桑普拉能源 (SRE) 2010 Q4 法說會逐字稿

Good day and welcome to the Sempra Energy fourth quarter 2010 earnings conference call. Today's conference 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 fourth quarter and full year 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; Neil Schmale, President and Chief Operating Officer; Mark Snell, Executive Vice President and Chief Financial Officer; Joe Householder, Senior Vice President and Controller. And participating via telephone is Debbie Reed, Executive Vice President.

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 of 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. On today's call I'd like to accomplish several things. First, start with a review of our fourth quarter and year-end financial results. And then talk about our dividend increase and how this aligns with our increasingly predictable earnings. And then finally, I'll give you an operational update on our utilities and our Infrastructure businesses.

To the financial results, earlier this morning we reported fourth quarter earnings of $280 million, or $1.15 per share, compared with $288 million or $1.16 per share in the same period last year. If you exclude the results of Commodities, whose assets have now been sold, earnings per share for the fourth quarter rose 34%, to $1.18 per share, from $0.88 per share in the fourth quarter of last year. And for the full year 2010, we recorded earnings of $739 million, or $2.98 per share, compared with 2009 earnings of $1.12 billion or $4.52 per share. When you exclude the results of Sempra Commodities from both years, earnings per share for the full year rose 14% to $3.61 per share in 2010 from $3.16 per share in 2009. Our core businesses performed well in 2010 and our earnings from those businesses exceeded our guidance for the year. With regard to the dividend, I'd like to mention that Tuesday morning after our Board meeting, and approved such, we announced a 23% increase in our quarterly dividend which brings the annualized dividend to $1.92 per share. Exiting the commodities trading business marks a new chapter for Sempra. We have narrowed our strategic focus, reducing both our risk profile and earnings volatility while leveraging our core strengths. This has allowed us to significantly increase our dividend and be able to grow the dividend while still reinvesting capital for future growth.

Now let me hand it 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 fourth quarter were $105 million. That's up from $67 million in the year-ago quarter. The increase was primarily due to $16 million higher margin, a $16 million benefit from the partial recovery of increased wildfire insurance premiums, and a $9 million from the favorable resolution of prior year's tax matters. Full year 2010 earnings increased to $369 million from $344 million last year. The increase of $25 million was due primarily to higher margins, partially offset by higher litigation reserves.

Now, moving to Southern California Gas, fourth quarter 2010 earnings were $74 million, compared to $75 million in the fourth quarter of '09. For the full year 2010, earnings for this business were $286 million, up from $273 million in 2009. The increase was primarily due to improved operating margins.

Now let's go to slide five. Our Generation business recorded earnings of $43 million in the fourth quarter of 2010, compared with earnings of $45 million in the same quarter 2009. The fourth quarter of 2010 included lower earnings from operations, and a $6 million loss on the sale of our 50% interest in the Elk Hills power plant, offset by higher renewable energy tax credits primarily from the Copper Mountain solar project. For the full year 2010, Generation recorded earnings of $103 million, compared with earnings of $169 million in 2009. Results for 2010 reflect an $87 million charge related to the settlement of energy crisis litigation, $31 million of lower earnings from operations, primarily due to increased scheduled maintenance in 2010, offset by $48 million higher renewable energy credits primarily from the Copper Mountain solar project.

Now let's move to slide six. Sempra Pipelines & Storage recorded earnings of $39 million in the fourth quarter of 2010, compared with earnings of $37 million in the same quarter of 2009. The current quarter included $6 million of higher earnings from operations, offset by a $5 million write-down of our investment in Argentina which was net of related tax benefits. For a full year 2010, Sempra Pipelines & Storage recorded earnings of $159 million, compared with earnings of $101 million in 2009. The increase was primarily due to a $64 million write-off of our Liberty Gas storage assets in 2009, and a $13 million favorable resolution of prior year tax matters, also in 2009.

Now please turn to slide seven. Sempra LNG had earnings of $18 million in the fourth quarter of 2010. That compares with earnings of $35 million in the prior year's period. Earnings in the fourth quarter of 2009 were higher due to payments from customers for contracted cargoes that were not delivered. For the full year of 2010, Sempra LNG had earnings of $68 million, that's up from earnings of $16 million in 2009. The increase was due primarily to a full year of operation in 2010. You'll recall that our Cameron LNG facility became operational and our supply contract with the Tangguh Partners for the energy at Costa Azul LNG facility became effective in the second half of 2009.

