Q1 2020 Earnings Call
[laughter].
Good day and welcome to the Sempra Energy's first quarter earnings call Today's conference is being recorded.
I'd like turn the call.
Please go ahead.
Good morning, welcome to Sempra Energy's first quarter 2020 earnings call a live webcast of this teleconference and slide presentation is available.
Web site under the Investor section.
Several members of our management team.
On the line with us today, including Jeff Martin Chairman, and Chief Executive Officer, Dennis Arriola Executive Vice President in group President.
Western Bird Chief Executive Officer at Cempra, LNG, Trevor Mahalik Executive Vice President and Chief Financial Officer, Our nine Chief Executive Officer, Encore Kevin's to Guara, Chairman and Chief Executive Officer, or San Diego gas and electric and Peter Walsh, Senior Vice President Controller, and Chief Accounting Officer.
Sure.
Before starting I like to remind everyone that we'll be discussing forward looking statements. When the meeting the private Securities Litigation Reform Act 1995, because you can do you need to monitor potential impacts from the ongoing pandemic. It's important to keep in mind actual results may differ materially from does discussed today.
The factors that could cause our actual results to differ materially are discussed in the company's most recent 10, Jade and 10-Q filed with the FCC.
Oh the earnings per share amounts in her presentation are shown on a 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 measures.
I'd also like I mentioned that the forward looking statements contained in this presentation speak only as of today, maybe worth 2020, and the company does not assume any obligation to update or revise any these forward looking statements in the future.
With that please turn to slide four and let me hand, the call over to Jeff.
Thanks, a lot size one thank you all for joining US today, we hope everyone staying safe and well during this public health crisis I don't work certainly go out to all those have been impacted by this pandemic in the midst of all this we're reminded that our employees Chase health risk in their daily lives and unique challenges in performing their jobs.
That's why our first principle here at Cempra has been in continues to be keeping them safe.
On this slide we provide a few examples of some of the health and safety initiatives that we've implemented all while providing critical services to our customers and supporting our communities.
Specifically, we this you'd additional personal protective equipment for our field employees and implemented to revise protocols for customer engagement.
We have hired an infectious disease expert just systems in implementing safety procedures for all employees, we've instituted travel bans and limited building access employees that your work from home continues to do so.
We've rolled out enhanced resources for employees, such as technology reimbursements revised sick in emergency Lee policies and extended mental health services and we've invested in our communities by committing over $8 million across the cent per family of companies to help those providing critical services to those a need.
I cannot be more proud of the commitment and dedication of all of our employees during this period.
It's one of those times of Great Challenge, where notwithstanding the fact that many of US are working remotely bid as our values and mission that continues to unitas.
Actively monitoring the situation were guys aren't protocols as necessary to continue providing safe and reliable service.
Were 35 million consumers each day, please turn to the next month.
Before discussing the quarter I'd like to take a moment and thanks to everyone, who joined as far virtual Investor day, just over a month ago. We certainly appreciate it had the opportunity to provide you with important business updates and highlight our overarching strategy.
You recall that at the core that strategy is our mission, where we've made a commitment to build north America's Premier energy infrastructure company and one of the important takeaways from this call. We believe is it we're continuing to make great progress on that mission. Most recently, we've completed the sell about Peruvian businesses and expect to close this.
Well a richland businesses later this month, we also achieved mechanical completion and began to startup of the third and final train.
Cameron LNG phase, one and it each phase one we just recently finalized to sell in purchase agreements totaling 2.5 million tons per annum.
These 20 year agreements with high credit worthy Counterparties highlights a strategic advantage, so being able to offer liquefaction capacity to our customers from facilities on both the west coast and Gulf Coast again, the execution of these two new agreements speaks to the market need, particularly right here in North America for critical.
All new export infrastructure will be discussing these developments in more detail later in todays presentation.
In combination our strategy capital rotation program improved capital discipline and effective execution have improved the earnings power of our company and this can be seen in our strong first quarter results getting these positive developments I'm pleased to say that we're reaffirming and more importantly got into the.
Upper end of our 2020 adjusted earnings per share guidance range. We're also reaffirming our 2021 EPS guidance range. Please turn now to slide six.
Two years ago, we laid out a strategic plan to reposition our business and improve our financial performance with three key objectives in mind first to focus our portfolio and the most attractive markets in North America.
Second to utilize our scale and strong operating history to create a tier one leadership position in those markets.
And finally to position our business and that portion of the energy value chain, where we believe we can produce the most attractive risk adjusted returns lots in our portfolio today, we've made great progress focus in a geographic footprint on leading energy markets in North America, well further improving the quality and strengthen our earnings.
This approach to its helped create a higher growth in more resilient infrastructure platform is well positioned to compete through different market cycles and deliver long term value to our stakeholders. Please now turn to slide seven well provide an overview of our south American business cells.
As many of you saw we recently completed the celebrate equity interest in our Peruvian businesses to an affiliate.
Hi, Yangs heat power international for total cash consideration of approximately $3.6 billion. Additionally, we continue to advance the announced sale of our equity interest in our Chilean businesses to China State grid International development for anticipated sales price of approximately $2.2 billion.
I'd like to emphasize it all parties remain quite motivated to complete the Chilean transaction and we are targeted to close later this month.
Also thing it's important to mentioned that closing the proved transaction that is yet. Another example of our ability to execute our strategy even in a challenging business environment.
Please turn to the next slide.
Our management team continues to strive to be prudent stewards of your capital. Our recent efforts over the last couple of years have resulted in approximately $8.3 billion of announced proceeds from completed and pending asset sales. This capital recycling has provided us with that level of capital efficiency.
We expanded our utility footprint in Texas, but noncore and as a follow on grew that platform with the subsequent acquisition of inter region now like to turn the call over to Trevor to review, our current liquidity position in credit profile as well as to discuss our operational and financial results. Please turn to the next slide.
Thanks, Jeff.
Many of you saw similar slide at our recent Investor day, but here, we have revised it to reflect our updated liquidity position.
I want to call out the largest change which is the separation of the proceeds received from the sale of our proven businesses.
As of Friday, Sempra parents liquidity is over $6 billion up significantly from the $3.3 billion at the Investor Day.
Combined Sempra parents STG, the so called gas at $6.7 billion of revolving credit capacity.
Lets facilities are currently undrawn other than support for the approximate $600 million of commercial paper that's outstanding at Paris.
As this slide illustrates the combined Sempra family of companies have a very strong liquidity position. We currently have nearly $10 billion of liquidity, including cash on hand, and undrawn committed credit facilities.
This is the for the sale of our Chilean assets, which we expect to conclude later this month.
It also excludes encore, which has a strong liquidity position with roughly $2.5 billion.
