Sempra (SRE) — Q2 2015 Earnings Call Transcript

Good morning, and welcome to Sempra Energy's second quarter 2015 financial presentation. A live webcast to this teleconference and slide presentation is available on our website under the Investors section. With us today are several members of our management team: Mark Snell, President; Joe Householder, Chief Financial Officer; Martha Wyrsch, General Counsel; Trevor Mihalik, Chief Accounting Officer; Dennis Arriola, Chief Executive Officer of SoCalGas; Steve Davis, President of SDG&E; and Octávio Simões, President of Sempra LNG. Before starting, I would like to remind everyone that we'll be discussing forward-looking statements on this call within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K and 10-Q. It's important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis and that we will be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and to Table A in our second quarter 2015 earnings press release for a reconciliation to GAAP measures. I'd also like to note that the forward-looking statements contained in this presentation speak only as of today, August 4, 2015, and the company does not assume any obligation to update or revise any of these forward-looking statements in the future. With that, please turn to slide four, and let me hand the call over to Mark.

Thanks, Rick. To start off, I want to mention that Debbie is not joining us today. She had a medical issue with her left eye that required attention and treatment this morning. She apologizes for not being able to make the call, but we all realize health issues come first. I'll be filling in for her today. And so now, we'll get on with the call. Our financial performance for the second quarter was very strong. Earlier this morning, we reported second quarter adjusted earnings of $260 million or $1.03 per share. As you may recall, these figures include the impact from applying seasonality to the SoCalGas revenues in 2015. While this change does not affect full-year earnings for SoCalGas, that results in almost all of their earnings being reported in the first quarter and fourth quarter of the year. Specifically, the impact from seasonality was $48 million of lower earnings this quarter, and $65 million of higher earnings year-to-date. Given our solid financial results in both the first quarter and second quarter, we are on track to achieve our 2015 adjusted earnings guidance. Today, I'd also like to emphasize that just six months into the first year of our current five-year plan, we have already secured new projects that are additional to the base plan we presented at the March Analyst Conference. At U.S. gas and power, we have added two new solar projects at our Mesquite facility in Arizona, which adds to the Black Oak Getty wind project we announced last quarter. In Mexico, IEnova was awarded another CFE pipeline project in July. And last week, IEnova agreed to purchase PEMEX's 50% equity interest in the IEnova-PEMEX joint venture. In addition, we're working on the steps needed to advance our potential LNG projects, which could extend growth beyond 2019. And our California utilities have made headway on the GRC and rate reform initiatives. We are all really pleased with our progress and will discuss our development projects in more detail as we proceed. First, let me begin with a regulatory and operational update, including a discussion of our progress in achieving our base plan. Please turn to slide five. Our California utilities are making steady progress on their general rate case applications. Since our last call, we have completed evidentiary hearings and are well situated to receive a timely decision. Briefs are due in August and September with the draft decision scheduled for year-end. After participating in the hearing process, we believe our recommendations make a compelling case in support of the state’s priorities around safety and reliability. Please turn to slide six. Turning to one of SDG&E's highest priorities, the CPUC approved a final decision on rate reform in July. The decision implements electric rates that are more fair and sustainable. We provide a summary in the appendix, but key outcomes of the decision include a reduction in the number of tiers, from four down to two, and an annual reduction in rate differentials between the lowest and highest tiers, minimum monthly bills, and a process to study and implement time-of-use rates. The decision directs all the state’s electric utilities to implement initial changes no later than November 1, 2015. Yesterday, net energy metering tariff proposals were also filed by all parties. Once approved, the tariffs will determine how customers with new distributed energy resources will pay for utility services they receive. SDG&E's suggested tariffs would apply to all new net energy metering customers by 2017. Though we expect a final decision by year-end, it could extend into the next year. Let's now go to slide seven for an update on base plant projects and our other businesses. We're really executing well on our five-year plan. Since our last earnings call, two more projects are in service. In Mexico, the 155 megawatt ESJ wind project reached commercial operations in June, and in the U.S., 1.2 Bcf per day of east-to-west capacity on the REX pipeline was placed into service over this last weekend. In addition, we closed the sale of the remaining block of the Mesquite power plant in the second quarter. We received $347 million in net cash proceeds and recorded a $36 million after-tax gain on the sale. As discussed last quarter, this gain is not included in our 2015 adjusted earnings guidance. Please turn to slide eight for an update on our development opportunities. We're pleased to announce