桑普拉能源 (SRE) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Sempra Energy third quarter 2010 results conference call. Today's call is being recorded.

At this time I would like to turn the conference over to Mr. Steve Davis. Please go ahead, sir.

Good morning and thank you for joining us. I'm Steve Davis, Vice President of Investor Relations. This morning we'll be discussing Sempra Energy's third quarter 2010 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, Executive Vice President, and Joe Householder, Senior Vice President and Controller.

You'll note that slide two contains our Safe Harbor Statement. Please 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. It's important to note that all the earnings per share amounts in our presentation are shown on a diluted basis. With that, I'll turn it over to Don who will begin with slide three.

Thanks, Steve, and again thank you all for joining us this morning or this afternoon. On today's call, I'd like to accomplish several things. First, review with you our third quarter financial results. We'll then update you on our exit from the RBS Commodities joint venture, and also discuss some items that may impact our 2011 outlook. And then finally, I'll give you an operational update on our utilities and infrastructure businesses.

Now for our financial results. Earlier this morning we reported third quarter earnings of $131 million, or $0.53 per share, compared with $317 million, or $1.27 per share in the same period last year. The third quarter results included an after tax charge of $139 million from the previously announced write-down of our investment in the RBS Sempra Commodities joint venture. Excluding Sempra Commodities, quarterly earnings increased by 10% over the prior year.

Our core businesses continue to perform well and we're on track to meet our 2010 earnings guidance per share of $3.15 to $3.45 per share excluding the results from commodities.

I'd also like to mention that we're now in the final stage of exit from our commodities joint venture. We and RBS agreed to sell the principal assets of the business in three separate transactions, two of which have already closed. The final sale should close next month and at that time, we'll essentially be out of the trading business. This was a key goal for us this year.

And I'll remind you that we have a $500 million share repurchase program under way. We were able to start the buyback earlier than anticipated and have already received a large portion of the shares to be retired under the program. We have said that once we complete this initial $500 million share repurchase and complete our exit from the commodities joint venture, that we would evaluate an additional share repurchase. Over the course of the past few months, we've had the opportunity to hear from many investors about their preferred outcome of an additional share repurchase versus a dividend increase or some combination of the two.

Over the next few months, we will complete an annual review of our business with our Board of Directors. As part of this normal planning process, we will evaluate several things, including our capital program, earnings growth, credit statistics, dividend payout and federal tax policy. When completed in the first quarter we will announce any additional share repurchases or changes in our dividend policy at that time.

Now let me turn it back over to Mark so he can take you through some of the details of the financial results beginning with slide four.

Thanks, Don. At San Diego Gas & Electric, earnings for the third quarter were $106 million compared with earnings of $108 million in the year ago quarter. For the first nine months of 2010, SDG&E earnings were $264 million compared with $277 million last year. The year-to-date results include $16 million of higher wildfire insurance premiums.

At Southern California Gas, third quarter 2010 earnings were $78 million, up from $74 million in the third quarter of 2009. For the first nine months of 2010, earnings for this business were $212 million, up from $198 million in 2009. The increase was primarily due to improved operating results and a lower effective tax rate on operations, offset by a $13 million tax charge recorded in the first quarter that was due to the passage of the healthcare bill.

Now let's go to slide five. Our Generation business recorded earnings of $56 million in the third quarter compared with earnings of $43 million in the same quarter of 2009. The increase for the quarter is primarily the result of renewable energy credits from the Copper Mountain Solar project. Generation also benefited from mark-to-market gains which were offset by $9 million of lower earnings from operations of our natural gas fired power plants. For the first nine months of the year, Generation recorded earnings of $51 million compared with earnings of $119 million in the same period in 2009. The decrease was primarily due to $86 million of litigation expense this year related to the settlement of the energy crisis litigation.

Now, please move to slide six. Sempra Pipelines & Storage recorded earnings of $43 million in the third quarter of 2010 compared with earnings of $54 million in the same quarter of 2009. The current quarter included $48 million in proceeds from a legal settlement less the related $17 million tax charge and a $24 million write-down of our investment in Argentina. The third quarter of 2009 included a $15 million benefit from the resolution of prior years' tax issues. For the first nine months of the year, Pipelines & Storage recorded earnings of $120 million compared with earnings of $64 million in the same period in 2009. The increase is primarily due to a $64 million write-off of our Liberty Storage assets last year as well as the other factors I just mentioned.