Now let's move to the next slide. As Don stated, our Board authorized a 23% increase in the dividend. This takes the dividend to $1.92 per share on an annualized basis, up from our current annualized dividend of $1.56 per share. Going forward, we plan to target a 45% to 50% payout ratio.

Now for an update on our share repurchases. The $500 million accelerated share repurchase program that began in 2010 will conclude by the end of this quarter. You'll recall that at our analyst conference last year, we assumed $750 million of share repurchases, and we still may do that if it looks prudent to do so. However, given the South American acquisition and other opportunities, it will likely be later this year before we make a decision on future buybacks.

And with that, I'd like to turn it back over to Don who will begin with slide nine.

Thanks, Mark. Now let me update you on some key activities with our businesses, and I'll start with our California utilities. In December, San Diego Gas & Electric and Southern California Gas Company filed their general rate case applications. Like our last rate case, we are seeking to set rates for a four year cycle. The general rate cases will establish the revenue requirements for 2012, and we requested attrition mechanisms to adjust the margins for the years 2013 through 2015. The requested increase for 2012 at each utility is approximately 6% over present rates, and the attrition mechanisms would result in expected annual increases of 3% per year for the following three years. And also, the rate case plans call for new rates to be effective January 1, 2012.

To update you on some of the major utility capital projects, at San Diego Gas & Electric, construction is progressing as planned on the Sunrise Powerlink project, and we remain on track to complete this project in the second half of next year. Turning to our smart meter programs, at SDG&E we've now installed approximately 2 million meters and we're on schedule to complete all installations by the end of this year. And at Southern California Gas Company, installations of meters are scheduled to begin late next year.

Let's go to the next slide. At Sempra Generation, the 48-megawatt Copper Mountain solar project in Nevada was completed in December and the power generated by the plant is sold under a 20 year contract to Pacific Gas & Electric. The next solar project that we plan to start building is Mesquite Solar. This project is located near our Mesquite natural gas-fired plant outside of Phoenix where we have enough land to ultimately develop up to 700 megawatts of solar capacity. We have an agreement to sell the power produced by the first 150-megawatt phase of the project to PG&E under a 20 year contract, and that contract is now pending approval from the CPUC. As you may have seen, we've now selected the technology supplier and the EPC contractor for the project and expect to start construction later this year. Completion of all 150 megawatts is anticipated to be done in 2013.

Construction continues on the Cedar Creek II wind project which is a 50/50 partnership with BP Wind Energy. This 250-megawatt project located in Northern Colorado remains on schedule for completion mid this year. The power produced by the facility will be sold under a 25 year power purchase agreement with Public Service Company of Colorado. And finally, at the end of last year, we sold our 50% interest in the 550-megawatt Elk Hills combined cycle plant to our former partner. We received proceeds of $175 million or $636 per kilowatt which was a good price for a merchant asset.

Let's now go to the next slide. Last month we announced the acquisition stakes in two electric distribution companies in South America, which we co-own with AEI. These were Chilquinta Energia in Chile and Luz del Sur in Peru. As many of you may remember, Sempra initially invested in these companies 12 years ago, and you may recall that we previously talked about having a preference for control rather than co-ownership of these companies. Some of the attributes that we like about these investments are their strong operating performance, the sound regulatory environment, and the stability and growth of the Chilean and Peruvian economies. With four year rate case cycles, mechanisms to adjust revenues between rate cases, and the pass-through of commodity costs to customers, the regulatory construct in both Chile and Peru has many of the same positive attributes as utility regulation in California.Chilquinta and Luz del Sur have achieved returns on equity in the mid teens or higher, and have grown earnings at a double-digit pace annually. This $875 million acquisition is expected to be accretive to earnings per share by $0.15 this year and $0.22 in 2012. Closing of the transaction is expected next quarter pending regulatory approvals and the resolution of certain tax matters.

Now let's go to the next slide. Let me just summarize where we ended up. I'm very pleased with the results of our core businesses for both the quarter and the year. Excluding Sempra Commodities, earnings per share for the year increased 14% in 2010 to $3.61 per share. We had several key accomplishments which include the successful exit from RBS Sempra Commodities joint venture, the start of construction on the Sunrise Powerlink transmission project at SDG&E, the completion of Sempra Generation's Copper Mountain solar project which currently is the largest solar photovoltaic plant in service in the US. And finally, the announcement of an accretive acquisition of electric utilities in Chile and Peru.