that we have secured several development opportunities this quarter that are additional to our base plan. In Mexico, IEnova was awarded a new CFE pipeline project in July. The project represents an investment of about $110 million and is expected to be in operations in the first half of 2017. CFE has announced two more pipelines will be awarded in August and September, one of which interconnects with the pipeline we just won. Five more pipelines are scheduled to be awarded later this year. You can refer to the table in the appendix for details. In addition, on Friday, we announced that IEnova has agreed to purchase PEMEX's 50% equity interest in their shared joint venture. The transaction is expected to close later this year. As noted in our recent press release, IEnova agreed to purchase the business for approximately $1.3 billion subject to certain terms and conditions. IEnova and PEMEX will also maintain a 50/50 joint venture for the continued joint development of the Los Ramones Norte pipeline and other future infrastructure projects. As a result of the transaction, IEnova will own 100% of six purchased assets, five of which are currently in operation. The assets are covered by long-term dollar-based contracts. The acquisition is expected to be about $0.05 accretive to Sempra Energy's earnings in 2016, growing to about $0.10 per share by 2019. IEnova expects to finance the purchase with a combination of equity and debt. The acquisition provides several important benefits and an ongoing relationship with PEMEX for future development projects, opportunities for asset optimization and expansion into areas such as the transportation and storage of refined products, and a larger platform of presence in Mexico to participate in the energy sector reform. Moving to U.S. Gas & Power, we are pleased to announce contracts on two new renewable projects at our Mesquite Solar facility in Arizona. Mesquite Solar 2 will be a 100-megawatt project secured by a 20-year PPA. Mesquite Solar 3 will be a 150-megawatt project secured by a 25-year PPA; both PPAs are with creditworthy counterparties, and we expect the projects to be in service by the end of 2016. Finally, I will note that we are working diligently to prepare our S-1 filing for Sempra Partners. Securities laws, however, prohibit us from discussing the matter further. Let's now go to slide nine for a discussion of our LNG development process. LNG development continues to be a terrific long-term growth opportunity with very large potential for upside for Sempra. While the development process takes time and can vary between projects, we are making solid progress on all three of our liquefaction initiatives. Since LNG development continues to be a hot topic for investors, we provided this slide to illustrate the process needed to advance the project to FID or final investment decision. Cameron Expansion is the project that is furthest along, so we use that project as an example. But before walking you through the slide, I want to reiterate a couple of key themes. First, while projections for global LNG demand are lower than a few years ago, industry forecasts continue to show large uncontracted demand post-2019. These forecasts already include competing sources of supply such as the restart of some of Japan's nuclear fleet, more coal and renewable development in Asia, growing pipeline imports into customer markets, and indigenous shale gas sales. Second, U.S. Gulf LNG projects are regarded as the most competitive source of global supply, both in cost and in flexibility. And third, we are receiving strong interest in our projects from large buyers of LNG for delivery in 2019 and beyond timeframes. Now moving to the graphic on this slide, we have illustrated key work streams related to project cost and design permitting, marketing, and financing. You'll notice that each category is interrelated. EPC project cost estimates and lenders' consents are needed in order to finalize customer contracts, agreements with customers on tariffs, service dates, and quantities are needed to finalize financing commitments. In financing terms, the regulatory approvals are needed to make the final investment decision. Completion of each of these work streams is what enables us to take a project to achieve FID. For Cameron expansion, we're targeting FID in late 2016. Our Cameron joint venture is currently permitting trains four and five, but the project could begin with one or two trains depending on total market interest. Cameron expansion is well positioned as one of the lowest-cost sources of global LNG supply. This is due to the economies of scale and adding more trains to an existing facility, the opportunity to benefit from continuous construction at the site, a simpler permitting process, access to low cost of capital, and of course, inexpensive North American gas. Moving to other LNG development projects, we continue to actively develop the Port Arthur project and have submitted the initial filings at both DOE and FERC. Market interest in this project remains strong as it offers different offtake and ownership opportunities from those available at Cameron. In June, we also announced an MOU with Woodside Petroleum to work on the feasibility of developing the project together. For ECA, we are working with the Mexican government in the development of all the regulations and conditions needed to support the liquefaction and export of LNG from Mexico. We have completed a number of studies on technical feasibility and market interest for this sole west coast Brownfield site. Together with PEMEX, we continue to advance the development work and are now sharing costs. Now with that let's turn to slide 10 for a discussion of the quarterly earnings. Joe?