Now, please turn to slide seven. Sempra LNG had earnings of $5 million in the third quarter of 2010 compared with breakeven earnings in the prior years' period. The increase for the quarter was primarily due to higher earnings from operations. You'll recall that our Cameron LNG facility became operational and our supply contract with the Tangguh Partners for the energy of Costa Azul LNG facility became effective in the second half of 2009.

For the first nine months of 2010, Sempra LNG had earnings of $50 million, up from a loss of $19 million in 2009. Despite the year-over-year improvement, the results this quarter were lower than expected. The quarter was impacted by three items, lower natural gas prices, a reduction in the carrying value of inventory and mark-to-market adjustments totaling $5 million, and legal and tax items that negatively impacted the quarter by $4 million. At current gas prices, we would expect the earnings from this business to be about $12 million to $15 million per quarter.

Now let's move to slide eight. Since our last earnings call, we and RBS announced two transactions to sell the remaining principal assets of the RBS Sempra Commodities joint venture; the sale of the retail marketing business to Noble Group and the sale of North American Gas and Power assets to JPMorgan. The sale of the retail businesses closed last week and we expect the sale of the North American Gas and Power assets to close next month. You'll recall that we already received $1 billion from the sale of the oil, metals and European energy businesses.

We expect that Sempra will receive $1.8 billion to $1.9 billion in proceeds from the exit of the joint venture after taking into consideration ongoing costs related to the sale. As I've said, we've already collected a large portion of the proceeds and the remainder of the collections will extend into next year. And with that, we are now effectively out of the trading business.

Please turn to the next slide. We recently replaced our revolving credit facilities with new four-year facilities. These new lines expire in October of 2014 and replace the lines that were set to expire in August of next year. We have a total of $3 billion of lines at Sempra as well as a combined $800 million line for San Diego Gas and Electric and SoCalGas.

Now I'll change gears and talk about our outlook for the year. In March of this year, we provided guidance for 2011 of $4.35 to $4.65 per share. We'll update that guidance on our fourth quarter earnings call in February, but as we look out into the next year, we are seeing some pressures on our 2011 outlook that I'd like to comment on.

There are three primary drivers that may negatively impact earnings next year. As I mentioned when I talked about LNG's results, we're in a much lower natural gas price environment. The solar price for 2011 is currently about $2 lower than what our plan was based upon. This impacts our LNG and Generation businesses due to the pricing of key contracts.

Next, you'll recall that the guidance we gave you assumed that Sempra Pipelines & Storage would acquire the other half of our pipeline joint venture in Mexico from our partner there, but we now don't expect this to happen as we had planned.

And finally, we have a shift in the timing of the 150-megawatt Mesquite Solar project at Sempra Generation. Our existing guidance had assumed the project would be substantially complete by the end of 2011, but we now expect the project to be complete in early 2013. While 2011 earnings will be lower due to the later in service date, earnings will move into 2012 and 2013. Now while there are positives that could offset some of these pressures, we currently believe that the net effect to our 2011 outlook could be a reduction to earnings per share of approximately $0.35 to $0.45. Again, we'll provide more complete guidance for 2011 on our fourth quarter earnings call. And while we still will grow our earnings per share at a double-digit rate next year, from what we're seeing now, the outlook is lower than our prior guidance. And with that I'd like to turn it back over to Don who will begin with slide ten.

Thanks, Mark. Now let me update you on activities in our California Utilities. At San Diego Gas & Electric, construction is underway on the Sunrise Powerlink. We're on track to complete this project in the second half of 2012.

Turning to our smart meter program at SDG&E, we have now installed more than 1.6 million meters and remain on schedule to essentially complete the installations by year end 2011. And finally at SDG&E and SoCalGas, we will be filing full applications for both utilities 2012 general rate cases next month. The CPUC's rate case plan calls for decisions by year end 2011.

Now go to slide 11, if you would. At Sempra Generation, construction continues in Nevada on our 48 megawatt Copper Mountain Solar project. We currently have 38 megawatts in operation and expect to complete the project by the end of this year. The power generated by this project is sold under a 20-year contract to Pacific Gas & Electric.