As I said in my opening remarks, our Company has reached an important milestone. We've met all of our key financial and strategic objectives, which includes, one, reducing our risk profile with the exit of Commodities. Two, redeploying cash with a higher dividend payout and the buyback of our stock. And third, a greater focus on utility and contracted energy infrastructure investments. We'll provide an update of our key initiatives in this area and discuss how our strategy alliance with policy and market trends at our upcoming conference in New York on March 23. And as always, we'll provide more detail on our earnings outlook and capital programs at that time.

But with that, let me stop and open up the call and take any questions that you may have.

Thank you, sir. (Operator Instructions). Our first question comes from Faisal Khan with Citi.

Good afternoon. On Sunrise, can you just give us actually more of a detailed update of where you are? How much has construction progressed so far in terms of percentage terms and how much is left to go? How much capital has been spent?

Let me have Neal take you through what we have spent to date, what we spent last year and what's remaining.

Through the end of 2010, we spent around $600 million on Sunrise. And the total project cost is estimated about $1.9 billion. We're in the field right now, constructing that project, and anticipated completion date is in the middle of 2012.

Okay. Got you. And can you also remind us when you dropped Eldorado into rate base, what exactly will that book value be when you drop it into rate base?

About $200 million.

Got you.

It will happen the end of this year.

End of this year? Okay. And then last question from me. The AEI transaction, $875 million, how are you guys financing that? How much is equity and how much are you guys raising in debt to finance that transaction?

I'll have Mark give you the answer but basically we're just taking some of the cash we have off-shore, money from asset sales and we'll probably end up doing a little more debt financing than we have in that country. Mark, do you have a breakdown?

I think that's, generally speaking, correct. We had a lot of off-shore cash with the sale of the commodities business. We're using that. We're using a little bit of in-country financing and we really have no anticipation of using outside equity or issuing any equity to finance it at all.

Is it fair to say 60% equity, 40% in-country debt? Is that fair?

You mean as far as the final capital structure at those underlying entities?

Or just for the $875 million.Did you have that much cash off-shore? Do you have $875 million?

Yes, we do have, actually, almost that much cash off-shore. But ultimately we will probably not spend it all. We will do some but probably no more than about 30% debt.

Got you. Thanks.

Our next question comes from Leslie Rich with JPMorgan.

Mark, you had talked about getting some collateral back from the commodities sale in 2011. Is that still the plan or it all came back in 2010?

We did get some back in 2010. We still have more money to receive in 2011. On the balance sheet, we have $787 million as of the end of the quarter. And we expect to collect that ratably over the 2011, on a quarterly basis. And that both represents collateral that's been posted, proceeds from the sales and then we have certain assets that are running off. Most of those have done that now that we were still holding. But we should get that money pretty ratably over the year.

Is it safe to say, Mark, that the $787 million is a minimum we expect to receive?

It is. We have a couple assets that we may get more money for. They're relatively small amounts but I think, generally speaking, we think this is -- we wrote the investment down to what the net realizeable value that we think we'll get, and that's what's left. And that's where we are. I would point out, though, I think what people lose track of, remember, this was an investment that we made 11 years ago for about $250 million. Really didn't pull any -- we had great earnings but didn't pull a lot of cash out of it. But over the last couple years now we'll have pulled out about $3.6 billion, which is a fairly impressive amount.

I'd agree with that.

Any more questions, Leslie?

Yes. On your target capital structure, Mark, you had previously said 50/50 debt to cap. Now that your business model has changed, and you're much more highly regulated and stable earnings, are you rethinking that capital structure?

We think about it all the time. I'll defer part of this to our analyst conference because I'll give more detail on where our capital structure is going to go. I will say, though, that in summary, we will still be roughly around 50%. Our leverage actually over the next couple years will go up just very slightly, 51-ish kind of percent. But, to be honest, I focus less on the actual capital structure, the debt to equity ratio, than I do the cash flow coverage ratios. And that's really what we manage here more because that's what the rating agencies tend to look at more for us. It's probably a better indication of our financial strength. And the capital structure falls out of that. But I think you're right. As we become more predictable earnings and the utilities play a bigger part, and our contracted earnings play a bigger part in our net income, we're able to be a little more leveraged than we were before. We actually were at one time as low as 47% leveraged and now we're going up over around 51%.

Okay. Great. Thank you.

Next up we'll hear from Michael Lapides from Goldman Sachs.

