construction of additions and 
improvements to the Borrower's electric distribution facilities (12 KV 
and under) and related substations, and customer service connections 
located within the Borrower's electric retail service area, required by 
the Borrower to provide for the transfer and distribution of electric 
energy to its customers located therein, including all necessary poles, 
foundations, cable, conduit, transformers, switches, controls, meters, 
substations, land and land-rights and other like facilities and 
equipment, as well as necessary other equipment required for the proper 
installation, protection, maintenance, control and operation of the 
foregoing local electric distribution facilities.  These facilities will 
be required to meet the needs of new customers, maintain and improve 
system capabilities, and make overhead to underground conversions.


Local Gas Facilities

                Acquisition and construction of additions and 
improvements to the Borrower's gas distribution (operating at pressures 
at or below 400 psig) facilities, located within its gas retail service 
area in San Diego County, required for the distribution of gas for 
delivery to the Borrower's customers located therein.  Such facilities 
include the acquisition and construction of new, high-pressure 
distribution mains, and new customer service lines or the extension, 
replacement or relocation of such existing mains or portions or 
components thereof, regulator stations controlling the passage of gas 
from distribution mains of higher pressure to distribution mains of lower 
pressure and the volume and pressure of gas within the mains, together 
with all necessary valves, controls, meters, and other measuring and 
regulating devices, and facilities, plant, property, and other equipment 
and improvements (including land and land-rights) necessary for the 
installation, protection, maintenance, control and operation of the 
foregoing.
 



                                    LOAN AGREEMENT



                                       Between



                   CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY

                                         And

                            SAN DIEGO GAS & ELECTRIC COMPANY



                               Dated as of June 1, 1996




                                     Relating to

                                    $129,820,000
                  California Pollution Control Financing Authority
                     Pollution Control Refunding Revenue Bonds
                        (San Diego Gas & Electric Company)
                                   1996 Series A














                                   LOAN AGREEMENT

                                  TABLE OF CONTENTS

                                                                   Page

PARTIES                                                               1
PREAMBLES                                                             1




                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.1.              DEFINITION OF TERMS                         3
SECTION 1.2.              NUMBER AND GENDER                           3
SECTION 1.3.              ARTICLES, SECTIONS,ETC.                     3

                                    ARTICLE II

                                  REPRESENTATIONS

SECTION 2.1.              REPRESENTATIONS OF THE AUTHORITY             3
SECTION 2.2.              REPRESENTATIONS OF THE BORROWER              4

                                    ARTICLE III

                   ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS

SECTION 3.1.              AGREEMENT TO ISSUE BONDS; APPLICATION 
                          OF BOND PROCEEDS                             5
SECTION 3.2.              INVESTMENT OF MONEYS IN FUNDS                6
SECTION 3.3.              AMENDMENT OF DESCRIPTION OF THE               
                          PROJECT                                      6

                                    ARTICLE IV

                        LOAN TO BORROWER; REPAYMENT PROVISIONS

SECTION 4.1.              LOAN TO BORROWER                             6
SECTION 4.2.              REPAYMENT AND PAYMENT OF OTHER 
                          AMOUNTS PAYABLE                              6
SECTION 4.3.              UNCONDITIONAL OBLIGATION                     8
SECTION 4.4.              ASSIGNMENT OF AUTHORITY'S RIGHTS             8
SECTION 4.5.              AMOUNTS REMAINING IN FUNDS                   9

                                    ARTICLE V

                          SPECIAL COVENANTS AND AGREEMENTS

SECTION 5.1.              RIGHT OF ACCESS TO THE PROJECT               9
SECTION 5.2.              THE BORROWER'S MAINTENANCE OF ITS 
                          EXISTENCE; ASSIGNMENTS                       9
SECTION 5.3.              RECORDS AND FINANCIAL STATEMENTS OF
                          BORROWER                                    11
SECTION 5.4.              MAINTENANCE AND REPAIR; TAXES; 
                          UTILITY AND OTHER CHARGES; INSURANCE        11
SECTION 5.5.              QUALIFICATION IN CALIFORNIA                 12
SECTION 5.6.              TAX EXEMPT STATUS OF BONDS                  12
SECTION 5.7.              NOTICE AND CERTIFICATES TO TRUSTEE          13
SECTION 5.8.              CONTINUING DISCLOSURE                       14
                                                   
                                   ARTICLE VI
                                                   
                         EVENTS OF DEFAULT AND REMEDIES

SECTION 6.1.              EVENTS OF DEFAULT                           14
SECTION 6.2.              REMEDIES ON DEFAULT                         15
SECTION 6.3.              AGREEMENT TO PAY ATTORNEYS' FEES AND
                          EXPENSES                                    17
SECTION 6.4.              NO REMEDY EXCLUSIVE                         17
SECTION 6.5.              NO ADDITIONAL WAIVER IMPLIED BY ONE 
                          WAIVER                                      18

                                    ARTICLE VII

                                     PREPAYMENT

SECTION 7.1.              REDEMPTION OF BONDS WITH PREPAYMENT
                          MONEYS                                      18
SECTION 7.2.              OPTIONS TO PREPAY INSTALLMENTS              18
SECTION 7.3.              MANDATORY PREPAYMENT                        18
SECTION 7.4.              AMOUNT OF PREPAYMENT                        19
SECTION 7.5.              NOTICE OF PREPAYMENT                        19

                                    ARTICLE VIII

                  NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION

SECTION 8.1.              NON-LIABILITY OF AUTHORITY                 20
SECTION 8.2.              EXPENSES                                    20
SECTION 8.3.              INDEMNIFICATION                             20

                                    ARTICLE IX

                                  MISCELLANEOUS

SECTION 9.1.              NOTICES                                     21
SECTION 9.2.              SEVERABILITY                                22
SECTION 9.3.              EXECUTION OF COUNTERPARTS                   22
SECTION 9.4.              AMENDMENTS, CHANGES AND MODIFICATIONS       22
SECTION 9.5.              GOVERNING LAW                               22
SECTION 9.6.              AUTHORIZED BORROWER REPRESENTATIVE          23
SECTION 9.7.              TERM OF THE AGREEMENT                       23
SECTION 9.8.              BINDING EFFECT                              23

TESTIMONIUM                                                           24

SIGNATURES AND SEALS                                                  24

EXHIBIT A   Description of the Project                               A-1


                               LOAN AGREEMENT


         THIS LOAN AGREEMENT, dated as of June 1, 1996, by and between 
the CALIFORNIA POLLUTION CONTROL FINANCING AUTHORITY, a public 
instrumentality and political subdivision of the State of California 
(the "Authority"), and SAN DIEGO GAS & ELECTRIC COMPANY, a corporation 
organized and existing under the laws of the State of California (the 
"Borrower"),

                             W I T N E S S E T H

         WHEREAS, the Authority is a public instrumentality and 
political subdivision of the State of California, organized and existing 
under the California Pollution Control Financing Authority Act, being 
Division 27 of the California Health and Safety Code, as amended and 
supplemented (the "Act"); and

         WHEREAS, the Act authorizes the Authority to issue its revenue 
bonds for the purpose of paying all or any part of the costs of a 
"project" as defined in the Act and for the purpose of funding or 
refunding any such bonds; and

         WHEREAS, pursuant to the Act, the Authority previously has 
issued California Pollution Control Financing Authority Pollution 
Control Revenue Bonds (San Diego Gas & Electric Company), 1977 Series A, 
issued April 27, 1977, in the original aggregate principal amount of 
$9,575,000, of which $8,855,000 principal amount are now outstanding 
(the "1977A Bonds"), pursuant to an Indenture, dated as of April 1, 1977 
(the "1977 Indenture"), between the Authority and First Trust of 
California, National Association, as successor trustee (the "Prior 
Trustee"), in order to provide financial assistance to the Borrower for 
the acquisition, construction and installation of certain air and water 
pollution control and sewage and solid waste disposal facilities (the 
"1977A Project") located at the Encina Project, South Bay Project, 
Silver Gate Project and Station "B" Project in San Diego County, 
California; and

         WHEREAS, pursuant to the Act, the Authority previously has 
issued California Pollution Control Financing Authority Pollution 
Control Revenue Bonds (San Diego Gas & Electric Company), 1979 Series A, 
issued March 21, 1979, in the original aggregate principal amount of 
$5,700,000, of which $5,480,000 principal amount are now outstanding 
(the "1979A Bonds"), pursuant to the 1977 Indenture, as supplemented by 
a First Supplemental Indenture of Trust, dated as of March 15, 1979, 
between the Authority and the Prior Trustee, in order to provide 
financial assistance to the Borrower for the acquisition, construction 
and installation of certain air and water pollution control and sewage 
and solid waste disposal facilities (the "1979A Project") located at the 
Encina Project, South Bay Project, Silver Gate Project and Station "B" 
Project in San Diego County, California; and

         WHEREAS, pursuant to the Act, the Authority previously has 
issued California Pollution Control Financing Authority Flexible Demand 
Pollution Control Revenue Bonds (San Diego Gas & Electric Company), 1984 
Series A, issued May 8, 1984, in the original aggregate principal amount 
of $53,000,000, all of which are now outstanding (the "1984A Bonds"), 
pursuant to an Indenture of Trust, dated as of May 1, 1984, between the 
Authority and the Prior Trustee, in order to provide financial 
assistance to the Borrower for the acquisition, construction and 
installation of certain air and water pollution control and sewage and 
solid waste disposal facilities (the "1984A Project") located at the San 
Onofre Nuclear Generating Station; and

         WHEREAS, pursuant to the Act, the Authority previously has 
issued California Pollution Control Financing Authority Variable Rate 
Demand Pollution Control Revenue Bonds (San Diego Gas & Electric 
Company), 1984 Series B, issued December 19, 1984, in the original 
aggregate principal amount of $27,000,000, all of which are now 
outstanding (the "1984B Bonds"), pursuant to an Indenture of Trust, 
dated as of December 1, 1984, between the Authority and the Prior 
Trustee, in order to provide financial assistance to the Borrower for 
the acquisition, construction and installation of certain air and water 
pollution control and sewage and solid waste disposal facilities (the 
"1984B Project") located at the San Onofre Nuclear Generating Station; 
and

         WHEREAS, pursuant to the Act, the Authority previously has 
issued California Pollution Control Financing Authority Pollution 
Control Revenue Bonds (San Diego Gas & Electric Company), 1985 Series A, 
issued December 10, 1985, in the original aggregate principal amount of 
$35,000,000, all of which are now outstanding (the "1985A Bonds" and, 
together with the 1977A Bonds, the 1979A Bonds, the 1984A Bonds and the 
1984B Bonds, the "Prior Bonds"), pursuant to an Indenture of Trust, 
dated as of December 1, 1985, between the Authority and the Prior 
Trustee in order to provide financial assistance to the Borrower for the 
acquisition, construction and installation of certain air and water 
pollution control and sewage and solid waste disposal facilities (the 
"1985A Project" and, together with the 1977A Project, the 1979A Project, 
the 1984A Project and the 1984B Project, the "Project") located at the 
San Onofre Nuclear Generating Station; and

         WHEREAS, the Borrower has duly requested that the Authority 
issue refunding bonds to refund the Prior Bonds; and

         WHEREAS, the Authority, after due investigation and 
deliberation has taken all necessary action approving such request and 
authorizing the issuance of its pollution control refunding revenue 
bonds as provided in the Indenture of Trust, dated as of June 1, 1996 
(the "Indenture"), between the Authority and First Trust of California, 
National Association, as trustee (the "Trustee"), in an aggregate 
principal amount not to exceed $129,820,000 (the "Bonds"), in order to 
refund the Prior Bonds and refinance the Project;

         WHEREAS, the Authority and the Borrower desire to enter into 
this Agreement in order to specify the terms and conditions of the 
lending of the proceeds of the Bonds to the Borrower for the purpose of 
refunding the Prior Bonds and refinancing the Project, as well as the 
terms and conditions of the repayment by the Borrower of such loan and 
certain other matters;

         NOW, THEREFORE, in consideration of the premises and the 
respective representations and covenants herein contained, the parties 
hereto agree as follows:


                                    ARTICLE I

                                   DEFINITIONS

         SECTION 1.1.  DEFINITION OF TERMS.  Unless the context 
otherwise requires, the terms used in this Agreement shall have the 
meanings specified in Section 1.01 of the Indenture, as originally 
executed or as it may from time to time be supplemented or amended as 
provided therein.

         SECTION 1.2.  NUMBER AND GENDER.  The singular form of any word 
used herein, including the terms defined in Section 1.01 of the 
Indenture, shall include the plural, and vice versa.  The use herein of 
a word of any gender shall include all genders.

         SECTION 1.3.  ARTICLES, SECTIONS, ETC.  Unless otherwise 
specified, references to Articles, Sections and other subdivisions of 
this Agreement are to the designated Articles, Sections and other 
subdivisions of this Agreement as originally executed.  The words 
"hereof," "herein," "hereunder" and words of similar import refer to 
this Agreement as a whole.  The headings or titles of the several 
articles and sections, and the table of contents appended to copies 
hereof, shall be solely for convenience of reference and shall not 
affect the meaning, construction or effect of the provisions hereof.


                                   ARTICLE II

                                REPRESENTATIONS

         SECTION 2.1.  REPRESENTATIONS OF THE AUTHORITY.  The Authority 
makes the following representations as the basis for its undertakings 
herein contained:

          (a)  The Authority is a public instrumentality and political 
subdivision of the State of California.  Under the provisions of the 
Act, the Authority has the power to enter into the transactions 
contemplated by this Agreement and to carry out its obligations 
hereunder.  By proper action, the Authority has been duly authorized to 
execute, deliver and duly perform this Agreement and the Indenture.

          (b)  To refinance the cost of the Project, the Authority will 
issue the Bonds, which will mature, bear interest and be subject to 
redemption as provided in the Indenture.

          (c)  The Bonds will be issued under and secured by the 
Indenture, pursuant to which the Authority's interest in this Agreement 
(except certain rights of the Authority to give approvals and consents 
and to receive payment for expenses and indemnification and certain 
other payments) will be pledged to the Trustee as security for payment 
of the principal of, premium, if any, and interest on the Bonds.

          (d)  The Authority has not pledged and will not pledge its 
interest in this Agreement for any purpose other than to secure the 
Bonds under the Indenture.

          (e)  The Authority is not in default under any of the 
provisions of the laws of the State of California which default would 
affect its existence or its powers referred to in subsection (a) of this 
Section 2.1.

          (f)  The Authority has found and determined and hereby finds 
and determines that all requirements of the Act with respect to the 
issuance of the Bonds and the execution of this Agreement and the 
Indenture have been complied with and that refinancing the Project by 
issuing the Bonds, refunding or replacing the Prior Bonds and entering 
into this Agreement and the Indenture will be in furtherance of the 
purposes of the Act.

          (g)  On May 22, 1996, the Authority conducted a public hearing 
with respect to the Bonds and the Project in accordance with the 
provisions of Section 147(f) of the Code and adopted its resolution 
approving the issuance and sale of the Bonds.  The meeting of the 
Authority on such date was held in accordance with the applicable 
provisions of Article 9 of Chapter 1 of Division 3 of Title 2 of the 
California Government Code, as amended.

          (h)  No member, officer or other official of the Authority has 
any interest whatsoever in the Borrower or in the transactions 
contemplated by this Agreement.

          SECTION 2.2.  REPRESENTATIONS OF THE BORROWER.  The Borrower 
makes the following representations as the basis for its undertakings 
herein contained:

          (a)  The Borrower is a corporation duly formed under the laws 
of the State of California, is in good standing in the State of 
California and has the power to enter into and has duly authorized, by 
proper corporate action, the execution and delivery of this Agreement 
and all other documents contemplated hereby to be executed by the 
Borrower.

          (b)  Neither the execution and delivery of this Agreement, the 
consummation of the transactions contemplated hereby, nor the 
fulfillment of or compliance with the terms and conditions hereof and 
thereof, conflicts with or results in a breach of any of the terms, 
conditions or provisions of the Borrower's Articles of Incorporation or 
By-laws or of any corporate actions or of any agreement or instrument to 
which the Borrower is now a party or by which it is bound, or 
constitutes a default (with due notice or the passage of time or both) 
under any of the foregoing, or results in the creation or imposition of 
any prohibited lien, charge or encumbrance whatsoever upon any of the 
property or assets of the Borrower under the terms of any instrument or 
agreement to which the Borrower is now a party or by which it is bound.

