桑普拉能源 (SRE) 2008 Q1 法說會逐字稿

Good day, and welcome to the Sempra Energy first quarter earnings results conference call. As reminder, today's conference is being recorded. For opening remarks and introductions I would like to turn the call over to Jeff Martin. Please go ahead sir.

Good afternoon, I'm Jeff Martin. I'd like to thank you for joining us to discuss Sempra Energy's first quarter, 2008, financial results. A live webcast of this teleconference and slide presentation is available on our website, under the investor section. With us today in San Diego are several members of our management team including Don Felsinger, Chairman and Chief Executive Officer, Neal Schmale, President and Chief Operating Officer, Mark Snell, Executive Vice President and Chief Financial Officer, Debbie Reed, President and CEO of Sempra Utilities and Joe Householder, Senior Vice President and Controller.

You'll note that slide two contains our Safe Harbor statement. Pleae remember that this call contains forward-looking statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance. As you know, they involve risks, uncertainties and assumptions so future results may differ materially from those expressed on our call. These risks, uncertainties and assumptions are described at the bottom of today's press release and are further discussed in the company's reports filed with the Securities and Exchange Commission. Some of the financial information we'll be discussing today contain non-GAAP financial measures. In those cases we'll reconcile those financial measures to the most directly comparable GAAP figures and the reconciliations will be attached as appendices to our slide presentations. In addition, it's also important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis. And with that I'd now like to turn it over to Don who will begin with slide three

Thanks, Jeff. And thanks to you for joining us on this Friday. Here is how I would like to proceed with today's call. First, Mark Snell and I will start with financial results. Then I'll update you on the status of our key business activities. And finally, we'll close with any questions that you may have. I'd like to briefly update you on several things that have occurred since our February earnings call. First of all, we held our Analyst Conference in New York in March. At the conference, we presented our 2008 to 2012 financial plan which increased our long-term EPS growth rate to 11%. Based on our earning forecast and our new targeted 35 to 40% payout ratio, our dividend is expected to grow on average 12% a year more than tripling our previous target of 3 to 4% annual growth. Also, the majority of our earnings are expected to come from long-term contracts and our regulated utilities, as well as from the preferred return we'll receive from our new joint venture with RBS. All of this is important because it means our earnings are becoming increasingly more predictable than in the past. The balance of slide three shows our recent accomplishments. I'll get into more detail on these later in the call.

Let's now go to slide four for financial results. We had a strong first quarter with each of our operating businesses performing well. We also had income contribution for the first time from Rockies Express West which you'll recall began service in January. These factors helped improve our EPS by 7% over the previous year's quarter. We saw an even stronger improvement in EBITDA, up 17%. All in all, a great start for 2008, putting us on track to achieve our targets for the remainder of the year. And with that, I'm going to ask Mark to take you through the financial results in more detail.

Thanks, Don. Earlier this morning, we reported first quarter net income of $242 million or $0.92 per share, up from first quarter 2007 net income of $228 million or $0.86 per share. Don alluded to it earlier, but the key take-away for the quarter is the continued strength we're seeing across all of our businesses.

As I go through the slide I'll make a point to call out some of the areas of notable improvement starting with Sempra Utilities on slide five. Sempra Utilities' first quarter 2008 net income increased 12% to $131 million, from $117 million in the year-ago period. San Diego Gas and Electric's net income for the first quarter improved to $74 million, compared with $62 million in the year-ago quarter. 2008 results include $9 million of favorable tax adjustments. At Southern California gas, first quarter 2000 net income was $57 million, up from $55 million in the prior year quarter. It's important to note that first quarter 2008 revenues for both utilities do not include the anticipated increase from pending general rate case settlements.

Now let's go to slide six. Sempra Commodities reported first quarter net income of $59 million in 2008, compared with $71 million in the prior year quarter. Since the RBS transaction didn't close until April 1st, first quarter 2008 results represent 100% of commodities earnings. Now, commodities did see improved margins in the quarter, led by our North American power segment. However, during the quarter, commodities took a $17 million write-down related to an issue with a mining counter party. We've terminated our contracts with that counterparty and are our remaining net exposure is less than $5 million. First quarter 2007 results included an $18 million benefit from the gain on sale of equity investments.