We also continue to advance our Mesquite Solar project. This project is located near our Mesquite natural gas fired plant outside Phoenix where we have enough land to ultimately develop up to 600 megawatts of solar generating capacity. Last month, we announced an agreement to sell the power produced by the first 150 megawatt phase of the project to PG& E under a 20-year contract. We now plan to start construction next year and to complete all 150 megawatts by early 2013.

In addition to these new solar projects, last week we announced an investment in a new 250 megawatt wind project located in Northern Colorado called Cedar Creek II. This project is a 50/50 partnership with BP Wind Energy and is already under construction and is our second wind project with BP. The power produced by the facility will be sold under a 25-year power purchase agreement with Public Service of Colorado and operations are expected to commence mid-2011.

At our Pipelines & Storage business, we recently added roughly 12 billion cubic feet of operating storage capacity at our Mississippi hub and Bay Gas storage facilities, and our storage buildout program continues to move forward. In total, about 85% of the storage capacity we have in service is contracted forward.

Now move to the final slide, if you would. In summary, I'm very pleased with the solid operating results of our core businesses for both the quarter and year-to-date. I also want to remind you that here in California, we continue to see broad support for the types of investments we're making in renewable energy and enabling infrastructure. This support can be seen from the legislature, the Public Utilities Commission, and just last week, the public at large showed their support with the resounding defeat of the ballot initiative that would have rolled back California's climate change legislation.

And finally I'm proud of some of our recent accomplishments which include the start up construction on the Sunrise Powerlink project at SDG&E, this much needed project is now coming to fruition following the completion of the lengthy and extremely thorough regulatory review process. It will enable the transmission of 1000 megawatts of clean energy from renewable resources, increase reliability to the San Diego region and create savings for our customers.

In addition, we're moving forward with new solar and wind projects at Sempra Generation, which continues to demonstrate its leadership position in developing new renewable resources.

And finally, we're on track to meet our goal of exiting the commodities business by year end. This has enabled us to initiate a share repurchase program and to focus on our core operations. With that, let me stop and open up the call and take any questions that you may have.

(Operator Instructions) And we'll take our first question from Lasan Johong from RBC Capital.

Thank you, hi, Don, hi Mark. Quick-- couple quick questions. The decision not to buy the Mexican joint venture, a, how much is that of that $0.35 to $0.45? And what precipitated your decision not to buy that?

Well, first it's roughly about $0.10 of the impact and it wasn't a decision not to buy it, it was a decision our partners not to sell-- decided not to sell which we're perfectly comfortable with. It actually frees up additional capital for us to make other investments and we're obviously thrilled to be partners with Pemex in Mexico.

I see. Second, how much of that $0.35 to $0.45 is due to in your mind the gas price decline and that ultimately whether it stays that way or not is going to depend on whether the four coasts come back up or not; correct?

Yes, and as we've said before, our earnings for 2010 and 2011 are impacted by gas prices to the tune of about every $1 of gas the price adjustment is about $0.06 to $0.07 and we've had about a $2 difference, so it's something between $0.12 and $0.14.

Okay. And then the Cedar Creek obviously was not in the original guidance of 2011 that you gave, so how much does that add back to your $0.35 to $0.45 delta that you had outlined?

Well, like I said, we're going to give you more complete guidance in the first quarter and we're not updating for that, but you're correct, it wasn't in our original guidance and we'll be adjusting that in the first quarter.

Okay, and then last question is obviously you're not going to use the entire remaining $1.3 billion, $1.4 billion for share repurchases and dividends. Can you give us a general sense of kind of what you would like to do with that money?

Well, I think as I said, Lasan, we're in the process right now of dialogue with our Board, as we do every year at this time. We're looking at our capital program, looking at comments we receive back from investors regarding dividend policy and our capital spending. And more to come here but I would expect that when we talk to you again in February, we'll have a firm direction that we're going to move forward with both additional share repurchase if any or a change to our dividend policy.

As always, (inaudible) thank you very much.

Thanks, Lasan.

And we'll take our next question from Paul Patterson from Glenrock Associates.

Good morning.

Hi, Paul, how are you?

All right. In terms of the-- you guys also in March gave us sort of an outlook through 2014, and with if some of the stuff sounds like there'll be some changes in timing but I guess we've seen the forward curve come down here for natural gas out that far as well. So should we-- how should we think about the longer term growth rate off of these sort of what appears to be reduced levels for 2011?