Yes, one or two other cash questions and then a utility one. Taxation, the difference between GAAP and cash taxes, what are you expecting in 2011, or what's embedded in guidance?

Joe, you want to -- ?

Sure. Hi, Michael, this is Joe Householder. So, on a GAAP basis, for 2011 we would expect a GAAP tax rate around 28%. But now with the bonus depreciation enactment in December, and our solar investments and so forth, we don't expect to pay any real cash taxes for several years. We'll have a tax rate on GAAP but no cash out.

Got it. And at the utility, when we look out past Sunrise, what do you guys see as next, I don't want to call it major projects but $100 million, $200 million-plus project opportunities that are out there for either SoCalGas or San Diego Gas & Electric.

I think there are two things that are looming out there. One is at SDG&E, we are still struggling to get developers to build renewable projects to meet what I think is going to be a 33% renewable target. And so we may have to have the utility step in and do some investments in that area. And I just think with the events in California around the San Bruno explosion and some of the other pipeline incidents that have happened recently in the US, that there's going to be a push to do more pipeline integrity and upgrades in California. So I would expect those two to be the major things that we would have for the utilities beyond the current financial period. The five-year period.

You generally have been hesitant to build Generation within the utility. Is building renewable simply just trying to fill a spot that the market's not filling already?

We have found that we are good at signing contracts with developers but developers aren't very good at being able to raise the money and make it happen. And so I think we see ourselves as the builder of last resort. And if California stays on this path to get to 33%, we very much will have to step in. And when you look at the other utilities, don't forget about the fact that we have utilities in South America and we are building a small hydro project in Peru. But I would expect that we will look at opportunities in South America to deploy capital in those utilities also.

Got it. Thank you. Much appreciated.

Next up we have Paul Patterson with Glenrock Associates.

I wanted to touch base with you on a couple things. First of all, just the buyback -- and I'm sorry if I missed this. How much is left in the buyback between now and the end of the quarter?

Mark Snell.

Yes, this is Mark. We'll be finished with the $500 million by the end of the quarter. I obviously can't tell you exactly how many shares they have left to fulfill, but we've been told by our agent that's handling this that they'll be finished by the end of the quarter, this quarter. And then beyond that, as I said in my prepared remarks, we had originally planned to do $750 million at the last analyst conference, last year. We still obviously have the authorization to do that but we're going to wait until later in this year to look at what our other investment opportunities are before we commit to anything.

Okay. The South American acquisition, just to make sure I understood your answer to Faisal's question, it sounded like you were going to finance the $875 million with cash on hand and about 30% debt. Is that right?

Yes, it's cash on hand and debt. Initially we financed it with short-term borrowings and now we're fixing those into more long-term borrowings as we go forward.

Okay. But just in general, when we look at the accretion number, what should we think about? Should we think about the cash on hand was going to earn? Is that how we should think about it?

Right. The difference is the investment in these utilities versus just paying down debt. But I think we did that math for you. We told you it's $0.15 accretive this year and about $0.22 next year.

I just was wondering what that was based on. I appreciate it.Just in general with this acquisition, and just in general philosophically, how are you going to manage the currency fluctuations, if you are? And how comfortable do you feel in terms of how big you get in international? Is this an area where we're going to see potentially a lot more acquisitions? Or just the flavor for how you feel about the international arena, which has had mixed results for different utilities.

Let me go first and I'll just take the strategy. When you think about the amount of money that we have invested internationally, we've got about $2.5 billion invested in Mexico and with this acquisition we'll have about $1.5 billion invested in South America. That's about 20% of Sempra's total overall investments. We like the spaces that we're in. As I mentioned, in South America, we've been there 12 years in Chile and Peru. We really like the regulatory schemes that are in place. And the opportunities to invest there are things we feel pretty comfortable in. We will get bigger there but from the standpoint of is that our primary focus, it's not. You look at our capital program, the majority is invested here in the US, in California. From the standpoint of how we manage those currencies, let me have Mark take that question.

The first thing to point out is that the regulatory construct in both Chile and Peru, our rates have inflationary indexes in them that allows for adjustments in rates for inflation. That doesn't necessarily always correspond dollar for dollar to the currency changes, but it is an approximation. So it alleviates the wildest swings in currency affecting us. Generally speaking, we won't hedge revenues or that kind of thing. Now, that said, we do on occasion, on specific types of items where we have currency exposure, and in Mexico, we have an odd tax situation because of the way the Mexican taxes work, that we do have certain exposures that we hedge from time to time. But they're relatively small. And so I don't think you're going to see us, as a matter of course, do large currency hedges, because I think we have built into our regulatory structure a natural hedge that's built into that.