Now let's move to Sslide seven First quarter net income for our generation business was $45 million, compared with $54 million in the same quarter in 2007. First quarter 2007 results were positively impacted by a $6 million mark-to-market gain on long-term hedges with Sempra Commodities and other counter parties. 2007 results also benefited from $4 million of intercompany interest income. Please move to slide eight In the first quarter of 2008, Sempra pipelines and storage reported net income of $26 million, compared with $16 million in the same period in 2007. The new Rockies Express West pipeline which went into service in January contributed $5 million of earnings in the quarter. 2008 also benefited from favorable foreign exchange rate effects and our investments in Chile and Peru and some improved operations.

Now please turn to slide nine. This slide provides a summary of our business unit results and I'll highlight a few points starting with our LNG business. Sempra LNG recorded a net loss of $9 million in the first quarter of 2008, compared with a net loss of $10 million in the prior year period. The decrease in loss was primarily due to a $10 million after tax cash payment we received. This was the result of an early termination of a capacity agreement at our Cameron LNG terminal. That benefit was offset by $6 million in higher income tax expense related to Mexican currency adjustments. And some mark to mark losses on a marketing agreement. All other items totaled a net loss of $10 million in first quarter 2008 compared with a net loss of $21 million in the first quarter of 2007, primarily due to reduced net interest expense.

Now let's turn to slide ten. We're very pleased with the start of the year. Earnings per share and EBITDA improved significantly. All largely driven by our California utilities and pipeline segment. We closed the RBS transaction in April and began repurchasing the first billion dollars of our common stock as part of our planned 1.5 to $2 billion repurchase program. We expect to complete the first billion dollars of our repurchase program in the fourth quarter. We also increased our quarterly dividend 3% in the first quarter and expect our Board to increase it another 9% to $0.35 per share for the next dividend payable in July. Now I'll turn it back to Don with slide 11.

Thanks, Mark. Let me start with a short business update, beginning with our utilities. With regard to our general rate cases for SDGE and SoCal Gas, we reached settlements on major aspects of those proceedings late last year. Some key aspects of those settlements include a $197 million revenue increase in the first year with fixed escalations in the following year averaging $96 million per year. Under the settlement, it's also important to note that we are not affected by changes in our customer base or productivity gains and there's no earnings sharing. We now expect to receive the final decision from the California Public Utilities Commission later this quarter. We filed for rates to be retroactive to January 1st of this year.

Our $500 million smart meter program at STG&E will begin the initial phase of installations this quarter. Large scale installations will begin in 2009 with completion in 2011. Also, we're currently evaluating the installation of natural gas smart meters in the SoCal Gas territory. We plan to file an application with the CPUC later this year with a decision anticipated in the second half of 2009. Regarding the Sunrise Transmission project, in the first quarter we received a draft environmental impact study. We expect a final decision on the project by year-end, which would result in the line being placed into service in 2011. Now let me update you on our LNG business on slide 12.

At our Energia Costa Azul terminal, we received our first LNG cargo. That ship left our facility this past Monday and we expect another cargo to arrive in the next several days. The commissioning is now under way and we expect the project to begin commercial operations and start receiving revenue later this month. This is the first LNG receipt terminal in the West Coast of North America, an accomplishment that we're all extremely proud of. In Louisiana, our Cameron receipt facility is now 80% complete. This project remains on track to be completed by the end of the year. As Mark mentioned earlier, Merrill Lynch turned in their capacity agreement for Cameron. As you will remember from our Analyst Conference, we've invested about $2 billion in this LNG business. And just based on our current contracts and the forward curve for natural gas, we'll receive an 8 to 9% unlevered return from our LNG portfolio. And we have significant additional upside based on our ability to contract the remaining supply.

Now let's move to slide 13. There's been a lot of recent progress on the Rockies Express Pipeline project. In January, we began service on the Rockies Express west portion of the pipeline that runs from Colorado to Kansas. Approximately 1.2 billion cubic feet per day of gas is now flowing. Service on the entire 700-mile Western portion of the pipeline should begin later this month. As for Rockies Express East, we received the final environmental impact study from the FERC last month. We expect to receive final approval to construct later this quarter and begin construction early this summer. We are still targeting a year end in-service date but that's dependent on the timing of FERC approval.

Please go to slide 14. In summary, here are a couple of key highlights. We had a strong first quarter, led by contributions from our California utilities and our pipelines and storage business. We remain focused on the completion of our major construction projects and regulatory proceedings. And finally, I'd say it's been a busy start to this year. We've gotten a lot accomplished. We're focused on execution and we look forward to providing you additional updates on our progress as we go through the year. And with that, I'm going to open up the call and take any questions that any of you may have..