We talked about the resilience of our business liquidity is an important part of that because it helps us to ensure that we can safely operate our businesses.
And our capital plan and support the growing dividend.
Please turn to slide 10.
Now I'd like to discuss the steps, we're taking to improve our credit profile.
Our board of directors and management team have taken a series of disciplined steps to allocate capital more efficiently, while improving our credit metrics.
Specifically, we've diversified our U.S. utility rate base into the pure play TNT assets in the Texas market.
Divested U.S. renewable generation and nonutility natural gas storage assets.
Issued $6.5 billion of common equity and mandatory convertible preferred stock as part of the 9.45 billion dollar acquisition of encore.
And moved to up to three trains a Cameron LNG phase one into operations.
With a with a third only months away and optimized project economics and cash flows through refinancing nearly half of its project debt.
When in full operation this will provide a valuable and recurring stream of cash flows.
In combination. The result has been a continuous decrease in the ratio of our holding company debt to total debt, while improving the quality of our earnings mix and business the risk profile with this in mind. We also continue to target approximately 16% FFO to debt and 50 per se.
Net debt to total capitalization by year end.
We do not plan to issue any common equity to fund our current capital plan.
Please turn to slide 11.
This quarter, we had several positive developments and our U.S. utility infrastructure businesses.
First STG any we had our FERC cost of capital All party settlement approved.
Notably our FERC authorized Aro, we will now be 10.6%, including the continuation of the 50 basis points high so adder.
This is an increase of 55 basis points over I previously authorized auto we have 10.05%.
As a reminder, STG any birth rate base is approximately 40% if its total rate base. We're pleased with this decision and believe it benefits all stakeholders.
Second at both STG any and so Cal gas, we recently filed a joint petition for modification related to the 2019 general rate case.
Further cpcs direction, we requested attrition rates were out fourth and fifth years.
And STG any we requested 4.77% and 4.64% for 2020 to 2023, respectively.
Okay, Yes, we request at 4.95% and 4.16% for 2022 and 2023, respectively.
Supportive a five year rate case outcome. We believe these attrition rates are reasonable and should enable us to continue investing in critical infrastructure designed to deliver safe and reliable energy to our customers and the communities we serve.
We requested a final decision on this matter by yearend.
Shifting to Texas.
Encore continues to execute on its capital plan about 90% of the projects in encores transmission budget through 2021 do not need further approvals before commencing construction.
On the distribution side.
For connected approximately 18000, new customers in the first quarter.
Furthermore, overall demand in ERCOT actually increased in the first quarter of 2020 over the first quarter of last year. The increase was roughly 1%, but it's still notable given the market backdrop. In addition, governor Abbott has announced a phased reopening of businesses to help restart the.
Texas economy.
Please turn to slide 12, where I'll discuss developments at Cempra, LNG and Sempra Mexico.
Starting at Cameron LNG phase one.
We've achieved mechanical completion introduced feed gas and initiated the startup process for train three.
Importantly, this keeps us on track to produce LNG in the second quarter and took place train three into service early in the third quarter.
At this point construction is essentially complete and we look forward to bringing the entire facility into operation soon.
As a reminder, we expect this project to generate full run rate earnings of $400 million to $450 million annually.
And nearly $12 billion of after debt service cash flows back to us during the 20 year contract period.
Shifting to the LNG markets and our development projects.
We've had a long held belief that new LNG infrastructure will be needed by the middle part of this decade to support increasing demand.
But fewer projects expected to take if idea as a result of reduced capital spending in the oil and gas sector and some LNG developers being financially constrained we believe that will be an even greater need for our projects.
Financial strength and advantage locations on the West Coast and Gulf Coast helped provide us with a competitive advantage to continue to grow our LNG infrastructure platform.
Along these lines as Jeff mentioned earlier, we recently signed 20 years sale and purchase agreements with totality that suing for a total of 2.5 million tons per annum ACA LNG phase one.
We continue to work closely with the Mexican government to secure the final send their permit.
And to reach a Friday, we continue to target F.I.D. this quarter and were optimistic the permit can be issued in a timely manner to support that.
Shifting to Port Arthur LNG phase one.
This past quarter, we announced a fixed price turnkey EGPC agreement with Bechtel. However, given the current market environment, we've updated the F.I.D. timing for the project to 2021.
We continue to work with our current and potential customers on the optimal timing of the project and we'll continue to be disciplined on how we allocate capital to the project.
Turning to Sempra Mexico.
We're continuing to develop projects that provide cleaner more reliable energy as well as energy accessibility for the people of Mexico, We're continuing to monitor this situation, but as a result of the current pandemic, it's reasonable to expect that some of the construction capital will be deferred from 2020 to 2021.
Nevertheless, we believe demand for our existing network of pipelines and power assets remained strong and are critical to the people of Mexico. Please turn to slide 13.
Looking at our financial results. This was a really excellent quarter earlier. This morning, we reported strong first quarter 2020, GAAP earnings of $760 million or $2.53 per share.
This compares to first quarter 2019, GAAP earnings of $441 million or $1.59 cents per share.
In our ongoing effort to build resiliency and continuing to resolve legacy matters, we reported Q charges in the first quarter.
First we recorded a charge of $100 million related to our previous ownership of the RBS sempra commodities trading business.
This charge represents an estimate to settle certain tax related legal matters associated with activities of more than a decade ago.
Second we recorded a $72 million after tax charge related to the 2015 Aliso Canyon incident.
We have recently engaged in settlement discussions with private plaintiffs related to the civil litigation.
As you May recall, we settled with the government plaintiffs in 2019 for $120 million for more information regarding Aliso Canyon. Please refer to our 10-Q.
Shifting back to the consolidated earnings on an adjusted basis first quarter 2020 earnings were $932 million, where $3 an eight cents per share. This compares favorably to our first quarter 2019 adjusted earnings of $534 million were $1.92 cents.
For share.
Please turn to slide 14.
The variance in first quarter 2020, adjusted earnings when compared to last year was affected by the following key items.
$66 million of income tax benefit in 2019 at the California utilities, resulting from the January 2019 regulatory decision that provided direction on how to allocate certain excess deferred income tax balances.
This was offset by $174 million of higher earnings at the California utilities from higher CPC based operating margin net of operating expenses, including $120 million of lower CPC base operating margin in 2019 due to the delay in the issuance of the 20.
19, GRC final decision.
136 million dollar variance at Sempra, Mexico due to the impacts from foreign currency in it and inflation affects net of foreign currency hedges.
$85 million of higher earnings at San for LNG from higher equity earnings from Cameron, primarily due to train one and train two commencing commercial operations under their tolling agreements in August 2019, and February 2020, respectively.
As well as higher earnings from Sempra, LNG marketing operations, primarily driven by changes in natural gas prices.
