Q3 2019 Earnings Call
Please standby we're about to begin.
Good day, ladies and gentlemen, and welcome to the third quarter earnings call. Please note that today's call is being recorded.
And at this time, we'd like to turn things over to Faisel Khan. Please go ahead sorry.
Good morning, and welcome to Sempra Energy's third quarter 2019 earnings call. He live webcast of this teleconference and slide presentation is available on our website under the Investor section.
Sure in San Diego or several members of our management team, including Joe householder President and Chief operating officer.
Timber Mahalik executive Vice President and Chief Financial Officer.
George Ballistic group, President and Peter Wall, Vice President Controller, and Chief Accounting Officer.
Before starting I like to remind everyone that we'll be discussing forward looking statements.
Meeting the private Securities Litigation Reform Act.
He 95.
Actual results may differ materially from those discussed today.
The factors that could cause our actual results to differ materially or disgusting.
<unk> companies, most recent 10-K and 10-Q filed with the FCC.
It's important to note that all the earnings per share amounts in our presentation are shown on diluted basis, and it'll be discussing certain non-GAAP financial measures.
Please refer to the presentation slides that accompany this call for a reconciliation to GAAP.
GAAP measures.
I also like to mentioned that the forward looking statements contained in this presentation speak only as of today.
Ever first 2019.
Company does not assume any obligation to update.
These forward looking statements in the future.
With that please turn to slide four and.
The hand, the call over to Joe.
Hi.
And thank all of you for joining us today.
Normally Jeff would lead this call, but he didn't dentists are currently traveling overseas for LNG business meeting with current and future partners and customers. So I'll be filling in for him today.
I'll start off by saying that this quarter strong operational and financial results reflect our comfort is focused on execution and demonstrate progress towards our mission to be North America's Premier Energy infrastructure Company <unk>.
I'll provide a more detailed business update later in the presentation.
Our recent occur.
Complishments include.
Placing Cameron LNG train one and the project shared facilities into service, while also advancing commissioning and construction of the two remaining trends.
Reaching a constructive resolution with the CFP in relation to our two pipelines in Mexico, and placing the marine pipeline into service.
Yes.
Receiving a constructive general rate case final decision SPG anyway, and so called gas, where they focus on safety and reliability.
Progressing the sale of our South American businesses by announcing sales agreements for both Peru and Chile.
Increasing the Capex plan at the Texas.
These to keep up with the continued growth encore is seen in and around it service territory.
Finally, continuing to progress or LNG development projects as highlighted by the recent ammo you announcement with Mitsui.
In sum, it's been a remarkable year for our company.
All of the.
Regulatory legislative and operational developments, we recognize year to date give us increased confidence in our financial outlook.
With this in mind, we're raising our full year 2019, adjusted EPS guidance from our previous range of $5.70 to $6.
30 cents to a new higher range of $6 to $6.50.
Additionally, based on California utilities, 2019, GRC final decision, coupled with the announced sales of our South American businesses.
We are affirming our full year 2020, adjusted EPS guidance range.
Of $6.70 to $7 in 50 cents.
As we look towards the rest of the year, we remain focused on our strategic goals to help drive shareholder value and benefit all of our stakeholders. Please turn to the next slide.
You'll recall that we presented a similar version of this.
Slide at our Investor Day earlier this year.
We believe it's worth highlighting again, given the progress we've made in repositioning our portfolio.
It's hard to imagine that just last year, we were active in 18 states in the United States and three foreign jurisdictions now we've narrowed our focus the three.
And one foreign jurisdiction.
We believe that Weve high graded our portfolio by exiting our U.S. renewable generation and South American businesses and replace them with higher quality TNT earnings.
This focus strategy allows us to concentrate on growing our tier one position in some of the most attractive markets.
North America, which have strong business fundamentals and meaningful growth opportunities.
Please turn to slide six where I'll review the recent developments related to our South American businesses.
We first announced the decision to sell or South American businesses in January of this year with a view of recycling.
Capital into growth at our utilities and infrastructure businesses and to reduce parent debt.
The sales of these businesses represent an important strategic shift for our company.
And is another example of our ability to effectively optimize our portfolio well increasing value for our shareholders.
The combined.
Sales price of over $5.8 billion reflects the quality of these businesses and we're very pleased with the results of the sales process today.
We've laid out a general timeline or the transactions on the slide and expect the sales of both our Peruvian angeline businesses to be completed in the first quarter.
2020.
Before I move on I would like to recognize George Trevor Dennis and the team for a great job getting us to this point in the sales process.
I would also like to recognize the wonderful teams in Chile, and Peru run by Francisco Emily They have done a fantastic job over the past 20 years and added a lot of.
Well you to Sempra.
Please turn to the next slide where I'll discuss some of the recent business updates at us the Jamie.
I'll first discuss the general rate case.
As a reminder, this is the first time that the risk assessment mitigation phase will ramp process was integrated into the GRC.
Importantly, this takes into account safety and reliability spending.
Directed by the California Public Utilities Commission.
Also recall that the GRC, usually represents a sizable portion of our capital plan, but does not capture FERC related investments for CP, you see projects addressed outside the G.
I see.
This proceeding also does not change our utilities authorized cost to capital, which is being addressed in a separate proceeding.