Thank you, sir. (OPERATOR INSTRUCTIONS). We'll go first to John Kiani with Deutsche Bank

Good morning.

Good morning, John.

Can we assume that at least at this point you're not going to build [Catoctin] and PJM since FERC did not pass the cone increase?

I think it's safe to say from our perspective that the economics that currently exist don't warrant us making an entry at this point in time.

Okay. Thanks, Don. And then another question I have is is there anything that you all can do or you plan to do to extract value from the land that you own at Port Arthur?

Well, we have mentioned I think in the last year or so that we are exploring putting in a Marine cargo terminal. That region around Port Arthur is doing a lot of expansion in terms of the refinery growth and we happen to be situated on the waterway with a lot of land that's in excess of our needs for an LNG terminal that could be utilized for a Marine oil terminal. We had an open season some months ago. It was very positive. We're in the process right now of evaluating those responses and should we get enough firm commitments to launch that project, we will.

Can you provide or have you provided any type of estimate for what type of capital investment that would entail?

You know, the size of terminal that we are looking at, the capital cost could be between 350 and $500 million, depending on how much we build out.

And that's obviously incremental to the current capital spending program and growth guidance you've provided recently at your analyst meeting?

Let me ask Mark to make sure that wasn't included in the forecast.

In our capital, we had some discretionary sort of capital that we hadn't committed to specific projects. So it is kind of included in there.

Got you. In the discretionary?

Right.

Thank you.

Thanks, John.

We'll go next to Lasan Johong with RBC Capital Markets.

Good afternoon. Nice quarter, by the way. Love the fact that you guys keep your conference calls really short. Couple questions. First of all, there's been some chatter about RBS maybe being a little bit behind the curve in meeting its obligation with the joint venture because of its troubles. Are you seeing anything like that at all?

You know, absolutely not, Lasan. This joint venture got launched and never missed a beat. As you know, the management's all in place and we and RBS are moving forward as though that there's been no change to the business.

Excellent. Kind of a strategic question. Sempra has done a phenomenal job of taking some of these distant dreams of accomplishing some unregulated businesses and actually coming to fruition and realizing the grand plan, so-to-speak. Hate to do this to you, Don, but what's next on the unregulated side, outside of the very obvious near term (inaudible). Are you thinking of something more draconian, and dramatic that we haven't thought about?

I don't think there's any surprises, Lasan. We have signaled in many different forums that we're all about organic growth and that we have a lot of organic growth opportunities and so I think the area that we continue to be focused on is natural gas infrastructure, which we think the country's going to need a lot more of, especially with this whole debate on global warming and constraints on emissions. Beyond that, we are actively ramping up our renewables business and over time you will see us become a bigger player in the renewables space.

And again, any thoughts on going overseas for liquefaction? I know you've talked about potentially looking at that.

You know, we have. We've mainly been looking at it in the past from the standpoint of having the marketing capability coming out of new terminals. If we found a location in the world where it made sense for us to invest in upstream liquefaction, after giving that proper consideration, we'd look at it.

What are the criterias you'd be looking at?

What country it's in, what advantage that gas supply would have, based on its location, who our partners would be, the typical stuff.

Would that involve any deviation of the joint venture with RBS and maybe taking some capacity on Cameron.

I think one of the things we expect to have happen is because RBS is so spread around the world in terms of the number of projects they finance, that we would expect to have more opportunity to make investments upstream.

Okay. Mark, not to put a damper on anything but we were kind of expecting a $9 million expense for the delay in bringing I think it was Cameron online a little bit. We thought that was going to be in the first quarter of this year. Is that not the case?

I'm not sure what you're referring to, $9 million delay payment?

Yes, charge or something like that.

No, I mean, Cameron is right on target and there's no -- there's nothing -- there's no penalties or anything facing us with respect to that.

Okay. I'll take it offline with Jeff, just in case. What was the background on this write-down with the mining company?

We have Mark Snell take that.

The mining company was -- it was a company called Black Diamond. It was a coal mine. And we had -- they had hedged some of their forward production. We were one of the parties that they had hedged it with, with the rapid increase in coal prices, they became exposed to us. We called for adequate assurance on margin. They couldn't meet the margin call. We closed them out and that was the end of it.