          (c)  The Project consists and will consist of those facilities 
described in Exhibit A hereto, and the Borrower shall make no changes to 
such portion of the Project or to the operation thereof which would 
affect the qualification of the Project as a "project" under the Act or 
impair the Tax-Exempt status of interest on the Bonds.  In particular, 
the Borrower shall comply with all requirements of the Tax Certificate, 
which is hereby incorporated by reference herein.

          (d)  The Project consists of air and water pollution control 
and sewage and solid waste disposal facilities and the Borrower intends 
to utilize the Project as air and water pollution control and sewage and 
solid waste disposal facilities.

          (e)  The Borrower has and will have an interest in the Project 
sufficient to carry out the purposes of this Agreement.

          (f)  The economic useful life of the Project is as set forth 
in the Tax Certificate.

          (g)  To the best knowledge of the Borrower, no member, officer 
or other official of the Authority has any interest whatsoever in the 
Borrower or in the transactions contemplated by this Agreement.

          (h)  All certificates, approvals, permits and authorizations 
with respect to the construction of the Project of agencies of 
applicable local governments, the State of California and the federal 
government that are required on or before the date hereof have been 
obtained; and pursuant to such certificates, approvals, permits and 
authorizations the Project has been constructed and is in operation.


                                 ARTICLE III

                 ISSUANCE OF THE BONDS; APPLICATION OF PROCEEDS

          SECTION 3.1.  AGREEMENT TO ISSUE BONDS; APPLICATION OF BOND 
PROCEEDS.  To provide funds to refinance the cost of the Project and 
refund the Prior Bonds, the Authority agrees that it will issue under 
the Indenture, sell and cause to be delivered to the purchasers thereof, 
the Bonds, bearing interest as provided and maturing on the date(s) set 
forth in the Indenture.  The Authority will thereupon apply the proceeds 
received from the sale of the Bonds as provided in Section 3.02 of the 
Indenture.

          SECTION 3.2.  INVESTMENT OF MONEYS IN FUNDS.  Any moneys in 
any fund held by the Trustee shall, at the written request of an 
Authorized Borrower Representative, be invested or reinvested by the 
Trustee as provided in the Indenture.  Such investments shall be held by 
the Trustee and shall be deemed at all times a part of the fund from 
which such investments were made, and the interest accruing thereon and 
any profit or loss realized therefrom shall, except as otherwise 
provided in the Indenture, be credited or charged to such fund.

          SECTION 3.3.  AMENDMENT OF DESCRIPTION OF THE PROJECT.   In 
the event that the Borrower desires to amend or supplement the Project, 
and such amendment or supplement alters the purpose and description of 
the Project in Exhibit A hereto, and the Authority approves of such 
amendment or supplement, the Authority will enter into, and will 
instruct the Trustee to consent to, such amendment or supplement upon 
receipt of:

             (i)  a certificate of an Authorized Borrower Representative 
describing in detail the proposed changes and stating that they 
will not have the effect of disqualifying the Project as a 
facility that may be financed pursuant to the Act;

             (ii)  a copy of the proposed form of amended or 
supplemented Exhibit A hereto; and

             (iii)  an Opinion of Bond Counsel that such proposed 
changes will not adversely affect the Tax-Exempt status of 
interest on the Bonds.


                                 ARTICLE IV

                         LOAN TO BORROWER; REPAYMENT PROVISIONS

         SECTION 4.1.  LOAN TO BORROWER.  The Authority and the Borrower 
agree that the application of the proceeds of sale of the Bonds to 
refund and retire the Prior Bonds and the prior first mortgage bonds of 
the Borrower relating thereto will be deemed to be and treated for all 
purposes as a loan to the Borrower of an amount equal to the principal 
amount of the Bonds.

         SECTION 4.2.  REPAYMENT AND PAYMENT OF OTHER AMOUNTS PAYABLE.

          (a)  The Borrower covenants and agrees to pay to the Trustee 
as a Repayment Installment on the loan to the Borrower pursuant to 
Section 4.1 hereof, on each date provided in or pursuant to the 
Indenture for the payment of principal (whether at maturity or upon 
redemption or acceleration) of, premium, if any, and/or interest on the 
Bonds, until the principal of, premium, if any, and interest on the 
Bonds shall have been fully paid or provision for the payment thereof 
shall have been made in accordance with the Indenture, in immediately 
available funds, for deposit in the Bond Fund, a sum equal to the amount 
then payable as principal (whether at maturity or upon redemption or 
acceleration), premium, if any, and interest upon the Bonds as provided 
in the Indenture.

               Each payment required to be made pursuant to this Section 
4.2(a) shall at all times be sufficient to pay the total amount of 
interest and principal (whether at maturity or upon redemption or 
acceleration) and premium, if any, then payable on the Bonds; provided 
that any amount held by the Trustee in the Bond Fund on any due date for 
a Repayment Installment hereunder shall be credited against the 
installment due on such date to the extent available for such purpose; 
and provided further that, subject to the provisions of this paragraph, 
if at any time the amounts held by the Trustee in the Bond Fund are 
sufficient to pay all of the principal of and interest and premium, if 
any, on the Bonds as such payments become due, the Borrower shall be 
relieved of any obligation to make any further payments under the 
provisions of this Section.  Notwithstanding the foregoing, if on any 
date the amount held by the Trustee in the Bond Fund is insufficient to 
make any required payments of principal of (whether at maturity or upon 
redemption or acceleration) and interest and premium, if any, on the 
Bonds as such payments become due, the Borrower shall forthwith pay such 
deficiency as a Repayment Installment hereunder.

          (b)  The Borrower also agrees to pay to the Trustee until the 
principal of, premium, if any, and interest on the Bonds shall have been 
fully paid or provision for the payment thereof shall have been made as 
required by the Indenture, (i) the annual fee of the Trustee for its 
ordinary services rendered as trustee, and its ordinary expenses 
incurred under the Indenture, as and when the same become due, (ii) the 
reasonable fees, charges and expenses of the Trustee, the Registrar and 
the reasonable fees of any Paying Agent on the Bonds as provided in the 
Indenture, as and when the same become due, (iii) the reasonable fees, 
charges and expenses of the Trustee for the necessary extraordinary 
services rendered by it and extraordinary expenses incurred by it under 
the Indenture, as and when the same become due.  The Borrower shall also 
pay the cost of printing any Bonds required to be furnished by the 
Authority.

          (c)  The Borrower also agrees to pay (i) within 60 days after 
receipt of request for payment thereof, all expenses required to be paid 
by the Borrower under the terms of the bond purchase agreement (the 
"Bond Purchase Agreement") executed by it in connection with the sale of 
the Bonds, and all expenses of the Authority related to the financing of 
the Project which are not otherwise required to be paid by the Borrower 
under the terms of this Agreement; and (ii) all reasonable expenses of 
the Authority related to the Project which are not otherwise required to 
be paid by the Borrower under the terms of this Agreement; provided that 
the Authority shall have obtained the prior written approval of an 
Authorized Borrower Representative for any expenditures other than those 
provided for herein or in the Bond Purchase Agreement.

          (d)  In the event the Borrower should fail to make any of the 
payments required by subsection (b) or (c) of this Section, such 
payments shall continue as obligations of the Borrower until such 
amounts shall have been fully paid.  The Borrower agrees to pay such 
amounts, together with interest thereon until paid, to the extent 
permitted by law, at the rate of ten percent (10%) per annum.

          (e)  Upon written request of the Trustee, the Borrower shall 
pay any Repayment Installment directly to the Paying Agent.

          SECTION 4.3.  UNCONDITIONAL OBLIGATION.  The obligations of 
the Borrower to make the payments required by Section 4.2 hereof and to 
perform and observe the other agreements on its part contained herein 
shall be absolute and unconditional, irrespective of any defense or any 
rights of set-off, recoupment or counterclaim it might otherwise have 
against the Authority, and during the term of this Agreement, the 
Borrower shall pay absolutely net the payments to be made on account of 
the loan as prescribed in Section 4.2 and all other payments required 
hereunder, free of any deductions and without abatement, diminution or 
set-off.  Until such time as the principal of, premium, if any, and 
interest on the Bonds shall have been fully paid, or provision for the 
payment thereof shall have been made as required by the Indenture, the 
Borrower (i) will not suspend or discontinue any payments provided for 
in Section 4.2 hereof; (ii) will perform and observe all of its other 
covenants contained in this Agreement; and (iii) except as provided in 
Article VII hereof, will not terminate this Agreement for any cause, 
including, without limitation, the occurrence of any act or 
circumstances that may constitute failure of consideration, destruction 
of or damage to the Project, commercial frustration of purpose, any 
change in the tax or other laws of the United States of America or of 
the State of California or any political subdivision of either of these, 
or any failure of the Authority or the Trustee to perform and observe 
any covenant, whether express or implied, or any duty, liability or 
obligation arising out of or connected with this Agreement or the 
Indenture, except to the extent permitted by this Agreement.

          SECTION 4.4.  ASSIGNMENT OF AUTHORITY'S RIGHTS.  As security 
for the payment of the Bonds, the Authority will assign to the Trustee 
the Authority's rights, but not its obligations, under this Agreement, 
including the right to receive payments hereunder (except (i) the rights 
of the Authority to receive notices under this Agreement, (ii) the right 
of the Authority to receive certain payments, if any, with respect to 
fees, expenses and indemnification and certain other purposes under 
Sections 4.2(c), 4.2(d), 6.3, 8.2 and 8.3 hereof, and (iii) the right of 
the Authority to give approvals or consents pursuant to this Agreement) 
and the Authority hereby directs the Borrower to make the payments 
required hereunder (except such payments for fees, expenses and 
indemnification) directly to the Trustee.  The Borrower hereby assents 
to such assignment and agrees to make payments directly to the Trustee 
without defense or set-off by reason of any dispute between the Borrower 
and the Authority or the Trustee.

          SECTION 4.5.  AMOUNTS REMAINING IN FUNDS.  It is agreed by the 
parties hereto that after payment in full of (i) the Bonds, or after 
provision for such payment shall have been made as provided in the 
Indenture, (ii) the fees and expenses of the Authority in accordance 
with this Agreement, (iii) the fees, charges and expenses of the 
Trustee, the Registrar and Paying Agents in accordance with the 
Indenture and this Agreement and (iv) all other amounts required to be 
paid under this Agreement and the Indenture, any amounts remaining in 
any fund held by the Trustee under the Indenture shall be applied as 
provided in Section 5.06 of the Indenture.


                                ARTICLE V

                      SPECIAL COVENANTS AND AGREEMENTS

          SECTION 5.1.  RIGHT OF ACCESS TO THE PROJECT.  To the extent 
such access is within the control of the Borrower, the Borrower agrees 
that during the term of this Agreement the Authority, the Trustee and 
the duly authorized agents of either of them shall have the right at all 
reasonable times during normal business hours to enter upon the site of 
the Project to examine and inspect such Project; provided, however, that 
this right is subject to federal and State of California laws and 
regulations applicable to such site.  The rights of access hereby 
reserved to the Authority and the Trustee may be exercised only after 
such agent shall have executed release of liability (which release shall 
not limit any of the Borrower's obligations hereunder) and secrecy 
agreements if requested by the Borrower in the form then currently used 
by the Borrower, and nothing contained in this Section or in any other 
provision of this Agreement shall be construed to entitle the Authority 
or the Trustee to any information or inspection involving the 
confidential know-how of the Borrower.

          SECTION 5.2.  THE BORROWER'S MAINTENANCE OF ITS EXISTENCE; 
ASSIGNMENTS.  (a)  To the extent permitted by law and its Articles of 
Incorporation, the Borrower agrees that during the term of this 
Agreement it will maintain its existence as a corporation, will continue 
to maintain its status as a corporation in good standing in the State 
and will not dissolve or otherwise dispose of all or substantially all 
of its assets and will not combine or consolidate with or merge into 
another person or permit one or more other persons to consolidate or 
merge into it; provided, however, that if the Borrower has obtained the 
prior written consent of the Authority, the Borrower may combine, 
consolidate with, or merge into another person legally existing under 
the laws of one of the states of the United States, or permit one or 
more other persons to consolidate with or merge into it, or sell or 
otherwise transfer to another corporation all or substantially all of 
its assets as an entity and thereafter dissolve.  The consent of the 
Authority shall be given within thirty (30) days after written evidence 
acceptable to the Authority is provided by the Borrower to demonstrate 
that (i) the surviving, resulting or transferee person, as the case may 
be, (A) assumes and agrees in writing to pay and perform all of the 
obligations of the Borrower hereunder, (B) qualifies to do business in 
the State of California and (C) has a net worth (as determined in 
accordance with generally accepted accounting principles) immediately 
after such consolidation, merger, sale or transfer equal to at least 
ninety-five percent (95%) of the net worth of the Borrower at the end of 
the fiscal quarter immediately preceding the effective date of such 
consolidation, merger, sale or transfer; and (ii) the ratings on the 
Bonds, as determined by at least one Rating Agency, shall remain at the 
same rating level, or a higher rating level, as the ratings on the Bonds 
immediately prior to the effective date of such consolidation, merger, 
sale or transfer.  If the Authority does not act within thirty (30) days 
after such written evidence is received, such consent shall be deemed to 
have been given.

          Within ten (10) Business Days after the consummation of the 
consolidation, merger, sale or other transaction, the Borrower shall 
provide the Authority with counterpart copies of the consolidation, 
merger or sale instruments, or other documents constituting the 
transaction, including (X) copies of the instruments of assumption 
referred to in (i)(A) above and (Y) evidence of qualification as 
referred to in (i)(B) above.  The Borrower shall also at such time 
provide the Authority with an Opinion of Counsel satisfactory to the 
Authority that all of the provisions of this Section 5.2(a) have been 
complied with.  At least thirty (30) days but not more than ninety 
(90) days prior to any transaction described above, the Borrower shall 
provide the Authority with drafts of the documents of assumption, with 
copies of pro forma financial statements showing expected compliance 
with the requirements of (i)(C) above.  The Borrower agrees to provide 
such other information as the Authority may reasonably request in order 
to assure compliance with this Section 5.2(a).

          Notwithstanding any other provisions of this Section 5.2(a), 
the Borrower need not comply with any of the provisions of Section 
5.2(a) above if, at the time of such merger, combination, sale of 
assets, dissolution or reorganization, the Bonds will be defeased as 
provided in Article X of the Indenture.

          (b)  The rights and obligations of the Borrower under this 
Agreement may be assigned by the Borrower to any person in whole or in 
part, subject, however, to each of the following conditions:

              (i)  No assignment (other than pursuant to subsection (a) 
of this Section 5.2) shall relieve the Borrower from primary liability 
for any of its obligations hereunder, and in the event of any assignment 
not pursuant to subsection (a) of this Section 5.2, the Borrower shall 
continue to remain primarily liable for the payments specified in 
Section 4.2 hereof and for performance and observance of the other 
agreements on its part herein provided to be performed and observed by 
it.

              (ii)  Any assignment from the Borrower shall retain for 
the Borrower such rights and interests as will permit it to perform its 
obligations under this Agreement, and any assignee from the Borrower 
shall assume in writing the obligations of the Borrower hereunder to the 
extent of the interest assigned.

              (iii)  The Borrower shall give the Authority thirty (30) 
days' prior written notice of any assignment (other than pursuant to 
subsection (a) of this Section 5.2) and shall, within thirty (30) days 
after delivery of any assignment, furnish or cause to be furnished to 
the Authority and the Trustee a true and complete copy of each such 
assignment, together with an instrument of assumption and an Opinion of 
Counsel satisfactory to the Authority that the provisions of this 
Section 5.2(b) have been complied with.

          SECTION 5.3.  RECORDS AND FINANCIAL STATEMENTS OF BORROWER.  
The Borrower shall, within one hundred twenty (120) days after the close 
of each fiscal year, submit to the Authority and to the Trustee audited 
financial statements with respect to the Borrower for such fiscal year. 
 The Trustee shall be permitted at all reasonable times during the term 
of this Agreement to examine the books and records of the Borrower with 
respect to the Project, subject to the limitations expressed in Section 
5.1.

