桑普拉能源 (SRE) 2011 Q4 法說會逐字稿

Good day, everyone, and welcome to the Sempra Energy fourth quarter 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.

Thank you and good morning. I'm Steve Davis, Vice President of Investor Relations and Corporate Communications. This morning we'll be discussing Sempra Energy's fourth quarter and full year 2011 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 Debbie Reed, Chief Executive Officer; Mark Snell, President; Joe Householder, Executive Vice President and Chief Financial Officer; and Bruce Folkmann, acting controller.

You'll note that slide 2 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, and that we'll also be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and to table A of the financial tables in our fourth quarter and full year 2011 earnings release for a reconciliation to GAAP measures. With that, I'll turn it over to Debbie who will begin with slide 3.

Thanks, Steve, and thanks to all of you for joining us today. On today's call, I'd like to accomplish several things. First, we'll review our fourth quarter and year-end financial results. We'll then talk about our dividend increase, and I'll give you an operational update on our businesses. Now to the financial results.

Earlier this morning we reported fourth quarter earnings of $292 million or $1.21 per share compared with $280 million or $1.15 per share in the same period last year. For the full year 2011, we recorded earnings of approximately $1.4 billion or $5.62 per share, compared with 2010 earnings of $739 million or $2.98 per share. On an adjusted basis, earnings for the full year 2011 were $1.1 billion, which excludes a gain of $277 million that we recorded in the second quarter to reflect the write-up and value of our investments in Chile and Peru. Adjusted earnings per share for the full year 2011 were $4.47, compared to $3.93 per share of adjusted earnings in 2010, which is an increase of 14%. I'm very pleased with our strong results in both the fourth quarter and for the year. Each of our businesses performed extremely well, enabling us to beat the upper end of our adjusted earnings per share guidance for 2011, which was $4.30.

Now, regarding the dividend. I'd like to mention that earlier this morning, we announced that our Board of Directors has authorized a 25% increase in our quarterly dividend, which brings the annualized dividend to $2.40 per share. You may recall that last February we also increased the dividend by more than 20%. With strong and growing operating cash flows from our utility and contracted infrastructure businesses, we expect to continue to grow the dividend while reinvesting capital to achieve above average long-term earnings growth. Now, let me hand it over to Joe so he can take you through some of the details of the financial results beginning with slide 4.

Thank you, Debbie. At San Diego Gas & Electric earnings for the fourth quarter were $158 million, up from $105 million in the year-ago quarter. The fourth quarter of 2011 included $50 million of earnings related to increased wildfire insurance premium recovery for an 18-month period and $13 million of higher equity AFUDC earnings compared to the year-ago period. I'd like to point out that in December of both 2010 and 2011, the CPUC approved SDG&E's request to recover the increased cost of wildfire insurance premiums.

SDG&E has one additional request pending to recover increased wildfire insurance premiums, which we expect the Commission to approve in the second quarter. $15million of the benefit we recorded in the fourth quarter of 2011 reflects this anticipated cost recovery. Going forward, the anticipated recovery of wildfire insurance is contained in SDG&E's 2012 general rate case. SDG&E also expects to recover any costs incurred that are associated with the 2007 wildfires in excess of amounts recovered from its insurance coverage and other responsible third parties as we've disclosed in our 10Ks and 10Qs. As of the end of 2011, SDG&E has booked a regulatory asset of $594 million associated with its anticipated recovery.

Full year 2011 earnings increased to $431 million from $369 million last year. The increase of $62 million was due primarily to $31 million of higher equity AFUDC earnings, net of higher interest expense, and $28 million for higher revenues related to wildfire insurance premiums, net of the higher insurance expense. Moving to Southern California Gas. Fourth quarter 2011 earnings were $79 million compared to $74 million in the fourth quarter of 2010. For the full year 2011, earnings for SoCal were $287 million, compared to earnings of $286 million in 2010.

Now let's go to slide 5. Sempra Pipelines and Storage recorded earnings of $70 million in the fourth quarter of 2011 compared with earnings of $39 million in the same quarter of 2010. The increase was due largely to $24 million of higher earnings from our operations in South America due to the accretive acquisition we closed in April of last year. For the full year 2011, Sempra Pipelines and Storage recorded earnings of $527 million compared with earnings of $159 million in 2010. Excluding the $277 million gain that was recorded in the second quarter of 2011 related to the acquisition of controlling interest in the operations in Chile and Peru, earnings were $250 million in 2011. The increase from the prior year was primarily due to $55 million from the increased ownership interest in South America, $13 million of higher earnings from the Mexican pipeline assets that we acquired in April 2010, and $10 million from non-operating foreign exchange effects related mainly to a US dollar denominated cash balance previously held in Chile.