Thank you, Mark. Earlier this morning, we reported second quarter earnings of $295 million or $1.17 per share. On an adjusted basis, we reported second quarter earnings of $260 million or $1.03 per share. Second quarter earnings in 2014 were $269 million or $1.08 per share. Adjusted earnings this quarter exclude two items: first, we recorded a $36 million after-tax gain on the sale of the remaining block of the Mesquite Power Plant. Second, as I noted last quarter, we are adjusting earnings for expenses relating to the development of our pre-proposed LNG liquefaction projects. While our cash expenditures have been consistent with costs for the LNG development activities we've undertaken thus far, we have recorded $1 million of after-tax expense in the second quarter of 2015. This number reflects the fact that certain costs are being capitalized and certain other costs are being shared with our Cameron joint venture partners and PEMEX. I also wanted to note that compared with the same period of last year, second quarter earnings now reflect the impact of seasonality in SoCalGas revenues. As Mark mentioned earlier, this impact resulted in $48 million of lower earnings this quarter and $65 million of higher earnings year-to-date. Looking to the third quarter, please be aware that we could report a loss for SoCalGas due to seasonality. You can refer to the appendix for additional detail where we illustrate 2014 SoCalGas earnings at seasonality and revenues being applied. As the appendix shows, third quarter 2014 earnings would have reflected a loss in the third quarter. So there was no impact on a full-year basis. Overall, we are on track to achieving our 2015 adjusted earnings guidance given the strong financial performance we've had year-to-date. Finally, before proceeding, I want to mention that we expect to report a one-time non-cash gain next quarter; we will step up our investment to fair value related to IEnova's purchase of PEMEX's interest in their joint venture. The size of the gain has not yet been determined and is not included in our 2015 adjusted earnings guidance. Please turn to slide 11. Individual financial results for each of our businesses could be found in this section of our presentation entitled business unit earnings. I'll address here the key drivers for our consolidated earnings this quarter. Sempra International recorded $19 million of higher earnings, primarily from the Los Ramones I pipeline and a section of the Sonora pipeline in Mexico that are now in service. SoCalGas recorded a $13 million retroactive benefit for 2012 to the first quarter of 2015 from higher rate base. Approval of this benefit by the PUC was contingent upon receiving a favorable Private Letter Ruling from the IRS, which we received in April. SoCalGas also had $10 million of higher operational earnings from higher CPUC margins, net of operating expenses, and higher AFUDC equity earnings. Offsetting these positive factors were two items: the $48 million seasonality impact that lowered SoCalGas's 2015 earnings and $11 million of lower net investment earnings at the parent on assets in support of our retirement obligations. Now let's conclude with slide 12. Overall, our financial and operating results for the second quarter continued to be very strong and consistent with our 2015 adjusted earnings guidance of $4.60 per share to $5 per share. Excluding the impact of seasonality in SoCalGas's revenues, our second quarter adjusted earnings increased significantly compared to the same period last year, driven largely by increased operating results at both Sempra International and SoCalGas. Across the company, we have made excellent progress on our base plan and continue to capture additional development opportunities. As we look forward to the remainder of the year, we are working diligently to capture more development opportunities that can provide upside to our base plan in the near term. In addition, we'll continue to work toward advancing our LNG projects that could extend this growth beyond 2019. With that, we'll conclude our prepared comments and stop to take any questions you may have.

Hey, good afternoon.

Hi, Mike.

It's Julien here.

Hey Julien, how are you?