Okay. Great. Now, finally, the DRA put out a report on the cost of renewables. I think they were supportive of the renewable goals, I think, but they were concerned about the cost that some of these renewable projects are costing.And I was wondering if you had any thoughts about that, any general thoughts, because we are talking about a pretty heavy goal here of 33%. And just in general, if you could give any flavor as to how you see things potentially, how you guys are situated versus others with respect to that issue. And just if you could address the topic and just, generally speaking, how you think about that, the issue of cost and these renewable mandates.

Well, first of all, there's no doubt that --

That's Neil Schmale speaking.

There's no doubt the cost of renewables is greater than the cost of fossil-fired generation right now, particularly with where gas prices are. On the other hand, the state of California has taken a policy objective to increase the amount of renewables and increase conservation. And we're proceeding in accord with that policy objective. I would offer the comment that the price of renewables is coming down. I think people realize that in order to get these kinds of projects going, perhaps a little bit of a premium would have to be paid in the early stages. But I think over time the cost of renewables are going down and I think the Public Utilities Commission has been pretty thoughtful about the way they're approaching all of these issues.

I'd just follow up on what Neil's saying. From the time that we started investing in both wind and solar panels, we have seen the price come down each year, and probably come down even more as we've seen the world economies soften. I think there's a certain amount of frustration that they're not coming down as fast a as maybe some of the consumer advocates would like to see them come down. But we are seeing reductions and I think we will continue to see reductions as we continue to implement more and more wind and solar here in the US. Not much else I can add to that, except this is really a long-term strategy for the states that are doing it. And I think California is sticking to the course that we are going to move to have a substantial amount of our energy supply come from renewables and that's the plan we're on.

Okay. Thanks a lot.

Next we have Ashar Khan with Visium Asset Management.

Good morning. How are you doing? Good areas on the dividend, appreciate it. Can you give some perspective, there's a little bit of confusion as analysts have projected you guys going forward. Could you elaborate about a growth rate, what you expect in the next five years with this year as being a base? And then a follow-up question, I don't know if you can give us some light on it or not, is can we expect some growth as you've done these acquisitions and as you're looking towards utilizing the remaining part of the buyback? Is there some growth next year? I'm trying to understand is '11 a good year from which growth can start going forward every year?

We're going to cover a lot of this when we meet in March in New York. But let me have Mark give you a highlight of some of those issues you've raised.

I think, again, we will go into detail in this at the analyst conference. I don't want to take all the wind out of that. But we do have a $15 billion capital program over the next five years. We are going to continue to grow from this 2011 base. I think that you're going to see growth that is in the top quartile of our peer group, and along with that we're going to be paying a much more competitive dividend. And I think the details of that will flush out for you when we do it by business unit and as we normally do it at the meeting.

And what is the quartile growth rate that you look at your comps?

(laughter)You want me to do all your work for you. I think the average gross rate for the utilities is something around 3% or 4%.And we'll be better than that. We'll be more in the 6% to 8% range.

Starting with this year as a base, right?

Yes, or you could start next year.Last year, we'll be a little better.

Okay. Thank you so much.

Next up we have Craig Shere with Tuohy Brothers.

I think three companies that have LNG terminals domestically have talked about the possibility by 2015 through the end of the decade, converting those, in whole or in part, to export capacity. Do you have any thoughts on that for yourselves or for the industry?

There's actually four. There's four in North America that have gone to the FERC and asked for, seeking approval to build liquefaction facilities. We have not made that leap yet. We're looking at it. What we have done at our US facility, we've asked the FERC to give us the ability to export so we could take existing LNG out of the tank, as necessary, and move it out of the country. And we recently did some export of LNG out of our Mexican facility. Liquefaction facilities are very expensive endeavors and so you would have to believe long-term that US natural gas prices are going to be depressed to the point as compared to the world market that this would make sense. And we would only do this if we, in fact, could get people to sign long-term contracts to bring their gas to our facilities to be liquefied. We have found no such entity yet. When we do, we will seriously consider it. But that market's not there yet.

Understood. Thanks.

We have Mark Barnett with Morningstar.