$38 million of higher earnings from higher electric transmission margin STG any including impacts from the March 2020, FERC approved Tio five settlement proceeding.
And $11 million of higher equity earnings at Cempra, Texas utilities, driven primarily by the impact of Encores acquisition of Infrareit in May of 2019, and higher revenues due to rates being updated to reflect increases in invested transmission capital. This was partially offset by higher operate.
Cutting costs and lower consumption due to weather, please turn to the final slide.
Our management team is very pleased with the progress we've made so far this year.
The accomplishments discussed are a direct result of the successful execution of our strategic mission to be North America's Premier Energy infrastructure company, and we feel well positioned for success going forward.
The key for US is to stay focused on executing our capital plan, which is primarily focused on our California, and Texas utilities.
We also are committed to ensuring the delivery of safe and reliable energy to our customers and communities we serve.
Enabling energy security and diversification locally and globally.
And expanding energy accessibility.
In combination our strategy well executed capital rotation and disciplined execution of our Capex program are all designed to improve our business resiliency and overall financial performance.
Finally, I'd like to thank all of our employees, particularly those on the front lines CWIP continue to work diligently in pursuing our mission and safely serving our customers and communities.
We're fortunate to have such a talented and dedicated workforce. One that has maintained a culture of high performance. During this challenging period, which has impacted us all in various ways.
With that we will conclude our prepared remarks and stop to take your questions.
Thank you.
I'd like to signal with questions. Please press star one you touched on the telephone.
I'm joined today, you say speakerphone. Please make sure you function is turned off to why your signal to reach our equipment again it will be star. One if you would like to ask questions. We'll pause for just a moment I do signals.
First question come from Stephen Byrd with Morgan Stanley.
Families are doing okay in this challenging time.
I wanted to first just touched on a UK and the process from here in terms of the export permit.
Could you just talking a little more detail in terms of.
Just what the steps are to get through that process. The review by scenario sort of just where we stand just so we can try to follow that a little a little more closely.
Thanks, Steven track question I'll provide a little bit of context on where we're at from the LNG standpoint, and then I'll pass it to Dennis.
Who's been following that closely both on the U.S. government side as well as in Mexican side I think one of the things that was just like to call out for purposes of this call is we've long talked about the competitive advantages of our company Stephen around scale in financial strength and LNG space.
Long history in the natural gas base dating back to the middle part of the 18 hundreds.
The geographically advantaged nature of our projects and the fact that were out of five of them are brownfield projects, which we believe gives us a cost advantage. So assigning three contracts in the last three weeks I think it speaks to the importance of these advantages that we talked about a little bit in our prepared remarks, we've been very very clear inconsistent, but our view.
They're being a deficit and needed export infrastructure all around the world in the middle part of the decade, and I think as you think about the market dislocation is occurring in the oil and gas markets. This is a time, where we think that they need in the mill a part of the decade will only become more acute because the low prices up today.
Allowing for greater market penetration for LNG, both in new markets in Europe, and particularly East Asia by the way and I think that this same mark is challenging many of the other less well capitalized developer so to get to new contracts are essentially to sell out the capacity because a big positive and I'd also mention.
And this is the first time ever in the history of our company that we've had all of our customers at Cameron sign up for phase two so that's a nice step forward as we look to continue to develop there, but the next big step in terms of FRG as part of your question, which is this an air permit and I'll pass that to Dennis for additional commentary.
Thanks, Jeff Hi, Stephen Yes, look theres that Theres no doubt that what's going on in Mexico with a pandemic has the government focused on that is impacting the timing of the scenario approval, but I think that what are the other things that we've taken into consideration set. This is the first time to send their has had to approve an LNG export facility.
In Mexico, So it's a different animal for them, but having said that now the discussions our teams have had with various members of the administration in Mexico, including the President of an oven himself that gives us great confident that that's the Nair permit is going to get approved it's just a matter of timing when you look at what's going on in Mexico, and specifically in ballpark how.
Foreign yet this project is extremely important to that region given the number of jobs, it's going to bring the economic stimulus and that just the impact is going to have on the municipality. So we've been having conversation with a governor of the state and he is extremely supportive of this project has spoken out on that the other thing I'd mention is.
When you look at this project if not only good for the U.S. and our natural gas producers, but it brings badly needed foreign direct investments in Mexico. It brings a natural gas to customers and businesses in the region. It also provides off take customers in Asia with a highly competitive and strategic access point on the West coast.
So this is a winter, it's just a matter of timing.
Understood. So if I'm sort of hearing that correctly, certainly kogut can cause delays, but it's not as it theres some sort of change either politically or policy wise, just that would would drive it a different outcome or.
For more challenge than than we've seen before.
No. We don't we don't believe so again I, thank everyone understands the economic impact and what this does not just to export gas through Mexico, but it actually brings natural gas to that region, which battling needs Oh it off.
Dennis points Stephen to as the level of support we've had from the Secretary of Energy Secretary of state the entire administration here in the United States. It's also been quite helpful. So I mean, our forecast remains that we'll get to the Sinclair permit and second quarter. We've got the right team in place to do it I think we have to be sensitive to the fact that everyone.
Not just the United States, but in Mexico is taking the cobot challenged very seriously that certainly impacting the delay as the agencies are currently shutdown.
That's really helpful color, if I could just follow up separately on a on encore.
We've always liked the growth outlook in Texas.
If you could just refresh us in terms of just potential areas for additional spending other policy objectives in the state or just any other areas of upside as you as you look at a your Texas business.
Sure I'll tackle that at a high level, we've got the benefit of habit Allen the line I'll pass it to al I'll get back to kind of the fundamentals at Cempra is I think is youve, followed us even for a long time, we've really been trying to strategically repositioned the company.
More around utility investments in the United States, and secondly, specifically TNT investment So, California really is an infrastructure opportunity because were de couple of here. This is all about deploying capital for safety and reliability in the state of California, very very similar in Texas.
Not only as encore not commodity exposed on generation. So we're very attracted to that TNT business model.
Alan laid out at our Investor day, a $11.9 billion record five year Kalpoe program for his business and you may recall he had a separate slot on additional capital opportunities, even though they're seeing some.
Impacts from the pandemic in Texas like a lot of other places number one governor abbott's reopening the state and number two really interesting feedback on the demand even in are caught a year over year demand in Q1 was up not down which is interesting and.
One of things I've been in trade by as even as you think about impacts in the Delaware basin or the Permian.
I will have a very high percentage of drillers are using standby generation and there's a huge price discount that allows them to lower the marginal cost of production at they can connect to the grid. So the activity analysis team remains quite high but I'll stop and Alan if you can provide some more commentary about the diversity of your load and the dip.
