In 2009, Sempra Energy^® delivered a total shareholder return of 36 percent, better than the Standard & Poor’s 500 Utilities Index (12 percent) and the Standard and Poor’s 500 Index (26 percent). Given the challenging economy in which we operated, we are pleased that we were able to produce solid results for you.

Our diluted earnings per share rose to $4.52 on earnings of $1.12 billion in 2009, up from diluted earnings per share of $4.43 on earnings of $1.11 billion in 2008. Excluding the $0.26-per-share impact of a one-time asset write-off in the second quarter, our 2009 earnings per share increased 8 percent over 2008.

We have a fundamental market view that natural gas is going to be the fossil fuel of choice in North America for decades to come. This view is based on the fact that federal and state policies are calling for reduced greenhouse-gas emissions, along with increased use of renewable energy resources. Natural gas is the cleanest of the fossil fuels and recent discoveries ensure that it should be available at a reasonable price for a sustained period. In the United States, many new coal-fired power plant projects have been canceled and nuclear power has a long development timeline. Furthermore, most renewable energy resources are intermittent, meaning they cannot operate at all times — only when the sun is shining or the wind is blowing. Therefore, natural gas will continue to play a critical role as the favored generation fuel, especially when renewable energy is unavailable.

In the past five years, we have invested nearly $12 billion in new natural gas infrastructure, renewable generation and our California utilities. Our infrastructure projects will facilitate the delivery of energy supplies to our customers well into the future and are expected to provide us with a predictable, long-term earnings stream. Over the next five years, our capital investment plan will increase to $14.6 billion, about 75 percent of which will go toward supporting our California utilities, Southern California Gas Co. (SoCalGas^®) and San Diego Gas & Electric^® (SDG&E^®). Both utilities benefit from operating in a state with a construc­tive regulatory climate and progressive energy and environmental policies.

Nearly 30 years ago, California became the first state in the nation to decouple utility rates from consumption, providing incentives to utilities for encouraging energy efficiency, rather than increased energy usage. This policy has become a successful blueprint for other states to follow and also has helped insulate SDG&E and SoCalGas during difficult economic times, when energy demand generally dips.

California has adopted aggressive carbon regulations and renewable-energy mandates. SDG&E has committed to acquire 33 percent of its power from renewable-energy sources by 2020. The utility will achieve this, in part, with its planned Sunrise Powerlink 500-kilovolt transmission-line project. Scheduled to start construction later this year, the project should be completed in 2012.

Both SDG&E and SoCalGas are leading the way in development of the “smart” energy grid, which is a centerpiece of our nation’s new energy policy. SDG&E is about halfway toward replacing its 1.4 million conventional utility meters with digital smart meters by 2012. The meters will allow two-way communication with customers, pave the way for a broad range of new operational efficiencies and give our utility customers access to real-time information about their usage so they can become more energy-efficient. SoCalGas’ proposal for its smart meter program is pending before the California Public Utilities Commission and, subject to regulatory approval, the utility could upgrade all of its customers’ meters by 2017.

Among power generators, Sempra Generation operates one of the cleanest generation fleets in the nation and is a front-runner in renewable-energy development. The company completed its first renewable project — the 10-megawatt (MW) El Dorado Solar facility outside Las Vegas — in late 2008 and, since, has broken ground on a 48-MW solar expansion on adjacent land, called Copper Mountain Solar. The output from both facilities is contracted for under two 20-year power-purchase agreements. In 2009, Sempra Generation also partnered with BP Wind Energy in the 200-MW second phase of the Fowler Ridge Wind Farm project in Indiana, the largest wind-power facility in the Midwest. The project began operating in December 2009.