Now please turn to slide 6. Sempra LNG had earnings of $24 million in the fourth quarter of 2011 compared with earnings of $18 million in the prior year's period. For the full year of 2011, Sempra LNG had earnings of $99 million, up from earnings of $68 million in 2010. The increase for the full year was due primarily to higher earnings from contracted cargoes that were not delivered. Earnings in 2011 also included $18 million from marketing activities that we currently do not expect to recur in 2012. I'd also like to take a moment here to discuss our contract with the Tangguh partners to supply LNG to our Energía Costa Azul terminal. We entered into this contract in 2004, and the 20 year contract became effective in the second half of 2009. You may recall that the contract permits our counter-party to divert cargoes to other markets in exchange for a fee.

Given the wide disparity between the price of natural gas in Asia and the US, we have seen a significant increase in the amount of diverted cargoes and a resulting increase in our earnings. In light of these market conditions, we have amended this contract to provide enhanced value to both parties including certainty of cargoes for Sempra and additional flexibility for the Tangguh partners. For Sempra, this will result in more consistent earnings from that contract going forward. With that said, we currently expect 2012 earnings from LNG to be more in line with our prior guidance of $50 million to $70 million as the benefit of the contract amendment will be offset by lower natural gas prices. Over the longer term, however, we expect earnings from our existing LNG operations to be roughly $65 million to $85 million per year. As you may recall, Sempra LNG will no longer be a reporting segment starting with the results in the first quarter of 2012, and we do not expect to regularly provide earnings guidance for this business going forward.

Now please move to the next slide. Our generation business recorded a loss of $6 million in the fourth quarter of 2011 compared with earnings of $43 million in the same quarter of 2010. The loss in the fourth quarter of 2011 was due to the expiration of the 10 year contract with California Department of Water Resources, which expired on September 30, 2011; and also to a mark-to-market loss of $9 million. For the full year 2011, Sempra Generation recorded earnings of $137 million compared with earnings of $103 million in 2010. The increase in earnings for 2011 was due primarily to an $87 million litigation settlement that negatively impacted 2010 results and due to the lower earnings from our natural gas plants due primarily to the expiration of the CDWR contract.

Now please move to slide 8. Through the end of 2011, we recognized the investment tax credits from our solar business as a tax benefit in the year that the new capacity was placed in service. This method called the flow-through method created an uneven earnings profile for our solar business. Beginning in the first quarter of 2012, we will begin using the deferral method of accounting for these projects. Under this method the book basis of the asset will be reduced by the amount of the investment tax credit resulting in lower depreciation and more even ongoing earnings as compared with the flow-through methods. I want to stress that this change in accounting method has no impact on the economics of our solar projects.

These projects are contracted for 20 plus years with utility counterparties. The switch to deferral accounting does, however, result in a decrease of approximately $0.40 per share in 2012 compared with the earnings under the old method. The offset to the lower initial earnings will be lower depreciation and higher earnings in future years under the new method. Taking into account the use of deferral accounting and considering other changes across our business, we are now expecting our earnings per share to be within the range of $4.00 to $4.30 per share in 2012. And due to strong business unit growth and performance, we continue to expect Sempra's long-term EPS growth rate to be in the 6% to 8% range.

Now please go to the next slide. As Debbie mentioned earlier, our Board authorized a 25% increase in our common stock dividend. This takes the dividend to $2.40 per share on an annualized basis, up from the current annualized dividend of $1.92 per share. You may recall that our Board established a target dividend payout ratio of 45% to 50% last year. While we are not changing our long-term target payout ratio, we expect to exceed that level for the next several years, and we do expect to increase the dividend as our earnings grow. One of the considerations behind the dividend increase relates to the significant amount of earnings from our South American utilities and Mexican businesses coupled with Sempra's tax position. Historically, we have reinvested those earnings into our international businesses.

Beginning in 2013, we intend to distribute current earnings of about $300 million to the United States from certain of our international subsidiaries. The additional amount of cash tax that we will pay is expected to be very minimal in the near term as the tax will largely be offset by net operating losses from bonus depreciation and renewable energy tax credits. While the use of these tax assets is a good economic decision, it will reduce earnings by approximately $0.30 per share beginning in 2013 due to additional book tax expense. We expect to use most of the repatriated earnings to repay debt and to a lesser extent to support the higher dividend we announced today. The point that I'd like to leave you with is that we have stable and growing businesses, both in the United States and internationally, that produce strong cash flows that can support a higher dividend going forward. And with that, I'll hand the call back to Debbie.