Well, as I said, we're actively involved right now in kind of taking a look at the next five years in terms of capital spending and earnings. But when I look at why I believe the guidance will end up being when we speak to you early next year, our growth rate for the five year period is still pretty robust in the 8% to 9% range and that captures what we believe that the new forward price strip is for natural gas. So we have a fairly robust growth program building off of 2011. Our capital budget is still $3 billion and we have a backlog of kind of unfunded renewable projects that we are working into that mix.

Okay. Any concept as to whether or not you're going to try to reduce the amount of sensitivity to commodity prices in light of what's happened here? I mean guess-- what are you guys thinking about when you're doing your projections and your thought process? You guys have obviously been involved in energy markets for some time, what's your thought process with respect to the outlook for natural gas I guess? And are you guys thinking of perhaps mitigating the impact of commodities on earnings or what have you?

Well as companies go, really don't have that much commodity exposure. As we think about our utility businesses, commodities is a passthrough both on cost and on volumes. So the commodity exposure we have really is tied to our one LNG contract, which we buy gas from Indonesia and we buy it at discounts at the California border price. When we do that, we obviously deal with the consequences, when gas prices drops as it has and we also have upsides when it goes up. I just don't have any confidence that we are able to predict gas prices for the next five years. We have a little bit of gas exposure in our natural gas fleet as tied into the DWR contract but that contract is expiring end of next year. So when you look at us as a commodity play, we really don't have much commodity exposure.

Okay, so-- okay and then just in general, I know you guys are going to be giving more detailed guidance regarding 2011 in February, but could you give me some sort of a sense on the tax rate that you guys are thinking about for 2011?

Well it-- this is Joe Householder. It'll be roughly in the low 30%, close to 30%, 31%, 32% for the consolidated group in 2011.

Okay, thanks a lot.

Thanks, Paul.

And our next question comes to us from Greg Gordon from Morgan Stanley.

Thanks. A couple questions. Just to be clear, the $0.06 to $0.07 per $1, that's across the whole Company so that includes sort of your exposure in the small remaining merchant power exposure you have in California and the LNG, is that right?

That's correct.

Okay, second question, and can I infer and I know you're going to wait to give us more details in February or March when you give us your updated outlook, but that a little less than half of the expected reduction in guidance just comes from the timing of the completion of the solar plant?

That's correct.

Okay, and my final question, I know that ultimately the Board is the final arbiter in terms of deciding whether to allow you to repurchase more shares and/or change the dividend policy, but given where you are in looking at that data that you've been given, the fact that the Company's meaningfully derisked, assuming the rest of the sale, the trading business plays out as forecast, what is the opinion of Management that we should expect to be given to the Board with regard to the dividend at this point?

Well I would just thank you for a nice attempt there, Greg, but I'm not going to front run the Board here on these discussions. But I would just say that it's pretty obvious that we have a very aggressive capital program. We have not overlevered the Company. And as we look forward, I mean we're also sensitive to what investors are looking for in this market, and so our plan is to just sit down with the Board as we have just started and walk through the issues and as we do that, factor in investor sentiment and-- but when we stand back and look at this, we are in a long-lived asset business and we tend to make decisions based upon the next 15 to 30 years for these projects we're building and we want to make sure that we have the balance sheet to support the activity that we're involved in, and to the extent that we can also be sensitive to what investors are looking for in the short term, we'll factor that in.

Thanks, Don.

Thank you.

And we'll take a question from Ashar Khan from Visium Asset Management.

Good afternoon or good morning. Just wanted to go back if I'm doing my math right. If the mid-point of the guidance previously was around $4.50 and we take the mid-point of the $0.35 to $0.45, that's $4.00, am I fair to say that it's like a $4.10 revision if I'm taking the mid-points?

Well your math is correct. I would just say this, that we are right now actively looking at what we plan to do and what we think the outcomes will be for 2011. I think what Mark was trying to do was to make sure that those of you on the outside looking in at Sempra had a sense that the guidance that we previously gave you is going to be impacted in the downward direction. I couldn't tell you within $0.10 how correct that is because we haven't completed our work yet, but it will be lower than what we previously gave you guidance for.

Okay. And I'm just mentioning that 8% to 9% growth rate that you kind of mentioned in the call, if I'm right, that is from the base of the 340 this year. Am I doing my math right?