Now, let's review the key details of the final decision issued in late September as it relates STG.
Overall, we're pleased with this decision because we believe it fairly.
Balances customer rates and critical investments needed to help ensure the delivery of safe reliable energy.
The decision approved the following for STG unit.
Hey, 2019 test.
Revenue requirement of $1.99 billion, which represents an increase of approximately 100.
$1 million or 5.7% over 2018 authorized revenues.
As well as overall post test year revenue requirement attrition rates.
6.7% in 2000, 24.8% in 2021.
It's worth noting.
During the 2020 and 2021 post test year attrition amounts for capital investments are significantly higher than the OEM attrition amounts.
This is a reflection of our commitment to thoughtfully invest capital related to safety and reliability, while efficiently and effectively managing our NIM costs.
These increased revenue requirements will support improvements in critical energy infrastructure and risk mitigation.
Now, let's turn to the cost of capital proceedings.
Regarding the FERC cost of capital all parties have reached a negotiated resolution and we submitted an offer of settlement in mid October .
The settlement.
Request, an authorized ROE of 10.6%.
Which includes the 50 basis point Cal ISO adder.
This represents a 55 basis point increase from our currently authorized FERC Roe of 10.05%.
We expect the commission to issue an order on this.
Matter in the first half of 2020.
For the CP you see cost of capital proceeding we continue expect a final decision toward the end of this year.
Regarding our initial an ongoing contributions to the California Wildfire fund.
We're expensing the total contributions over the estimated.
Sorry to benefit, which we estimate to be approximately 10 years.
And we would record additional charges for wildfire event occurs and the fund is reduced.
Please turn to the next slide.
I'd now like to take a moment and address the recent wildfire situation across the state.
Our thoughts or with the first responders firefighters residence and the broader communities being impacted by these terrible events.
Importantly, wildfire safety and risk mitigation or a top priority for us within our service territory and we continue to be vigilant monitoring weather patterns and potential wildfire threats.
While remaining engaged with our customers and communities in order to maintain critical lines of communication.
As a reminder, investing in wildfire mitigation is not something new for our company. In fact, we've invested approximately $1.5 billion and related efforts over the past decade.
This includes deploying the most highly.
Concentrated weather station network in the U.S. installing over 100 high definition cameras across our service territory, replacing over 21000 would polls with steel poles.
Developing weather and fire models based on years of collected data, allowing us to forecast potential weather events.
Several days in advance.
And fire hardening, approximately 75% of our electric transmission lines with a goal to fire harden the remaining 25% over the next few years.
Another example is our fire safe three Dot Oh project, which continues to build on our.
Industry, leading mitigation efforts and includes.
Utilizing artificial intelligence and machine learning to improve situational awareness.
Introducing a new vegetation risk index, enabling satellite wildfire alerts and improving our unprecedented weather data network with high speed.
Abilities.
In combination these items should further enhance our ability to deliver safe and reliable energy to the communities we serve.
This is just a glimpse of the type of project highlights, we'll be providing at our Investor day next year.
Now please turn to slide nine where I'll discuss developments at Socalgas.
The recent final decision in the GRC also marked the first time the ramp process was integrated for Socalgas.
It approved the following a 2019 test year revenue requirement of $2.77 billion, which represents an increase of approximately $314 million or 12.
8% over 2018 authorized revenues.
As well as overall post test year revenue requirement attrition rates of 7.9% in 2020 and 5% in 2021.
Similar to STG any socalgas as 20 2022 .
21 post test year attrition amounts related to capital substantially outpaced our NIM.
The increase in the revenue requirement related to capital and corresponding increase to rate base should enable us to make critical investments in our infrastructure system around safety and reliability for the benefit of our customers.
An example of this is the continued support for Socalgas pipeline safety enhancement plan and notably the GRC approved 32 piece of projects plus 284 valve enhancement plan projects over the next three years.
Now please turn to slide 10, where we'll talk about Texas.
The.
Grow and business environment in Texas remains one of the strongest in the U.S. and Encore recently announced another increase to they're already substantial five year capital plan as shown by the chart on this slide.
The increase is mainly related to the growth seen in and around Encore service territory with growth Capex accounting for.
About two thirds of this capital plan.
Importantly, these infrastructure investments will help facilitate renewables integration in Texas keep up with the growth in West, Texas, and the Dallas Fort worth area, and strengthen and expand the grid for the benefit of encores customers and the communities. It serves.
Accounting for this increase they now plan on spending approximately $11.9 billion over the five year period between 2020 in 2024.
Encore is clearly a great example of focusing our portfolio on attractive growing markets.
Please turn to slide 11, where I'll discuss some for LNG.
This past quarter had some notable accomplishments at our LNG business, specifically, we place Cameron train one in service and continued to progress our LNG development projects.
I'd now like to discuss the Cameron LNG project and a little more detail.
Specifically I would like to highlight that the two companies chiyoda and.
Mcdermott that collectively make up our APC contractor, our joint and several reliable. So if one is unable to performance duties. The other is required to complete the project.
Chiyoda and Mcdermott, along with our subcontractors continue to be onsite and active in the project, we remain confident about the Cameron LNG projects.
Schedule.
Train one and the projects shared facilities are already in service and trained to has begun its commissioning process.
In fact, Cameron LNG estimates that the project is over 96% complete.