          SECTION 5.4.  MAINTENANCE AND REPAIR; TAXES; UTILITY AND OTHER 
CHARGES; INSURANCE.  The Borrower agrees to maintain, to the extent 
permitted by applicable law and regulation, the Project, or cause the 
Project to be so maintained, during the term of this Agreement (i) in as 
reasonably safe condition as its operations shall permit and (ii) in 
good repair and in good operating condition, ordinary wear and tear 
excepted, making from time to time all necessary repairs thereto and 
renewals and replacements thereof.

          The Borrower agrees to pay or cause to be paid during the term 
of this Agreement all taxes, governmental charges of any kind lawfully 
assessed or levied upon the Project or any part thereof, including any 
taxes levied against the Project which, if not paid, will become a 
charge on the receipts from the Project prior to or on a parity with the 
charge thereon and the pledge or assignment thereof to be created 
therefrom or under this Agreement, all utility and other charges 
incurred in the operation, maintenance, use, occupancy and upkeep of the 
Project and all assessments and charges lawfully made by any 
governmental body for public improvements that may be secured by a lien 
on the Project, provided that with respect to special assessments or 
other governmental charges that may lawfully be paid in installments 
over a period of years, the Borrower shall be obligated to pay only such 
installments as are required to be paid during the term of this 
Agreement.  The Borrower may, at the Borrower's expense and in the 
Borrower's name, in good faith, contest any such taxes, assessments and 
other charges and, in the event of any such contest, may permit the 
taxes, assessments or other charges so contested to remain unpaid during 
that period of such contest and any appeal therefrom unless by such 
nonpayment the Project or any part thereof will be subject to loss or 
forfeiture.

          The Borrower agrees that it will keep, or cause to be kept (i) 
the Project insured against such risks and in such amounts as similar 
types of facilities are usually insured by companies similarly situated 
(which may include self-insurance), and (ii) insurance against all 
direct or contingent loss or liability for personal injury, death or 
property damage occasioned by the operation of the Project, which 
insurance may be a part of the policy or policies of insurance 
customarily maintained by the Borrower in connection with its general 
property and liability insurance upon all of the plants and properties 
operated by it (including such deductibles as may be provided in said 
policies).

          SECTION 5.5.  QUALIFICATION IN CALIFORNIA.  The Borrower 
agrees that throughout the term of this Agreement it, or any successor 
or assignee as permitted by Section 5.2, will be qualified to do 
business in the State of California.

          SECTION 5.6.  TAX EXEMPT STATUS OF BONDS.  (a) It is the 
intention of the parties hereto that interest on the Bonds shall be and 
remain Tax-Exempt and to that end, the covenants and agreements of the 
Authority and the Borrower in this Section and in the Tax Certificate 
are for the benefit of the Trustee and each and every person who at any 
time will be a holder of the Bonds.  Without limiting the generality of 
the foregoing, the Borrower and the Authority agree that there shall be 
paid from time to time all amounts required to be rebated to the United 
States pursuant to Section 148(f) of the Code and any temporary, 
proposed or final Treasury Regulations as may be applicable to the Bonds 
from time to time.  This covenant shall survive payment in full or 
defeasance of the Bonds.  The Borrower specifically covenants to pay or 
cause to be paid for and on behalf of the Authority to the United States 
at the times and in the amounts determined under Section 6.06 of the 
Indenture the Rebate Requirement as described in the Tax Certificate.

          (b)  The Authority covenants and agrees that it has not taken 
and will not take any action which results in interest to be paid on the 
Bonds being Tax-Exempt to the holders of the Bonds, and the Borrower 
covenants and agrees that it has not taken or permitted to be taken and 
will not take or permit to be taken any action which will cause the 
interest on the Bonds not to be Tax-Exempt to the holders thereof; 
provided that neither the Borrower nor the Authority shall have violated 
these covenants if interest on any of the Bonds becomes taxable to a 
person solely because such person is a "substantial user" of the Project 
or a "related person" within the meaning of Section 103(b)(13) of the 
1954 Code; and provided further that none of the covenants and 
agreements herein contained shall require either the Borrower or the 
Authority to enter an appearance or intervene in any administrative, 
legislative or judicial proceeding in connection with any changes in 
applicable laws, rules or regulations or in connection with any 
decisions of any court or administrative agency or other governmental 
body affecting the taxation of interest on the Bonds.  The Borrower 
acknowledges having read Section 6.06 of the Indenture and agrees to 
perform all duties imposed on it by such Section, by this Section and by 
the Tax Certificate.  Insofar as Section 6.06 of the Indenture and the 
Tax Certificate impose duties and responsibilities on the Authority or 
the Borrower, they are specifically incorporated herein by reference.

          (c)  Notwithstanding any provision of this Section 5.6 or 
Section 6.06 of the Indenture, if the Borrower shall provide to the 
Authority and the Trustee an Opinion of Bond Counsel to the effect that 
any specified action required under this Section 5.6 and Section 6.06 of 
the Indenture is no longer required or that some further or different 
action is required to maintain the Tax-Exempt status of interest on the 
Bonds, the Borrower, the Trustee and the Authority may conclusively rely 
on such opinion in complying with the requirements of this Section, and 
the covenants hereunder shall be deemed to be modified to that extent.

          SECTION 5.7.  NOTICE AND CERTIFICATES TO TRUSTEE.  The 
Borrower hereby agrees to provide the Trustee with the following:

               (a)  On or before the fifth business day following 
June 30 and December 31 (commencing December 31, 1996) of each 
year in which any of the Bonds are outstanding a certificate of an 
officer of the Borrower that all payments required under this 
Agreement have been made, or explaining why not;

               (b)  Within one hundred twenty (120) days of the end of 
the fiscal year of the Borrower, (i) a certificate of an officer 
of the Borrower to the effect that all payments have been made 
under this Agreement and that, to the best of such officer's 
knowledge, there exists no event of default or potential default 
(which exists or which has previously occurred) and (ii) the 
audited annual report of the Borrower; 

               (c)  Upon knowledge of an Event of Default under this 
Agreement or the Indenture, notice of such Event of Default, such 
notice to include a description of the nature of such event and 
what steps are being taken to remedy such Event of Default; and

               (d)  On or before January 1 and July 1 of each year 
during which any of the Bonds are outstanding, a written 
disclosure of any significant change known to the Borrower that 
occurs which would adversely impact the Trustee's ability to 
perform its duties under the Indenture, or of any conflicts which 
may result because of other business dealings between the Trustee 
and the Borrower.

          SECTION 5.8.  CONTINUING DISCLOSURE.  The Borrower hereby 
covenants and agrees to comply with the continuing disclosure 
requirements for the Bonds as promulgated under Rule 15c2-12, as it may 
from time to time hereafter be amended or supplemented, and to comply 
with the terms of the Continuing Disclosure Agreement.  Notwithstanding 
any other provision of this Agreement, failure of the Borrower to comply 
with the requirements of the Continuing Disclosure Agreement shall not 
be considered an Event of Default hereunder or under the Indenture; 
however, the holders or beneficial owners of the Bonds may enforce the 
Continuing Disclosure Agreement to the extent provided therein.


                                   ARTICLE VI

                         EVENTS OF DEFAULT AND REMEDIES

          SECTION 6.1.  EVENTS OF DEFAULT.  Any one of the following 
which occurs and continues shall constitute an Event of Default pursuant 
to this Agreement:

               (a)  failure by the Borrower to pay any amounts required 
to be paid under Section 4.2(a) or 4.2(d) hereof at the times 
required to avoid causing an Event of Default pursuant to the 
Indenture; or

               (b)  failure of the Borrower to observe and perform any 
covenant, condition or agreement on its part required to be 
observed or performed by this Agreement, other than making the 
payments referred to in (a) above, which continues for a period of 
thirty (30) days after written notice, which notice shall specify 
such failure and request that it be remedied, given to the 
Borrower by the Authority or the Trustee, unless the Authority and 
the Trustee shall agree in writing to an extension of such time; 
provided, however, that if the failure stated in the notice cannot 
be corrected within such period, the Authority and the Trustee 
will not unreasonably withhold their consent to an extension of 
such time if corrective action is instituted within such period 
and diligently pursued until the default is corrected; or

               (c)  an Act of Bankruptcy of the Borrower.

The provisions of subsection (b) of this Section are subject to the 
limitation that the Borrower shall not be deemed in default if and so 
long as the Borrower is unable to carry out its agreements hereunder by 
reason of strikes, lockouts or other industrial disturbances; acts of 
public enemies; orders of any kind of the government of the United 
States or of the State of California or any of their departments, 
agencies, or officials, or any civil or military authority; 
insurrections, riots, epidemics, landslides; lightning; earthquake; 
fire; hurricanes; storms; floods; washouts; droughts; arrests; restraint 
of government and people; civil disturbances; explosions; breakage or 
accident to machinery, transmission pipes or canals; partial or entire 
failure of utilities; or any other cause or event not reasonably within 
the control of the Borrower; it being agreed that the settlement of 
strikes, lockouts and other industrial disturbances shall be entirely 
within the discretion of the Borrower, and the Borrower shall not be 
required to make settlement of strikes, lockouts and other industrial 
disturbances by acceding to the demands of the opposing party or parties 
when such course is, in the judgment of the Borrower, unfavorable to the 
Borrower.  This limitation shall not apply to any default under 
subsections (a) or (c) of this Section.

          SECTION 6.2.  REMEDIES ON DEFAULT.  Whenever any Event of 
Default shall have occurred and shall continue, the following remedies 
may be pursued:

               (a)  The Trustee may, and upon the written request of the 
holders of not less than 25% in aggregate principal amount of 
Bonds then outstanding, shall, by notice in writing delivered to 
the Borrower with copies of such notice being sent to the 
Authority, declare the unpaid balance of the loan payable under 
Section 4.2(a) of this Agreement and the interest accrued thereon 
to be immediately due and payable and such principal and interest 
shall thereupon become and be immediately due and payable.  Upon 
any such acceleration, the Bonds shall be subject to mandatory 
redemption as provided in Section 4.01(b)(3) of the Indenture.

               (b)  The Trustee may have access to and may inspect, 
examine and make copies of the books and records and any and all 
accounts, data and federal income tax and other tax returns of the 
Borrower.

               (c)  The Authority or the Trustee may take whatever 
action at law or in equity as may be necessary or desirable to 
collect the payments and other amounts then due and thereafter to 
become due or to enforce performance and observance of any 
obligation, agreement or covenant of the Borrower under this 
Agreement.  Nothing in Section 4.4 of this Agreement shall be 
deemed to limit the rights of the Authority under this Section 
6.2(c); provided that, the Authority will not exercise any 
remedies, with respect to any of the Authority's rights assigned 
to the Trustee pursuant to Section 4.4 of this Agreement unless, 
in the Authority's reasonable judgment and after written request 
to the Trustee, the Trustee has failed to enforce such rights.

          The provisions of clause (a) of the preceding paragraph, 
however, are subject to the condition that if, at any time after the 
loan shall have been so declared due and payable, and before any 
judgment or decree for the payment of the moneys due shall have been 
obtained or entered as hereinafter provided, there shall have been 
deposited with the Trustee a sum sufficient (together with any amounts 
held in the Bond Fund) to pay all the principal of the Bonds matured 
prior to such declaration and all matured installments of interest (if 
any) upon all the Bonds, and the reasonable expenses of the Trustee, and 
any and all other defaults known to the Trustee (other than in the 
payment of principal of and interest on the Bonds due and payable solely 
by reason of such declaration) shall have been made good or cured to the 
satisfaction of the Trustee or provision deemed by the Trustee to be 
adequate shall have been made therefor, then, and in every such case, 
the holders of at least a majority in aggregate principal amount of the 
Bonds then outstanding, by written notice to the Authority and to the 
Trustee, may, on behalf of the holders of all the Bonds, rescind and 
annul such declaration and its consequences and waive such default; 
provided that no such rescission and annulment shall extend to or shall 
affect any subsequent default, or shall impair or exhaust any right or 
power consequent thereon.

          In case the Trustee or the Authority shall have proceeded to 
enforce its rights under this Agreement and such proceedings shall have 
been discontinued or abandoned for any reason or shall have been 
determined adversely to the Trustee or the Authority, then, and in every 
such case, the Borrower, the Trustee and the Authority shall be restored 
respectively to their several positions and rights hereunder, and all 
rights, remedies and powers of the Borrower, the Trustee and the 
Authority shall continue as though no such action had been taken 
(provided, however, that any settlement of such proceedings duly entered 
into by the Authority, the Trustee or the Borrower shall not be 
disturbed by reason of this provision).

          The Borrower covenants that, in case an Event of Default shall 
occur with respect to the payment of any Repayment Installment payable 
under Section 4.2(a) hereof, then, upon demand of the Trustee, the 
Borrower will pay to the Trustee the whole amount that then shall have 
become due and payable under said Section.

          In case the Borrower shall fail forthwith to pay such amounts 
upon such demand, the Trustee shall be entitled and empowered to 
institute any action or proceeding at law or in equity for the 
collection of the sums so due and unpaid, and may prosecute any such 
action or proceeding to judgment or final decree, and may enforce any 
such judgment or final decree against the Borrower and collect in the 
manner provided by law the moneys adjudged or decreed to be payable.

          In case proceedings shall be pending for the bankruptcy or for 
the reorganization of the Borrower under the federal bankruptcy laws or 
any other applicable law, or in case a receiver or trustee shall have 
been appointed for the property of the Borrower or in the case of any 
other similar judicial proceedings relative to the Borrower, or the 
creditors or property of the Borrower, then the Trustee shall be 
entitled and empowered, by intervention in such proceedings or 
otherwise, to file and prove a claim or claims for the whole amount 
owing and unpaid pursuant to this Agreement and, in case of any judicial 
proceedings, to file such proofs of claim and other papers or documents 
as may be necessary or advisable in order to have the claims of the 
Trustee allowed in such judicial proceedings relative to the Borrower, 
its creditors or its property, and to collect and receive any moneys or 
other property payable or deliverable on any such claims, and to 
distribute such amounts as provided in the Indenture after the deduction 
of its charges and expenses.  Any receiver, assignee or trustee in 
bankruptcy or reorganization is hereby authorized to make such payments 
to the Trustee, and to pay to the Trustee any amount due it for 
compensation and expenses, including expenses and fees of counsel 
incurred by it up to the date of such distribution.

          SECTION 6.3.  AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES.  
In the event the Borrower should default under any of the provisions of 
this Agreement and the Authority or the Trustee should employ attorneys 
or incur other expenses for the collection of the payments due under 
this Agreement or the enforcement of performance or observance of any 
obligation or agreement on the part of the Borrower herein contained, 
the Borrower agrees to pay to the Authority or the Trustee the 
reasonable fees of such attorneys and such other expenses so incurred by 
the Authority or the Trustee.

          SECTION 6.4.  NO REMEDY EXCLUSIVE.  No remedy herein conferred 
upon or reserved to the Authority or the Trustee is intended to be 
exclusive of any other available remedy or remedies, but each and every 
such remedy shall be cumulative and shall be in addition to every other 
remedy given under this Agreement or now or hereafter existing at law or 
in equity or by statute.  No delay or omission to exercise any right or 
power accruing upon any default shall impair any such right or power or 
shall be construed to be a waiver thereof, but any such right and power 
may be exercised from time to time and as often as may be deemed 
expedient.  In order to entitle the Authority or the Trustee to exercise 
any remedy reserved to it in this Article, it shall not be necessary to 
give any notice, other than such notice as may be herein expressly 
required.  Such rights and remedies as are given the Authority hereunder 
shall also extend to the Trustee, and the Trustee and the holders of the 
Bonds shall be deemed third party beneficiaries of all covenants and 
agreements herein contained.

          SECTION 6.5.  NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER.  In 
the event any agreement or covenant contained in this Agreement should 
be breached by the Borrower and thereafter waived by the Authority or 
the Trustee, such waiver shall be limited to the particular breach so 
waived and shall not be deemed to waive any other breach hereunder.