Oh, I see. Just one last question. What can we expect in terms of kind of ongoing contribution from the joint venture to Sempra zoning going forward, now that you've kind of closed the deal and moving forward?

Well, just as a -- we anticipate that we gave a range of 250 to $350 million for this year and we anticipate meeting -- being in that range.

And no change given the current gas price forecast and coal price forecast and the metal prices going nuts all over the world, oil prices along with it.

We're not changing our estimates at this time.

Wow. Okay. Thank you.

Thanks, Lasan.

We'll go next to Sam Brothwell with Wachovia.

Hi, good morning, guys.

Good morning.

Couple quick ones. Just off of that last issue with this write-off in commodities,given the situation in the credit markets, do you expect to see a little bit more in terms of credit issues and perhaps a little bit elevated level of write-offs relative to the past or are you comfortable with your exposure?

Let me have Mark Snell take this.

You know, Sam, we historically credit reserves and credit write-offs have been a very, very insignificant part of our business. And even in this -- that's premised on the fact that we have a fairly aggressive credit department, especially at trading and we margin quite aggressively and we really don't let these things try to get out too far ahead of us. When you have rapid changes in commodity prices, it can cause counterparties to be greater exposed than maybe they anticipated.

And so it could cause some liquidity problems and that's what causes us to close it out. We may very well not lose as much money as we've written off on this. I mean, we have good claims and the mine is producing and they're going to -- hopefully they'll pay us off. But we just -- we work -- we move quickly on these things and we move aggressively and that's why we've had very little problems and we don't anticipate anything out of the ordinary going forward.

Okay. Don, you hinted as possibly doing more in the future in the renewable space. Can you give us any kind of a hint as to what area of that very broad seam you might be looking at?

Sam, what I would say is, as you're aware in the west almost all of the utilities have some fairly aggressive renewable portfolio goals and we have been staking out some positions with land and with land options so we can expand on the footprint we already have in Mexico with, [La Rue Marosa], and also around some of our existing generation sites. So I think you could look forward as the prices support our entry, seeing us do some wind and some different types of solar.

Okay. Well, we'll keep an eye on that. Thanks a lot.

Thank you.

In the interest of allowing everyone to ask a question that has signaled we do ask that you limit yourself to two questions and one follow-up. We'll go to [Mark Segal with Canaccord Adams].

Hi, good morning. Just a couple of quick questions regarding your AMI deployment. Have you made a final selection regarding all the related vendors for that project ahead of the Q1 '09 expected roll-out?

Let me have Debbie Reed respond to that.

Good morning, Mark. We are in the process of negotiating our final arrangements and we are not going to be announcing a vendor until we've negotiated a contract and that will probably be towards the end of May.

Okay. And then is there any further regulatory approval or permitting that needs to take place for that?

Well, let's put it into two pieces. For the San Diego Gas and Electric side we've received full regulatory approval for $572 million, 500 of which is capital. And we don't need any further approval to deploy. On the Southern California Gas Company side, we are looking at deploying the AMI technology on the gas meters for the SoCal Gas customers and we would be making a filing for that later this year with the hopes of getting approval in 2009.

Okay. And lastly, with regards to your plans for SoCal Gas, will that deployment leverage existing infrastructure in place with SoCal Edison?

That will be one alternative that would be looked at. We'll also look at stand-alone and do a comparison, so that we will look at -- if we do it on a stand-alone basis, we would deploy it throughout all of the meters and it would be about a billion dollar investment. And we think that that would probably be a good long-term solution for our customers is to have all customers on the same platform. But we will look at the costs if we were to do it on the Edison overlap which would be about $600 million for deployment there and look at the comparison between the two. And that's why we're taking some time now to do request for proposals and gather that information before we make our regulatory filing.

Okay. Thank you very much.

Thanks, Mark.

We'll go next to Michael Lapides with Goldman Sachs.

Hey, guys. Congrats on a good quarter. Two questions: one. we're still kind of in the process in California where the CPUC and Cal (inaudible) the all the interveners are kind of debating what the capacity market structure might look like. Can you talk about your view and how in-city versus system resources might be treated in whatever gets designed?

Let me ask Debbie if she has a point of view from the person that will be taking this capacity.

(LAUGHTER). Good morning, Michael. We are working actively to get a capacity market established in California. We think that that is the best solution for our customers and the way that we would envision the capacity market working is that there would be a number of nodes and we would bid our capacity that we have and we own into the market at cost and then buy that back. So I'm not sure if I understand specifically your question about in-city resources versus -- it would be a market for the whole state and then there would be regionalized nodes that would have different pricing at those nodes.