Well, what I was thinking about is when I look at the guidance that we end up giving you in 2011, which I think will be in the low $4 range, that building off that we're growing at about 8% to 9% a year over the next five years.

Yes, Ashar I would just mention that probably the growth between our core earnings after adjustments for kind of one-time charges, our core earnings in 2010 growing into 2011 will probably be more still in the double-digit range.

Okay but the new base I just heard is that the new base is 2011 and we can grow our EPS by 8% to 9% from that level.

That's pretty correct.

Okay, thank you so much.

Thank you.

And now we'll hear from Craig Shere from Tuohy Brothers Investment Research.

Hi, Craig.

Hi. Thanks for the call. Just two quick questions. Want to get a better sense of what specifically is feeding into the delays for Mesquite Solar and see if this is in any way a potentially ongoing issue with other potential renewable rollouts? And secondly, just drilling the gas prices, wondering if you all can comment about the impact on gas storage from the combination of low, flat and less volatile gas prices?

Well, let me take your first question. And I-- the delay in Mesquite Solar is strictly the backlog at the Public Utility Commission and having a chance to act on this contract that's been-- that's gone through all of the processes with PG& E. And it's more than just getting PG& E to sign but it's making sure that the price that they've negotiated with us meet all of the relevant tests. So this is a timing issue driven by a kind of gridlock of some magnitude at the Commission who is in the process of looking at both new projects and repricing of old projects. And we had thought that we would have a faster approval process through PG&E and the Commission, but it's just it is what it is. It's one of timing.

We have a portfolio of projects that we are bidding into different utilities here in California and in the Southwest. And it's just my expectation going forward that we're going to develop or buy into between 100 and 200 megawatts a year renewable projects, and the thing that we can't predict is the exact timing of when those will come on line. Let me ask Neal to address your question about Storage.

Well there's no doubt now that the storage prices are down a little bit compared to what they've been. On the other hand one of the things we've seen in the commodity markets is that the volatility in these things eventually is driven by the ups and downs of drilling and so forth. And so our long-term view about Storage, given the potential for volatility in the North American gas markets, is still pretty good. And I'd make one more comment about the Storage. When we look at our outlook for our Storage assets, including factoring in some impact of the current prices and what we think we'll make from those assets in a few years, these Storage assets stack up very well compared to some of the recent public offerings that have been done in this area.

Are you finding that it's easy to lease out space on Storage at lower margins say two to six turn agreements versus people really looking for ten to 12 turn to take advantage of the volatility?

Well I'd go back to what, excuse me, I'd go back to what Don said earlier about these being 15 year assets, and once again, there's no doubt that in a one or a two year time frame that based on the current markets that certain contracts are going to be preferred by people compared to other contracts but when you step way back and look at the basics, the value of the salt dome storage that we have and the ability to provide a lot of turns and provide a lot of value to the customers is long term the right way to go in this business.

Great. Thanks a lot.

Thank you.

Our next question comes from Leon Dubov from Catapult.

Hi, good morning.

Good morning.

Can you guys talk more about the sensitivity to gas prices that come just from the Tangguh contract on the Mexican facility, not together with the Generation?

Yes, the answer to that is I can't tell you much more because I think we haven't disclosed the exact pricing on that, but what we have said is that it's 500 million cubic feet a day and we get a discount to the Cal border price as part of, but not entirely, but it's part of our overall compensation scheme for use of the terminal. And that does have an effect on the earnings of the Company overall. But-- and then the DWR contract is the other component and that's really all I can really tell you about it but I think you certainly have the metrics to kind of do the measurement, it is $0.06 to $0.07 per $1.

Okay. And is it fair to assume that that contract remains roughly the same going forward, so we should think of the same pressures kind of going into 2011?

Yes, it's a 20-year contract, so it'll be going forward for some time.

Okay.

Well the terms are the same, so as gas prices stay at this we'll have the same impacts next year.

Okay. And can you guys also talk to us about kind of a core EPS growth rate that maybe excludes some of the new projects that haven't been closed on or haven't been announced yet and kind of just where the existing business is expected to grow?

Well I think what I would prefer to do is give you that information in our Analyst Day and in the first quarter call because we're really kind of going through that on business unit by business unit basis and as you know, we'll give you a five year sort of look at all of our by business unit and you can kind of figure that out. But as Don said, we're expecting overall EPS growth starting from 2011 forward in sort of the high single digits, 8% to 9% kind of range and then we would expect to grow from 2010 to 2011 in sort of double digit kind of growth and I think for now that's really all we really want to comment on.