Perceive your growth I think that might be helpful to Steven.
You bet, Jeff and thank them for the question I think Jeff covered most of it.
Just to reiterate our 11.9 over five years.
We still feel good about the 2.5 based on what we know right now for this year.
We actually had a little upward pressure you may have seen we spend a little more in Q1 than we had anticipated.
But we still have we have for example increased and generation interconnection request I think the last time, we talked we had about 10 at the analyst Conference.
We're up to 13 now for this years plan.
We are continuing to see some pressure in west, Texas with our transmission projects out there both on the construction clearances on the right away side. So we're seeing some increase capex there.
And while West, Texas, certainly, we're going to see some offset with the customers delaying projects and things like that just as a data point as of last week. We did receive 20 to initiate additional request for new oil and gas load.
In West, Texas, So we have our transmission projects that were working on three year project in West Texas.
Just point.
For cloud with her Cod last week identifies approximately 40% of a load in that region oil and gas load is self generating right. Now. So we continue to build up to those those operators I mentioned the renewable generation uptick.
And we're continuing to invest in reliability projects and congestion relief in the area.
So we feel good as based on what we know right now about our 2.5. This year. It's Jeff also mentioned in the Analyst Conference we had.
Better part of a billion dollars identified as additional incremental what to see how that goes what the needs are some of that is deferred maintenance. They found a significant growth we've had over the last few years.
But that's where we are right now we feel good based on what we know about the two and a half there are still opportunities on our system to invest we connected 18000, new premises in Q1.
Some of those certainly will be deferred and delayed it depending on how long. This goes but overall right now we feel good about our 2.5 and plus we have the incremental capital available if necessary.
Thank you Alan.
Thank you that's all I have thank you.
And our next question will come from shop for Us with Guggenheim partners.
Good morning sharply guys. When you have good morning.
Just a couple of questions here on the credit metrics is obviously a review that's outstanding but you obviously have a very good capital recycling story with the South America assets and de levering hope pynchon sort of or the rating agencies on seeing sale through the plan as you highlighted today, including a modest.
Production Holdco debt, it's a 90 day by day review period. So how are the conversations going and how do we sort of think about seeking the downgrade the potential downgrade versus incremental equity that could satisfy their balance sheet concerns you, obviously full speed and LNG regularly to capex.
Sure I appreciate the question I think I'll start back in 2017 in the summer we were looking at making the investment in FH. We spent a lot of time at the agencies and around how we would finance the transaction you may recall, we even increase the amount of equity we use that transaction to accommodate.
Kind of our goals at that time, we set out.
Goals that would support an investment grade plus rating to acquire that business and one of the thanks. You recall, we did was we actually laid out a broader strategic repositioning of the business about how we were moving from being a south America invested to be in North American focused and not just in North America around it.
Different quality of asset around TMB, which I think lowered our business risk profile at that point in time, we laid out some goals with the agency through 2030, I mean through 2020, I'm, sorry, and I think part of the discussion we had an investor day and on this call is really is the progress we're making towards those goals I, Thank our business today, which care.
Ameren coming online with us more invest in North America, and with US more invested with regulatory diversity into Texas, and particularly pure play TNT. We've made a lot of progress I think Trevor perhaps you can update us on the metrics that we're tracking to and how you think would go into the rest of the year with agencies sure Jeff.
Thanks for the question sharp.
As Jeff said, you know we are continuing to target our FFO to debt metric of 16% by the end of the year and what we're also doing with the recycling of capital targeting out debt to cap ratio of around 50% and we brought our parent debt down to about 26% by the end of this year. So look we continue to work with the agency.
These around our plan help them understand how weve significantly de risked this business and.
And I as I said at the Analyst Conference and reiterated today, you know, we don't have to issue equity to Uh huh.
You reach these metrics.
I will say that our Oh, hi, Triple B clot Triple B plus rating is important to us, but we all seem to balance that with what's also important to our shareholders and then lastly, I would also point out that we have pushed port Arthur into 2021, and this is one of the areas that.
The rating agencies have raised a that.
If you get into LNG in a big way you know they would look at doesn't so we believe this is a very strong credit profile.
Got it. Thank you for that would just on slide eight where you talk about sort of capital location. There was some language obviously, there where you reference further expanding your utility footprint in Texas and I know Allen keeps mobile on the capital opportunities can you just maybe a little bit elaborate further on this is this organic and inorganic.
Are you kind of referring to the remaining ownership stake you don't own encore, we can T. I would you see other opportunities just trying to get a sense.
So I appreciate given this opportunity to clarify that if you go back and looked at in prepared remarks, what we're really talking about was the level of capital efficiency that we could generate from a relatively ambitious caliper rotation program that we announced in the first half of 2018.
Because as you see on that slide it talks about announced pending proceeds of about 8.3 billion and we bought encore for 9.4 or 5 billion I mean that FH portion of encore as well as didn't about another 1 billion on Imperieuse whats effect will be taken places, we've taken noncore assets or assets.
In South America and in the process of selling those we've effectively rotated them into encore and Infrareit and this really goes the harbinger credit question, because you're getting higher quality earnings and you're getting a lower risk profile and I think thats reflected in the original commitments, we made to the agencies back in 2017.
And then I would just go on to say that we're opening up the center of excellence and the second half of this year in Houston that the Galleria, that's really to support the growth in Justin's business and LNG as we look to continue to support both Cameron phase two and port Arthur from that Houston office. So like it is a market of strategic significance.
To us I think the purpose of that Slach are what's really highlight the capital efficiency of rotating from those businesses into a new market for us.
Got it got its nothing inorganically within the state.
That's right.
Got it okay. That's all the questions ahead. Thank you so much.
Thanks sharp.
And our next question comes from Steve Fleishman with Wolfe Research LLC.
Morning, Steve.
Hey, good morning, mainly just follow ups here so just on the.
On the Texas business Encore given me a data yet for for the month of April since I was really when we add though.
It's interesting we saw we've talked a little bit about.
Yes, we talked a little bit about that the overall growth profile in ERCOT was up year over year, and then Alan has and data for April one I think as you expect it could be different by asset class I think at least and Alan you can see because I think your overall distribution revenues are up and April compared to last year, but I'll, let you speak to that much.
You're seeing on the system.
Let me there sorry.
Here I'm going to drop but.
Thanks for question Steve here. So we've got for April overall distribution base revenues are up 1% versus April 19.
That includes residential revenue increased by about 10% versus April last year, Lcnines down about 5.5 versus last April weather normalized about 1.7% lower.
Distribution rate.
Revenues about 4 million coming off a quarter of 150 million in revenues.
So that's what we've got that's what we're seeing so far in April we're continuing to expect whether it'd be the largest driver for the remainder of the year as we've talked about before whether typically goes plus or minus 25 in revenues and plus or minus 20 million a net income.