                                    ARTICLE VII

                                     PREPAYMENT

          SECTION 7.1.  REDEMPTION OF BONDS WITH PREPAYMENT MONEYS.  By 
virtue of the assignment of the rights of the Authority under this 
Agreement to the Trustee as is provided in Section 4.4 hereof, the 
Borrower agrees to and shall pay directly to the Trustee any amount 
permitted or required to be paid by it under this Article VII.  The 
Trustee shall use the moneys so paid to it by the Borrower to effect 
redemption of the Bonds in accordance with Article IV of the Indenture 
on the date specified for such redemption pursuant to Section 7.5 
hereof.

          SECTION 7.2.  OPTIONS TO PREPAY INSTALLMENTS.  The Borrower 
shall have the option to prepay the amounts payable under Section 4.2 
hereof with respect to the Bonds, in whole or in part, by paying to the 
Trustee, for deposit in the Bond Fund, the amount set forth in Section 
7.4 hereof, under the circumstances set forth in Section 4.01(a) of the 
Indenture; provided, however, that if any event specified in Section 
4.01(a)(A) through (D) of the Indenture gives rise to the Borrower's 
exercise of its option to prepay such amounts payable hereunder, the 
amount of such loan payment prepaid shall not exceed the original cost 
of the portion of the Project affected by such event.

          SECTION 7.3.  MANDATORY PREPAYMENT.  (a) The Borrower shall 
have and hereby accepts the obligation to prepay Repayment Installments 
with respect to the Bonds to the extent mandatory redemption of the 
Bonds is required pursuant to Section 4.01(b) of the Indenture.  The 
Borrower shall satisfy its obligation hereunder by prepaying such 
Repayment Installments within one hundred eighty (180) days after the 
occurrence of any event set forth in paragraphs (1) or (2) of said 
Section 4.01(b) giving rise to such required prepayment, and immediately 
upon the occurrence of any event set forth in paragraph (3) thereof 
giving rise to such required prepayment.  The amount payable by the 
Borrower in the event of a prepayment required by this Section shall be 
determined as set forth in Section 7.4 and shall be deposited in the 
Bond Fund.

          SECTION 7.4.  AMOUNT OF PREPAYMENT.  In the case of a 
prepayment of the entire amount due hereunder with respect to the Bonds 
pursuant to Section 7.2 or 7.3 hereof, the amount to be paid shall be a 
sum sufficient, together with other funds and the yield on any 
securities deposited with the Trustee and available for such purpose, to 
pay (1) the principal of all Bonds outstanding on the redemption date 
specified in the notice of redemption, plus interest accrued and to 
accrue to the payment or redemption date of the Bonds, plus premium, if 
any, required pursuant to the Indenture, (2) all reasonable and 
necessary fees and expenses of the Authority, the Trustee, the Registrar 
and any Paying Agent accrued and to accrue through final payment of the 
Bonds, and (3) all other liabilities of the Borrower accrued and to 
accrue under this Agreement.

          In the case of partial prepayment of the Repayment 
Installments, the amount payable shall be a sum sufficient, together 
with other funds deposited with the Trustee and available for such 
purpose, to pay the principal amount of and premium, if any, and accrued 
interest on the Bonds to be redeemed, as provided in the Indenture, and 
to pay expenses of redemption of such Bonds.

          SECTION 7.5.  NOTICE OF PREPAYMENT.  The Borrower shall give 
forty-five (45) days' prior written notice to the Authority and the 
Trustee (or such lesser time as may be acceptable to the Trustee), with 
a copy to the Authority, specifying the date upon which any prepayment 
pursuant to this Article VII will be made.  If, in the case of a 
mandatory prepayment pursuant to Section 7.3 hereof, the Borrower fails 
to give such notice of a prepayment required by this Section 7.5, such 
notice may be given by the Authority or by any holder or holders of ten 
percent (10%) or more in aggregate principal amount of the Bonds 
Outstanding, and shall be given by the Trustee, but solely at the times 
and under the circumstances provided in Section 4.01(b) of the 
Indenture.  The Authority and the Trustee, at the request of the 
Borrower or any such Bondholder or Bondholders, shall forthwith take all 
steps necessary under the applicable provisions of the Indenture (except 
that the Authority shall not be required to make payment of any money 
required for such redemption) to effect redemption of all or part of the 
then outstanding Bonds, as the case may be, on the earliest practicable 
date thereafter on which such redemption may be made under applicable 
provisions of the Indenture.

          Notwithstanding anything to the contrary in this Agreement, 
each notice contemplated in this Section 7.5 that is given with respect 
to an optional prepayment pursuant to Section 7.2 hereof may state that 
it is subject to and conditional upon receipt by the Trustee on or prior 
to the proposed prepayment date of amounts sufficient to effect such 
prepayment and, if a notice so states, such notice shall be of no force 
and effect and the prepayment need not be made and the Repayment 
Installments will not become due and payable on the proposed prepayment 
date unless such amounts are so received on or prior to the proposed 
prepayment date.


                                  ARTICLE VIII

             NON-LIABILITY OF AUTHORITY; EXPENSES; INDEMNIFICATION

          SECTION 8.1.  NON-LIABILITY OF AUTHORITY.  The Authority shall 
not be obligated to pay the principal of, or premium, if any, or 
interest on the Bonds, or to discharge any other financial liability in 
connection herewith, except from Revenues.  The Borrower hereby 
acknowledges that the Authority's sole source of moneys to repay the 
Bonds will be provided by the payments made by the Borrower pursuant to 
this Agreement (excluding payments pursuant to Section 4.2(b), 4.2(c), 
4.2(d), 5.6, 6.3, 8.2 and 8.3 of this Agreement), together with other 
Revenues, including investment income on certain funds and accounts held 
by the Trustee under the Indenture, and hereby agrees that if the 
payments to be made hereunder shall ever prove insufficient to pay all 
principal of, and premium, if any, and interest on the Bonds as the same 
shall become due (whether by maturity, redemption, acceleration or 
otherwise), then upon notice from the Trustee, the Borrower shall pay 
such amounts as are required from time to time to prevent any deficiency 
or default in the payment of such principal, premium or interest, 
including, but not limited to, any deficiency caused by acts, omissions, 
nonfeasance or malfeasance on the part of the Trustee, the Borrower, the 
Authority or any third party.

          SECTION 8.2.  EXPENSES.  The Borrower covenants and agrees to 
pay within fifteen (15) days after billing therefor and to indemnify the 
Authority and the Trustee against all costs and charges, including fees 
and disbursements of attorneys, accountants, consultants and other 
experts incurred, in good faith in connection with this Agreement, the 
Bonds or the Indenture.

          SECTION 8.3.  INDEMNIFICATION.  The Borrower releases the 
Authority and the Trustee from, and covenants and agrees that neither 
the Authority nor the Trustee shall be liable for, and covenants and 
agrees, to the extent permitted by law, to indemnify, defend and hold 
harmless the Authority and the Trustee and their members, directors, 
officers, employees and agents from and against, any and all losses, 
claims, damages, liabilities or expenses, of every conceivable kind, 
character and nature whatsoever arising out of, resulting from or in any 
way connected with (1) the Project, or the conditions, occupancy, use, 
possession, conduct or management of, or work done in or about, or from 
the planning, design, acquisition, installation or construction of the 
Project or any part thereof; (2) the issuance of any Bonds or any 
certifications, covenants or representations made in connection 
therewith and the carrying out of any of the transactions contemplated 
by the Bonds, the Indenture and this Agreement;  (3) the Trustee's 
acceptance or administration of the trusts under the Indenture, or the 
exercise or performance of any of its powers or duties under the 
Indenture or this Agreement; or (4) any untrue statement or alleged 
untrue statement of any material fact or omission or alleged omission to 
state a material fact necessary to make the statements made, in light of 
the circumstances under which they were made, not misleading, in any 
official statement or other offering circular utilized by the Authority 
or any underwriter or placement agent in connection with the sale of any 
Bonds; provided that such indemnity shall not be required for damages 
that result from negligence or willful misconduct on the part of the 
party seeking such indemnity.  The indemnity required by this Section 
shall be only to the extent that any loss sustained by the Authority or 
the Trustee exceeds the net proceeds the Authority or the Trustee 
receives from any insurance carried with respect to the loss sustained. 
 The Borrower further covenants and agrees, to the extent permitted by 
law, to pay or to reimburse the Authority and the Trustee and their 
officers, employees and agents for any and all costs, reasonable 
attorneys fees, liabilities or expenses incurred in connection with 
investigating, defending against or otherwise in connection with any 
such losses, claims, damages, liabilities, expenses or actions, except 
to the extent that the same arise out of the negligence or willful 
misconduct of the party claiming such payment or reimbursement.  The 
provisions of this Section shall survive the retirement of the Bonds or 
resignation or removal of the Trustee.


                                   ARTICLE IX

                                 MISCELLANEOUS

        SECTION 9.1.  NOTICES.  All notices, certificates or other 
communications shall be deemed sufficiently given on the second day 
following the day on which the same have been mailed by first class 
mail, postage prepaid, addressed to the Authority, the Borrower or the 
Trustee, as the case may be, as follows:

To the Authority:   California Pollution Control Financing
                     Authority
                    915 Capitol Mall, Suite 446
                    Sacramento, California 95814
                    Attention:  Executive Director

To the Borrower:    San Diego Gas & Electric Company
                    101 Ash Street
                    P.O. Box 1831
                    San Diego, CA  92112
                    Attention:  Treasurer

To the Trustee:     First Trust of California, 
                     National Association
                    550 South Hope Street
                    Los Angeles, CA  90071
                    Attention:  Corporate Trust


A duplicate copy of each notice, certificate or other communication 
given hereunder by either the Authority or the Borrower to the other 
shall also be given to the Trustee.  The Authority, the Borrower and the 
Trustee may, by notice given hereunder, designate any different 
addresses to which subsequent notices, certificates or other 
communications shall be sent.

          SECTION 9.2.  SEVERABILITY.  If any provision of this 
Agreement shall be held or deemed to be, or shall in fact be, illegal, 
inoperative or unenforceable, the same shall not affect any other 
provision or provisions herein contained or render the same invalid, 
inoperative, or unenforceable to any extent whatever.

          SECTION 9.3.  EXECUTION OF COUNTERPARTS.  This Agreement may 
be simultaneously executed in several counterparts, each of which shall 
be an original and all of which shall constitute but one and the same 
instrument; provided, however, that for purposes of perfecting a 
security interest in this Agreement by the Trustee under Article 9 of 
the California Uniform Commercial Code, only the counterpart delivered, 
pledged, and assigned to the Trustee shall be deemed the original.

          SECTION 9.4.  AMENDMENTS, CHANGES AND MODIFICATIONS.  Except 
as otherwise provided in this Agreement or the Indenture, subsequent to 
the initial issuance of Bonds and prior to their payment in full, or 
provision for such payment having been made as provided in the 
Indenture, this Agreement may not be effectively amended, changed, 
modified, altered or terminated without the written consent of the 
Trustee.  Notice of any such amendment to this Agreement or the 
Indenture shall be promptly delivered to each Rating Agency then 
maintaining a rating on the Bonds.

          SECTION 9.5.  GOVERNING LAW.  This Agreement shall be governed 
exclusively by and construed in accordance with the applicable laws of 
the State of California.  This Agreement shall also be enforceable in 
California and any action arising out of this Agreement shall be filed 
and maintained in the Sacramento County Superior Court, Sacramento, 
California; provided that the Authority may waive the requirement of 
venue.  The parties agree that the terms and conditions of this 
Agreement supersede those of all previous agreements between the parties 
other than the documents referred to in this Agreement, and that this 
Agreement, together with the documents referred to in this Agreement, 
contains the entire agreement between the parties hereto.

          SECTION 9.6.  AUTHORIZED BORROWER REPRESENTATIVE.  Whenever 
under the provisions of this Agreement the approval of the Borrower is 
required or the Authority or the Trustee is required to take some action 
at the request of the Borrower, such approval or such request shall be 
given on behalf of the Borrower by an Authorized Borrower 
Representative, and the Authority and the Trustee shall be authorized to 
act on any such approval or request and neither party hereto shall have 
any complaint against the other or against the Trustee as a result of 
any such action taken.

          SECTION 9.7.  TERM OF THE AGREEMENT.  This Agreement shall be 
in full force and effect from the date hereof and shall continue in 
effect as long as any of the Bonds are outstanding or the Trustee holds 
any moneys under the Indenture, whichever is later; provided, however, 
that the rights of the Trustee and the Authority under Sections 8.2 and 
8.3 hereof shall survive the termination of this Agreement, the 
retirement of the Bonds and the removal or resignation of the Trustee.  
All representations and certifications by the Borrower as to all matters 
affecting the Tax-Exempt status of the Bonds shall survive the 
termination of this Agreement.

          SECTION 9.8.  BINDING EFFECT.  This Agreement shall inure to 
the benefit of and shall be binding upon the Authority, the Borrower, 
the Trustee and their respective successors and assigns; subject, 
however, to the limitations contained in Section 5.2 hereof.



          IN WITNESS WHEREOF, the California Pollution Control Financing 
Authority has caused this Agreement to be executed in its name and its 
seal to be hereunto affixed and attested by its duly authorized 
officers, and San Diego Gas & Electric Company has caused this Agreement 
to be executed in its name and its seal to be hereunto affixed by its 
duly authorized officers, all as of the date first above written.

                                   CALIFORNIA POLLUTION CONTROL 
                                   FINANCING AUTHORITY
                                   By Matt Fong, Chairman



                                   By____________________________
                                              Deputy

[SEAL]

Attest:



By____________________________
       Executive Director

                                  SAN DIEGO GAS & ELECTRIC COMPANY



                                  By_______________________________
[SEAL]                                  Senior Vice President,
                                       Chief Financial Officer
                                             and Treasurer

Attest:



By_____________________________
       Assistant Secretary



 


                      AMENDMENT NO. 3 TO THE
                  SAN DIEGO GAS & ELECTRIC COMPANY
               NUCLEAR FACILITIES QUALIFIED CPUC
                   DECOMMISSIONING MASTER TRUST
                    AGREEMENT FOR SAN ONOFRE 
                  NUCLEAR GENERATING STATIONS



This Amendment is entered into as of the 1st day of 
March, 1996, by and between San Diego Gas & Electric 
Company, a corporation duly organized and existing under the laws 
of the State of California, and having its principal office at 101 
Ash Street, San Diego, California 92101-3017 (the "Company), and 
State Street Bank and Trust Company, as Trustee, having its 
principal office at 1 Enterprise Drive, Quincy, Massachusetts  
01171 (the "Trustee").

WHEREAS, Pursuant to Section 2.12 of the Nuclear Facilities 
Qualified CPUC Decommissioning Master Trust Agreement dated June 
29, 1992 (the "Agreement") between San Diego Gas & Electric 
Company (the "Company") and the State Street Bank and Trust 
Company, as Trustee, the Company hereby amends the Agreement as 
follows;

NOW, THEREFORE, the parties agree as follows:

1.  The representations set forth above are incorporated herein by 
    this reference thereto.

2.  The Agreement shall be amended by restating the first
    paragraph of Section 4.03 to read:
    
     "The Trustee shall be entitled to a compensation from the
     Master Trust as shown on Exhibit C1 attached hereto."

3.  The Agreement shall be amended by restating the first sentence
    of the second paragraph of Section 4.03 as follows:

     "This fee schedule is effective through December 31, 1997 and 
     may be extended with the approval of the Trustee." 

4.  The Agreement shall be amended by restating the first and
    second sentences of the fourth paragraph of section 4.03 to
    read as follows:

     "This fee schedule shall be effective through December 31, 
    1997 for all assets placed under the Trustee's investment 
    discretion.  After January 1, 1998, the fee schedule for 
    assets placed under the Trustee's investment discretion shall 
    be subject to renegotiation."

5.  Except as set forth herein, the Agreement is hereby ratified 
    and confirmed and remains in full force and effect.



IN WITNESS WHEREOF, the Company, the California Public Utilities 
Commission, and the Trustee have set their Hands and seals to this 
Amendment to the Agreement as of March 1, 1996.