Good morning, guys. Afternoon, I guess, over here. Just a quick question. Now that the earnings stream is certainly shifting a little bit towards the regulated on the contracted side, but you mentioned in the past that there is still some US infrastructure opportunities you might be looking at, maybe a joint venture in the Marcellus or perhaps some Generation assets. I'm just wondering what your outlook is on that front now?

We like the space that we're in in natural gas infrastructure. And we just think that the trends that are currently here and will continue to be even stronger to use natural gas as the fuel for industry and the fuel for generation all makes sense. And so the investments that we continue to focus on are in that space, both pipeline, storage, other midstream, and look for opportunities. Also in Mexico, as you're aware, we did a joint venture with PEMEX last year to be in the natural gas infrastructure space with them as a partner. But that's the general area. And I think if you're going to be with us, Mark, when we meet in New York next month, we're going to have each of the businesses go through and talk about the opportunities they see in the space.

All right. And a quick question on the acquisition, that transaction, the accretion of $0.15, is that all on an operating basis or is there going to be some accounting noise?

I don't know exactly what you mean by that, but that's the net effect to our bottom line. There's no real -- I don't know --

This is Joe Householder. The only thing I would say that's different from that is there will be probably a one-time gain. We don't know exactly how much because the accounting rules require us to step up the bases of our half. But that is the operating after financing that we estimated number.

The $0.15 doesn't anticipate this one-time gain. That would be just a one-off and actually a non-cash item. We tend to ignore it.

Great. That's what I was asking. Sorry if I wasn't clear. Last quick question, just maybe an update on what you're hearing from regulators with the two outstanding rate requests.

You're talking about the rate application we filed?

Yes.

It's standard operating process, we go through, we make these filings. I think what will be key is there are several -- at least PG&E is ahead of us in the process and so the discussion and the outcome around their rate case will be somewhat instructive. But there's really nothing unusual about this application. At this stage of the process, it's all normal.

Okay. Thanks a lot, guys.

Next up we'll hear from John Ali with Decade Capital.

Hi, guys.I was hoping you could clarify something for me. I thought on the third quarter call you guys said the CAGR was 8% to 9% off '11. I just want to understand what changed in your plan.

I think actually what we said was 7% to 8%. So maybe there's a misunderstanding there. But that said, since the third quarter call we've had a slight further deterioration in gas prices along the forward curve. That's probably been the biggest effect. And then we've also -- the bonus depreciation, which the rules that came in, what that did was that lowered our -- because it's great for us from a cash flow perspective because we get a lot of cash back early. But the earnings effect of that is that the deferred taxes that result from that accelerated depreciation get offset against the rate base, and it lowers our earnings until we can find replacement investments that put that cash in. And so that is affecting our growth a little bit.

Got it. Okay. Thank you.

Next we have Michael Goldenberg with Luminus Management.

Good morning. Just a quick question on the rate case. I know you filed a proposal to delay your rate case by six months after Edison's. Can you just give us an update how that's going and whether you think you'll be doing concurrently with Edison or six months later or even more than six months later?

Michael, we had asked at one time to help the Commission with their workload to delay our rate case, and that never got accepted. So we're back, just part of the normal cycle. So there's been nothing unusual done around the timing of the rate cases for SoCalGas or SDG&E.

So you will be doing it at the same time as SC?

We will. Because it was being done at the same time, we had thought from discussions we had had with some of the staff that it would be a relief for them if we were to delay ours. And so we put a proposal together to delay ours so that they could have more time to work on Edison's and work on ours. I think they fixed their workload issue and so we're both doing these now in parallel.

Got it. Thank you.

We'll go to Faisal Khan with Citi.

Hello guys, just a follow-up question, if you don't mind. In Mexico, has there been any sort of disruptions at all at your facility resulting from some of these legal debates that go on on the LNG side?

No. A lot of this stuff is background noise that tends to be played out as a bigger issue in the media. The fundamental thing that's going on in Mexico is that there are several individuals that are trying to extort money from us over a disputed piece of land. And to that end, they have tried to use all means available to impact our permits and ability to operate our LNG facility. Every time they have tried this, both the federal government and the state government have stepped in and slapped them down, and that's going to continue. So this will eventually work its way through the system. The federal government has been very clear and explicit that this terminal is under their jurisdiction. It's strategic to Mexico. It provides Mexican customers and they're not going to let local entities or individuals that are trying to use the various systems in Mexico to extort money from us and impact the operation of this plant. This will die a natural death at some point in time.