I guess the question is would all assets be treated equally, meaning new versus old, because as I understand how the capacity market works right now, local system resources get treated -- local resources get treated differently pricing-wise than system resources and also in the capacity market debate there's been some discussion about treating new versus old assets differently from a pricing perspective.

Right. That is something that the CPUC is looking at as part of the transition and that really has to do a lot with our ability right now to go out for a request for proposals for resources and ensure that there's incremental capacity being added. It's less about the kind of the pricing when you have a whole market structure put in place. But the CPUC is looking at that and determining how that is going to be handled on the long term. I think that the way that we would envision it is that all resources would be treated equal when you have enough resources, but that we would be able to go out for proposals to get added resources when we needed to have added resources to meet the resource adequacy requirements.

And Don or Mark, kind of taking it up a step but thinking about your non-regulated generation, we've actually seen some pretty decent prices for asset transactions recently. Just curious how you thing about at what stage you're a seller?

Well, we look at it all the time. We have a contract that runs through 2011 and it's obvious that prices are moving up which is a recognition that this region needs more capacity. So I think we always -- if you're talking about from the standpoint of are our assets something we would sell, was that your question?

Yes your gas generating plants.

I think the way we look at it is when this contract -- before this contract expires, we're going to take a look at what people are willing to contract for the output of those plants. We know what those plants transact for in the open market and so from our standpoint, if we can't get what they're worth, then I think one of the things we would consider is should we sell the plants.

Okay. So you'll likely wait until the contract actually expires before going to that process?

Well, we've started doing some feelers now. We're taking some small amount of capacity and going out and seeing what the market is willing to pay and it looks like we're getting about -- in terms of the offers we've received so far for energy, we're getting about 80 to 85% of the cost of a new build. So that's probably about where we think we should be. Neal had a comment here.

Just make one other comment. We've looked at this a lot of times and it's pretty difficult to make the sale of these kinds of assets pencil out when you look at the tax leakage associated with the sale and when you also look at new build costs, I think you would come to the conclusion that these assets are going to be very valuable assets going forward.

Understood.

We'll go next to Faisel Khan with Citigroup.

Good afternoon.

Hi, Faisel.

With regards to the Costa Azul revenues coming on stream next month is that for both the Shell and the [Tangoo] revenues or is it just one or the other.

It's just the Shell contract. The Tangoo deliveries start a little over a year from now.

Got you. And on the California Phase II cost of capital proceeding, I believe the ALJ issued some recommendation. Is there anything we should read from those recommendations that would change your ROE assumptions or capital ratios for the utilities?

I'll let Debbie get into this, but it's a recommendation that we're pretty satisfied with.

Basically, the cost of capital recommendation that came out in the proposed decision is almost identical to what San Diego Gas and Electric has been operating with under the last several years. So we were quite pleased with a proposed decision.

Okay. With regards to the smart metering roll-out for SDG&E, in your pilot programs can you discuss a little bit what -- can you discuss a little bit about what you saw in some of those programs in terms of per capita consumption and declines or increases or did the program work? I take it this is why this is all being rolled out.

Go ahead, Debbie.

Faisel, I can talk about the pilots that were done on a state-wide basis. We're going to be rolling out our own pilot of the first meter deployment at SDG&E of a large group of meters, 5,000 meters, in about a month. But we did some state-wide work early on where we tried different-- with the meters and different technologies being used to give price signals to customers including colored orbs and things like that to let them know when there were extreme peak days.

What we found was the reduction in demand was 12 to 15% during some of those pilots and what we also found is that the combination of the metering and then something in the home that gives the customer more information really helped to sustain that type of demand reduction. Absent that, there was erosion over time. So, what we're really looking at is how do we combined our Energy Efficiency and Demand Response programs with the smart meter to do that.

Okay. Do you have any estimates as to what that might shave off, some of your peak demand numbers in SDG&E.

In our case, my recollection is it was around 200 megawatts of demand reduction after full deployment that we were looking at in our system coming from the smart meters.

Okay. And on the smart metering for the gas customers, any estimate in terms of what that would cost?

Yes, if we did full deployment across our customers, we would be looking at about a billion dollars. And these are very rough numbers. I would say. We haven't gone out and gotten any specific proposals, we're using kind of the SDG&E data and extrapolating that for SoCal Gas.