16 of the last 21 years have been positive in that regard. So we'll see what's going to happen there and then as someone mentioned earlier on the call think with Trevor.
With the governor phasing the opening of taxes, we fully expect to see them. Some positives there as well, but we'll just have to see how it goes as it opens.
Those are the numbers we have for April so far thanks.
Okay.
And just one one follow up on that so if we're obviously seeing a continued shut in.
Very meaningful models of Texas.
Oil rigs in particular.
That when we think of given the self generation that a lot of them do and your mix.
That is not going to be kind of a big overall driver to your.
For your margin or.
How should we think about that.
Yes, let me try to government aren't going to Philadelphia.
We try to address it this way approximately 12% of our overall revenues come from West, Texas of that amount approximately 38, 40% or on the industrial side. So the rest are our residential or commercial.
So thats, probably some guidance on what the exposure is there Jeff Im sorry, I interrupted you.
Oh, that's okay, I think that I.
I think thats very helpful. Another thing I was going to say Steve is that.
Alan team continues to update us on.
Thanks, something in the neighborhood of 30, or 40% Allen and correct me if I'm wrong steel you standby generation to 25 cents already set level. So there's still a clamoring for people who are producing to move to the grid. So most of Alan's capital program is laid out for this year next year is pretty much locked into the not really on incremental new growth.
Catching up for growth as hard been register on the system, but is that fair way to characterize as Alan.
That's correct, Jeff both on the Capex over the next couple of years as well as the report that we decided has 40% of oil and gas load basically in the region not self Jen.
Yeah. Thank you.
Great one other general question so just the.
Yes, it's nice to see you.
Points to the high end of the 2020 range.
Okay and everything that's going on so just some of the things that happened this quarter or like FX can move around so just when you think about when we think about what's driving to the high end of that range could you just comp.
With a simple.
What what the drivers or for that.
Sure, Steve I'd be glad to I'll I'll provide a little bit context about how I'm thinking about and Trevor can speak to some of the drivers in the quarter and while I think we feel fairly confident going forward one of the things we've done as a team Steve is to think back to what we tried to accomplish in 2019, you may recall, having followed us that we had original guidance.
$576 in 30 cents and in the second half a year, we raise last year's guidance just $6 to $6 in 50 cents and still exceeded that you may recall just in our Q4 call. We reported full year adjusted earnings of $6.78. So we had a banner year, yet last year with record earnings.
Ends up 1.91 billion on adjusted basis, so to put that perspective in the first quarter of this year, we have produced and recorded roughly one half of the earnings from full year 2019, right. So even though it's early in the year, we have a pretty robust view of what we think we accomplished a lot as Steve is driven by.
The fact that across our utilities, we remain on track with our capital programs, which are fairly aggressive and that would conclude before passing the driver that one of the things we've agreed to join our team as we go into the summer we're going to do a full bottoms up on our 2020, and our 2021 guidance range and make sure that weren't up there.
In addition to make the appropriate adjustments as we go after our Q2 calls so we're quite bullish on our forecast for 2020, and we're going to try to update that and ticket second look at 2021 is would be closer to our August call, but Trevor perhaps you can talk about some of things that you're seeing from the quarter. It causes our confidence level would be hard for the remainder of the year sure. Thanks, Jeff.
Afternoon, Steve.
Jeff I really didn't cover a lot of this but I can't I would direct you maybe to slide 14 of the deck, where we did the the waterfall up from last year and again, if you take a look at some of the Big drivers you certainly are seeing the numbers at the California utilities with the CPC base operating margin up 174 million.
The rate case that we're now seeing the impact as we're implementing the rate case, and providing safe and reliable service to our customers also we had a good result, as a problem the FERC around Oh, the T O five and so that also is in the transmission margin at STG any of 38 million dollar.
As we implemented that.
Then a again you know Cameron we saw train to come on a little early and we're hopeful that maybe train three could come on a couple of weeks, Charlie and that that will also give us a great deal of surety around where we're going to end up for the year and an encore continues as Alan said to implement their capital plan.
Yeah.
So we feel very very good about the three utilities executing on this robust capital plan during the year and then of course, we do have mechanisms that that are being put in place at the three utilities to protect our from any potential downside associated with the pandemic. So again I think that's why we felt pretty good about.
Adding to the upper end of the range.
Okay, I apologize I just want to ask one clarification of just just to the review of 20 2020 lawn as you're going to middle of the mirror.
Are you kind of saying with a bias to the upside given what you did last year and same thing happened as opposed to kind of dealing with.
Pandemic type risks I just.
One of the clarify that.
One of the things you remember Steve was in our June Analyst Day, which was in New York in 2018.
We went ahead and talked about EUR 18 guidance, and our 19 guidance and actually put out and published our 2020 guidance right.
70 to $70 in 50 cents. So we put out that 80% range back in June of 2018, and Thats, even as we were just starting the sales process for our solar and wind we made a decision at that point you sell South America. So we've executed across a relatively sweeping cap a rotation program at the same time that.
We've been rotating capital back into California, and Texas. So I think what you're seeing is we had strong momentum last year, while we are executing our capital rotation program and then that you're seeing that carried through into this year and we go through a pretty bottoms up process to keep an evergreen plan, but look I think what you're hearing as we had a remarkable first quarter.
In 2020 regarding to the high end of the range.
We typically don't change our guidance. This early in the year, we're certainly going to be positively inclined as we review, but 2020 and 2021 as we go into the summer.
Okay, great. Thank you appreciate it.
Thanks, Steve appreciate it.
And our next question will come from Jonathan Arnold with vertical research partners.
I guess, you're not paying I guess well good morning, Phil you guide.
Hi, Jonathan Hi.
Mexico FX gain in the quarter.
Hi, obviously on the 20% devaluation Youre rule of thumb would have pointed to a big numbers, but you tell like are there a call as some other reasons wouldnt be linear I'm. Just curious is there any thing embedded in Q1 way you know any hedging costs to be tried to lock some other than perhaps or are we still open I'm going into the.
The rest of it.
Thanks, a lot Jonathan I'll start with some context and pass it to Trevor and he'll review the rule of thumb. There go through the financial statement impacts, but I always want to go back to first principles, which as you know we've been in this business for about 20 years in Mexico and one other things I think has really been a critical advantage for us has been that icon.
Track portfolios U.S. dollar denominated, which is a big plus in that market and we've got contract 10 or in that portfolio over 20 years. So we have a great long term contracted portfolio. It's U.S. dollar base and that comes with the obligation that at year end you were met your tax liability in pesos.