                         SAN DIEGO GAS & ELECTRIC COMPANY


                         By:_____________________________

                         Title:__________________________

                         Attest:_________________________

                         Title:__________________________


                         CALIFORNIA PUBLIC UTILITIES COMMISSION


                         By:_____________________________

                         Title:__________________________

                         Attest:_________________________

                         Title:__________________________


                         Accepted:

                         STATE STREET BANK AND TRUST COMPANY

                         By:_____________________________

                         Title:__________________________

                         Attest:_________________________

                         Title:__________________________











                                                        Exhibit C1



                   STATE STREET BANK AND TRUST COMPANY

                  MASTER TRUST SERVICES FEE SCHEDULE FOR

                      SAN DIEGO GAS & ELECTRIC NDT



FIXED INCOME PORTFOLIO

  I.  TRUST/CUSTODY CHARGES

      The following charges will be assessed on the month-end net 
      asset value in U.S. dollars:

      .50 of one (1) basis point per annum to act as Custodial
      Trustee

 II.  PORTFOLIO ADMINISTRATION (ACCOUNTING, RECORDKEEPING & 
      REPORTING)

      $6,000 per portfolio per annum

III.  PORTFOLIO ACTIVITY

      $15.00 per depository trade (DTC, FED, PTC)
      $35.00 per physical trade


EQUITY PORTFOLIO

  I.  TRUST/CUSTODY CHARGES

      The following charges will be assessed on the month-end
      domestic security holdings:

      $40.00 per holding per annum

 II.  PORTFOLIO ADMINISTRATION (ACCOUNTING, RECORDKEEPING & 
      REPORTING)

      $  5,000 per portfolio per annum (SSGA managed)
      $15,000 per portfolio per annum (external manager)

III.  PORTFOLIO ACTIVITY

      $13.00 per depository trade (DTC, FED, PTC) 
      $15.00 per depository trade (DTC, FED, PTC)
      $35.00 per physical trade




INTERNATIONAL PORTFOLIO

  I.  TRUST/CUSTODY CHARGES

      The following charges will be assessed on the month-end net
      asset value in U.S. dollars:

      Global Assets @ eighteen (18) basis points per annum

  I.  PORTFOLIO ADMINISTRATION (ACCOUNTING, RECORDKEEPING & 
      REPORTING)

      $50,000 per portfolio per annum 

 II.  PORTFOLIO ACTIVITY

      International Sub-Custodian Charges

                   Group A   Group B   Group C   Group D   Group E

     Transaction   ($)  25     45       60        70           100

     Holdings (bp)*   1.25   3.50     5.25      16.0          45.0


               Australia   Austria   Finland   Brazil    Argentina
               Canada      Belgium   Indonesia China    Bangladesh
               Cedel       Hong Kong Ireland   Czech      Botswana
               Denmark     Netherlands Luxembourge Egypt     Chile
               Euroclear   Norway      Malaysia  Jamaica  Columbia
               France      Sweden      Mexico   So. Korea   Cyprus
               Germany              Singapore  Philippines Ecuador
               Italy                Thailand   Portugal      Ghana
               Japan                           Sri Lanka    Greece
               Namibia                         Taiwan      Hungary
               New Zealand                     Turkey        India
               So. Africa                                   Israel
               Spain                                        Jordan
               Switzerland                                   Kenya
               United Kingdom                              Morocco
                                                          Pakistan
                                                              Peru
                                                            Poland
                                                           Tunisia
                                                           Uruguay
                                                         Venezuela
                                                            Zambia
                                                          Zimbabwe

* Based on the month-end value in U.S. dollars




OTHER CHARGES (Only if Applicable)

*  Plant (Plan) Accounting

   $735.00 per plant (plan) per annum

*  Short Term Investment Fund 

   Annual administrative/management fees are netted out of yield

*  Out-of-Pockets

   Out-of-Pockets such as wires, courier, and communication
   charges are borne by the client

*  Stamp Duty and Registration

   Expenses paid to a third party for stamp duty and registration
   will be billed to the client

*  Foreign Exchange

   A charge of $75.00 will be assessed for each foreign exchange 
   executed through a third party


ANALYTICS SERVICES

*  Performance Measurement

   $2,500 Per Portfolio 

*  Investment Compliance Monitoring    

   $750 Per Portfolio

















                   STATE STREET BANK AND TRUST COMPANY

                  MASTER TRUST SERVICES FEE SCHEDULE FOR

                      SAN DIEGO GAS & ELECTRIC NDT


                         DOMESTIC PRO FORMA


TRUST/CUSTODY CHARGES

Fixed Income

SGE2  Brown Brothers            19,900,000 * .50 bp         995.00
SGE3  Brown Brothers            49,769,000 * .50 bp       2,488.00
SGE4  Delaware                  88,438,000 * .50 bp       4,422.00
                                                          7,905.00

Equity

SGE1  Fidelity                  230 Holdings * $40.00     9,200.00
SGE6  State Street Global Advisors 600 Holdings * $40.00 24,000.00
                                                         33,200.00


PORTFOLIO ADMINISTRATION

SGE1  Fidelity                                           15,000.00
SGE2  Brown Brothers                                      6,000.00
SGE3  Brown Brothers                                      6,000.00
SGE4  Delaware                                            6,000.00
SGE6  State Street Global Advisors                        5,000.00
                                                         38,000.00

PORTFOLIO ACTIVITY

SGE1  Fidelity                  660 trades * $15.00       9,900.00
SGE2  Brown Brothers             30 trades * $15.00         450.00
SGE3  Brown Brothers             30 trades * $15.00         450.00
SGE4  Delaware                   60 trades * $15.00         900.00
SGE6  State Street Global Advisors 425 trades * $13.00    5,525.00
                                                         17,225.00

                                         TOTAL           96,330.00


ANALYTICS

5 Portfolios * (3,250.00)                                16,250.00




                    STATE STREET BANK AND TRUST COMPANY

                   MASTER TRUST SERVICES FEE SCHEDULE FOR

                         SAN DIEGO GAS & ELECTRIC NDT



                           INTERNATIONAL PRO FORMA



TRUST/CUSTODY CHARGES

Equity

SGE7  State Street Global Advisors  25,000,000 * 18 BP   45,000.00


PORTFOLIO ADMINISTRATION

SGE7  State Street Global Advisors                       50,000.00

PORTFOLIO ACTIVITY

SGE7  State Street Global Advisors 100 trades * $35.00    3,500.00
                                   25,000,000*    3 BP    7,500.00

                                         TOTAL          106,000.00


ANALYTICS

1 Portfolios * (3,250.00)                                 3,250.00












                          AMENDMENT NO. 4 TO THE
                    SAN DIEGO GAS & ELECTRIC COMPANY
                 NUCLEAR FACILITIES NON-QUALIFIED CPUC
                     DECOMMISSIONING MASTER TRUST
                        AGREEMENT FOR SAN ONOFRE
                     NUCLEAR GENERATING STATIONS


     This Amendment No. 4 is entered into as of the 23rd day of 
December, 1996, by and between San Diego Gas & Electric Company, a 
corporation duly organized and existing under the laws of the 
State of California, and having its principal office at 101 Ash 
Street, San Diego, California 92101-3017 (the "Company"), and 
State Street Bank and Trust Company, as Trustee, having its 
principal office at 1 Enterprise Drive, Quincy, Massachusetts 
02171 (the "Trustee").

     Pursuant to Section 2.12 of the Nuclear Facilities Qualified 
CPUC Decommissioning Master Trust Agreement dated June 29, 1992 
(the "Agreement") between San Diego Gas & Electric Company (the 
"Company") and State Street Bank and Trust Company, as Trustee, 
the parties agree to amend the Agreement as follows:

     1.  The representations set forth above are incorporated
     herein by this reference thereto.

     2.   Section 1.03 of the Agreement is amended and restated to
     read as follows:

          The exclusive purposes of this Master Trust are to
          provide monies for the decommissioning of the Plants,
          and to constitute qualified nuclear decommissioning
          funds for the Units within the meaning of Section 468A
          of the Code, any applicable successor provision and the
          regulations thereunder.  Assets of the Funds must be
          used as authorized by Section 468A of the Code and the
          regulations thereunder

     3.   The first paragraph of Section 2.12 of the Agreement is
     amended and restated to read as follows:

          The Trustee and the Company understand and agree that
          modifications or amendments may be required to this
          Agreement from time to time to effectuate the purposes
          of the trust.  This Agreement may not be amended so as
          to violate Section 468A of the Code or the regulations
          thereunder.

     4.   The second page of Exhibit C1 of the Agreement, the Fee
     Schedule relating to the International Portfolio, is replaced
     with the revised second page attached hereto.







     5.   The first sentence of the second paragraph of Section
     4.03 is amended and restated to read as follows:

          This fee schedule is effective through December 31, 1997
          and may be extended with the approval of the Trustee.

     6.   The first and second sentences of the fourth paragraph
     of Section 4.03 are amended and restated as follows:

          This fee schedule shall be effective through December
          31, 1997 for all assets placed under the Trustee's
          investment discretion. After January 1, 1998, the fee
          schedule for assets placed under the Trustee's
          investment discretion shall be subject to
          renegotiation."

     7.   Except as set forth herein, the Agreement is hereby
     ratified and confirmed and remain in full force and effect



SAN DIEGO GAS & ELECTRIC                     STATE STREET BANK AND
COMPANY                                      TRUST COMPANY


By:_______________________                 By:____________________

Title:____________________                 Title:_________________

Attest:___________________                 Attest:________________

Title:____________________                 Title:_________________




CALIFORNIA PUBLIC UTILITIES COMMISSION


By:_________________________________________

Title:______________________________________

Attest:_____________________________________

Title:______________________________________



                                                    EXHIBIT C1

INTERNATIONAL PORTFOLIO

  I.  TRUST/CUSTODY CHARGES

      The following charges will be assessed on the month-end net
      asset value in U.S. dollars:

      Global Assets @ fourteen (14) basis points per annum

  I.  PORTFOLIO ADMINISTRATION (ACCOUNTING, RECORDKEEPING & 
      REPORTING)

      $20,000 per portfolio per annum 

 II.  PORTFOLIO ACTIVITY

      International Sub-Custodian Charges

                   Group A   Group B   Group C   Group D   Group E

     Transaction   ($)  25     45       60        70           100

     Holdings (bp)*   1.25   3.50     5.25      16.0          45.0


               Australia   Austria   Finland   Brazil    Argentina
               Canada      Belgium   Indonesia China    Bangladesh
               Cedel       Hong Kong Ireland   Czech      Botswana
               Denmark     Netherlands Luxembourge Egypt     Chile
               Euroclear   Norway      Malaysia  Jamaica  Columbia
               France      Sweden      Mexico   So. Korea   Cyprus
               Germany              Singapore  Philippines Ecuador
               Italy                Thailand   Portugal      Ghana
               Japan                           Sri Lanka    Greece
               Namibia                         Taiwan      Hungary
               New Zealand                     Turkey        India
               So. Africa                                   Israel
               Spain                                        Jordan
               Switzerland                                   Kenya
               United Kingdom                              Morocco
                                                          Pakistan
                                                              Peru
                                                            Poland
                                                           Tunisia
                                                           Uruguay
                                                         Venezuela
                                                            Zambia
                                                          Zimbabwe

* Based on the month-end value in U.S. dollars



                 AMENDMENT NO. 1 TO THE
            SAN DIEGO GAS & ELECTRIC COMPANY
          NUCLEAR FACILITIES NON-QUALIFIED CPUC
              DECOMMISSIONING MASTER TRUST
               AGREEMENT FOR SAN ONOFRE 
              NUCLEAR GENERATING STATIONS



This Amendment is entered into as of the 1st day of 
March, 1996, by and between San Diego Gas & Electric 
Company, a corporation duly organized and existing under the laws 
of the State of California, and having its principal office at 101 
Ash Street, San Diego, California 92101-3017 (the "Company), and 
State Street Bank and Trust Company, as Trustee, having its 
principal office at 1 Enterprise Drive, Quincy, Massachusetts  
01171 (the "Trustee").

WHEREAS, Pursuant to Section 2.12 of the Nuclear Facilities Non-
Qualified CPUC Decommissioning Master Trust Agreement dated June 
29, 1992 (the "Agreement") between San Diego Gas & Electric 
Company (the "Company") and the State Street Bank and Trust 
Company, as Trustee, the Company hereby amends the Agreement as 
follows;

NOW, THEREFORE, the parties agree as follows:

1.  The representations set forth above are incorporated herein by 
    this reference thereto.

2.  The Agreement shall be amended by restating the first 
    paragraph of Section 4.03 to read:
    
"The Trustee shall be entitled to a compensation from the 
Master Trust as shown on Exhibit C1 attached hereto."

3.  The Agreement shall be amended by restating the first sentence 
    of the second paragraph of Section 4.03 as follows:

"This fee schedule is effective through December 31, 1997 
and may be extended with the approval of the Trustee." 

4.  The Agreement shall be amended by restating the first and 
    second sentences of the fourth paragraph of section 4.03 to 
    read as follows:

"This fee schedule shall be effective through December 31, 1997 
for all assets placed under the Trustee's investment discretion. 
After January 1, 1998, the fee schedule for assets placed under 
the Trustee's investment discretion shall be subject to 
renegotiation."

5.  Except as set forth herein, the Agreement is hereby ratified 
    and confirmed and remains in full force and effect.



IN WITNESS WHEREOF, the Company, the California Public Utilities 
Commission, and the Trustee have set their Hands and seals to this 
Amendment to the Agreement as of March 1, 1996.



                          SAN DIEGO GAS & ELECTRIC COMPANY

                          By:___________________________________

                          Title:________________________________

                          Attest:_______________________________

                          Title:________________________________



                          CALIFORNIA PUBLIC UTILITIES COMMISSION

                          By:___________________________________

                          Title:________________________________

                          Attest:_______________________________

                          Title:________________________________



                          Accepted:

                          STATE STREET BANK AND TRUST COMPANY

                          By:___________________________________

                          Title:________________________________

                          Attest:_______________________________

                          Title:________________________________










                                                       Exhibit C1




                      STATE STREET BANK AND TRUST COMPANY

                     MASTER TRUST SERVICES FEE SCHEDULE FOR

                        SAN DIEGO GAS & ELECTRIC NDT



FIXED INCOME PORTFOLIO

   I.  TRUST/CUSTODY CHARGES

      The following charges will be assessed on the month-end net 
      :asset value in U.S. dollars:
      .50 of one (1) basis point per annum to act as Custodial 
      Trustee

  II. PORTFOLIO ADMINISTRATION (ACCOUNTING, RECORDKEEPING & 
      REPORTING)

      $6,000 per portfolio per annum

 III.  PORTFOLIO ACTIVITY

      $15.00 per depository trade (DTC, FED, PTC)
      $35.00 per physical trade



EQUITY PORTFOLIO

   I.  TRUST/CUSTODY CHARGES

       The following charges will be assessed on the month-end 
       domestic security holdings:

       $40.00 per holding per annum

  II.  PORTFOLIO ADMINISTRATION (ACCOUNTING, RECORDKEEPING & 
       REPORTING)

       $ 5,000 per portfolio per annum (SSGA managed)
       $15,000 per portfolio per annum (external manager)

 III.  PORTFOLIO ACTIVITY

       $13.00 per depository trade (DTC, FED, PTC) 
       $15.00 per depository trade (DTC, FED, PTC)
       $35.00 per physical trade




INTERNATIONAL PORTFOLIO

   I.  TRUST/CUSTODY CHARGES

       The following charges will be assessed on the month-end net 
       asset value in U.S. dollars:

       Global Assets @ eighteen (18) basis points per annum

  II.  PORTFOLIO ADMINISTRATION (ACCOUNTING, RECORDKEEPING & 
       REPORTING)

       $50,000 per portfolio per annum 

 III.  PORTFOLIO ACTIVITY

       International Sub-Custodian Charges

                      Group A  Group B  Group C  Group D  Group E

Transaction ($)          25        45       60       70       100

Holdings (bp)*         1.25      3.50     5.25     16.0       45.0


               Australia  Austria     Finland   Brazil  Argentina
               Canada     Belgium     Indonesia China   Bangladesh
               Cedel      Hong Kong   Ireland   Czech   Botswana
               Denmark    Netherlands Luxembourg Egypt  Chile
               Euroclear  Norway      Malaysia  Jamaica Columbia
               France     Sweden      Mexico    So. Korea  Cyprus
               Germany               Singapore Philippines Ecuador
               Italy                 Thailand  Portugal    Ghana
               Japan                           Sri Lanka   Greece
               Namibia                         Taiwan      Hungary
               New Zealand                     Turkey      India
               So. Africa                                  Israel
               Spain                                       Jordan
               Switzerland                                 Kenya
               United Kingdom                              Morocco
                                                          Pakistan
                                                           Peru
                                                           Poland
                                                           Tunisia
                                                           Uruguay
                                                         Venezuela
                                                            Zambia
                                                          Zimbabwe

* Based on the month-end value in U.S. dollars






OTHER CHARGES (Only if Applicable)

*  Plant (Plan) Accounting

   $735.00 per plant (plan) per annum

*  Short Term Investment Fund 

   Annual administrative/management fees are netted out of yield

*  Out-of-Pockets

   Out-of-Pockets such as wires, courier, and communication
   charges are borne by the client

*  Stamp Duty and Registration

   Expenses paid to a third party for stamp duty and registration 
   will be billed to the client

*  Foreign Exchange

   A charge of $75.00 will be assessed for each foreign exchange  
   executed through a third party


ANALYTICS SERVICES

*  Performance Measurement

   $2,500 Per Portfolio 
    
*  Investment Compliance Monitoring    

   $750 Per Portfolio
    













STATE STREET BANK AND TRUST COMPANY

MASTER TRUST SERVICES FEE SCHEDULE FOR

SAN DIEGO GAS & ELECTRIC NDT

DOMESTIC PRO FORMA


TRUST/CUSTODY CHARGES

Fixed Income

SGE2  Brown Brothers    19,900,000 * .50 bp                 995.00
SGE3  Brown Brothers    49,769,000 * .50 bp               2,488.00
SGE4  Delaware          88,438,000 * .50 bp               4,422.00

                                                          7,905.00

Equity

SGE1  Fidelity           230 Holdings * $40.00            9,200.00
SGE6  State Street Global Advisors 600 Holdings * $40.00 24,000.00

                                                         33,200.00

PORTFOLIO ADMINISTRATION

SGE1  Fidelity                                           15,000.00
SGE2  Brown Brothers                                      6,000.00
SGE3  Brown Brothers                                      6,000.00
SGE4  Delaware                                            6,000.00
SGE6  State Street Global Advisors                        5,000.00

                                                         38,000.00

PORTFOLIO ACTIVITY

SGE1  Fidelity          660 trades * $15.00               9,900.00
SGE2  Brown Brothers     30 trades * $15.00                 450.00
SGE3  Brown Brothers     30 trades * $15.00                 450.00
SGE4  Delaware           60 trades * $15.00                 900.00
SGE6  State Street Global Advisors  425 trades * $13.00   5,525.00

                                                         17,225.00

                                 TOTAL                   96,330.00


ANALYTICS

5 Portfolios * (3,250.00)                                16,250.00


STATE STREET BANK AND TRUST COMPANY

MASTER TRUST SERVICES FEE SCHEDULE FOR

SAN DIEGO GAS & ELECTRIC NDT



INTERNATIONAL PRO FORMA



TRUST/CUSTODY CHARGES

Equity

SGE7  State Street Global Advisors  25,000,000 * 18 BP   45,000.00

PORTFOLIO ADMINISTRATION

SGE7  State Street Global Advisors                       50,000.00

PORTFOLIO ACTIVITY

SGE7  State Street Global Advisors 100 trades * $35.00    3,500.00
                                   25,000,000*    3 BP    7,500.00


                                     TOTAL              106,000.00


ANALYTICS

1 Portfolios * (3,250.00)                                 3,250.00











                      AMENDMENT NO. 2 TO THE
                 SAN DIEGO GAS & ELECTRIC COMPANY
                NUCLEAR FACILITIES NON-QUALIFIED CPUC
                    DECOMMISSIONING MASTER TRUST
                     AGREEMENT FOR SAN ONOFRE
                    NUCLEAR GENERATING STATIONS


     This Amendment No. 2 is entered into as of the 23rd day of 
December, 1996, by and between San Diego Gas & Electric Company, a 
corporation duly organized and existing under the laws of the 
State of California, and having its principal office at 101 Ash 
Street, San Diego, California 92101-3017 (the "Company"), and 
State Street Bank and Trust Company, as Trustee, having its 
principal office at 1 Enterprise Drive, Quincy, Massachusetts 
02171 (the "Trustee").

    Pursuant to Section 2.12 of the Nuclear Facilities Non-
Qualified CPUC Decommissioning Master Trust Agreement dated June 
29, 1992 (the "Agreement") between San Diego Gas & Electric 
Company (the "Company") and State Street Bank and Trust Company, 
as Trustee, the parties agree to amend the Agreement as follows:

     1. The representations set forth above are incorporated 
     herein by this reference thereto.

     2. The second page of Exhibit C1 of the Agreement, the 
     Fee Schedule relating to the International Portfolio, is replaced
     with the revised second page attached hereto.

     3. The first sentence of the second paragraph of Section 4.03
     is amended and restated to read as follows:

     This fee schedule is effective through December 31, 1997 and
     may be extended with the approval of the Trustee.

     4. The first and second sentences of the fourth paragraph of
     Section 4.03 are amended and restated as follows:

     This fee schedule shall be effective through December 31,
     1997 for all assets placed under the Trustee's investment
     discretion.  After January 1, 1998, the fee schedule for
     assets placed under the Trustee's investment discretion shall
     be subject to renegotiation."





     5.Except as set forth herein, the Agreement is hereby
     ratified and confirmed and remains in full force and effect.


SAN DIEGO GAS & ELECTRIC                 STATE STREET BANK AND
COMPANY                                  TRUST COMPANY

By:_____________________                 By:___________________

Title:__________________                 Title_________________

Attest:_________________                 Attest:_______________

Title:__________________                 Title:________________



CALIFORNIA PUBLIC UTILITIES COMMISSION


By:  _______________________________________

Title:______________________________________

Attest:_____________________________________

Title:______________________________________



                                                   EXHIBIT C1
INTERNATIONAL PORTFOLIO

   I.  TRUST/CUSTODY CHARGES

       The following charges will be assessed on the month-end net 
       asset value in U.S. dollars:

       Global Assets @ fourteen (14) basis points per annum

  II.  PORTFOLIO ADMINISTRATION (ACCOUNTING, RECORDKEEPING & 
       REPORTING)

       $20,000 per portfolio per annum 

 III.  PORTFOLIO ACTIVITY

       International Sub-Custodian Charges

                      Group A  Group B  Group C  Group D  Group E

Transaction ($)          25        45       60       70       100

Holdings (bp)*         1.25      3.50     5.25     16.0       45.0


               Australia  Austria     Finland   Brazil  Argentina
               Canada     Belgium     Indonesia China   Bangladesh
               Cedel      Hong Kong   Ireland   Czech   Botswana
               Denmark    Netherlands Luxembourg Egypt  Chile
               Euroclear  Norway      Malaysia  Jamaica Columbia
               France     Sweden      Mexico    So. Korea  Cyprus
               Germany               Singapore Philippines Ecuador
               Italy                 Thailand  Portugal    Ghana
               Japan                           Sri Lanka   Greece
               Namibia                         Taiwan      Hungary
               New Zealand                     Turkey      India
               So. Africa                                  Israel
               Spain                                       Jordan
               Switzerland                                 Kenya
               United Kingdom                              Morocco
                                                          Pakistan
                                                           Peru
                                                           Poland
                                                           Tunisia
                                                           Uruguay
                                                         Venezuela
                                                            Zambia
                                                          Zimbabwe

* Based on the month-end value in U.S. dollars



 
                                  EXHIBIT 12.1 
                          SAN DIEGO GAS & ELECTRIC COMPANY 
            COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES 
                           AND PREFERRED STOCK DIVIDENDS 

1991 1992 1993 1994 1995 1996 --------- ---------- ---------- ---------- ---------- ---------- Fixed Charges: Interest: Long-Term Debt $ 95,124 $ 97,067 $ 84,830 $ 81,749 $ 82,591 $ 76,463 Short-Term Debt 7,010 5,043 6,676 8,894 17,886 12,635 Amortization of Debt Discount and Expense, Less Premium 2,471 2,881 4,162 4,604 4,870 4,881 Interest Portion of Annual Rentals 18,067 14,558 9,881 9,496 9,631 8,446 ---------- ---------- ----------- --------- ----------- ---------- Total Fixed Charges 122,672 119,549 105,549 104,743 114,978 102,425 ---------- ---------- ----------- --------- ----------- ---------- Preferred Dividends Requirements 10,535 9,600 8,565 7,663 7,663 6,582 Ratio of Income Before Tax to Net Income 1.64160 1.71389 1.79353 1.83501 1.78991 1.88864 ---------- ----------- ----------- ---------- ---------- ---------- Preferred Dividends for Purpose of Ratio 17,294 16,453 15,362 14,062 13,716 12,431 ---------- ----------- ----------- ---------- ---------- ---------- Total Fixed Charges and Preferred Dividends for Purpose of Ratio $139,966 $136,002 $120,911 $118,805 $128,694 $114,856 ========== =========== ========== ========== ========== ========== Earnings: Net Income (before preferred dividend requirements) $202,544 $224,177 $215,872 $206,296 $219,049 $222,765 Add: Fixed Charges (from above) 122,672 119,549 105,549 104,743 114,978 102,425 Less: Fixed Charges Capitalized 2,322 1,262 1,483 1,424 2,040 1,495 Taxes on Income 129,953 160,038 171,300 172,259 173,029 197,958 ---------- ---------- ---------- ---------- ----------- --------- Total Earnings for Purpose of Ratio $452,847 $502,502 $491,238 $481,874 $505,016 $521,653 ========== ========== ========== ========== =========== ========== Ratio of Earnings to Combined Fixed Charges and Preferred Dividends 3.24 3.69 4.06 4.06 3.92 4.54 ========== ========== ========== ========== =========== =========
 

UT 0000940170 Enova Corporation 1000 YEAR DEC-31-1996 DEC-31-1996 PER-BOOK 3,074,371 650,188 503,703 95,680 325,295 4,649,237 291,571 566,473 711,626 1,569,670 25,000 78,475 1,188,093 0 194,522 0 61,310 0 96,723 8,592 1,426,852 4,649,237 1,993,474 151,813 1,506,698 1,658,511 334,963 5,972 340,935 110,008 230,927 0 230,927 181,866 89,198 559,406 1.98 1.98 PREFERRED DIVIDEND OF SUBSIDIARY INCLUDED IN INTEREST EXPENSE
 

UT 0000086521 San Diego Gas and Electric 1000 YEAR DEC-31-1996 DEC-31-1996 PER-BOOK 3,074,371 337,520 365,700 91,596 291,329 4,160,516 291,458 566,233 546,445 1,404,136 25,000 78,475 1,188,093 0 0 0 25,047 0 96,723 8,592 1,334,450 4,160,516 1,938,917 202,185 1,427,970 1,630,155 308,762 4,694 313,456 90,691 222,765 6,582 216,183 181,866 76,463 529,187 0 0
Management's Discussion and Analysis of Financial Condition 
and Results of Operations  --  Enova Corporation and SDG&E 

Background
On January 1, 1996, Enova Corporation (referred to herein as Enova, which 
includes the parent and its wholly owned subsidiaries) became the parent of San 
Diego Gas & Electric. SDG&E's outstanding common stock was converted on a share-
for-share basis into Enova Corporation common stock. SDG&E's debt securities, 
preferred stock and preference stock were unaffected and remain with SDG&E. 
     On October 14, 1996, Enova and Pacific Enterprises, Inc., parent company of
Southern California Gas Company, announced that they have agreed to combine the 
two companies. As a result of the combination, which was unanimously approved by
the boards of directors of both companies, (i) each outstanding share of common 
stock of Enova will be converted into one share of common stock of the new 
company, (ii) each outstanding share of common stock of Pacific Enterprises will
be converted into 1.5038 shares of the new company's common stock and (iii) the 
preferred stock and preference stock of SDG&E, Pacific Enterprises and Southern 
California Gas will remain outstanding. On March 11, 1997, the shareholders of 
Enova and Pacific Enterprises approved the combination. Consummation of the 
combination is conditional upon the approvals of the California Public Utilities
Commission and various other regulatory bodies. Completion of the combination is
expected by the end of 1997. Additional information regarding the proposed 
business combination is described in Note 1 of the notes to consolidated 
financial statements. 
     SDG&E is an operating public utility engaged in the electric and gas 
businesses. It generates and purchases electric energy and distributes it to 1.2
million customers in San Diego County and an adjacent portion of Orange County, 
California. It also purchases and distributes natural gas to 711,000 customers 
in San Diego County and also transports electricity and gas for others. Enova 
has six other subsidiaries (referred to herein as non-utility subsidiaries). 
Enova Financial invests in limited partnerships representing approximately 1,100
affordable-housing properties located throughout the United States. Califia 
leases computer equipment. The investments in Enova Financial and Califia are 
expected to provide income-tax benefits over the next several years. Enova 
Energy is an energy management and consulting firm offering services to 
utilities and large consumers. Enova Technologies is in the business of 
developing new technologies generally related to utilities and energy. On 
January 14, 1997, Enova Energy and Enova Technologies formed a joint venture 
with certain subsidiaries of Pacific Enterprises to provide integrated energy 
and energy-related products and services. The merger agreement with Pacific 
Enterprises provides that if the business combination is not consummated, either
party can terminate the joint venture. Enova International is involved in 
natural gas and power projects outside the United States. Pacific Diversified 
Capital is the parent company of Phase One Development, which is engaged in 
real-estate development. Additional information regarding Enova's subsidiaries 
is described in Notes 2 and 3 of the notes to consolidated financial statements.

Results of Operations
Operating Revenues   Electric revenues increased 6 percent in 1996, primarily 
due to the accelerated recovery of San Onofre Nuclear Generating Station Units 
2 and 3. Additional information about the SONGS recovery and depreciation is 
discussed below and in Note 2 of the notes to consolidated financial statements.
Gas revenues increased 12 percent in 1996, reflecting higher purchased-gas 
prices. Gas revenues decreased 10 percent in 1995, reflecting lower purchased-
gas prices, weather-related lower sales volume and an increase in customers' 
purchases of gas directly from other suppliers (for whom SDG&E provides 
transportation). 

Operating Expenses   Electric fuel expense increased 34 percent in 1996, 
primarily due to increased nuclear and natural gas-fired generation, as well as 
increases in natural gas prices. Electric fuel expense decreased 30 percent in 
1995, primarily due to lower prices for natural gas and the shifting of energy 
supply sources from generation to purchased power as a result of two nuclear 
refuelings during the year. 
     Purchased-power expenses decreased 9 percent in 1996, reflecting the 
availability of lower-cost nuclear generation and decreases in purchased-power 
capacity charges due to a surplus of power from hydro-powered plants in the 
Northwest. 
     Gas purchased for resale increased 34 percent in 1996, primarily due to 
higher natural gas prices. Gas purchased for resale decreased 23 percent in 
1995, primarily due to lower prices for natural gas, and lower sales volumes due
to warmer weather and an increase in customers' purchases of gas directly from 
other suppliers. 
     The changes in maintenance expenses reflect higher power plant emissions 
costs and the nuclear refuelings in 1995. 
     The increase in depreciation and decommissioning expense in 1996 is 
primarily due to the accelerated recovery of SONGS Units 2 and 3.  
     The increase in general and administrative expenses in 1996 includes start-
up costs for Enova Energy, Enova Technologies and Enova International, expenses 
related to the proposed merger with Pacific Enterprises, and higher costs for 
customer service. 