Okay. Fair enough, thank you.

Thank you.

And we have a question from Faisel Khan from Citigroup.

Hi, good afternoon.

Hi, Faisel.

On the timing of the Mesquite Solar, is that more of a tax issue or is that an operating income timing issue?

It's really more-- it's a tax credit issue. By moving the completion into the following year, it just moves those earnings into the following year.

Okay, and is it fair to say that in your-- in the $0.35 to $0.45 number for next year that there's no impact from the Storage margins or it could be low volatility in the gas market and therefore lower Storage margin?

I will say in looking at the headwind pressures that we gave you we took all of that into consideration. I mean, a lot can change I guess between now and the beginning of next year when we update our final guidance. But I think of everything we're looking at right now, I think the number that we gave you is reflective of the pressures that we're seeing and it's all inclusive.

Okay. If I'm looking at the 12 Bcf in Storage capacity that you guys placed into service, what kind of contract tenure do you guys have on those particular facilities?

Well without going into the details of the tenor, because they vary a lot over the life, they vary somewhat rather in these things based on when we entered into the contracts, we do have 85% of the Storage contracted to.

Okay, got you. And is that true also of your overall Storage position in the Gulf Coast?

That number I just gave you was the overall Storage position.

Okay, got you. Okay, fair enough. Thanks a lot. Appreciate it.

Thanks, Faisel.

And we have a question from Ben Sung from Luminus Management.

Good afternoon. It's actually Michael Goldenberg.

Hi, Michael.

I have a question for you gentlemen on the buyback. Now I-- we know that you did an agreement so from an accounting standpoint that's all bought back but can you give us a sense how much of the $500 million was actually purchased?

I don't think I'm at liberty to disclose that. We have our agreements with the banks won't let that out but effectively, we got the full credit of the minimum amount purchased as of the day that we entered into the contract and then we're just-- they have a certain length of time to execute and fulfill that short position that they have. And when that's done, then we'll announce how many shares in total that we bought back.

Well okay, if we go by previous, it's not the first time you've done it. Last time I think you might have done what, $700 million or $1 billion? How long did it take from the announcement to a completion?

Well we have the option to stop early and that's completely at their discretion but if they go to the end of the contract term, it's I think the first of February.

No, I guess I was trying to say is how long in the past its generally taken.

I think the last time it took four months or something like that.

Okay, so based on that--

They still have restrictions on how much they can buy per day and all of those things, so it does take a while.

And on the Mesquite Solar, just so I'm clear, even though the projects in 2013 you're going to get the tax credit in 2012 which is why the earnings benefit will be in 2012, is that the right way to understand it?

Yes, I think the way to understand that is as follows. With all of the solar projects we get as we connect to the grid, we get the tax benefits and start getting earnings and we actually connect to the grid as we're assembling the facility. So it's fairly constant once we start construction.

Understood. Okay, got it. Thank you very much.

Thanks, Michael.

And we have a question from Michael Lapides from Goldman Sachs.

Handful of questions. Actually, on the utilities, one, at San Diego Gas & Electric, has anything changed dramatically since the Analyst Day regarding capital spending projections and rate base outlook? I'm just trying to true up a little bit for the out of state renewable project you guys announced a few months ago?

I don't think so. I think they're pretty much on their plan for spending this year.

Okay. Second question, at SoCalGas, can you-- what is the earned ROE year-to-date so far?

I don't know it off the top of my head. Can I get back to you on that? I don't know it off the top of my head, don't want to give you a bad number.

Okay. Yes, I was just trying to true up because last year if I remember from the statistical guide you all had posted pretty healthy returns at SoCalGas and I'm just trying to true up last years' numbers to this years' numbers given the rate base growth that's occurred over the last 12 months.

There hasn't been anything really substantially different. Debbie?

Yes, last year we earned about 17% ROE, and we're kind of pacing about the same level as last year, so.

Got it. Okay, thank you.

Thank you.

And we'll take a question from Neil Stein from Levin Capital.

Yes, hi. Good afternoon. I had a question on your new 8% to 9% growth rate off the 2011 base. Is that predicated on maintaining the current dividend pay out ratio or could you still achieve it even if your rebates did higher [say to staying] closer to the industry average?