Thanks, Joe. Now, let me update you on some of the key activities within our businesses starting with our California utility. Last month hearings concluded in San Diego Gas & Electric's and Southern California Gas Company's general rate case proceedings. The schedule for the rate case, which was issued by the Commission late last year calls for a rate case decision around March of this year.

But now we expect the case to be resolved later than what had been set forth in the original schedule. The Commission has yet to issue a revised proceeding schedule, but opening briefs have been scheduled for April while reply briefs are due in May. It is important to mention that the revenue requirement established in the rate cases will be retroactive to January 1, 2012. And I'd also note that until a final decision is reached, we'll be recording revenues based on currently authorized levels. In the quarter in which a final decision is reached, we'll record the retroactive increase in earnings since the beginning of the year.

Moving to some of the major capital projects. At San Diego Gas & Electric, construction of Sunrise Powerlink is now more than 70% complete and we will continue -- and we continue to expect that it will be going into service in the second half of this year. Turning to our pipeline safety enhancement plan. Last week Commissioner Florio released a proposed schedule, which calls for hearings during the summer and briefs due in October of this year. We're also waiting for the Commission to authorize a memorandum account to track the project cost.

Now I'd like to take you to slide 11. In our renewables business, construction has begun on the 150 megawatt expansion of the Copper Mountain Solar project in Nevada. In December, the CPUC approved our 25 year contract to sell the power generated by the plant to PG&E. We expect to complete 92 megawatts by the end of January 2013, and we'll bring the remaining 58 megawatts into service by 2015. Also in December, we agreed to partner with BP Wind to jointly develop two projects that will have a combined capacity of 560 megawatts at a total cost of $1 billion.

These projects include the 419 megawatts Flat Ridge II project in Kansas and the 141 megawatt Mehoopany project in Pennsylvania. Both projects are expected to be completed by the end of this year. These two projects will more than double the amount of operating net wind capacity at our US Gas and Power business, all of which is in partnership with BP Wind. We now have nearly 1,000 megawatts of renewables projects either in operation, under construction, or contracted. We've made tremendous strides in the development of our renewables business, and it's a great example of how we've been able to leverage an existing asset position to drive future growth.

Now let's go on to the final slide. I am very pleased with the results of all of our businesses for both the quarter and the year. Adjusted earnings per share grew by 14% in 2011, and we exceeded our financial outlook for the year. While our new 2012 earnings per share guidance of $4.00 to $4.30 was negatively impacted by $0.40 due to the move to new solar accounting method, the change provides more consistent and growing earnings going forward as we develop our solar portfolio. And with strong business unit growth and performance, we expect to grow our earnings per share at a compound annual growth rate of 6% to 8% over the longer term.

Finally, I'd like to remind you that we'll be holding our annual analyst conference here at San Diego on March 29th. At the conference we'll provide an update on the strategic direction of the Company, and we'll provide an overview of our earnings outlook and capital program at that time. I'll leave the details for March, but we expect to show you a plan that generates above average earnings growth, which when combined with our competitive dividend, provides a compelling investment opportunity. With that, I'll stop and open up the call to take any questions.

Thank you. (Operator Instructions) Our first question comes from Steven Bird from Morgan Stanley.

Hello.

Good morning, Steven.

Good morning. How are you?

Great.

Great. Thanks very much. Just wanted to talk about the dividend and growth here. So the new dividend certainly is above the overall payout ratio target, and I think I follow what you were indicating in terms of ability to grow into that and continue to grow the dividend. As we think about dividend growth given that right now the dividend is essentially sort of above that long-term payout ratio level, should we be thinking about growth in line with further earnings growth or how should we think about just how that dividend may grow over time?

Well, Steven, when we set the dividend level, the Board obviously sets the dividend level, but one of the things we looked at is the long-term earnings growth that we have in our five-year plan that we'll be showing you at the analyst conference. And as we mentioned, we see 6% to 8% growth in that plan. So we believe that there's still upward potential for that dividend. It may be slightly less than the earnings growth that we have in that plan, but we could still have that 50% payout ratio -- 45% to 50% on a long-term basis and continue to have some growth in the dividend.

Okay. Great. Thank you. And then just as a follow-up, as we think about earnings growth over time, you've laid out the target growth level. It sounds like over time you'll be able to repatriate some capital from Latin America, which sounds great. Sounds like there would be an earnings impact. Does this earnings growth profile reflect in the EPS impacts of that cash repatriation?