Additionally, the schedule for trains two and three remain unchanged.
Switching to our.
Other LNG projects, we've recently begun limited slate activities at Port Arthur and our teams continue to advance discussions with interested customers for the remaining facility capacity.
Based on the current project schedule, we're targeting an f. I'd on port Arthur around mid 2020.
At Eagle Phase one.
We plan on reaching F. I'd in Q1 2020, a bit later than our year end target overall the project continues to make progress and we're taking some extra time to evaluate LPC proposals from two highly qualified bidders. We believe this process will help drive the long term value of the project to Sempra and its shareholders.
Please turn to slide 12.
At some for LNG, we're committed to advancing our LNG development projects. This slide is a great representation of how active are LNG marketing team has been and the resulting HMO use HR ways NSP, a that we've been able to secure through these efforts.
It's.
Also a positive reflection of the quality of these projects and the confidence in our ability to develop them.
Hey, Good example of this is the recent ammo you with Mitsui the Mou contemplates mitsui's potential purchase of up to one third of the available capacity at Cameron phase II as well as the potential offtake of approximately one.
1 million tons per annum of LNG and equity participation in ECA phase two.
As I mentioned earlier, Jeff isn't on the call today, because he's traveling overseas with Dennis Arriola for LNG business meeting with current and future partners and customers. This is a great example of how these marketing efforts have significant.
Participation at the highest levels of our organization.
Our management team realizes our LNG business is a large contributor to the company's projected growth.
With this in mind, we're focusing on bringing our LNG development projects to fruition and securing binding offtake agreements in order to help meet global energy demand and.
Deliver value to our shareholders.
Please turn to the next slide and we'll go over developments in Mexico.
Mexico continues to be an attractive market for us with substantial growth opportunities premised on energy accessibility reliability and emissions goals.
Thats Sempra, Mexico Inova continues.
To execute on infrastructure projects in Mexico that should help it provides increased affordability and accessibility to cleaner more reliable energy for its rapidly growing population.
Notably the team recently reached a resolution with CFP regarding the glamorous Oro and marine pipelines.
And subsequently.
The marine pipeline in service in mid September and announced the border Solar project, which is contracted with high quality Counterparties.
I'd also like to highlight that given these developments and expected positive momentum in over recently raised this dividend by approximately 5%.
Now, let me turn the call over to Trevor who will review our financial.
Our results beginning with slide 14.
Thanks, Joe.
Earlier. This morning, we reported third quarter, 2019, GAAP earnings of $813 million or $2.84 per share.
This compares favorably to third quarter 2018, GAAP earnings of 200.
The $4 million or 99 cents per share.
On an adjusted basis, the third quarter 2019 earnings were $425 million or $1.50 cents per share.
This compares to our third quarter 2018, adjusted earnings of $339 million or one.
Dollar and 23 cents per share.
Please turn to slide 15, where I'll discuss the key drivers of our quarterly results.
The variance in our third quarter 2019, adjusted earnings when compared to last year was affected by the following key items.
$34 million of lower earnings.
At Cempra renewables related to assets sold in December of 2018 and April of 2019.
$24 million of lower earnings at STG any from electric transmission operations, primarily due to a FERC formulaic rate adjustment benefit in 2018.
And.
$18 million of lower earnings at Cempra, LNG, primarily due to lower earnings from our marketing operations, mainly driven by changes in natural gas prices. This was offset by Cameron train one commencing commercial operations in August of 2019.
These items were offset by.
$60 million of higher earnings at the California utilities.
From higher CPC base operating margin authorized in 2019.
Predominantly driven by the GRC final decision.
Please note that our year to date results reflect the additional hundred 96.
Million dollar retroactive benefit from the GRC final decision for the first six months of the year.
$58 million of higher equity earnings at the Sempra, Texas utility segment due to impacts of encores acquisition of Infrareit.
Higher distribution revenues, resulting from an increase.
Volumes, driven primarily by weather and higher transmission revenue driven by rates.
$38 million of a variance at Sempra, Mexico due to impacts from foreign currency and inflation effects net of foreign currency hedges.
This large delta year over year was primarily driven.
Given by an $11 million benefit in the third quarter of 2019 from a depreciating peso compared to $27 million of expense in the third quarter of 2018 from an appreciating peso.
Please turn to the next slide.
We're pleased to say that this was a very successful.
A couple quarter, both operationally and financially.
We're continuing to execute on our goals and are progressing our mission to be North America's Premier Energy infrastructure company.
In line with this as Joe previously indicated we're raising our full year 2019, adjusted EPS guidance range.
On a.
Assuming our full year 2020, adjusted EPS guidance range, driven primarily by the constructive GRC decision and our California utilities as well as the robust proceeds expected from the announced sale of our South American businesses.
These proceeds should allow us to pay down parent debt and funding growth and our U.S.
Really an infrastructure businesses.
Importantly, we remain focused on achieving our goals, including maximizing long term shareholder value.
Before we open it up to Q in a though I'd be remiss if I didnt. Thank Joe for his invaluable contributions to the company.
As most of you know Joe will be retiring.
Hiring soon.
He has played an integral role in the growth in progression of our businesses. During his nearly two decades career at Sempra energy.
We will all Miss him and we wished Joe and his family the very best in his retirement.