So trevors team is traditionally done a very good job of having a hedging strategy allows locking and support our plan, but I'll pass it to travel to review the rule of thumb and the impact in the Q1 financial statement. I think this is one of the things that it's always important for us to talk about we talked about metric.
Perfect. Thanks, Jeff, Yes, so Jonathan again, I I would direct you to our our rule of thumb that basically says.
You know for every 5% move into pay so it's roughly about a $45 million of earnings impact.
And again, you know I want to emphasize that you know this earnings impact is really a noncash impact until you ultimately have to pay the taxes and its as Jeff said, you know where U.S. dollar denominated in Mexico, we pay taxes in the peso. So when you actually look at table laugh table left is but the.
Detailed financials that we show by each of the businesses that we put out in the morning with regard to our press release.
You'll see that Theres three big line items that are being impacted by FX. It's really other income that was $283 million negative in the current period and then you have the income tax line item that $307 million through a benefit.
And that's really kind of where all of the depreciating peso manifests itself on the piano now and then there's also a line item equity earnings and there's the equity earnings really is the intercompany loan that we have a with the marine pipeline and that's offset really.
The FX impact there is is the offset in the other income and expense line item. So quite a few moving pieces, but as Jeff said, we do look to outputs are a I hedge strategy in place really to protect ourselves from very large moves on the upside on the downside and we're really.
We kind of at that bumping up against that right now with regards to any further CNL benefit.
So did I mean, just as we say my question have you lumped in any of the benefit.
At this point of the yet.
So Jonathan we take a look roughly the same approach every year, it's largely based on the.
Costless collar and.
And we don't typically locking that we have a range that we got two and the whole goal really is to minimize.
Impact to the plan and I think we're comfortable with where our plan is today and what weve recognized but I think traverse basically saying that it skewed basically to protect you more on the downside and upside to usually have a little bit more openness to a positive movement in a negative movement, we don't spend a lot of dollars to lock in a plan at any number like this.
And then just came out for a little.
Kevin I think you said youre expecting to get it doesn't get this month.
Yeah Recoding today.
I think that you would fit of waiting on go making the fight the NDRC filing in China, that's below that.
Yes, hopefully going to be days away. So I guess can you give us a is that now being made or is it that statement about this about sort of based on expectations that when we open.
To be able to get back off pizza.
Thank you very similar to.
What we're experiencing in Mexico, obviously, the healthcare crisis is impacting.
Global issue right, but that we talked about that's a little bit when we talked about our count for recycling program and current liquidity in the in my prepared remarks, certainly Jonathan we feel like we've got momentum coming out of the Pru deal. The conversations now really around close and mechanics, Dennis perhaps you can provide some additional color about our confidence level for me.
Sure. Thanks, Jeff Hi, Jonathan Yeah, basically as Jeff mentioned, we're focused on getting this thing done I think given the fact that China will really was close down in March and April deserves.
Some backup in some of the approvals that have been taken place, but I'll point you to one important fact here.
Say Soc, which is the commission in China that approves M&A type investments outside the country has already approved.
Sacred internationals.
Investment in Chile, So that's really important everything that we're hearing from the state grid international executives and their advisors and conversations that I've had personally had with chairman who have state grid International is they want to get this thing close as soon as possible. This is very strategic so their company going forward and.
As Jeff mentioned, we're now focused really on the the details on the logistics related to the closing as you'll recall in Peru, we were able to do this virtually and we're trying to get everything done even though there's limited travel in and out of Chile, but given where we're at and that the commitment and the motivation.
By state grid to get this thing done a we're we're expecting to get it done before the out of them up.
And our next question will come from Julien Dumoulin Smith with Bank of America.
Good morning, Julian [noise].
Hey, good morning, good afternoon, Thank things haven't you all alone.
Just a couple of clarifications apologists come back on this but just with respect to credit.
Clearly understand your expectations.
That's one of the port minerals the rating agencies are looking for versus the numbers.
I think Trevor you articulated a just now as to your year end targets and then related to that how do you think about ACA going outside the some of the other emails.
Moving out how does that also built to suit rating that youre looking for and again I'm just looking to understand this relative to.
The movies.
Lose of late.
So I would just say that.
As articulated earlier in today's call Julian is that we spent a tremendous amount of time at all three agencies going back to the summer of 2017, as we started a strategic repositioning the company we laid out a set of metrics that we would guide to that set of metrics was designed to do a couple of things number one we wanted on the qualitative side.
Make sure that we were taken steps to improve our business risk profile at the same time that we've made from commitments around a balanced capital structure and moving to a 16% FF I did that so over the last three years.
Our targeted metrics have come down we feel very comfortable about the commitments. We made in what you're hearing Trevor say is we're tracking to the commitments. We've made in 2017 that were designed to make sure that we can maintain investment grade plus credit rating I do think trevors raise a good point some of the agencies have been more focused on whether the LNG.
He business has a different risk profile and I think what we point to their as in contrast to 2017, where we were in construction mode. We're now in operating mode at Cameron and proceeding quite well toward train three being online that also will be very important. So I think what the agencies are looking for is number one can you can.
Please your capital recycling program and we're on track to do that in May of this year about close in Chile number two can you Commission train three on time and then you may recall there are some guarantees related to the construction lending that falls away in a period of time after that so we're tracking toward a basket of metrics that we laid out.
Going back to the summer of 2017, and we're also operationally no trying to hit our capital program produce high quality financial result, and stick to our commitments around the capital recycling program. So Trevor made this comment that is always the balance of interest even have in port Arthur pushed into 2021 will take some.
Pressure off those discussions, but each of the agencies they have their own metrics that they evaluate and what we're trying to do is we're trying to hit the ball like down the middle the field around the metrics that we committed to in 2017, we think our progress has been quite good.
Got it said differently.
You all articulated to ready to be back then and there is still committed in the same path and they take their take whatever actions they deem appropriate but at least from your perspective, we'll are following through on exactly what we told them a couple of years ago.
That's right and that look we have great relationships with all of them I mean, it's a tough time for all of us in a given the current market environment I'm sure they're doing a lot of stuff too we had very constructive relationships and what we're trying to do is make sure in a very honest way Julian that we stick to the commitments that we've made regarding maintaining our investment grade plus ratings.
Well I'll leave it there thank you all.
Well, thank you Julie.
Okay. Next question comes from Michael evidence with Goldman Sachs.
Hi, guys. Thank you for taking my question I am I right.
Okay.
Yes.
Okay I understand.
How much.
Taking a telephone.
By because they.
How much if at all right what would have already recognized in the case and this year. If you break it out for each of its utility would be great.
Michael you recall that we we got our rate case approved in Q4 of last year and this was the first rat based decision that the commissioning phase, where Kevin and Brett laid out all the different type of spending requirements relative to risks that they ran counting their operating environment and in round figures.