Yes, and you will see this. We're not going to go through the details of the five-year plan here on this call, but the 6% to 8% that we've quoted reflects in the -- bottom's up strategic review of our businesses, the repatriation scenario, and all the things that we're reflecting in our business plans going forward, which we'll share with you in detail in March.

Perfect. All right. Thank you very much.

We'll take our next question from Leslie Rich from JPMorgan.

Good morning, Leslie.

Good morning. Just to clarify. So the impact of adjusting the accounting methodology for the solar impacts earnings $0.40 a share in 2012, and then what would the -- how should we think about that on an ongoing basis for 2013 and beyond? And I understand you don't want to give specific guidance, but then that's separate and apart I think from the $0.30 per share negative impact from the higher taxes associated with repatriating the money from Latin America. I'm just not sure to what extent those two items are related, if at all.

Leslie, there's actually two different things going on and you correctly indicated that they are separate items. The item where we change the accounting method for 2012, that's about $0.40 a share. We'll go through the details with you in the analyst presentation because we really have to build up on what solar projects we are planning in each of the years, and so there's some variability in that from year to year but $0.40 is a pretty reasonable number to use for that. And then separate and apart from that is the decision to repatriate, which we would begin in 2013 and we would then be able to see what happens with all the tax law changes potentially and all; but begin the repatriation there and would take a reduction in our earnings outlook for 2013 of about $0.30 related to that. Joe, did you want to add anything more to that?

No, I think that's right. I think over the five years, it's $0.25 to $0.35 for repatriation cash -- it's not cash tax, it's book tax. We'll have a very small cash tax on that, but we'll have a book earnings impact of $0.25 to $0.35 over that five-year period.

Okay. Thank you.

Our next question today comes from Faisel Khan from Citigroup.

Good afternoon.

Good afternoon, Faisel.

How are you?

Great. How about you?

Okay. Thank you.

Good.

Just to clarify. On the deferral method for the solar tax treatment, that's just on new projects going forward, there's no impact to the previous projects you've brought online; is that right?

I'm going to have Joe describe exactly how that works. Joe?

Hi Faisel. When we get to the first quarter, now that we're on the new method in Q1; when we report our results for the 10Q, we will have to go back and recast the prior years but it's fairly small. But what you saw in 2011 is under the old method, under the flow-through method. But all of 2010 and 2011 will be recast under this method.

Okay. And is that the life of the facility, so is it like 20 years of kind of deferral; is that how it works?

Yes, it's over the depreciated life.

Okay. And just so I'm clear on the foreign tax issue for 2013, so because you paid lower foreign tax -- because you paid lower taxes in other countries -- in South America, the difference basically is the tax that you pay there versus the tax you pay here and that's the $0.25 to $0.30 you're going to end up having to incur next year; is that right?

Yes, Faisel, this is Joe. That's correct. We have an average tax rate on all our foreign income that's accumulated throughout all the periods of around 20%. So to bring it back and pay federal and California tax is about another 20%, let's say.

One thing I do want to stress that Joe mentioned is that there's very little cash tax. It's deferred tax and so the earnings hit that we talked about with the $0.30 starting in 2013 is not a cash tax amount, it's a deferred tax amount.

Okay. Got you. Fair enough. And then just on the generation business, if I exclude the mark-to-market loss in the quarter, is there anyway for you to give us kind of an idea of how much of a drag the gas fired generation fleet was on that business? Because I suspect as you're on a pretax basis your renewable portfolio was profitable but that the fossil fuel fleet was probably a drag on earnings but I have no way of kind of figuring that out.

Yes. I'll ask Mark to go through a little bit of high level on that.

Right. Faisel, it's Mark. Your intuition is correct. We had a -- we did have a small loss on the fossil fuel fleet, although in our plans going forward, we expect to operate that fleet profitably even on a GAAP basis, kind of a breakeven to slightly positive and certainly very positive on a cash flow basis. And then we also have the earnings from the fossil fuel -- or excuse me, from the renewable fleet in addition to that. But we'll get into the details of that at the analyst conference and we'll show you those numbers.

Okay. Sounds good. Thanks for the time. Appreciate it.

And we'll go next to Michael Goldenberg from Luminus Management.

Good afternoon, or good morning to you.

Good afternoon, Michael.

I'm sorry if I'm going back to the same questions on accounting, but I just want to be crystal clear on the two items that you've identified. On the repatriation of international earnings the $0.30, the higher tax rate that you'll be paying when you repatriate, is that going to be backed out as a one-time item or basically every year when you bring it back in it will just grow the stated income tax expense that we will see on the income statement?