With that we will conclude our prepared remarks and stop to take your questions.
Thank you and ladies and gentlemen to ask a question. Please press Star then one on your telephone keypad. Please note that if you're on the speakerphone. Please pick up the handset press your mute function so at that signal to reach our system.
Again that is star one if you'd like to ask a question.
And we'll go first to Greg Gordon.
Of Evercore ISI.
[noise].
Yes.
Oh.
My first.
Question is.
On the on the FERC settlement.
Does that mean that you and.
The or the other parties.
To the case of all agreed on that number and are submitting it for approval.
And if so who are the parties that have agreed that that's a fair return for your forecast.
Hi, Greg Yes, thanks for the question.
Yes, the settlement means that all the parties.
Great to push this forward and let the FERC.
Mega file decision on this we.
That final decision to occur in the first quarter at this point there are some.
Some proceedings that will take place in November but.
But all the parties so the case and I don't have them all at my fingertips, but I wouldn't get when get it goes if that's important to you but.
Everybody has agreed to go forward with these numbers. So that's what we expect to get.
Pushed out in the first of the year. The CP you see is a party correct.
Yes.
Thank you. My next question is the wildfire amortization are you guys assuming that that is going to be amortized through ongoing earnings are you going to continue to consider that a nonoperating item because.
Yesterday for the day before on Edison's call they indicated they would be.
Considering that a nonoperating item for earnings reporting purposes.
Yeah, Yeah. Thank you Greg for that question I'll speak to it at first and then I'll probably have Trevor add to that.
You know I think first.
I would say you have to recognize that there is a pretty significant difference in the amounts that we each contributed based on the size of our territory and all the work we've done over the last decade.
At doing all the work we needed to do the risk view was that our contribution was lower.
And.
So it's less material to FC do you need that it was to southern California Edison and then.
Further less material to safra, but we're evaluating that I did look at what they did.
And the way they do core non core is probably a little different than we do adjusted earnings I, Let me ask Trevor He has another comment on it yet.
Thanks, Joe Hey, Greg.
Again from what Joe said this is going to be a fairly immaterial amount for us and we're anticipating it it could be about $30 million a year, given a 10 year amortization cycle on it and so we're still looking at it I think one of the things we probably will do is give prominence to it and.
Try to break it out so that it's very clear.
Clearly shown on the face of the financials, but we're still evaluating that but again from our perspective, we generally do not exclude smaller items.
And this would be a recurring item over a 10 year amortization period. So.
I think.
Our our treatment may be different then medicines.
My last question is this in the reiterating your guidance.
There's a pretty bullish outcome.
I think because the guidance as it was set to included the earnings from Chile, and Peru and so.
Basically what you're telling us.
This is pulling out what was the expected earnings contribution from Chile and Peru.
Net of the initial savings from deleveraging, what the proceeds and the outcome from.
The positive outcome from the rate cases, and the Capex increase in Texas that you've basically been ought be able to offset the removal of those.
As earnings.
Completely if not almost completely is that a fair summary.
Yes. Thank you Greg look we've had a remarkable year as I said in our opening remarks, the spot thus far this year and the they proceeds that we're getting from.
From the South American sale.
The tax savings.
We've had there and.
A GRC out of this risk ramp case that is.
That allowed the capital that we need to run the utilities in a safe and reliable manner.
All of our businesses are doing well and we're very focused on the strategy and.
We're very pleased that we're able to maintain the guidance for next year based on the operations based on the GRC based on South America. All the elements you mentioned, it's very solid.
Thank you guys congrats.
Thanks very much.
Our next question will come from.
Steve Fleishman of Wolfe research.
Hi, Good morning, So just a broad question on California, obviously.
First congratulations you continue to manage.
The fire season, Oh, sorry, well for 30 on ROE and.
But it's just been it obviously a.
Interesting two weeks and turn for the whole.
Sector and the state so maybe just some perspectives on.
How you're thinking about any changes from the Governor Commission, how you're managing.
And your.
Shut off plants if at all.
And.
Anything about the structure of the sector. The state I'd just be curious.
How you're taking this all that.
Thank you Steven.
The broad question I have quite a bit.
Like to say about it so so bear with me.
Really.
And I appreciate your comment you know, we didnt have any significant wildfire catastrophic fire in our territory. This year, we faced very severe weather conditions that safety is top of mind across our companies in California, and Texas, where we've had some pretty severe tornadoes, but I want to start out with.
Saying, how proud I am and how proud we our of our team NFC Jenny I was actually over there at the emergency Operation Center day before yesterday during the peak time, which was sort of between 10 in the morning, and noon here and I've been there are many times and non weather conditions and practice sessions and that's always interesting in them.
Excited to see it but seeing them in action, taking immediate decisions as conditions change and it's not just the people in that room that rooms, buzzing and they're they're all working together really well, but it's all the people in the field I'm listening to phone calls back and forth about life conditions in that community, allowing the team to really have.
See you on the ground right. We have all these cameras, but now we have people on the ground and that on the ground experience, helping them make prudent decisions I saw them turning off why and based on what was going on on the ground to save lives and reduce the potential for fire. So I just want to congratulate our team.
I actually asked Carol and win.