Got you. And then just last question, on the tax rate for the fourth quarter, even if I add back the tax --

6%.

6%, right. Add back the tax credits for the renewable power, you still had a very low tax rate. Just trying to figure out what drove that lower tax rate in the fourth quarter.

Joe Householder.

Hello, Faisal. Yes, there were a number of things. As was mentioned with respect to SDG&E they had a tax audit resolution that was $9 million. The parent also had a similar benefit, about a $10 million benefit from the closure of an audit. We had a $15 million benefit from the increase in the impairment of the Argentine asset. And then lastly there was a California state tax benefit of consolidation of about $18 million which was higher than normal and had to do with the commodity sale and a lot of foreign income and US losses from writing off some of the goodwill at Commodities. So there were a whole host of issues and it drove the rate down.

Got you. For this year, the 28% tax rate, does that include Cedar Creek in terms of the tax benefits from that facility?

Yes, 28% would be the all-in rate, including everything.

Understood. Thank you very much.

(Operator Instructions). We have a follow-up from Michael Lapides.

Guys, we've seen in the market some of the companies that are both gas infrastructure as well as E&Ps consider alternatives to their corporate structure, whether it's Williams or others. Just curious, I know you guys get asked this constantly, is what you're seeing out there in the market give you pause, or give you a chance to rethink whether there's a different corporate structure that may be appropriate for Sempra?

We always look at that. But we look at it based on long-term trends. And so when we look at what is our job here to create shareholder value of the assets we own, it's whether it makes sense to keep them in the same family or put them into different families. Right now, we're paying attention to it but the structure we have we think makes sense.

Okay. Thank you.

We have a question from Leslie Rich with JPMorgan.

Mark, could you quantify the bonus depreciation in 2011 and '12?

Joe can, I think he has --

It's zero in '11. It's zero in '11 and it's going to be probably about $25 million to $30 million in '12.

I'm not sure if her question was how much is the bonus depreciation or what's the effect on it.

What is the question?

You made the comment that it wouldn't negatively impact rate base so I'm just trying to understand how much the bonus depreciation is.

The negative impact on earnings is about $25 million in '12.

And nothing in '11?

Nothing in '11. And it runs on between '12 and '15, between, let's say, between $30 million and $40 million a year. This is assuming that we have done nothing to backfill into the capital spending program. And as I mentioned, I think that there are going to be ample opportunities, now that we have the additional cash, and an opportunity to put more rate base in place without increasing customer rates to do some of these things in terms of infrastructure that are needed. Like, pipeline integrity, additional shutoff valves, renewable investments, so forth and so on. Neal, do you have a comment?

Just to add a little bit of background to the people that are on the call, what we're talking about here is the impact of bonus depreciation at the utilities, and more particularly the fact that deferred taxes eventually will be subtracted from rate base. And the impact of that is the earnings we were talking about. But to elaborate a little bit more, I think the key thing is that this is a result of us getting a lot more cash quicker because of the bonus depreciation.

How much is that?

It's a very positive thing.

When you say you get a lot more cash, how much is that? That's only the $25 million or is the $25 million is the impact on the rate base?

No, no, no, it's a lot more than that. Effectively you're basically writing off up to 100% of your capital investments in a single year. And so you're getting the tax benefit of that write-off. So if you write off $1 billion, that's $350 million of extra cash.

Big numbers.

Yes, they're big numbers.

So either I'm not making myself clear or I'm just very sick. What's the cash flow impact from bonus depreciation in 2011?

I don't think I have the number for 2011. In 2012, SDG&E's cash was about $225 million.

Another way to look at it -- this is Neal Schmale -- another way, perhaps, to look at it from a consolidated standpoint is to go back to Joe's comment that we will not be paying federal cash taxes for several years. So just if you want to compare the prior statutory rate and some assumed level of deferred, these are significant numbers in terms of the cash flow coming in.

Okay. Thank you.

I tell you what, Leslie, to the extent that we can work up and give you actual cash flow numbers, we will do that. And if not, we'll definitely do it when we get together in New York for the analyst conference.

Thank you.

With no further questions in the queue, I'd like to turn the call over to Don Felsinger for closing remarks.

Once again, thanks to all of you for taking time to join us today for our fourth quarter and year-end earnings call. As always, if you have any follow-up questions, you can get a hold of Steve, Scott, Victor. We'll see you all in New York next month. Have a great day. Thanks again.

Once again, that does conclude our conference call for today. We thank you for your participation.