Well, as Don says we don't want to front run the Board on this but our-- because we have a relatively strong balance sheet compared to a lot of players in the industry and we-- but we still have a fairly robust capital program, there is certainly room in our credit statistics to increase the dividend and to a somewhat higher pay out ratio and not affect our credit statistics and not affect our capital program.

Okay. Then another question. Just the Mexican pipeline joint venture, how much were you going to invest in that in terms of capital?

It was about $300 million.

And did that assume a debt financing or was that $300 million just from the parent Company?

Well it's $300 million from the parent Company, we may have financed it at the parent or we would of-- or actually to tell you the truth because it's Mexico, we would have used-- we have some cash offshore that we would have used offshore cash from our South American assets.

Is-- could you make any-- or could you say anything about in terms of that capital I guess it's just sitting there now, what we should be thinking in terms of use of proceeds or use of that capital?

I think we're pretty excited about some of the opportunities that are out there both with our partner which wants to stay in the joint venture and do other things and then just other opportunities that we're looking at. And, Neal I just-- you could maybe give some color to that?

No, I think we've demonstrated here that we have the ability to invest well in Mexico and invest internationally and so I think that there will be good opportunities across a broad front to spend that money. I think maintaining an intelligent tax approach to-- or an intelligent approach to the repatriation of money is one of the things we do relatively well.

And when you take the-- when you give that $0.35 to $0.45 range of pressures for next year, do you assume any potential alternative uses of cash in investing in lieu of investing in that pipeline?

No, we didn't assume anything and that's some of the upsides that might be able to offset some of those things.

Okay.

It's probably-- it's unlikely that those things could be invested and returned quick enough to make a big dent in 2011 though, I will say that.

Presumably a share repurchase or the incremental share repurchase is not one of those use of proceeds?

Well, I wasn't-- I was thinking about other types of growth investments. I wasn't really focused on that. I suppose we could do that too.

Okay, thanks very much.

Thanks, Neil.

And we have a question from Leslie Rich from JPMorgan.

Can you just go over how that share repurchase works and why the $500 million wasn't reflected in your share count? Is that because as the banks actually repurchase the shares it sort of-- as it settles it'll be reflected in your share count?

Okay, yes the amount that was reflected in the count was 5.6 million shares and that will be reflected in the Q.

That was the initial amount that came from the accelerated stock repurchase, the remaining shares did not come in during the quarter.

I think, Leslie, I think the thing that you're seeing is that it came in very, very late in the quarter, so it didn't have much effect on EPS.

Okay. And then just secondly on your GRC filing, any idea sort of what the magnitude of that filing will be, the ballpark range or you haven't really flushed that out yet?

Well we didn't announce, that was in the NOI.

Yes, we made a, this is Debbie, we made a filing that would have about a 7% rate increase at each of the utilities compared to our 2010 rate. And we'll flush that out with our full application filing in December with the details on that. And then we'll be going through the typical process of hearings and all through 2011 with expecting a decision at the end of 2011.

That 7% rate increase is what in terms of dollars roughly?

We'd have to get back to you on that.

We'll get back to you on that, I don't know what it is off the top of our heads.

Okay. Thank you.

Thanks, Leslie.

And we do have a follow-up question from Ashar Khan from Visium Asset Management.

Thanks. Just going back, Mark, that we lost like about $0.15 as you said from the strip, but how do those earnings get made up over this horizon, because Don said you're going to have a pretty good growth rate. I'm just trying to see what's helping us to makeup those $0.15, is that we have a higher rate based growth from the (inaudible) or some other projects? Or that the great-- or the growth rate was going to be higher I guess than 8% and 9% and just coming down. I'm just trying to get a better sense of what the fall off is being made up by.

Well, some of it was we were going to have a little bit higher growth rate, but also the big impact of gas prices is frankly in the 2010 outlook as the further out on the curve you go, it hasn't been as dramatic. It's been only about half to a third as much of fall off, so you still have a fairly robust numbers out there and hopefully those hold. But at-- the other part of it too is we do have still a robust capital program and we would just assume that we're executing on that capital program and are growing our earnings in the way that we always have.

And if I could just end up with how much of DWR earnings are there this year or I guess next year or this year if you could just, because you have coursed the gas contract has lowered those, but how much of DWR earnings are there on the fully annualized basis for this year? Could you just remind us?