Who is a C O it STG need to come and I'm going to ask her to speak about this in a minute, but I wanted to touch on a couple other.
Of the points that you made.
Okay, I think the governor did a really good job coming into office working with the legislature in the Companys resetting the prudency standards.
Presumptions.
Letting the CP.
You see consider factors within and outside our control looking at humidity temperature wind speed, it's been an incredible difficult couple of weeks.
So yeah, we've had a big head start and but we're not stopping you probably saw our fire save 3.0.
We're continuing.
Turning to innovate and we we will help the others trying to catch up but it's been 10 years of hard work, but we just keep wanting to get better and better.
I have to tell you on the on the power shut off you know I've advocated the picture.
And the others like you guys.
Got to its the only way you're going to keep people.
Out of Harm's way and I have very strong views on this we have to do it. Okay. I think the governor believes that we have to do it. The governor has been very supportive of STG any power shut off isn't the first thing we do it's a tool and we use it when we.
We have two at the end when there's no other option.
We're continuing to learn.
Innovate the people really care and their razor focused it's not anytime for new comers no time for a bunch of forms to fill out reviews debates situations intense and we're dealing with people's lives.
And we have to do it and we know what we're doing that we've proven that we know what we're doing it's still a a challenge, but I think it's manageable if you get the right processes in place I want to have Carol and take a minute and explain how the last.
Couple of weeks have been and just she is in charge of making sure that we're all.
Yes.
Thanks, Joe I'm, just to give a little contracts were coming off the heels of our fourth stand at a red flag a man of the season, we saw a typical wind speeds consistently blowing at 20 to 30 miles per hour and peaking at 60 to 80 miles per hour in our highest elevations during this operational.
I will tell you that our system held up well given the environmental conditions and there were no major fires as Joe mentioned around 25000 customers. In this last event were impacted by the public safety power shut off and I'm encouraged with our ability to minimize the customers that are affected as a result of piece.
Yes.
Yes.
Our capabilities have been really enhanced of the last several years is the result of our investments in more precise control of our Psps plan.
And I'd also add that in the last couple years, we have been focused on refining our customer outreach and communication strategy as well as our.
Operational readiness and response.
Just speaking a little bit more about customer outreach. There you know we understand the impact that these outages have on businesses and families and this is an area that we've been really focused on and there are three areas that I'd just like to mention a the first is a comprehensive and.
Chance notification to our customers.
We don't want our customers surprised and we want to provide them with complete information. So they can make the appropriate plans for their families and businesses.
Having said that the weather conditions can change on a dime and there are circumstances, where we may need to turn off the power to customers that we had.
Paid it and we're not shy to do so.
I would say too we have worked on the strategic placement of our community resource centers throughout the community to make sure that are properly place and make sure that customers have easy in easy access and they have the information and the amenities that they need.
And I'd say lastly is our key to building a strategic partnerships. We learn very early on that we can't do this alone and so in fact before these advanced we had conference calls with our nonprofit and community based organizations. So that all customers were notified and and had the things.
They need I think a good example is before this lack of that we partnered with meals on wheels in the Red Cross to provide the senior communities affected by this psps, which they.
Yeah, the entities that they would need during these cooler temperatures. So that's just some examples of the areas and we continue to.
Refine our.
And we continue to improve what we do and learn from every event that we have.
Thanks, Carolyn and Steve Let me just add one more thing because you you ask a broad question and one.
One thing I I would mention is as I've watched Essen.
I don't have all the information about the fires up north.
Where we've had fires in several different territories not ours.
It doesn't appear at this time that the magnitude of those fires.
Well impinge on the fund.
So I think with a billion dollar.
Requirement for insurance.
The these.
Were large severe fires and our goes out to all these people but.
It is such that it doesn't appear to me today, that's impacting the fund if it's tough and I can tell you.
Much the way you know many of you have you been with us for for 20 years.
What's the way we use the magic the commodity business. The CEO myself, we worry about this stuff every day, Jeff was calling me. He is traveling overseas on the LNG business, but he's been calling me and contact for me every day about this he worries about it every day I worry then we call. Kevin then we call Kara.
We're on top of itch and and.
It's just something that we have to manage much like people in the northeast or the southeast have to manage hurricanes or snow events or whatever we have to manage this and it's a little bit new for California, California is a mild climate and generally we don't have outages. This is a different event, we're learning to deal with it.
Thank you.
Great. Thank you.
Welcome.
Our next question will come from Julien Dumoulin Smith of Bank of America.
Hey, good morning, or good afternoon.
Joe Anthony enjoying.
Hey, so guys.
Hey, suppose with respect to the proceeds in.
Aggregate from Latin America, I'm curious, how you think about the 2020 uses at this point. Obviously, we are hearing you say debt Paydown, obviously, you've raised your capex here, but just ideally we get a little bit more granular as to how you're thinking about it and separately and I know just not here. How do you think about more strategic uses of this capital.
Give us some of the comments in the last call as well.
Okay. Thank you Julie and I'm going to turn this over to Trevor in a minute, but we're really pleased with getting full value for these companies we've run them well for 20 years and we're we're we're getting the right value and that's really important and and we've talked about paying down debt.
But let me let me let Trevor address your question you hit on a number of points on the very last when we're not we're not going to talk about M&A kind of activities, but obviously, we're very focused on large capital program. So Trevor yes. Thanks, Joe.