Hey, not too bad. Thank you. I suppose the first question here out of the gate, obviously the IEnova is a pleasant development but curious, you're providing a bridge loan but ultimately how are you thinking about your ownership stake in IEnova pro forma for the latest deal, but probably more strategically, how are you thinking about that down the line as you think about the 80%-ish you're on today?

Well, I'm going to let Joe handle that question in detail, but let me just say off the bat that we are expecting to finance this at the IEnova level and even if we don't participate in this thing, I'll let Joe explain what we're thinking there. But even if we didn't, it would still be accretive to us. But Joe, why don't you give some more details on that.

Yeah. Thanks, Mark and hi Julien. Yeah, this is very important, and we're studying the issue. We really like this deal, and so we would like to participate in the deal. We are looking at, what the market is going to be like over the next couple of months. We've got a lot of confidence from the banks we've worked with on this transaction. And I think our current view is, we will participate in the equity offering. We know that a number of our IEnova investors want to have more liquidity. So, we've said all along that if we have a large project, this would enable us to go back out to the equity markets. And so we're going to have an equity offering, I believe, we will participate. What I'm currently thinking is, we have a dividend coming later this week from IEnova. It will come to our Mexican holding company. And I think we will use that cash plus some other cash to participate in the offering. We haven't decided the firm amount yet; we want to see how the shares are doing and how the market is, but we definitely will participate. And as Mark said, this is going to be accretive either way.

Great. Excellent. Turning to the LNG story. Curious, you mentioned on the slides here for instance one trains or two trains at Cameron. I suppose, as it relates to the project, what's your confidence level, as it relates to one train or two trains? And then secondly, in terms of conversations, are you still expecting that you passively acknowledge to the Street one way or another perhaps by 4Q or 1Q next year a decision? I mean, I know you indicate FID by second half of 2016, but just wanted to be very clear about your communication intentions?

Well, with respect to trains four and five, we have this partnership that owns a facility; we own 50% and our partners own the other 50%. Currently, through trains one, two, and three our partners have all of the capacity. With respect to trains four and five, we have a right, Sempra has the right to 50% of that capacity. We're highly confident that we're going to be able to market that capacity and we're actively doing that now. And therefore we know that at least one of the trains will go; whether our partners decide to market that extra capacity or not is entirely up to them and we don't control that, but - Octávio, if you would like to comment on any of that, maybe fill in.

Sure. I think Mark covered the big topics and that is that the ownership has decided to go forward with the expansion. We have 50% of that expansion capacity, roughly 4 million tons, the remaining partners have 4 million tons as well. What they're doing with their capacity, depends on whether they want to put it in the market, if it fits in their portfolio or not. We are actively pursuing it, and we're encouraged by all the things we are finding in our current negotiations. And so at the end of the day, I think the slide reflects that we'll go back and say, okay, Sempra is taking on the 4 million tons that we are allotted to; if our partners say no, that means that probably then one just one train will be built since there was agreement by everybody; if they market their capacity, then we would have the two trains. We are permitting both trains from both the FERC and DOE.

I'd add on, Mark. Just to be clear, so everybody is clear on the call. The fourth train would be owned by the joint venture, so it would be 50-50 ownership. But Octávio was right; we would have the capacity.

And just to be extra clear about this, I apologize. So this would be - you would obviously still need to go and remarket your respective ownership, but I suppose at this point in time you're indicating that you intend at least to move forward on train 4, is that an incremental?

Yeah, what we would - I mean, obviously we would not move forward if we haven't sold the capacity forward, but we're in the process of that marketing effort right now and we're pretty confident that we'll get that done.

Hi. Good afternoon.

Hi, Neel.

A question on the PEMEX acquisition. Now that you have a larger stake in Mexico, especially with the pipes, are you seeing additional synergies or lateral opportunities from owning a larger stake in Mexico?