Earnings   1996 earnings per common share were $1.98 compared to $1.94 in 1995 
and $1.17 in 1994. 1994 earnings per common share from continuing operations 
were $1.71. The increase in earnings in 1996 is primarily due to demand-side 
management rewards, partially offset by SDG&E's lower authorized return on 
equity. The increase in earnings from continuing operations in 1995 was due to 
numerous offsetting factors, including the 1994 writedowns (described in Note 2 
of the notes to consolidated financial statements), SDG&E's increased authorized
return on equity, and changes in incentive rewards for Performance-Based 
Ratemaking and demand-side management programs. 
     Earnings per share for the quarter ended December 31, 1996, were $0.47, 
compared to $0.50 for the same period in 1995. The decrease in earnings for the 
quarter was due to numerous offsetting factors, including SDG&E's lower 
authorized return on equity, changes in incentive rewards for Performance-Based 
Ratemaking and demand-side management 
programs, and 1995 earnings associated with discontinued operations. 
     Califia and Enova Financial's contributions to earnings for the year were 
$0.19 in 1996, $0.17 in 1995 and $0.15 in 1994. The impact of the remaining 
subsidiaries on earnings was not material. 

Liquidity and Capital Resources
SDG&E's operations continue to be a major source of liquidity. In addition, 
financing needs are met primarily through issuances of short-term and long-term 
debt and of common and preferred stock. These capital resources are expected to 
remain available. Cash requirements include plant construction and other capital
expenditures, non-utility subsidiaries' affordable-housing, leasing and other 
investments, and repayments and retirements of long-term debt. In addition to 
changes described elsewhere, major changes in cash flows are described below.

Cash Flows from Operating Activities   The major changes in cash flows from 
operations among the three years result from changes in regulatory balancing 
accounts, income taxes, and accounts payable and other current liabilities. The 
changes in cash flows related to 
regulatory balancing accounts were primarily due to changes in prices for 
natural gas. The changes in cash flows related to income taxes were primarily 
due to higher 1996 income tax payments in connection with settlements with the 
Internal Revenue Service on the timing of certain deductions in prior years. The
changes in accounts payable and other current liabilities were primarily due to 
increased natural gas purchases in 1996 and greater demand-side management 
activity in 1995. 
     Quarterly cash dividends of $0.39 per share were declared for the year 
ended December 31, 1996. The dividend payout ratios for the years ended December
31, 1996, 1995, 1994, 1993 and 1992 were 79 percent, 80 percent, 130 percent, 82
percent and 81 percent, respectively. The increase in the payout ratio for the 
year ended December 31, 1994, was due to the writedowns recorded during 1994. 
Additional information regarding the writedowns is provided in Notes 2 and 3 of 
the notes to consolidated financial statements. The payment of future dividends 
is within the discretion of the Enova Board of Directors and is dependent upon 
future business conditions, earnings and other factors. Net cash flows provided 
by operating activities currently are sufficient to maintain the payment of 
dividends at the present level. 

Cash Flows from Financing Activities   Enova did not issue additional stock 
or long-term debt in 1996 except for refinancings and does not plan any 
issuances in 1997 other than 
for refinancings. 
     In May 1996, the CPUC approved SDG&E's request to issue up to $300 million 
of long-term debt to refinance previously issued long-term debt. The decision 
also grants a two-year extension of a prior CPUC authorization to issue $138 
million of long-term debt and $100 million of preferred stock. 
     During 1996, SDG&E issued $130 million of Pollution Control Bonds and $99 
million of Industrial Development Bonds. The funds obtained from these issues 
were used to retire previously issued Pollution Control Bonds and Industrial 
Development Bonds of $129 million and $126 million, respectively. Enova 
Financial and Califia repaid $29 million of long-term debt in 1996 during the 
ordinary course of business. 
     SDG&E's capital structure is one factor that has enabled it to obtain long-
term financing at attractive rates. The following table shows the percentages of
capital represented by the various components. The capital structures are net of
the construction funds held by a trustee in 1992 and 1993. 

                             1992    1993    1994    1995    1996     Goal
- -------------------------------------------------------------------------------
Common equity                 47 %    47 %    48 %     49 %    50 %   	46-49 %
Preferred stock                5       4       4        4       4       3-5
Debt and leases               48      49      48       47      46     46-49
- -------------------------------------------------------------------------------
Total                        100 %   100 %   100 %    100 %   100 %     100 %
===============================================================================

     The CPUC regulates SDG&E's capital structure, limiting the dividends it may
pay Enova. At December 31, 1996, $67 million of common equity was available for 
future dividends. This restriction is not expected to affect Enova's ability to 
meet its cash obligations. 
     During 1996, Standard & Poor's Ratings Group upgraded SDG&E's long-term-
bond rating from an A+/negative outlook to an A+/positive outlook following the 
passage of California's electric-restructuring law and the announcement of 
Enova's proposed business combination with Pacific Enterprises. Moody's 
Investors Service affirmed SDG&E's long-term-bond rating of A1/stable outlook. 
     The state of California has authorized the issuance of rate-reduction bonds
to finance a portion of transition costs that residential and commercial 
customers will pay from 1998 to 2001. Principal and interest on the bonds will 
be paid through a charge on customers' bills. SDG&E is expected to receive 
approximately $500 million from the proceeds. The bonds are expected to be 
issued by the California Infrastructure and Economic Development Bank in late 
1997. Additional information on the bonds is provided below under "Industry 
Restructuring." 
     In January 1996, SDG&E redeemed its $7.20 series preference stock. The 
entire $15 million issue was called for mandatory redemption at $101 per share. 

Cash Flows from Investing Activities   Cash used in investing activities in 
1996 included SDG&E's construction expenditures and payments to its nuclear 
decommissioning trust. Construction expenditures, excluding nuclear fuel and the
allowance for equity funds used during construction, were $209 million in 1996 
and are estimated to be $240 million in 1997. SDG&E continuously reviews its 
construction, investment and financing programs and revises them in response to 
changes in competition, customer growth, inflation, customer rates, the cost of 
capital, and environmental and regulatory requirements. Among other things, the 
level of expenditures in the next few years will depend heavily on the impacts 
of industry restructuring, and on the timing of expenditures to comply with air-
emission reduction and other environmental requirements. 
     Payments to the nuclear decommissioning trust are expected to continue 
until SONGS is decommissioned, which is not expected to occur before 2013. 
Although Unit 1 was permanently shut down in 1992, it is expected to be 
decommissioned concurrently with Units 2 and 3. 
     Enova's level of non-utility expenditures in the next few years will depend
primarily on the activities of its subsidiaries, including the joint venture 
with Pacific Enterprises. The Mexican Energy Regulatory Commission has awarded 
Enova International and its partners, Pacific Enterprises International and 
Proxima S.A. de C.V., the first natural gas privatization license in Mexico, 
allowing the partnership to build and operate a natural gas distribution system 
in Mexicali, Baja California. The partnership was granted a 30-year license to 
supply natural gas to the region, with exclusive rights  for the first 12 years.
The Mexican company formed by the three partners, Distribuidora de Gas Natural 
de Mexicali, will invest up to $25 million during the first five years of the 
license period. Natural gas service to major commercial and industrial users is 
expected to begin in the third quarter of 1997, and be extended to more than 
25,000 residential customers by the fifth year. Separately, in January 1997, the
partnership submitted a bid to the Mexican Energy Regulatory Commission to build
and operate a natural gas distribution system in Chihuahua, Mexico. The 
commission is expected to announce the winning bidder by April 1, 1997. In 
addition, Enova International is part of two consortia preparing bids to build 
and operate a power plant and natural gas pipeline in Rosarito, Baja California.

Derivatives   The policy of Enova is to use derivative financial instruments 
to reduce exposure to fluctuations in interest rates, foreign currency exchange 
rates and natural gas prices. These financial instruments are with major 
investment firms and expose Enova to market and credit risks. At times, these 
risks may be concentrated with certain counterparties, although counterparty 
non-performance is not anticipated. Enova does not use derivatives for 
speculative purposes. 
     SDG&E periodically enters into interest-rate swap and cap agreements to 
moderate its exposure to interest-rate changes and to lower its overall cost of 
borrowing. These swap and cap agreements generally remain off the balance sheet 
as they involve the exchange of fixed- and variable-rate interest payments 
without the exchange of the underlying principal amounts. The related gains or 
losses are reflected in the income statement as part of interest expense. SDG&E 
would be exposed to interest-rate fluctuations on the underlying debt should 
other parties to the agreement not perform. Such non-performance is not 
anticipated. At December 31, 1996, SDG&E had an agreement for a floating-to-
fixed rate swap associated with $45 million of variable-rate bonds maturing in 
2002. 
     SDG&E's pension fund periodically uses foreign-currency forward contracts 
to reduce its exposure to exchange-rate fluctuations associated with certain 
investments in foreign equity securities. These contracts generally have 
maturities ranging from three to six months. At December 31, 1996, there were no
forward contracts. 
     In October 1996, the Enova Energy and SDG&E boards of directors approved 
the companies' use of energy derivatives in price-risk management activities for
both hedging and trading purposes within certain limitations imposed by company 
policies. The Enova Corporation board has approved the execution of guarantees 
by Enova in support of these activities. In November 1996, SDG&E commenced 
price-risk management activities, on a limited basis, in the area of hedging 
price volatility of natural gas purchases. 
     Additional information on derivative financial instruments is provided in 
Note 8 of the notes to consolidated financial statements. 

Electric Industry Restructuring 
Background   In September 1996, the state of California enacted a law 
restructuring California's electric utility industry (AB 1890). The legislation 
adopts the December 1995 CPUC policy decision restructuring the industry to 
stimulate competition and reduce rates. The new law supersedes the CPUC policy 
decision when in conflict. 
     Beginning in January 1998, customers will be able to buy their electricity 
through a Power Exchange. The Power Exchange will obtain power from Qualifying 
Facilities, nuclear units, "must-run" facilities (those needed to provide 
reactive power, voltage support and transmission stability) and, lastly, from 
the lowest-bidding suppliers. The Power Exchange will serve as a wholesale power
pool, allowing all energy producers to participate competitively. An Independent
System Operator (ISO) will schedule power transactions and access to the 
transmission system. Consumers also may choose either to continue to purchase 
from their local utility under regulated tariffs or to enter into private 
contracts with generators, brokers or others. The local utility will continue to
provide distribution services regardless of which source the consumer chooses. 
These customer choices will, in effect, open up the service territories of all 
California utilities. This will allow Enova to pursue customers outside of 
SDG&E's traditional service territory to provide competitive generation and 
other energy-related services. This will also allow energy producers, brokers 
and others to enter SDG&E's service territory to compete for generation 
customers. 
     In addition, both the CPUC decision and the California legislation provide 
that, within certain limits, utilities will be allowed to recover their stranded
costs incurred for certain above-market CPUC-approved facilities, contracts and 
obligations through the establishment of a nonbypassable competition transition 
charge (CTC). The CPUC's vision is that traditional cost-of-service regulation 
will move toward performance-based regulation. 

Transition Costs   Utilities will be allowed a reasonable opportunity to 
recover their stranded costs through December 31, 2001. Stranded costs such as 
reasonable employee-related costs directly caused by restructuring and 
purchased-power contracts (including those with qualifying facilities) may be 
recovered beyond the 1998-2001 time period. Nuclear decommissioning costs are 
nonbypassable until fully recovered, although not included as part of transition
costs. These decommissioning costs are expected to be recovered through 2013, 
the estimated last year of service for SONGS, but recovery may be accelerated to
the extent possible.
     SDG&E's transition cost application, filed in October 1996, identifies $2 
billion of stranded costs, including generation, purchased power and qualifying 
facilities' contracts, and regulatory assets. These identified transition costs 
are subject to CPUC audit and approval. The amounts include sunk costs, as well 
as ongoing costs the CPUC finds reasonable and necessary to maintain generation 
facilities through December 31, 2001. 
     For purposes of transition cost recovery, overcollections of $98 million 
recorded in the Energy Cost Adjustment Clause and Electric Revenue Adjustment 
Mechanism balancing accounts as of December 31, 1996, will be applied to 
recovery of transition costs once those costs are approved by the CPUC. Outside 
of those exceptions discussed above, stranded costs not recovered by December 
31, 2001, will not be collected from customers. Such costs, if any, would be 
written off as a charge against earnings. AB 1890 clarifies that all existing 
and future consumers must pay CTC, except for a segment of self-generators and 
irrigation districts. SDG&E has very few, if any, of these types of customers 
and does not anticipate a material impact from the exemption. 

Rate-Reduction Bonds   The California legislation provides for a 10-percent 
reduction of residential and small commercial customers' rates beginning in 
January 1998. The utilities intend to finance the rate reduction with the 
proceeds of rate-reduction bonds issued by an agency of the state of California.
SDG&E estimates that it will need $500 million of bond proceeds to finance a 
decrease in rate base sufficient to result in the desired rate reduction. These 
bonds will be repaid over 10 years by SDG&E's residential and small commercial 
customers via a charge on their electric bills. SDG&E and the two other major 
investor-owned utilities in California are in discussions with the Securities 
and Exchange Commission concerning the accounting for the receipt. For financial
reporting purposes, there will be no gain or loss from the issuance of the bonds
or the receipt of the proceeds. SDG&E has not yet determined the details of how 
the proceeds will be used and, therefore, is unable to project the impact on 
liquidity or on results of operations from utilization of the proceeds. 

Rates   The California legislation includes a rate freeze for all customers. 
Until the earlier of March 31, 2002, or when transition cost recovery is 
complete, SDG&E's system average rate will be frozen at June 10, 1996 levels 
(9.64 cents per kwh), except for the impact of natural gas price changes and the
10-percent rate reduction. If gas prices change significantly, SDG&E is 
permitted to seek CPUC authority to increase or decrease rates, but rates cannot
be increased above 9.985 cents per kwh. 
     Late-1996 natural gas prices were more than double early-1996 prices due to
weather-related factors, storage levels, etc., resulting in electric rate 
increases in January and February 1997. The rate changes have increased SDG&E's 
system average rate from 9.64 cents per kwh to the 9.985 cents-per-kwh rate cap.
     Recovery of the transition costs is limited by the rate cap during the 1997
to 2001 transition period. If expenses during a period exceed revenues 
authorized under the rate cap, SDG&E will be unable to recover transition costs 
during that period. SDG&E will be able to recover transition costs, including 
those deferred from earlier periods, in periods in which its other expenses are 
under the cap. Transition costs not recovered during the transition period, if 
any, will be written off after December 31, 2001. In addition, recovery of 
incentive-program rewards such as Performance-Based Ratemaking and demand-side 
management is also limited by reward amounts included in current rates, and the 
possibility exists that these rewards may not be recoverable until after 2001, 
if at all. 

Balancing Accounts   SDG&E has proposed the elimination of 18 electric 
balancing accounts, including ERAM and ECAC, and the retention of the 
catastrophic event and hazardous waste memorandum accounts. The CPUC is 
currently evaluating the issue. 
     Elimination of ERAM and ECAC will result in earnings volatility beginning 
with the first quarter of 1997. Although no significant effect is expected for 
any full year, quarterly earnings will fluctuate significantly, as is already 
the case for many electric utilities. The largest impacts will be reduced first-
quarter earnings and increased third-quarter earnings.

Regulatory Accounting Standards   SDG&E accounts for the economic effects of 
regulation in accordance with Statement of Financial Accounting Standards No. 
71, "Accounting for the Effects of Certain Types of Regulation," under which a 
regulated entity may record a regulatory asset if it is probable that, through 
the ratemaking process, the utility will recover that asset from customers. 
Regulatory liabilities represent future reductions in revenues for amounts due 
to customers.
     The SEC has indicated a concern that the California investor-owned 
utilities may not meet the criteria of SFAS No. 71 with respect to their 
electric-generation net regulatory assets. While discussions are ongoing with 
the SEC, if a decision is ultimately made that would result in the 
discontinuation of the application of SFAS No. 71 for electric-generation 
operations, the impact of a writeoff of SDG&E's generation-related net 
regulatory assets would not be material to SDG&E's financial condition, results 
of operations or liquidity.