Do you guys have the same sort of program that PG&E has for reducing customer usage, with regards to their gas utility customers also, the 10, 20 plan?

I'm not familiar with that.

Okay. Where customers basically are incentiveized to reduce their consumption and they get a rebate along those lines. You guys don't have a similar program.

I think you said on the gas side. That's on the electric side.

Okay.

Yes. And we've had that historically. We have a lot of summer programs that provide peak demand reduction where we insent customers to cycle air conditioning, where we insent commercial and industrial customers to offload during peaks and there's a whole variety of programs we have in that regard.

And then one last question, on the sunrise transmission line, any -- is there any change from your previous comments on the timing of when a decision is supposed to be reached? You said late this year, but is that changed at all?

Faisel, no. In fact, the hearings -- we think the hearings are going to be over today or early next week and that the AOJ has indicated that it appears that he will be able to maintain the schedule, at least that's what he's telling us, which would get us a final EIREIS in June, a proposed decision sometime in July and then a final decision hopefully by the end of the year.

Okay. Great. Thanks.

Thank you.

(OPERATOR INSTRUCTIONS). We'll go next to [Paul Fremont with Jeffries].

Two quick questions. One, as California moves to a multi-year cost of capital proceeding, is there something in the process that makes the establishment for all three companies of the cost of capital parameters more standardized or do you still expect it to be still very individual for each company?

I'll have Debbie take a shot at this but my sense is the commission will have the flexibility to custom tailor this for issues that each utility may have.

I would just add that the mechanism that's been adopted now would be the same mechanism for each company, but it would trigger off of our authorized ROEs that we received last year. There are provisions, though, in those to if there are extreme type of blowouts or changes in interest rates or whatever, that each utility can go in and on an independent basis make an individual filing to address those issues.

So on a longer term basis, then you would not expect sort of the differences that currently exist to potentially narrow in terms of -- because there seems to be a fairly good spread between ROEs in the state.

We would be able to go back in in 2011 to have any new ROEs authorized effective in 2011. But that we would use this mechanism between now and 2011.

And then my other question, I guess is a trading question, other entities have sort of been hurt or were caught in being long heat rates. How was it that your operation was able to avoid that and do you believe that the situation that occurred in the first quarter with respect to heat rates was more of an anomaly?

Are you speaking to the heat rate change that took place in PJM?

Yes.

First of all, we didn't have a dog in that fight, but we are watching it from afar to see if there's any learnings from it. I don't think that I know enough that I could give you any intelligence as to what we think is happening there, except that there was just a sharp drop in the average market heat rate over a very short period of time.

Okay. Thank you very much.

We'll go to Ashar Khan with SAC Capital.

Good afternoon. I was trying to wonder. Is there some way you could give us an idea that if the settlement had been around what higher earnings could have been from the utility business in the first quarter?

Debbie, you want to address this?

Yes, Ashar. What I would say is that the ranges that we gave you at the analyst meeting in March that were 485 to $535 million, we would hold to those for the year. That that reflects the adoption of the settlement and that we would feel that the ranges that we gave you are right on track.

But you can't tell us how much incremental the first quarter could have been and what you've been accruing?

Well, we haven't -- the way we book for the first quarter is based on the 2007 revenue requirement. We haven't even seen a proposed decision yet to say that the settlement has been adopted, although we would anticipate that. And so I hope you understand that until we get that, we're just really focused on our annual results. We do watch it closely and we are very confident with those annual ranges that we gave you.

Okay. And second, I just wanted to go back to the Chile and Peru assets. You said you were looking at them. Could you tell me what the status is in terms of them, whether they're going to stay in part of the Sempra family or it's still a review that is going on?

Longer term, we have said that we're going to exit South America and that is the plan. These are not strategic assets. The assets in Chile and Peru are very good earning assets, though, and so as we look at the appropriate time to exit, we want to make sure that we get value for those assets and that we've got something else to invest that money in that will give us an equivalent return.

So you haven't reached that point yet, Don; is that correct?

That's correct, we have not.

And if I could finish off, Mark, how much -- and I know you're going to replace this with something else down the road, but how much in the 2012 earnings would you say the Merrill Lynch contract contributed?