Yes, I mean, in fact we're seeing two things. One, on the cost side, with us acquiring 100% of the pipes that we're in the JV, we believe we can integrate those with the other pipes that we own and we'll definitely get some synergies out of that; that would be in addition to the earnings accretion that we've so far forecasted. So we think there is additional upside just in the operational synergies that we can achieve. But then secondly, all of the pipeline infrastructure that we're building now, we've to this point only marketed it to the original customer that asked for it to be built, mainly CFE or PEMEX. But these are open access pipes, and we are announcing into the market extra capacity to other users and we've just actually started working on that and we're seeing some success and getting that. So we do think there is additional upside to come from marketing additional capacity either that exists currently or that we can create through compression, and we are pretty excited about that. We think that there is a growth opportunity there.

And what would be the timeline for recognizing some of the possible lateral projects? When can we first hear about it?

Well, I guess you'll first hear about it when they are announced, but for the most part, I think we're working on some of these right now and some will be probably completed before year-end.

Okay. Great. And Joe you had two good quarters. Can you say where you are within the guidance range at this point? Are you at the high end or are you in the middle? Can you comment on that?

We are not going to narrow the range or talk about where we are in the guidance. You can see the year-to-date results are really strong; you can't double those because SoCalGas is $65 million ahead on the seasonality. So that will come back, and then we have a few items that are in the earnings year-to-date that won't repeat. So we feel really good about where we are, but we're not going to narrow it at this point.

Yeah, hi. I've got a few questions. First, on the two new solar projects. Can you give us any sense of the earnings benefit to those?

We are not disclosing the benefits precisely, but they're 100 megawatts and 150 megawatts projects and there are consistent returns with what we've had in the past.

Okay. And then secondly just on the MLP, which I know you can't talk about. Can you just remind when we did - when you did your base plan, my recollection is that you did not kind of assume the MLP in your financing plan?

That's correct.

Is that correct?

That's correct.

Yeah.

Okay. And just is there any way to give any color on kind of how to think about that strategy just given current market conditions?

The thing is we just cannot comment on the MLP at all. I just - I apologize, but that just the way the rules are, and so we really can't talk about it. We'll talk about that when we do the marketing for the MLP.

Okay. And I get that. And then finally just back that you know of the $0.05 to $0.10 of accretion on the different years, that's whether you take stock or not, are related to this deal, that range is still pretty good either way, sort of the equation.

Yes. I'll let Joe.

Yes. It's pretty close. I mean, we've evaluated this as we've been working on this deal for a few months and actually whether we borrow money or whether we issue equity, it hardly has any impact. And so the only thing that moves just slightly is whether we participate, but again it's going to be accretive either way. But I think we will - you will see us participate to some degree.

Okay. And then one question on Cameron 4 and Cameron 5. So you can control of 4 million tons of one train. You're only going to go forward with yours if you sign long-term contracts, I assume.

Correct.

Okay. The partners have this other 4 million tons, can you - is there any way that if you kind of see the market that you could kind of take that over as well if you wanted to, or is it really in their hands what to do with that?

It's really in their hands. I mean, I suppose something could be worked out but we have other projects too that we're developing and are part of our portfolio. So we have to evaluate it in relation to those just as they will.

Okay. But it sounds like your conviction on moving forward what you control seems quite high.

I think you could say that it is very high, yes.

Hey, guys. Steve just asked my question, so I'm good. Thanks.

Okay. Thanks, Greg.

Thanks, Greg.

Hi, guys. Good afternoon.

Hi, Michael.

Hi.

Just to - and first of all thank you for the additional color on LNG, and with particular to Cameron. I just have a follow-up there as it relates to the Port Arthur. Can you just talk a little bit about what we should be looking forward there and how things are going with Woodside now involved?

Well, I'll start and then I'll let Octávio comment on this as well, but we have an MOU with Woodside to look at the feasibility of the project. We're progressing on it. We've had lots of meetings. We're starting some of the technical analysis and starting some of the marketing of the trains. It's an excellent site. It looks like it's very promising as moving forward, and I would say their commitment to it is very strong. And Octávio, do you want to give any other color on that?

I think you've covered the process. I would just add part of the attractiveness of Port Arthur is that it appeals to customers that may want to have equity as part of their supply strategy. It allows us and Woodside to look at options to really make Port Arthur a very low-cost supplier in the LNG market, which for us is key for the success of any project out of the U.S. exports of LNG. So it's - plus this is going extremely well. There is a lot of similar objectives between us and Woodside, and you're likely to see some announcements as that relationship grows and as the project continues to go forward.