Yeah, So julien.
With the amount so of the proceeds that we'd be getting in the first quarter after tax.
No its call it roughly between.
4.5 to 4.7 million <unk> billion dollars, a we wouldn't be deploying that cash in the short term overpaying down a short term debt.
And then realigning the debt portfolio, and then as well as having it support the capex growth certainly.
We're seeing increased capital requirements in the California utilities as a result of the GRC and the ramp a filing.
A big portion of that GRC is allocated towards capital around safety and reliability and then we've also seen an increase in the Texas a.
These with the capital going up there so deploying that capital as efficiently as we can.
Got it and then maybe if I can pivot very quickly over to the LNG side of the business obviously.
Constructive developments of late would be curious, how you're thinking about a public.
Relevance.
Again, however that in whatever form that takes through the course, the next year, especially given the update on port Arthur to admit to mid next year on F. I'd.
What.
Okay.
Sure sure. Thank you so.
I appreciate the question you know these these LNG liquefaction projects or.
Very large complex and quite competitive and we are progressing these projects to help unlock north America's energy potential and deliver clean energy across the globe and I travel around the world a lot as those jobs and we want to get these projects right for our customers and our investors.
In most of these cases our customers are.
Also investors in the project and as we've traveled around and I was recently in Japan, just been in multiple countries in the last 10 days, we were both up the Cameron dedication with with all of our current.
Partners and customers that Cameron and others.
We find them all committed to ensuring the success of these projects and long term.
From return so I know it feels like it's taking time, but this is just us getting it right. We're highly focused on creating value and I feel really good about the projects in the team I wouldn't read anything into this this is us making sure we get the PC agreements get the right contractor get all the things we need to take F.I.D., we're starting.
Thing to work on financing for Port Arthur but our partners also have to get comfortable with the returns everything everybody's working toward it and so I wouldn't read anything in these are small months in time, when we're talking about four or five year construction projects in multiple year development projects. We are we're signing a lot of.
I'll use and you see that.
Partially that is the customers are quite excited about being in some of these projects and they worry that they're going to get left out and they want to sign something and so we're we're signing these things, but we're not quite ready. So we signed and then you are for Cameron expansion. The partners are moving forward we've got total.
Yes, exactly how they think we should do we haven't voted on anything yet we've got the expansion at EGA.
We're not ready to take half I'd on that yet we don't have all the designs and everything but people want to have their place and it's important and so we're making that public I think you know as we make progress.
We'll try to make you you guys can see all the FERC things you see you see that we're actually in commissioning and train two at Cameron now, it's a little bit harder in the development phase I think as you see us start to do something like financing work at Port Arthur.
You'll see you'll get the confidence that we have.
Well thanks.
Hi, guys.
Thanks, Joe Thanks joint.
And now we'll take questions Michael Lumpiness of Goldman Sachs.
Hey, guys couple of questions one on the California utilities can you remind us.
Obviously, you get this GRC step ups each year for the next.
Several years and at best So caveats, and San Diego gas and electric.
Are those the only CP you see related step ups you get in these three year periods and can you get quantify for us what the FERC transmission step up will be at STG any for 2020, I know a lot of those have already been settled.
There are part of settlement agreements.
So a couple things to address their Michael So what we've addressed here is the impact on.
2019 through the third quarter of the rate cases.
The affirmation of our 2020 guidance without.
You know without although the pieces some of that relating to the confidence we have in the rate cases, there's nothing in there relating to the cost of capital, which we expect to get settled.
By the end of this year that starts effective next year, so that will be a component that we would expect to see I think you'll get more details around.
It all of this at the Investor day, or there are some projects that we do at both companies that are sometimes out of the GRC.
We'll lay those out and and you've you've seen those before.
But.
Well give you a lot more.
Clarity into 2020 and beyond that the Investor day.
Got it.
Sorry, you asked FERC question.
Yeah first question that that when we expect to get finalized next year, and we would see a step up from our current rate to the the new rate starting them.
Got it and is that new rate is that settlement.
Document up a public document what the rate disclosed or the revenue step up disclosed.
Yes.
Okay, Thats a public document.
What's that.
Yes, 10.6, yeah retroactive correct retroactively beginning this year.
Sorry.
Yes June 19th Yep.
Got it Okay, I was thinking more about dollarsmillion amount.
Sorry.
We haven't publish that okay. Finally on Cameron is there a material costs change if you finished Cameron three before.
Made up I'd decisions on Cameron four and five.
I would think there would be in terms of like we're leasing crews and sending folks home I mean, you're not that far away from sending crews home because you're not that far away from having Cameron three going I'm. Just curious how you think about that and how you kind of how much that plays a role.
All in the negotiation process and then the planning process with both.
Customers and partners.
Oh, Yeah, let me speak to that I mean, first and foremost all of the partners in Cameron.
Our very focused on getting trains two and three finished ER and into service before.
Before we do anything.
Beyond that.
So that's up that's a primary goal and we're getting very close I mean, we're about 96% finish them really trying to isn't commissioning and three not far behind so those are almost done, but they still need to finish their commissioning process.
Everybody is.
Focused on that we are still a Jeff.
Last couple of weeks have kind of honed in on what we think we want to build there we haven't announced what that is yet.