It was very little. In fact, if you recall from our -- I don't know if you were at our Analyst Conference or not, but at the Analyst Conference I gave something that -- a breakdown of all of our earnings and showed that only roughly 12% of our 2012 earnings were attributable to kind of not just spot cargoes, Catoctin, Sunrise, all of the things that are not 100% definite that we're going to do that could happen, all of those things combined only contributed 10, 12% of our total earnings.

So this is a small portion of that; is that correct?

Very small. It's a very small portion.

Ashar, I want to come back to the comments that I gave at the beginning of this call. We are building -- we have built these assets for the long term, 30 years or more and one of the things that we did up front is we made sure in our contracting that we had the ability to get a return of and return on that investment and that's why this $2 billion of LNG investment that we have is going to generate just with the contracts that we have in place about an 8 to 9% unlevered return and so that gives us a very good position now to watch what's happening in the market and decide at what price and when we will release additional capacity to the market.

Okay. And if I can just end up, sorry, the remaining half a billion of the buyback, when could we expect a decision whether it will be a buyback or a reinvestment? Is that something for January next year when you report.

Right now we've committed to do 1.5 to $2 billion we are still on track to do that. We'll wrap up the billion dollars, we'll close out this year in the first -- in the fourth quarter and then we'll launch into the next 500 million. And whether we go beyond 500 million or not, we haven't decided yet.

Thank you very much, Mark.

Next we'll go to Paul Patterson with Glenrock Associates.

Good afternoon, guys, can you hear me?

Yes, Paul, go ahead.

I apologize if you've already gone over this. The Catoctin Power Plant, with the new cone and heat rate situation at PJM, any additional thoughts on that.

I did answer this earlier. That is, as the new cone was published and as the process at PJM and submitting their new cone to the FERC didn't get approved for procedural reasons, we've decided not to enter the market based upon capacity prices. Now, that does not mean that we're not out shopping with utilities for a contract. But currently the economics in that region don't support us going forward with a new build without a contract or a higher cone.

Okay. Now, you saw Exxon's recent announcement and you've seen other companies in terms of what they're willing to do. Any thoughts on those sub markets or just in general? And when you look at that heat rate decline in PJM, what do you guys make of that, from your trading perspective in general remarks do you think is fundamentally driving that and just any other flavor you have on that.

As I said, we look at it with interest, not because we have a a position there but just because we're trying to figure out what is taking place in in that marketplace. I think we have different points of view. We were sitting around this morning before the call talking about that. I don't think we have consensus among our management team as to what is taking place there.

Oh, really? Okay. That will be interesting to find out more. Maybe we won't go over it right now. But -- then I'm sorry about this. The currency impact for the quarter, what was that?

Currency impact?

Yes. This is Joe Householder. It was exchange rates in South America, those currencies appreciated against the dollar, improved earnings in the South American business.

How much was that again? I'm sorry.

That was about $4 million.

Okay. Thanks a lot, guys.

Thank you.

We'll go to a follow-up from Lasan Johong from RBC Capital Markets.

Yes. Debbie, last we chatted we had talked about potentially securing new gas sources for SoCal. Any kind of progress on whether you might have a strategic alliance with one of the existing three proposed pipes or maybe from a foreign source?

No, nothing to report in that regard, Lasan. We're continuing to look at that as some of our interstate capacity is expiring, but nothing to report on that.

Okay. That's fine. Thank you very much.

We'll go next to Michael Lapides with Goldman Sachs.

My follow-up was already asked and answered. Thank you.

Thanks, Michael.

Will go to [Vic Hytan with Deutsche Asset Management].

Hi, thanks. Could you tell us what with be the triggers to buy the remaining share buyback after the $1 billion you (inaudible) buy $2 billion?.

Mark, go ahead.

I talked about this earlier, but again, we've committed to a 1.5 to $2 billion program. We will do 1.5. So after the billion dollars is closed out in the fourth quarter, we'll launch into the next 500 million that will probably be in the first quarter of next year, may come a little sooner and then beyond that, beyond the 1.5, the decision whether to go from 1.5 to $2 billion we'll make at that time.

Okay. And this 11% earnings growth you mentioned earlier, is that coming off the '07 base?

No, off the '08 base.

Okay. Thank you.

Thanks, Vic

At this time we have no other questions. I'd like to turn the call back to Don Felsinger for any additional or closing comments.

Thanks again for joining us for our first quarter 2008 earnings call. If you have any follow-up questions you know how to get a hold of Jeff, Glen or Scott. You guys all have a great weekend.

That does conclude today's call. Thank you again for your participation. Have a good day.