As we record that, it will be shown every year. It will be recurring as a deferred tax item that we'll be recording. As I mentioned, we won't be paying the cash taxes because we'll have a net operating loss, and so those cash taxes for the most part are deferred for five plus years. Joe, I don't know if you want to add any more to that.

I think that's right. Michael, I'd just add this. I mentioned that we intend in 2013 to start bringing back current earnings from some of these subsidiaries, and our expectation is about $300 million for several years in a row at least; and so if you think about the book tax effect of that might be about 20% of $300 million for several years in a row.

Got it. And then the other question was on the solar tax credits, the change from one time to deferral method. So I understand that will significantly smooth out the earnings profile. But based on my understanding, the way other companies do it, there's still a higher tax benefit in year one versus year two through the end of the life. Can you give us a sense of relative tax benefit for year one versus years two, three that will now be for new solar project?

Yes, Michael, this is Joe. I'll just try to do it with a rough example. If you spend $100 million, under the investment credit method, you would reduce your tax basis by half of that investment credit of 30. And so then you have to book a deferred tax liability, we'll call it a 35% of that difference, about $5 million and then you had $30 million of ITC. So you booked a $25 million benefit on the $100 million that you spent.

Under the new method, the book basis goes down by the whole ITC. So it goes down by 30%. The tax still goes down by 15%. And you actually book a deferred tax benefit of 5%. So you're booking 5% instead of 25% in that first year. That's just a one time sort of 5% of the cost you're booking it right then.

What will be the tax benefit now in years two through five, six, or life of the project?

Your $30 million will reduce depreciation. It's not going to go through that income tax line. It's going to reduce depreciation over the 25 or so years, 25-year life of the project.

Understood. Okay. Great. Thank you very much.

Yes. I would say we will go through this in detail at the analyst conference and go through some examples and all so that you'll be able to see the effect of this.

Got it. Thanks.

(Operator Instructions) Moving on, we'll hear from Greg Gordon from ISI Group.

Thanks, good afternoon.

Good morning, Greg. Good afternoon, Greg.

How are you? I'm sure you realized you were opening up Pandora's box when you gave us some, but not all of the goodies from the Analyst Day. But I just wanted to ask, just structurally speaking, clearly the earnings, you rebased the earnings here in 2012 by making the accounting change on the solar, which I think most of your investors and analysts would say was the right way to go. But I guess when I think about '13, '14, '15, it's clear how you're generating the incremental cash flow to fund the dividend payment. Thank you for articulating that.

You're going to show us at the Analyst Day what the offsetting factors are that sort of fill in that $0.30 incremental sort of headwind associated with the non-cash tax impact, because in order for you to sort of -- if we think about a straight line, a 5% to 6% earnings growth rate, you'd have to have a fairly significant offsetting earnings growth driver in that year to not have sort of a growth rate at least in '13 that looked like your longer term aspiration. So are you going to be able to show us what the sort of the puts are that offset that sort of incremental headwind in '13 when we see you in March?

Yes. We will show you when we see you in March, what we've shown you before which is the five-year growth rate, and the growth rate is not going to be necessarily even in each of those years. It's not necessarily a linear function, and so I don't want to leave you with that impression. But the -- over the five-year period, we're looking at 6% to 8% growth in our plan over the five-year period of time, and we'll be able to show you how that occurs. And what fills in that growth and a lot of it if you look at our two utilities as an example over the five years, SoCalGas is going to grow at about 7.5%; and SDG&E, over 5%. So you have a lot of it embedded in projects that have already been approved at our utilities or are in the regulatory process at our utilities, and we'll go through all of that at the analyst conference.

Okay. So we shouldn't assume a linear progression but over the sort of normal five year forecast horizon that you usually roll forward, you'll be able to sort of validate how you get to that aspiration; is that fair?

Yes, that's how you should look at it.

Thank you very much.

Thank you.

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

Good morning. Can you hear me?

Good morning, Paul.

Hi, how are you?

Yes, Paul, we can -- Fine. Good to hear you.

I wanted to ask you. I don't want to belabor this, and it sounds like a lot of it's going to be at the analyst meeting but just to clarify, the $0.30 of impact in future years associated with the repatriation, you are still expecting to grow 6% to 8% growth in spite of that; correct?

That's correct. The 6% to 8% growth over the five-year plan period includes the impact of everything we've talked about today. And it also includes a bottom-up review of all of our businesses; and as an example, if you look at what we talked about with the forecast for 2012 in our guidance, we would have been at 440 to 470. It was $0.10 higher than where we were last year based upon the performance of our businesses. But then that's reduced by the $0.40 from the change of accounting method which, again, has no economic effect on the business; but we've heard from a lot of you that you would like to have a better sense not to have to time when these projects go into service precisely. And so this allows for that type of greater predictability. All of that's incorporated. The repatriation is incorporated; and with all of that, we're looking at 6% to 8% growth over the five-year time frame.