I'm not sure. I don't think we've ever really disclosed that, but I will say that the DWR contract ends in September of next year. And at that moment, and this is already contained in all of our forward numbers, we expect fairly minimal earnings out of our Generation fleet absent getting into another contract. But what's in our current plan now, is very, very small earnings from the Generation fleet after the DWR contract.

Okay, okay. So then that would imply that then we have a higher rate, growth rate in 2012 versus 2011 because 2011 we get hit for the DWR contract, is that fair?

With respect to Generation, yes 2012 will go down from 2011 but we make it up in our other businesses. And again we'll give you more detail on that in the first quarter.

Okay, thank you so much.

Thanks, Ashar.

And we have a question from Vedula Murti from CDP US.

Good afternoon.

Hi, Vedula.

Hi. If I look at slide eight, I just want to make sure I'm thinking about this properly. In terms of the anticipated proceeds, now I'm not double counting here when the $1.8 billion to $1.9 billion, that's incremental and distinctly different from what you've already received in terms of the $1 billion, correct?

No, no, you are double counting. Actually, I think the best thing to do is if you just look at the balance sheet, you see the investment in RBS, the investment in the joint venture, it's $825 million, that is what we're going to be collecting going forward.

Okay, so then just when we think about--

We've collected more than (inaudible) already.

Call it that $800 million to $900 million, should we then basically assume that that will basically go into the capital program and would basically end up earning your weighted cost to capital-- cost of capital program and that would offset incremental debt financing and/or if they were-- had for some reason would have been any future equity needs that that would obviate those as well?

I don't think that would be a terrible way to model it although I would-- I can save you the trouble if you can wait until the first quarter we'll give you a more complete outlook. But that-- those funds will go into the programs that we previously announced which include our capital program, the buyback of stock, whatever we do with the dividend, all of those capital uses, those monies will figure into that.

And in terms of the initial $1 billion [so to speak], obviously $500 million has been earmarked for repurchase and is in motion. Should I have assumed that the other $500 million just took down short-term debt or some other type of debt instruments right now?

That's correct.

Okay. Al right, thank you.

Thanks, Vedula.

And we have a question from Reza Hatefi from Decade Capital.

Thank you very much. Just a couple follow ups going back to the natural gas sensitivity. Is it like you mentioned $0.06 per $1 or so, is that sensitivity kind of stayed constant even if we look out to 2013, 2014 or are you kind of more sensitive in the near term but-- or less sensitive in the near term, or how should we think about that?

Well the near-term sensitivity is much more predictable because it's entirely tied to contracts. Long-term sensitivity is probably roughly the same although the expect on the Generation fleet is a little bit harder to measure because gas prices will affect spark spreads and such, and so it's a little bit more fluid but it's probably ballpark it's in the same area.

And I guess with natural gasses down a lot and volatility kind of down, is the Storage, I guess Pipeline & Storage was supposed to be a big growth driver from 2010 through 2014, how should we think about that given just the way the natural gas has evolved over the past few months?

Well I think, I'll let Neal comment on some of this, but generally speaking with respect to the plan, the Pipeline income is fairly well contracted for us, so that-- we don't expect a lot of changes there. With respect to Storage, the terms of those contracts tend to be shorter and we do expect some sort incremental earnings just from the utilization of those assets and sort of optimizing the value of those. We have dampened that down somewhat and its been reflected in the numbers that we've been talking about today, but I still think that we expect as we build-- look our Storage isn't going to be totally built out to 2014 anyway, and where the world will be at that time I don't think we really know yet, but Neal you-- ?

Well as-- you made the key points that 2014 is-- a lot can happen in the natural gas markets between now and 2014 and we're at the very early stages right now of building out our Storage. So yes, we expect good earnings growth in this business.

And then just lastly on ROEs, I guess in the long term sort of you pointed to 8% to 9% earnings CAGR. Is it fair to assume that your ROE expectations in California are sort of consistent with what you said at the Analyst Day last March somewhere in the low teens?

That's correct.

Okay. Okay, great. Thanks a lot.

Thanks, Reza.

And we have no further questions at this time. I would like to turn the call back over to Mr. Don Felsinger.

Well once again, thank you all for joining us for this third quarter earnings call. If you have any follow-up questions don't hesitate to either give Steve, Glen, or Scott a call. Have a great day, everybody.

Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.