And we are still deciding how we're going to do that it's it's.
Yes.
It's.
And at this point exactly how we're going to do it or who will do it. So I think you probably remember from a few years ago. When we were going to try to do train four.
We were going to try to do continuous construction that ship really sale because what's going on right. Now is doing a lot of electrical work is being done by you know.
Factors and the commissioning is being done mostly by Chiyoda people in some mcdermott people. It's not the same people that would get going to start doing pilings again, so the idea of any kind of continuous construction went away years ago and ER.
I think I believe that leave it without.
Got it. Thank you Joe much appreciate it guys.
Sure Mike Thanks, Mike.
And now we'll take our next question from Ashar.
Because then I am partners.
Sure.
Hey, guys.
Good let me just follow up question on LNG and sort of as you're thinking about.
Cash flows as Cameron trains, one and three continue on pace, but we saw the saw appear transact you know and monetize as part of cash flows at a very healthy multiple so as you guys sort of thinking about the existing Cameron one in three even form slot eco port Arthur.
How do you sort of feel.
Potentially monetizing some of these cash flows, especially since we just got a pretty healthy public mark.
Well look <unk> I'm not going to talk about some kind of an M&A sort of transaction, which was a bit of but I would say. This you know remember we already have 50% ownership we don't.
On 100%, so it's a little bit different situation.
We clearly have a good value.
You can see the cash flow the EBITDA from Cameron.
And we've got good value in the in the company from Cameron for sometime now as we as we've been constructing it.
But I.
I would I would say, we're going to build a pretty large LNG business and I would think that we're going to use that cash flow to help build both the expansion at Cameron and new projects. So that's what I would think we would be doing to create value to create additional value. We were always open to looking at things like that but.
You know, we think we looked at an MLP sometime ago that ship sales.
Well, we're always looking at things I actually think we will wind up using the cash for building building, our LNG business bigger.
Got it self fund each other pets, good and let me just real quick to Texas.
Encore, obviously, it's a very healthy.
Capex increase that you guys had lot of it was driven on sort of the transmission side.
Distribution kind of still remains a little bit modest at what point can you start to pull forward some of that distribution spend should we think about it as an opportunity when transmission spend slows down and you offset would distribution and the.
Actually have the economic backdrop to support more spending so how do we sort of think about the interim mix between distribution and transmission.
Yeah, I'll start and I'll ask Trevor to comment.
We're very excited about encore and the growth in Texas, and there's a lot to do there.
And so.
I think we're very focused on helping them fund that growth and Trevor you want to speak to those details that he's asking about transmission. Yeah. I think you know when we look at the Charlotte the big legs of the stools really in the growth in Texas are in and around the Dallas Fort worth Metroplex being one of the fastest growing metroplexes.
Says.
And looking at kind of their 2% premise growth on a year to year basis.
So that's really kind of on the distribution side, then you look at the West, Texas with the Permian and all what needs to be built out on the transit transmission side with the Permian and then the third leg is.
There's no call it close to 100 Gigawatts in the Q, which is primarily a renewables based so you see kind of that slant towards more transmission right now as opposed to a you know the a the growth that we're seeing in and around the Dallas Fort worth Metroplex, but all three legs.
The stools renewables are west, Texas in the Permian as well as Dallas, all very very healthy growth areas for us.
Got it thanks, guys appreciate it congrats.
Thank you.
We will now go to Sophie Karp of Keybanc.
Hi, good morning.
James.
Very well thank you.
Okay. Thank you congrats on the quarter just wanted to go back a little bit to the on guidance.
The impressive that you're maintaining the guidance. Despite a so and then divested in South America.
Maybe could you.
Help us a little bit to bridge, how that's how much of that kinda delta is going to be covered by savings on that versus maybe incremental earnings from.
Texas and a LNG ramp so maybe you could probably a little bit more color on that.
Okay, I think that as we were able.
Well to finalize a the sales agreements for South America.
Assess the rate case, which just got finalized at the end of September and look at all of our business is a fresh Oh, we became.
A very confident that our guidance range was.
Still good despite despite the sales and that was really you know good news for us because all the businesses are doing well, we have confidence in the and Cameron and the California utilities Encore and then the South American proceeds they all come into play we're not going to break down segment guidance until we have our investor day. So we'll.
Have you all that detail at that point in time.
So this is Trevor I would just had one thing, though that you know with the sale of the renewables or that you saw earlier, we were able to maintain our guidance as we recycle that capital and likewise with the sale of South American recycling that capital.
Our coupled with like Joe said, you know a constructive rate case, that's really focused on capital around safety and reliability. We feel good that we've been able to recycle capital and maintain guidance. So a huge positive for us in that respect.
Yes, yes, and so maybe just to just double check it does that assume.
<unk> outcomes in the cost of capital precedent and at the FERC.
No that's a outside of the a the cost of capital so that that's not in a in the other specific guidance, but again it most likely would be within that guidance range.
Okay and the first settlement.
Same thing.
It would be and the guidance range.
Okay, but it's not specifically included no assumption on that is built into it right now.
Got it and just to confirm and Texas incremental Capex, if you're putting it that encore.
That would be able to cover both chico's and just Crs correct.
That's right.
That's right.
Thank you so I had I was hoping thanks you.