Yeah. And I would just add to that. I think it's important just to keep in mind that our projects, both in the Gulf and ECA as well, we are positioning them as at the very low end of the cost curve for LNG worldwide. And so we think they will be very competitive, but that doesn't - we have other Gulf Coast facilities that obviously compete with that. But in general, our facilities and the others in the Gulf region, in particular, are some of the lowest cost providers of LNG that are out there. And therefore they're very likely to get lifted over time.

Mike, if I may just add. One of the key elements for any buyer of LNG in the world is the reliability and the credibility of the developer. And so, we think Sempra is very well positioned with our track record; clearly Woodside is very well positioned given their track record. And so that in itself is an advantage because we'll be offering technology that's conventional that the buyers are used to, that's reliable, and with all kinds of guarantees that they expect from a project of this size.

Got it. It's very helpful. So, in less of an emphasis on the spot market, if I'm hearing that correctly?

Yes.

Got it. And then just as far as we've seen a bit of a deterioration in the midstream arena, and I appreciate that you can't discuss the MLP directly. But just as far as the broader landscape for midstream assets out there. Are you seeing anything more attractive just from an M&A standpoint?

Well, obviously we do see some attractive M&A opportunities. We just executed on one last week. So we think that - we think that we did a very good deal last weekend and we're really happy with it. So obviously with the way the landscape has been, it could be that M&A opportunities become more viable. But it's still - there's still a pretty good cost advantage to developing your own projects as opposed to trying to buy them in the marketplace. We see that both - we see that both in the midstream area and also in the renewables area as well, to the extent that we continue to develop our own backlog of projects, that's a much more profitable avenue for us, and we're fortunate to have a pretty good backlog of projects to work on. So I think we're very well positioned for growth and growth at the lower end of the cost curve as opposed to somebody that's trying to achieve it through acquisition.

Got it. Very helpful. I mean, the only other one I have is just on Mexico with the recent project win there. Does that help your upcoming bid with the project in August here, I'm going to put you this name, the Samalayuca?

Yeah, it does. We believe the project that we just won is kind of a large header system, which will benefit us and being able to control the costs on the next project bid that's coming up. And so I don't want to go into all the details of why that is. But we do think it gives us a little bit of an advantage and we're hoping to see some success there.

Okay. Got it. Thanks for the time. I appreciate it.

Okay. Thank you.

Hey, guys. Congrats on a nice quarter and on the IEnova transaction. I just wanted to ask about that. PEMEX and IEnova highlighted the remaining JV as a platform for future product development. Just talk a little bit about the opportunities you see going forward with PEMEX. And also is this model something you could see PEMEX wanting to repeat, i.e. develop and construct their project in a JV and then sell their interest?

Yeah, look, I think it's a healthy development for us in the sense that PEMEX is recognizing this transaction. They repeatedly refer to it as a monetization as opposed to a sale because they see this opportunity to build these projects that they need to have done and then once they're built, they can monetize them through a sale to us and then start on the next project, and we see that or obviously we think that that's a very exciting opportunity for us. And we were very happy that they wanted to stay in this partnership arrangement with the pipeline that's currently under construction and then the considered new projects in that. So I think we do think - we are looking at this as a source of future projects; we think it's a good model for us, it's worked well in the past. And I think the thing that PEMEX appreciates is that they have now worked with us on these projects over the years. They've had good results, we've built good projects, they've come in pretty much on time and on budget, and I think they see us as a really good partner that they can count on to deliver for them. And so that's something that we - obviously we pride ourselves on and we think that is going to lead to more projects in the future.

Mark, I'd add on to that. And, Matt, I think you guys don't always see this, but Mark and I sit on the IEnova board, and so we were just down there last week and we were with Debbie, and we met with PEMEX and other government agencies. And it's really important, we have a very interactive ongoing relationship with IEnova. And I just want to make sure you guys all understand that.

Okay, great. And just on the California facilities, the GRCs mentioned they're going well. Can you just update us on any kind of key or contentious issues that are emerging as the process goes on? And I believe at the Analyst Day when you came out your longer-term guidance, you had assumed no rate increase resulting from the GRCs, any update on how you're thinking about that assumption?