Performance-Based Ratemaking   The CPUC has affirmed its belief that the new 
competitive environment should be based on policies that encourage efficient 
operation and improved productivity rather than on reasonableness reviews and 
disallowances. On an experimental basis, SDG&E is participating in a PBR process
for base rates, gas procurement, and electric generation and dispatch, beginning
in 1993. SDG&E has applied to extend the gas procurement mechanism. The genera-
tion and dispatch mechanism is in the process of being terminated, possibly to 
be replaced by a new generation mechanism with diminished scope. In addition, 
SDG&E plans to file a proposal for a new distribution PBR mechanism, which has 
been delayed pending further CPUC guidance. Discussions are ongoing.
     Rates for generation services that the ISO determines will be required to 
provide reliable service may remain cost-of-service based. These services may be
provided under a contract with the ISO, which will be terminable when the ISO 
determines it no longer requires them. Regardless of whether these services are 
provided to the ISO under a traditional cost-of-service or PBR-based contract, 
SDG&E expects to recover its costs of production and the cost of having its 
generating units available. 

Federal Restructuring Activities   In April 1996, the Federal Energy 
Regulatory Commission issued a final rule that will require all utilities to 
offer wholesale "open-access" transmission service on a nondiscriminatory basis 
and to share information about available transmission capacity. 
     In November 1996, the FERC approved a proposal by the three California 
investor-owned utilities to create a Power Exchange and Independent System 
Operator to run California's electric transmission facilities. The FERC, which 
has jurisdiction over the exchange, the ISO and interstate transmission, 
accepted the proposal to separate the ISO from the Power Exchange and to charge 
access fees to recover transmission costs and congestion fees to encourage 
efficient use of the system. 
     Several bills on electric industry restructuring were filed in 1996 at the 
federal level. One bill would make states establish rules to let all residences,
businesses and industries choose their own power suppliers by December 15, 2000,
or force states to give way to the FERC to open the local market to competition 
after 2000. Another bill calls for full customer choice by January 1, 1998. This
measure provides that if retail choice is not a reality by that date, the FERC 
will set rates until competition takes effect. A third bill, introduced on the 
last day of the 1996 Congressional session and, therefore, too late for hearings
or debate, would, if reintroduced and enacted as written, supersede state 
regulations and legislations, and prevent utility customers from being charged 
for stranded investments of the utilities. The other bills and similar bills 
introduced in 1997 would mandate recovery of stranded costs or leave the 
recovery to the discretion of each state. 

Natural Gas 
The ongoing restructuring of the natural gas utility industry has allowed 
customers to bypass utilities as suppliers and, to a lesser extent, as 
transporters of natural gas. Currently, non-utility electricity producers and 
other large customers may use a natural gas utility's facilities to transport 
gas purchased from non-utility suppliers. Also, smaller customers may form 
groups to buy natural gas from another supplier. 

Cost of Capital   
In November 1996, the CPUC adopted the agreement between SDG&E and the CPUC's 
Office of Ratepayer Advocates setting SDG&E's authorized rate of return, return 
on equity and capital structure. SDG&E's 1997 return on equity will remain at 
11.60 percent and the overall rate of return will change from 9.37 percent to 
9.35 percent. This establishes the basis for SDG&E's new cost of capital 
mechanism, the Market Indexed Capital Adjustment Mechanism (MICAM), effective 
January 1, 1998, which will automatically reset SDG&E's return annually based on
changes in market interest rates. SDG&E's authorized capital structure remains 
49.75 percent common equity, 44.5 percent long-term debt and 5.75 percent 
preferred stock. 
     During the industry-restructuring transition period, MICAM will apply to 
distribution rate base and the generation rate base not being recovered in CTC. 
After the transition period, MICAM will apply to distribution rate base only. 
Transmission will be regulated by the FERC. 

Resource Planning
Sources of Fuel and Energy   SDG&E's primary sources of fuel and purchased 
power include natural gas from Canada and the Southwest, surplus power from 
other utilities in the Southwest and the Northwest, and uranium from Canada. 
Although short-term natural gas supplies are volatile due to weather and other 
conditions, these sources should provide SDG&E with an adequate supply of low-
cost natural gas. SDG&E is currently involved in litigation concerning its long-
term contracts for natural gas with certain Canadian suppliers. SDG&E has long-
term pipeline capacity commitments related to its contracts for Canadian natural
gas supplies. If the supply of Canadian natural gas to SDG&E is not resumed, 
SDG&E intends to use the capacity in other ways. SDG&E cannot predict the 
outcome of the litigation, but does not expect that an unfavorable outcome would
have a material effect on its financial condition, results of operations or 
liquidity. 

San Onofre Nuclear Generating Station   In January 1996, the CPUC approved 
the accelerated recovery of the existing capital costs of Units 2 and 3. The 
decision allowed SDG&E to recover its remaining investment in the units at a 
lower rate of return over an 8-year period beginning in 1996, rather than over 
the life of the units' license, which extends to 2013. The accelerated recovery 
began in April 1996. At December 31, 1996, approximately $670 million was 
unrecovered. California electric-industry-restructuring legislation requires 
that all generation-related stranded assets, which includes Units 2 and 3, be 
recovered by 2001. The January decision also includes a performance incentive 
plan that encourages continued, efficient operation of the plant. Through Decem-
ber 31, 2003, customers will pay about $0.04 per kilowatt-hour. This pricing 
structure replaces the traditional method of recovering the units' operating 
expenses and capital improvements. This is intended to make the units more 
competitive with other sources. 
     Cracked and dented tubes were found during the latest refueling of Unit 2. 
This delayed the restart of the unit and added to the cost of the refueling. The
problems and the resultant  need to plug a small percentage of the unit's tubes 
will permanently reduce the unit's output and pose the possibility that the 
reactor may be taken out of service prior to 2013. 

Environmental Matters
SDG&E's operations are conducted in accordance with federal, state and local 
environmental laws and regulations governing hazardous wastes, air and water 
quality, land use and solid-waste disposal. SDG&E incurs significant costs to 
operate its facilities in compliance with these laws and regulations, and to 
clean up the environment as a result of prior operations of SDG&E or of others. 
     The costs of compliance with environmental laws and regulations are 
normally recovered in customer rates. However, restructuring of the California 
electric-utility industry (see above) will change the way utility rates are set 
and costs are recovered. SDG&E has proposed the retention of the hazardous waste
memorandum account, which is intended to encompass cleanup costs, including 
those related to generation activities, as described below. Capital costs 
related to environmental regulatory compliance are intended to be included in 
transition costs for recovery through 2001. However, depending on the final 
outcome of industry restructuring and the impact of competition, the costs of 
compliance with future environmental regulations may not be fully recoverable. 
     Capital expenditures to comply with environmental laws and regulations were
$6 million in 1996, $4 million in 1995 and $5 million in 1994, and are expected 
to aggregate $34 million over the next 5 years. These expenditures primarily 
include the estimated cost of retrofitting SDG&E's power plants to reduce air 
emissions. They do not include potential expenditures to comply with water-
discharge requirements for the Encina, South Bay and SONGS power plants, which 
are discussed below. 

Hazardous Wastes   In 1994, the CPUC approved the Hazardous Waste 
Collaborative which allows utilities to recover cleanup costs of hazardous waste
contamination at sites where the utility may have responsibility or liability 
under the law to conduct or participate in any required cleanup. In general, 
utilities are allowed to recover 90 percent of their cleanup costs and any 
related costs of litigation with responsible parties. 
     SDG&E disposes of its hazardous wastes at facilities owned and operated by 
other entities. Operations at these facilities may result in actual or 
threatened risks to the environment or public health. Where the owner or 
operator of such a facility fails to complete any corrective action required by 
regulatory agencies to abate such risks, applicable environmental laws may 
impose an obligation to undertake corrective actions on SDG&E and others who 
disposed of hazardous wastes at the facility. 
     During the early 1900s, SDG&E and its predecessors manufactured gas from 
coal and oil at its Station A facility and at two other, small facilities in 
Escondido and Oceanside. Certain amounts of residual by-products from the gas-
manufacturing process and subsurface hydrocarbon contamination were discovered 
on portions of the Station A site during an environmental assessment, which was 
completed in 1996. The estimate for cleanup of the on-site contamination is in 
the $3 million to $6 million range. SDG&E may be required to assess whether or 
not such contamination extends to off-site locations. Not included in this 
estimate are costs related to a shallow underground tank-like structure found 
under a public street immediately west of Station A. A risk assessment has been 
completed for Station A and SDG&E is completing negotiations for an appropriate 
site-remediation work plan with the County of San Diego's Department of Health. 
     The Escondido facility was remediated during 1990 through 1993 at a cost of
$3 million and a site-closure letter from the Department of Health has been 
received. However, contaminants similar to those on the Escondido site have been
observed on adjacent property. SDG&E plans to assess the nature of and whether 
it has any liability for these adjacent contaminants. Finally, potential 
contaminants resulting from the gas-manufacturing process by-products will be 
assessed at the Oceanside facility, as well as on adjacent property. Sufficient 
information is not currently available to estimate the extent of remediation 
necessary or the amount of cleanup costs for the property adjacent to the 
Escondido and Oceanside facilities or at the Oceanside facility itself. 
     Asbestos was used in the construction of SDG&E's Station B power plant, 
which closed in 1993. Renovation, reconditioning or demolition of the facility 
will require the removal of the asbestos in a manner complying with all 
applicable environmental, health and safety laws. Additionally, reuse of the 
facility may require the removal or cleanup of PCBs, paints containing heavy 
metals, fuel oil or other substances. SDG&E has assessed the extent of any 
possible contamination by these or other hazardous materials at the facility. 
The estimated cost of this removal effort is estimated to be between $4 million
and $5 million. 

Electric and Magnetic Fields (EMF)   In recent property-damage litigation, 
the California Supreme Court agreed with SDG&E and unanimously affirmed the 1995
California Court of Appeal decision that the CPUC has exclusive jurisdiction 
over EMF health and safety issues.  The California Supreme Court also stated 
that scientific evidence is insufficient to conclude that EMFs pose a health 
hazard. Although scientists continue to research the possibility that exposure 
to EMFs causes adverse health effects, to date, science has demonstrated no 
cause-and-effect relationship between adverse health effects and exposure to the
type of EMFs emitted by utilities' power lines and other electrical facilities. 
Some laboratory studies suggest that such exposure creates biological effects, 
but those effects have not been shown to be harmful. The studies that have most 
concerned the public are certain epidemiological studies, some of which have 
reported a weak correlation between childhood leukemia and the proximity of 
homes to certain power lines and equipment. Other epidemiological studies found 
no correlation between estimated exposure and any disease.  Scientists cannot 
explain why some studies using estimates of past exposure report correlations 
between estimated EMF levels and disease, while others do not.
     To respond to public concerns, the CPUC has directed California utilities 
to adopt a low-cost EMF-reduction policy that requires reasonable design changes
to achieve noticeable reduction of EMF levels that are anticipated from new 
projects.  However, consistent with the major scientific reviews of the 
available research literature, the CPUC has indicated that no health risk has 
been identified.  

Air Quality   The San Diego Air Pollution Control District (APCD) regulates 
air quality in San Diego County in conformance with the California and Federal 
Clean Air Acts. California's standards are more restrictive than federal 
standards. 
     During 1996, SDG&E installed equipment on South Bay Unit 1 in order to 
comply with the first tier of nitrogen-oxide emission limits that the APCD 
imposed on electric generating boilers through its Rule 69. Under this rule, 
SDG&E must maintain the total nitrogen-oxide emissions from its entire system 
below a prescribed emissions cap which decreases periodically through 2005. The 
estimated capital costs for compliance with the rule are $60 million. The 
California Air Resources Board has expressed concern that Rule 69 does not meet 
the requirements of the California Clean Air Act and may impose more restrictive
emissions limitations, causing SDG&E's Rule 69 compliance costs to increase. 
     Under a South Coast Air Quality Management District program called RECLAIM,
SDG&E is required to reduce its nitrogen-oxide emission levels of the natural 
gas compressor engines at its Moreno facility by 10 percent a year through 2003.
This will be accomplished through the installation of new emission-monitoring 
equipment, operational changes to take advantage of low-emission engines and 
engine retrofits. The cost of complying with RECLAIM may be as much as $3 
million. 

Water Quality   Wastewater discharge permits issued by the Regional Water 
Quality Control Board (RWQCB) for SDG&E's Encina and South Bay power plants are 
required to enable SDG&E to discharge its cooling water and certain other 
wastewaters into the Pacific Ocean and into San Diego Bay. The continued cooling
and wastewater discharges and, therefore, the necessary permits are 
prerequisites to the continued operation of the power plants as they are 
currently configured. Increasingly stringent cooling-water and waste-water 
discharge limitations may be imposed in the future and SDG&E may be required to 
build additional facilities or modify existing facilities to comply with these 
requirements. Such facilities could include waste-water treatment facilities, 
cooling towers or offshore-discharge pipelines. However, any required 
construction could involve substantial expenditures, and certain plants or units
may be unavailable for electric generation during construction. 
     In 1981, SDG&E submitted a demonstration study in support of its request 
for two exceptions to certain thermal discharge requirements imposed by the 
California Thermal Plan for the Encina power plant. In November 1994, the 
RWQCB issued a new permit, subject to the results of certain additional 
thermal studies to be used in considering SDG&E's exception requests. The 
results of these additional studies will be completed in 1997. If SDG&E's 
exception requests are denied, SDG&E could be required to construct 
off-shore discharge facilities at a cost of $75 million to 
$100 million or to perform mitigation.
     During 1997, in conjunction with its permit requirements to treat 
wastewater at its Encina and South Bay power plants, SDG&E will be evaluating
whether any remediation activities may be required at the power plants. 
In addition, SDG&E will be determining whether remediation is required at 
its Silvergate plant, which was shut down in 1984. Sufficient information 
is not currently available to estimate the costs of any necessary remediation.
     The California Coastal Commission required a study of the offshore impact 
on the marine environment from the cooling-water discharge by SONGS Units 2 and 
3. The study concluded that some environmental damage is caused by the 
discharge. To mitigate the damage, the California Coastal Commission ordered 
Southern California Edison, SDG&E and the cities of Anaheim and Riverside to 
improve the plant's fish-protection system, build a 300-acre artificial reef to 
help restore kelp beds and restore 150 acres of coastal wetlands. SDG&E may be 
required to incur capital costs of up to $30 million to comply with this order. 
The new pricing structure contained in the CPUC's decision regarding accelerated
recovery of SONGS Units 2 and 3 (see "San Onofre Nuclear Generating Station" 
above) accommodates these added mitigation costs. In addition, SDG&E and Edison 
have asked the California Coastal Commission to reconsider and modify this 
mitigation plan to reduce the size of the artificial reef and shorten the 
monitoring period based on new studies that show that the environmental damage 
is much less than anticipated. Discussions are ongoing. 

Wood-Pole Preservatives   Mateel Environmental Justice Foundation agreed to 
the dismissal, without prejudice, of its complaint against Pacific Bell, Pacific
Gas & Electric and two wood-pole manufacturers in April 1996. The complaint 
alleged that utility-pole owners and manufacturers failed to comply with 
Proposition 65 requirements to warn the public that the poles are treated with 
hazardous chemicals known to the state to cause cancer or reproductive harm. 
SDG&E was not a party to the litigation, but had received a copy of the notice 
served by Mateel stating its intent to bring suit against responsible parties 
using such poles and chemicals. 

Information Regarding Forward-Looking Statements 
This Annual Report to Shareholders includes forward-looking statements within 
the definition of Section 27A of the Securities Act of 1933 and Section 21E of 
the Securities Exchange Act of 1934. When used in this "Management's Discussion 
and Analysis of Financial Condition and Results of Operations," the words 
"estimates," "expects," "anticipates," "plans," and "intends," variations of 
such words, and similar expressions are intended to identify forward-looking 
statements that involve risks and uncertainties. 
     Although the Registrants believe that their expectations are based on 
reasonable assumptions, they can give no assurance that those expectations will 
be realized. Important factors that could cause actual results to differ 
materially from those in the forward-looking statements herein include political
developments affecting state and federal regulatory agencies, the pace of 
electric industry deregulation in California and in the United States, the 
existence of or ability to create a market for rate-reduction bonds, the ability
to effect a coordinated and orderly implementation of both state legislation and
the CPUC's restructuring regulations, the consummation and timing of the 
combination of Enova and Pacific Enterprises, international political 
developments, environmental regulations, and the timing and extent of changes in
interest rates and prices for natural gas and electricity.