Okay. And then the $0.40, and I know you went through the calculation on the book deferral and what have you, just what is the impact of the $0.40 in 2013, if we could just get a little bit of a flavor for that? In other words, by taking the hit in 2012, there will be a benefit in 2013. Do you have a rough approximation as to what that would be?

We're going to hold off to go through the 2013 numbers at the analyst meeting. The only thing that we wanted to do was to let you all know that we were making this change so we didn't surprise you with that at the analyst meeting. So we wanted you to know we're changing in terms of repatriation and the rationale behind that, again, it's a good economic decision for us because we have these net operating losses that we can use now by doing this, and we just wanted to give you awareness of that. We will go through all the details at the analyst meeting.

Okay. Then just on the decision to do the repatriation from the international business, could you just like give us a little more flavor as to sort of what's kind of caused this? I mean, is it simply because of the international outlook versus tax issues or -- and just in general, is there any issue with respect to potential changes? Because we keep on hearing about tax reform and various things showing up regarding taxing of foreign entities, taxing of -- just in general. I mean, vast changes perhaps in the tax code. Just in terms of your flexibility with respect to this issue and what have you.

That's an excellent question and we spent a lot of time on this. I'll give you a very high level and then I'll have Joe go through the details on the flexibility. But from a strategic standpoint, these businesses are doing really well, and they are generating a great deal of cash. And if we did not repatriate cash, we would build up excess cash in excess of what we need to grow those businesses by 6% to 8% per year, of something over -- around $1.5 billion. And it didn't seem appropriate to us to keep that cash offshore and be able to fund all of our growth and not look at some changes to the capital structure of those businesses because we have the ability to put leverage on those businesses locally.

We feel that's just a better long-term capital structure for those businesses, and with this net operating loss that we have because of the bonus depreciation and because of the solar tax credit, if we were going to repatriate funds, then this would be the best time to do that, but for any kind of a tax holiday and all. And I'm going to have Joe talk to you about our assessment of that and what flexibility we have because we do have a great deal of flexibility relative to changing our timing of repatriation based upon what might happen with any national tax policy. Joe?

Okay. Thanks, Debbie. Paul, exactly what Debbie was saying, this started out in our strategic review and our capital allocation process and looking at the international operations, what their requirements were, the very low debt to cap ratios we have in those countries and then the overall tax position as Debbie articulated, and we took all that into account. Then we thought about, well, what would be the effect if there were a change in tax policy. So what we've decided to do and this is why we're announcing it now, is we want to let you know that we're thinking about doing this in 2013.

We would like to be able to see what happens with the election, see what happens with tax policy. It's not clear to me that very much will happen but there's a lot of people talking about it. But what we intend to do is start taking the earnings effect of it in 2013, but probably not actually repatriate the cash until the end of the year, which gives us a long runway from now until the end of 2013 to see exactly what's going to happen with tax reform. If anything happens, it's likely that if it's going to benefit us, we'll know that and then we would be repatriating anyway.

As Debbie said, we have more cash buildup there than we need to even grow those earnings at 6% or 8%, toward the top of that range. So a repatriation bill that would allow cash to come back at lower rates would benefit us more. If it goes the other way and something like the President's proposal that came out and says, you're going to have a pay a minimum tax even if you don't bring the money, then what we're doing now makes more sense. We might as well bring it here and use it in the US and use up these tax assets that we have sooner than we otherwise would use them.

Makes a lot of sense. Finally, just the Tangguh and the gas -- the lower gas price, you mentioned the contract changes and amendments and lower gas prices kind of offsetting each other. Could you just give us the flavor as to the impact of both of those.

Yes. I'm going to ask Mark to --

Yes. With respect to Tangguh, we renegotiated the contract and where we ended up with is we allowed our partners to have more flexibility to divert cargoes, and we were compensated for allowing that extra flexibility. And that offset the effect of lower gas prices on our plan going forward. But all in all, it was a positive for them and it actually is a positive for us too because we have a guaranteed number of deliveries. It's a small number but it's the total amount we need to keep the plant cool, and we're also allowed to divert a cargo to our other facility in the Gulf, which eliminates the need to buy an expensive cargo there to keep that plant cool. So I think all in all, the renegotiation -- it's always kind of trite to say that it's a win-win, but this is truly one that turned out better for both parties.