Yeah, I'm going to turn this over to Dennis to give you the details. So let me just make one quick point, which is, at the analyst conference and in the plan, what we assumed with respect to the GRC was just normal attrition, but I think that was just a conservative assumption for the planning purposes, but I think Dennis can give you some more detail on that.

Thanks, Mark. Hi, Matt. Yeah, as Mark said in his opening comments, things are going well. We finished our evidentiary hearings two days ahead of schedule and we're happy with the overall pace of the filings. Our witnesses from both SoCalGas and SDG&E did a great job of explaining the overall merits and details of both of our filings. And we're really optimistic that we're going to receive constructive decisions for both companies. We can't obviously disclose anything related to any settlement discussions if we're in them. But what we can tell you is, given the strong show that we had in our evidentiary hearings and the fact that our filings are consistent with the priorities of the PUC which are around safety, reliability, and customer service, we feel really good about potential constructive discussions with intervening parties. As it pertains to the plan that Mark talked about, you're right; what we just assumed was that our existing attrition rates of 2.75% for both SoCalGas and SDG&E would continue from a planning perspective, but obviously we've asked for more that supports our filings. And, so far, the ORA in their reply has come back and said that they would be looking for 3.5% attrition increases in 2017 and 2018 for both SoCalGas and SDG&E. So having said all that, we feel really good about where we're at this point.

Great.

Steven, do you have any comment on that?

No, I really have nothing more to add. But again, as Dennis pointed out, we concluded our regulatory hearings and we feel very confident in the outcome of those hearings and we look forward to constructive dialogue with parties going forward.

All right. Thanks. And then just one on the LNG side, I thought it was great that you can have the visibility to target the FID on the Cameron expansion. Any sense you can give us for - do you have targets yet for FIDs on ECA or Port Arthur, or can you give us a sense for maybe how far behind they are right now?

I'll let Trevor address that.

Sure. Port Arthur we're probably looking at something in the late 2017, late 2018 timeframe for FID. It does take - it does require a different permitting process; it's environmental impact, same as opposed to environmental assessment which takes longer. And obviously we don't have the benefit or the luxury of just a continuation of the existing EPC contract and contractor at Cameron. So that will process with a limitation to bid and whatnot will take longer. So late 2017, 2018 timeframe is what we're thinking about Port Arthur. For Costa Azul, as we're putting all the key elements in place from regulatory standpoint and from a commercial standpoint that might be a little later than that or at the same timeframe frankly on that one. I'm not confident enough at this point to make a prognostic as to the FID timeframe. One of the things with respect to ECA is a lot of the regulations are still being developed. So we're not really sure exactly how to go about that process. I mean we've been working with the Mexican government on developing the regulations for LNG exports. So we're still - so to give you a firm date would be really quite difficult; but it is probably more in the Port Arthur timeframe than it is in the trains four and five timeframe.

Okay. That's really helpful. Thanks again.

Okay.

Good afternoon. Regarding PEMEX, you mentioned the increase from $0.05 to $0.10. So far, the only project I see in that joint venture is the ethane pipeline. What other factors will contribute to that joint venture growth from $0.05 to $0.10? I assume there's still a loss involved, but that remains unchanged in the joint venture with the same ownership structure. I'll let Joe talk about the EPS numbers.

Hey, Faisel. So most of it is the ethane project coming online, but then in addition to that Mark talked a little bit about some of the synergies that we see, and in addition, all the cash flow from the business would be accumulating and paying down debt or being available to provide some earnings, and that's what's really driving the few cents additional as we go through the time period. But the bulk of it is ethane.

Okay, that's a pretty big uptick in earnings just from the ethane project. What's the status of these lines in the JV, are they running at full capacity or are they - is there room to grow without having to spend much capital?

Yeah, actually, as I mentioned earlier, there are two things that we really didn't put into the EPS guidance. One was the efficiencies that we think we can get from running a whole system together; that's one. And then the two, there is either additional capacity in the lines or capacity that could be added relatively inexpensively with compression, and we're in the process of marketing some of that capacity to other users. So other LDCs, power plants, and those kinds of things, and so we do think that there is upside there. We haven't put that - we haven't calculated that into our EPS estimates of accretion, but there are certainly other things that we think we can get.