So you saw a.
Got it approved revenue requirement for SDG knee that was a CAGR of about 5.7% annually across the three years up the rate case and closer to 8.5% for Socalgas. So these were very very robust spending requirements around robust needs on the capital side. So we knew in Q4 and you.
All the recognition is that related back to January one at 2019 that it was a very robust decision for us and it gave us a lot more certainty around the spending we needed to have for safety and reliability and as you come into this year, you're seeing that spinning take place one catch up piece that you're referring to is the FERC decision that decision.
Relates back to June 1st of 2019, I think the key takeaways you think about the guidance discussion we've had in our prepared remarks and during the Q Accuen a is that our three utilities in general or right on track on the capital programs and they're doing a great job of making sure that they're managing a very very soon.
Workplace and of safe environment for a community. So a lot of what you're hearing US talk about is we have a very constructive view of the rate decision. So think about this we got not only a three year rate decision. We got our cost of capital confirmed then we got our transmission cost of capital at FERC confirmed and now we're filing for the <unk>.
For the attrition mechanisms for years, four and five so effectively you've got a five year runway for your California utilities on this rate case, you have a constructive attrition mechanism you've locked in your cost of capital in the state of California, and just in the last six weeks you've locked in your for cost of capital so the level of visibility.
We have to a constructive regulatory environment in California is probably as high as it's ever been since I've been at the company.
Okay I just thank you for that I, just want to make sure. There I'm just I'm looking at the slide 14 that Trevor noted on all of that hundred $74 million year over year earnings at the utility had the California utilities hundred 20 of that sort of been recognized in first quarter of 19 and totaling 54 million.
That is really kind of incremental to first quarter 20, my thinking about that right.
Yes, let me, let Trevor speakers specifics that slides, where you Michael that generally my Michael If you look at that's the 174 is the uplift from the rate case across the two utilities, but again, because we got the rate case late in 29 team a piece of that is retroactive back and the piece that's retroactive of the 174.
It's roughly two thirds retroactive and then one third is the continuing uplift from that number. So again. The 174 is the full impact of the rate case, but if we had gotten the rate case on the on a timely basis, you could assume that roughly two thirds of that that 174.
Would have been.
Kind of not in that variance number all that in Q.
Q2 thousand 19.
He said.
Understood. That's super helpful that and then one thing on camera and just the capital structure can you remind us how much of that data bullet guys. How much of the debt at the amortizing debt and the bullet that what's kind of maturity schedule of that is it during the lifetime to the contracts as a beyond the lifetime and the contract how does that work.
I'll pass that to Feisal, whose handle that for US yes, there's Michael there is for maturities and all these bonds are trading at public market.
Yeah, it's something at $3 billion of bonds has to be those are bullet maturities and 35 and third 19th sorry in that 2035, and 2038 I'm 2030 lined the last one at 2039 bond is an amortizing bond all of those bonds mature before the end of our contracting.
Got it thank you implies a multitude of hitting it.
And next will be Anthony Crowdell with Mizuho.
Hi, Good morning processing ask one question one follow up [laughter] Pacific The Port Arthur decision gets personal until next year.
Challenges related to that decision more on the demand side, the supply side or just the global economic overhauling right now because of ours.
Uh-huh Anthony this is Jeff I appreciate the question.
We certainly think that what's unique about port Arthur you'll recall that that's the one Greenfield project, we have in our portfolio. The other for brownfield and have a cost advantage and the real value of Port Arthur is that scale. So there's really three mega projects on the drawing board globally today archaeology, which is going forward in north Russia.
The target project, which has been delayed and the Port Arthur project and I think we've got the benefit of having just and with US here today, maybe just and you can talk about where we're at on the marketing side and what you're doing to actually make that project more competitive yeah. Thank you, Jeff and I think so the question Anthony so.
Again, I think our premise of the LNG business is that we saw a need for additional infrastructure and the LNG space in the mid 20 Twentys.
We think North America will play a critical role in that and frankly, we at Cempra think on a risk adjusted basis. We can her returns in excess of those of our utility side. So at Port Arthur you see again, a great opportunity really upset about the size and scale that project. We are currently working with.
Aramco and with take nigg as the optimal timing for this project to the heart of your question I think there's really three things.
One would be the state of the financial markets.
I think the ability to go out and project Finance Port Arthur and the current market is somewhat limited second to your point is a bit of the marketing I think in the short term we see some.
Uncertainty and unpredictability, given what we're seeing in the oil prices and the third thing I'd say is that we had sempra in partnership with Bechdel see some opportunities to potentially decrease the cost of the construction given that we're seeing a global slowdown on a large capital projects. So.
So we think frankly this project can be stronger.
Although delayed we think it will be bring a better returns for investors and frankly be a better project for our customers.
Okay. Thanks to my follow up.
This is kind of I guess following up following up on Charles' question. The company's done a great job of recycling capital on that transition to more core assets. The LNG gets pushed out potentially here potentially longer isnt dislocation in market values right now because the company look to replicate their success maybe of that but Scott on the last two years as.
In the Texas assets and looking at other assets in the U.S.
Well, it's a good question I think that we have tried to be very very discipline.
On the management team then with our board of directors of laying out a strategic repositioning the company right. So we've we've had a pretty sweeping program over the last two plus years I think the team has executed very well I think Dennis and Trevor and Kevin cigar and others have all been part of that program. So we're very pleased with the fact that we've gone from being.
I mean, a western hemisphere focused company to being a north American focus a company and specifically in North America, becoming much more weighted toward U.S. utilities.
Less focus on California, more going toward Texas, I think one of the things I would take away from your question is encore is very unique opportunity right you had.
A 80% position in a pure play TNT company, probably the number one asset in America.
The add some distress around it and it was something we looked at prolong period of time. So it was an opportunity as part of capital recycling to go into Texas with a marquee purchase but look we don't we don't talk about future M&A really I think what we're really focused on is we have a very attractive capital program and we're going to execute it with a lot.
Of discipline and focus.
Oh, great. Thanks for taking my questions I hope everyone stays healthy.
No worries thank you very much.
Thank you. Our next question will come from Germany Tonight with JP Morgan.
But measurements for having me.
Hi, good morning.
Just want to kind of turned back a we've got a couple of conversations here and just given conversations that we've been having with regard to the Moody's outlook and kind of maybe their impression of the LNG side, just wondering if that.
If this goes into how you think about future LNG expansion, if I need going forward or how you go about financing it any any thoughts that you could share there.
No I would just say that I think we're really excited about the progress we've made at Cameron right. So as we bring the third train of camera. None in Q3 of this year that is it really valuable asset to us we're going to be very very just when we talked about this at our investor day.