Thank you [noise].
And we will now go to Paul Patterson of Glenrock Associates.
Hey, good morning, guys.
Good morning bar here Paul.
So just sort of follow up on.
On.
Greg send a steve's questions.
If I understand sort of your answer it looks like you guys are leaning.
To.
Basically, including an adjusted EPS.
The wildfire amortization.
Yeah, Let me, let me take that one Paul what we're leaving two is.
Is calling it out prominently probably on the face of the financial statements, but probably not carving it out as a separate adjusted guidance, but again, we're still working through that right. Now this quarter. It was pretty small it was only $6 million of earnings. So we didnt call. It out, but again I think one way or the other we will show it pretty.
Dominantly that people can can identify that number.
On the face of the financial statements.
And then with respect to the P. S.
Yes is that you guys are or have had instituted how would they can pay or I mean, I realize that they're separate and distinct situations and every.
It was territory et cetera, but as a percentage of customers.
Thank you guys said I think something in the hundred thousand a customer range.
How does that compare to the the number of customers that are being.
Reduced in the service territories to your two to the North and how long are these people on average.
Being cut off or how long is their power out.
Because from our perspective, I mean, obviously different service territories different numbers of people, but the reaction to the so power shut off to the north seem to be rather.
Rather hospital, which I haven't.
Really I've seen complaints about about obviously people being.
Disconnected in your area in the past and what have you, but I haven't seen anything to this level. If you follow me as I just wonder if you could speak to that a little.
Now let me let me take it first Paul and then I think I'll have Carolyn also address it.
It's quite interesting and I I.
Alluded to this earlier.
I've lived in different parts of the country and seen our go out for a variety of reasons generally generate generally weather events right. You have found out planned outages. Those are usually generally very short term.
But but I've seen weather events across the eastern seaboard.
And you know nobody likes it but it happens and you know if theres ice and snow or Wyndham Nox trees down in Knoxville winds down. This is what happens and you know I've I've been through periods, where the utility in around Washington, DC was you know you didnt do enough to keep though the reliability.
The up so it's always a an issue I think in California, we've been so used to mild climates and very high reliability that it's a little bit unusual and what we've tried to do and I'm going to let Carol and speak to this is we've over that over the 10 years, we have tried to figure out away segment.
Our grid.
Really take out the power shut the power off for safety reasons in small areas, where the wind speed is just too intense and that doesn't cause as much issue. Although at the very beginning it was difficult, but then we started to build.
Centers for people to go to got the communications chain. So we learned learned a little bit by doing.
I I think up north they're cutting off a much larger percentage of people of course, they have a bigger territory I don't think there at the point, yet where they can do exactly what we're doing they can get there, but I think that's what you've seen a little bit of.
Backlash on its something people in other parts of the country about the deal with for most of their lives and people in in Northern California haven't killing can you talk about this because we use a thing about hundreds of thousands we had a much smaller number of people out than that.
They've had a very significant over million I think Carol and go ahead.
In our last event, we impacted around 25000 customers as I mentioned earlier and I would just tell you that you over the past decade, we continue to improve and what are the things that we did early on after we've had these public safety power shut off.
We set our senior management team to these communities that were impacted <unk>.
One thing and that was to listen to customers, what where customers concerns how can we lessen the impact when a P.S.P.S. occurs and that's really where the idea of these community resource centers was generated from us going out and listening to our customers and in turn we're showing them the tied to the conditions that were seen in the types of wind speeds that.
Well that the a area is experiencing and I would just tell you that we're also going out and doing community resilient fair. So we're out in the communities that were most impacted and I have to tell you that over the years the in the impact and the response from customers has been actually positive there. Thank you asked for.
We know the power and so I'm really pleased to hear that now is 100% of the customers happy no, but but I can tell you that customers are more accepted or the practice that we're doing and they know the conditions were experiencing and we're listening on how to lessen the impact to them. When we do have to do at PST and you might talking about how long.
We had to turn people off and it's different in different areas, yes. It it's absolutely different in the highest elevation and where we had to do more significant P.S.P.S., but I can tell you. It in the last day events over the last week. The average duration of these psps. It's been around 24 hours. So we have tried.
To minimize that however, we're also careful that we're not going to turn the system back on when the conditions prevail, we do 100% patrols of all of our circuitry and the circuit segments that we do energized to ensure that there's no trees on the line there's been no damage the lines and surprisingly we have found things that that.
<unk> found unbroken broken told me fat broken Cross times, we found it trees on wire. So that's important is doing these 100% patrols before we turn back customers on right.
Right Okay.
Great job guys I mean, maybe maybe you guys can probably well I don't what maybe you guys can help the other guys in.
Up to the north and and maybe that could.
The appreciate some more.
We do think okay. Thanks, so much.
Thank you Paul.
And with that that does conclude today's Q any session I would like to turn things back to Joe.
Holder for any additional or closing comments.
Thank you all for joining us today I will see many of you Eddie I in about a week any event I'd like to express my gratitude to each of you for the confidence you've had in Sempra energy and support you've given me and it's been a real pleasure. Knowing you. All do you have any follow up questions. Please feel free to contact.
The IR team and have a great day.
And with that ladies and gentleman that does conclude today's call we'd like to thank you again for your participation you may now disconnect.