Okay, and so the financial impact of that versus the lower gas prices is sort of what?

Kind of flat.

Okay. But just what was the impact, I guess, from one of them?

Well, we're not really -- we're not disclosing what the financial impact of the contract is, but you'll see it in the LNG numbers when we do the analyst conference.

Thanks a lot.

We'll go next to Ashar Khan from Visium.

Hi. Good morning.

Good morning, Ashar.

Just wanted to -- I don't know, it's I guess coincidental or what. I was just looking at the -- I just want to understand the assumptions, I think I understand them. But if I look at the slide 2 from the last deck that you provided at your analyst conference, it was 2011's outlook was $4.00 to $4.30, growing 6% to 8%; and then we came to a 550 to 580 number as part of the 2015 target. Using what you're pretty consistent, of course we lost, now '12 is back to $4.00, to $4.30. The growth rate is 6% to 8% EPS. So I'm assuming the range if I impute it from last year, the range should be similar because the growth rate hasn't changed. The base is the same and so the range should be -- I guess 16 should be 550 to 580 if I impute what was done last year. Am I thinking through this rightly, the base is going to be '12 and you're looking toward the '16 target.

I'm not going to give you the '16 targets until we get to the analyst meeting, but I think your calculations do make sense. And we'll go through the details of '16 and what our estimates are at the analyst conference. But your methodology is how we get to our 6% to 8%.

Okay. Thanks. And if I could just go back, I guess the business that -- I'm just looking through which did better than forecast. One was pipeline and storage, I guess it came out 250 versus the high end of 220. I know there was $18 million from a kind of like a tax related issue when you brought the money thing. But is there anything in that business that -- I guess the rest of the gains were all permanent, better, or operations that are going to go on forward. Just trying to --

The main -- excuse me. I'm sorry. Go ahead.

Just trying to get a sense of the strength in the business, I'm assuming it's permanent and we can grow from there.

The main thing that happened, of course, in pipes and storage is we acquired the South American utilities in April of last year. And that business -- those utility's performance will be ongoing, and we'll have a full year's effect of that this year. So when you look at the earnings in pipes and storage and the significant increase there, it's largely from the acquisition. Joe?

There were a couple of one time things. I think we mentioned that there was some gain from some cash -- some US dollars we held in Chile at the time, it's not there anymore. But originally it was there and there was some foreign exchange gain of about $10 million, and we had some Mexican tax benefits in that business also. And so there's a roughly $20 million in there that was I would say more one time than continuing.

Okay. Thank you.

Thank you.

Moving on we'll hear from Mark Barnett from Morningstar.

Mark Barnett, Morningstar.

Good morning, Mark.

Hey. Good morning. Just a couple quick questions, maybe out of the weeds here a little bit. You had at the end of last quarter, two plants left kind of on the contracting side after the expiration of the DWR contracts, and I'm wondering how those plants are looking and whether you had finalized kind of marketing those for the next few years?

Let me have Mark talk about that because this clearly, as part of our strategic review, we have looked at every market and we have looked at every asset and we've done a full assessment. And so let me have Mark just comment on that; and again, we'll be going through a lot of this detail at the analyst meeting.

Good question, Mark. Let me talk to you a little about how we're looking at these assets, and I think it will be indicative of kind of our entire strategic review process. The first thing we're doing is we are doing a fairly thorough market review of what we think those assets would sell for in the marketplace. And we're just about done with that with respect to the plants. And then as we figure out what that number is, then we look at what we believe our earnings from those operations will be; and then we frankly, do a very simple calculation and say that if we got those proceeds could we do better in other parts of our business, and we're kind of making that evaluation right now. But if we think we can do better someplace else with that money, we're likely to move it into another part of the business.

If we think that the current market just doesn't put enough value on those and we're getting an extraordinary return on the value we can get, we're likely to hold them for a while until that situation changes. Obviously we wouldn't do that if we thought it was going to get worse. But if we thought it was going to get better, we would continue to hold them. And we're making that -- and we'll probably have some of those decisions done by the analyst conference, but we are looking at those. We've put everything on the table and it's just the way that we're thinking about it right now; and frankly, I think we're in -- it's that process just continues to move forward.

All right. Thanks for that. And I guess this is probably something else you will -- so forgive me, you'll probably address at the Analyst Day, but you received at the end of last month the initial permits to -- for liquefaction from Cameron, I believe, and then I know that there's a second round for exporting to countries without free trade agreements. I'm just wondering had you already initiated that or are you waiting to sort of evaluate what you want to do on the investment side to apply for that second license?