Okay, got it. Makes sense. And then just on Port Arthur, so the sort of relationship here are talking about with Woodside Petroleum. So, I guess what's the timeline in terms of when you guys decide whether you're going to go forward with the joint venture, and I guess therefore market the asset together, or what are you guys thinking about it right now? What is the...

Well, we're actually starting - we are marketing the asset right now, but I'll let Trevor give a little more detail.

Yeah, let me be clear: on the marketing side of the asset, clearly, we would not have engaged and pursued if we didn't find the interest, so it's expert-oriented. As we look through what the project now will be structured, then if it is with Woodside, which obviously we hope and are confident it will be, then we together will have to develop the marketing strategy for the asset. So, that's on the marketing side. As far as what we expect to see going forward, it's really going to be a continuation of the same process. We're looking at the feasibility. We're looking at the economics. There are hurdles that we will have to go through to make sure we go to the next stage. Are we confident we can put together a project that's low cost as it has to be? Are we confident that we can do all of the regulatory permits in all of the local issues we have to deal with? So those things will be hurdles that we will be overcoming. We're confident we can, but it's tough to give you a timeframe at this point; it's very specific. I think you will see some developments between now and at the end of the year, but I wouldn't want to commit at this point as to what those developments are.

And finally, you may have missed it on the question before, but we did discuss that we're talking about FID with that project with Port Arthur sort of late 2017 all the way into late 2018, sort of that timeframe - probably in the 2018 timeframe.

Okay, understood. Then just on the Cameron expansion, just in terms of lowering the cost of the or providing a sort of lower cost and expansion from the economies of scale. Where do you guys think that is right now? Especially since you've seen steel costs come down and we've seen, I mean, what - like on a percentage basis like versus what you guys have outlined for this one versus what you're thinking about the expansion, is there any color you can provide on that? Thanks.

Well, there is color I could but won't. Look, right now, we think we have a very competitive project. We think our costs are some of the lowest in the region. We're marketing that to our advantage, and I really don't want to give any more details in that.

Okay, got it. Fair enough. Thanks for the time. I appreciate it.

Hey, good morning/good afternoon, everyone.

Hey, Mark.

Hey, you've talked a lot about the PEMEX assets and the PEMEX deal, and some of your pipeline projects and upside today. I'm just wondering given what's taken place over the past few months, six months and whatnot, how are you looking at the attractiveness of the generation sector in Mexico?

Well, the generation clearly has been under stress in the U.S. Prices have been relatively low, but in Mexico there are going to be generation opportunities. On the renewable side, I think they will be quite good; they'll be - and obviously, we're well-positioned to do that, and ESJ can be expanded pretty easily. But on the gas power generation side, and especially with respect to combined cycle plants, there will be opportunities to build those under contracts with CFE, but they haven't really been let that out that much in any kind of volume. We're going to have to kind of wait and see - to see how that market develops. I think what they're doing in Mexico is actually really pretty smart, which is they're building out the gas network first. They're developing a very active gas market, one that both CFE and the private sector will participate in to a great degree. And once they have a robust gas market and a good supply network, then I think you'll start to see them let out the opportunities to build more power plants. But I think they definitely are staging it a little bit, and I think rightly so.

Yeah, it's definitely been a slow process. I just wonder given that you're positioned already to be a fairly large operator of the gas infrastructure, does that give you some kind of a look into where your competitive position would be when those kinds of bids do start to show up?

Absolutely, I mean, I think we are going to be very well-positioned to take advantage of those, and I think we have every intention of doing that. It's just that they have to meet our criteria for having long-term contracts and being solid investments, which we expect them to be. But given our infrastructure and our knowledge of the gas pipeline network in Mexico, I think that we will be well positioned to take advantage of those offerings.

All right. Thanks.

All right. Thank you.

Well, thanks again for joining us today. If you have any follow-up questions, please feel free to contact the IR team, and have a great day.