Certainly we've made a great step far with economy, he because of smaller projects of about 2.5 million tons per annum, but I'd also note that the tolling structure at chairman was fairly unique.
And having now for the first time all three Emma use in place is a positive signals for Cameron, So, yes, port Arthur slipping, a little bit, but as we go into the future. What you should expect us to do is look at all sources of capital, there's a tremendous amount of low cost private equity capital out there today.
And we'll look to basically approach this business model as an adjacent see with a very disciplined approach and we've said before we think that will either get a much significantly higher equity return than we do it our utilities or we will not proceed on a project. So let's see us announced the contracts that you've seen an eco that should be validate.
Moving to you that we're seeing the opportunity to proceed in a disciplined way that returns a lot of value to our shareholders.
That's helpful. Thanks, and then just a clean up if I could with regards to the Mexican Capex I think you said could be delayed and there's just wondering if you could provide a little bit more color on what type of capex, but isn't granted to smaller part of the portfolio, but any sensitivity that's right yeah.
This year next.
Well look obviously, a mexico's a little bit further behind the United States are relative to the pandemic and I think very similar to the path you solace ticket Sempra, where we want to make sure that we.
Preserved our liquidity in our balance sheet strength as we headed into this environment I think they're doing the same thing that making all the prudent moves you expect them to make it ienova Brent perhaps then as she could talk comment on the steps they've taken to strengthen their balance sheets are liquidity and how you're thinking about the Capex program for 2020 sure. Thanks, Thanks, Jeff in high Jeremy Yeah from from.
No the standpoint, I think they're doing all the right things as Jeff said, a number one a was they strengthen their overall liquidity position and cash and available credit lines close to $1 billion I was up right now we've been focused on operating expenses those things that don't need to be spent are not being spent and from a capex.
Perspective, what I'd tell you is that the company the management team in Mexico has really been focused on getting done those projects that are near completion.
You know if you're thinking about the storage terminals and some of the other projects that we have that are nearly done those are going to be completed in other cases were looking at other projects, where we don't have all the full approvals are permits and talking with our customers to see if it makes sense for both parties to potentially push off.
For delay Capex, so no major announcements to be made there today other than I think we're taking a very prudent look at what's happening in Mexico. I think we continue to believe that the energy picture in Mexico over the long term is it really positive one India, Nova is better position and anyone to take advantage of that but.
I think where are the management team there has been very prudent about it so its resources.
Thank you Dennis.
That's all very helpful. Thank you.
Thank you Jeremy.
Our next question comes from Ryan Levine with Citi.
I'm, Hi, hi, given the extensive cost cutting review that sampras completed over the last few years. Those coven 19 brings to light any additional opportunities across the business portfolio.
Yeah, It's interesting that you asked that question.
Yeah, I think that we're all learning about flexible work schedules and the value of working remotely I mean, the building that I'm in currently.
We've had almost practically all of our corporate staff working from home. So one of the things we're doing in the leadership of our Chief Human Resources Officer as part of the task Force that Dennis heads up is we're going to do an enterprise wide look at how we think about workspace relative to people that can work from home, even though our utilities today, which had been deemed essential workers Webber.
Large workforce in the field. We also have you know a lot several thousand people working from home as well so you're absolutely right. We've had two different cost initiatives over the last two years led by the parent company and we will review as we transition folks back to work what office space is needed and what type of changes we.
Make to flexible working but this is probably something that almost every business will be reviewing as they try to find ways to support their employees improve productivity and perhaps find ways to take more cost other business. The thank you for asking that question.
Okay, and then one related to Texas. Thank you for the disclosure around the 90% pre approved capex spending through 2021 within encore is there any color you're able to share for 2022 and beyond in terms of the Capex that are already has the approval with.
So you think.
No you know we laid out at our Investor day kind of the five year numbers for each of our businesses what lease around the utilities and their total number there is 11.9 and what he was speaking to is obviously the certainty. He had in 20 and 21, we haven't provided for forward guidance relative to the certainty of the 2023 through 2024 numbers.
But we feel very good about the capital program I think one thing that would make you feel a little bit better Ryan is in the Investor day presentation Allen laid out another roughly $1 billion of capital. In addition to 11.9 in the provides though we made at Investor Day was don't think about that as incremental capital to the 11 point.
Not at really gave Alan and Jim career, and the team the opportunity that if if one project slipped they had plenty of other projects, whether it was maintenance capex or otherwise that taken slip in there. So I think it was our perspective that that incremental capital slot really was intended to give us confidence if there's an $11.9 billion cap.
For program there over five years.
Okay. Thank you.
Thanks, a lot Ryan.
And our next question will come from Sophie Karp with Keybanc.
Definitely definitely.
Hi, Good afternoon. Most of my questions have been answered just wanted to have a quick follow up on Texas.
Not to beat this horse to death, I guess, but.
I think the perception has been historically that you like Texas and you wanted to get potentially bigger in Texas.
Is that wrong or is it just a diamond is not try to be cautious on that they could do you need to comment on that a little bit good.
Sure I think if you went back to our 2017 numbers roughly 90, roughly 70% or just over 70% of the earnings composition of Sempra came from our California utilities, and we think California is a very constructive regulatory environment. We felt like longer term, we were looking for opportunities to get more regulatory University.
We also think that Texas is a good role model, having their retail market separate and they have a pure TMD model says we thought about our strategy our desire to have more of a bond like portfolio, where we were not exposed to as much downstream consumer risk nor exposed to upstream commodity your generation risk.
Texas market place very much reflects how we think about the best risk reward for our stakeholders.
So we certainly we like the marketplace, we like it even in today's climate I think as you her Allen and the team talk about the certainty they have around their capital program in the earnings forecast, it's really all the reasons why we wouldn't be in that marketplace and you saw us add to that portfolio with Infrareit and we've announced that the opening of the Houston office.
To support our LNG growth.
Even though justin's team has delayed port Arthur where port Arthur to go far that will be the largest civil works project in North America, right, So, Texas really isn't market a priority for us I think it it achieves a lot it checked a lot of boxes, we think about strategically.
Okay. Thank you.
I appreciate it thanks for joining on the call.
Thank you that does conclude the question answer session I now turn the conference back over to Jeff Martin for any closing or additional remarks.
Thanks, a lot will look as we looked at close the call and thank all the employees that have joined to get an update on their company and thank everyone from the sell side in the buy side can you need to listen in today. We know you have a lot of options in terms of where are you investing your time and there were certainly some other calls going on concurrently we appreciate it had the opportunity to update you on our results most importantly.
I hope everyone stay safe during these challenging times I appreciate all of you joining until free to reach out to our IR team for a custom with any additional questions. This concludes todays call.
Thank you that does conclude today's conference. We do thank you for your participation have a wonderful day.