In terms of that, we filed for and received the US free trade export license from DOE already in January, and we also filed separately for the non-FTA countries, which is now pending. We also will have to file a FERC permit, which we would expect to do sometime around the second quarter of this year and that's likely to take 12 to 18 months. So that's kind of the time line we're on.

Okay. Thanks.

And we'll move on to Michael Lapides from Goldman Sachs.

Hi, Debbie, congrats on a good first year an obviously on the dividend hike. Rate case. How do you think about how far apart you are versus the interveners at both SDG&E and SoCalGas, kind of what's the bid? How far apart are you on both O&M and on actual rate base expectations, and what are the likelihoods of settlement? You have been one of the best at settling rate cases in California over the years. Just curious to see where we stand now.

Thank you, Michael. It's nice to speak with you this morning. In terms of the rate case as you mentioned, we have a history of settling our cases; and the thing that I would note is that while the numbers between ourselves and the DRA staff may seem large on the surface, when you start drilling into them, they're a lot of the things that have been litigated time and time again in rate cases. They deal with what's the relative level of compensation or they deal with how we account for the certain depreciation of assets.

So they're issues that have been raised multiple times in rate cases, have been litigated, and -- or settled and settled in the favor of how we filed them in the rate case. So I don't feel like we're truly as far apart as it might seem when you look at the filings that have been made by the parties and ourselves. We have been in discussions with parties, but I also say we have a strong case. We completed the hearings in January; and if we're not able to reach a settlement that we think is the right amount for us to operate our business safely and effectively, then we are fine going through the regulatory process. But we do have a history as you've mentioned of settling, and we always like to be able to try to work with the parties and see if we can't come out with a resolution that works for everyone.

Got it. One other thing rate case -- or tied to the regulated utility subsidiaries. What's remaining in terms of incentive compensation or of incentive structure that the utilities can earn above and beyond kind of the traditional GRC. I'm thinking purchased gas incentives, I'm thinking energy efficiency. What's left going into 2012 versus what has kind of already halted and won't be there going forward?

Okay. Well, let me try to hit the major categories. We have at the gas company, the gas cost incentive mechanism and that is remaining in place. In fact, we just got a draft decision this week granting or recommending that we receive the incentive from what we filed last year. And then we have a storage incentive mechanism at the gas company that allows us to market storage and to the extent we recover more than our embedded costs and there's a sharing mechanism on that.

In terms of energy efficiency, that is up for review right now but the Commission as to what is going to be a mechanism for energy efficiency going forward, and so we're not quite certain as to what the mechanism will ultimately be, but that is something that is up for review. And then at SDG&E, we also have a gas PBR mechanism similar to what we have at SoCalGas. Those are the key mechanisms that are still in place.

Got it. Last item. Renewable projects, obviously you've got a lot in the hopper. How do you think about whether you have the capability to expand upon that in the next two to three years, not necessarily next five, but thinking more near-term? Next two to three years, meaning the potential for incremental solar projects in all likelihood.

Well, as you know, we have exceptional land position and that we -- as an example, at EFJ in northern Mexico, we have a project now that is just the first phase of maybe about 10% of the total capacity potential to be built at that location. That is for approval at the Commission on March 8th. And so that there's some great opportunity there for wind potentially to grow. We have land positions adjacent to our power plants in Arizona and Nevada, and then we have a land position in central California, all of which we will participate in RFPs and be able to bid out. And then we have some partnerships that we formed where we work with other companies to -- as we have with BP, to take part of projects that they have and us be a 50-50 partner. Mark, I don't know if you want to add any more color to that.

I just would say I think it's a -- it is a very robust pipeline that we have, and I think we'll continue to grow the business at significant rates. And it's a very profitable business for us, and when we look at all of our options down the line with respect to renewables, I think we're pretty excited about where it can take us and where it will go. There's all kinds of options with respect to capital availability and things where we can put very -- continue to put very little capital into it and get great earnings and great returns.

Got it. I'm sorry. I want to cheat. Last one here. Joe, I want to simplify the tax issue. In 2012, GAAP tax rate versus cash tax rate, and if you can give that for '13 as well, that would be great?

Just a minute, Michael, let me grab that. 2012, I would say our GAAP tax rate's going to be around 30%. Cash tax rate will be fairly low. I don't have a percentage but we would have a modest California tax, probably between California and our foreign businesses, maybe around $100 million of tax.

Okay. And '13?

In '13 -- or '12. In '13, I think we'll get more into those numbers when we get to the conference.

Got it. Okay. Thanks. Much appreciated.

We'll take our next question from Vedula Murti from CDP Capital.

Hello, Vedula.

Hi, good morning. How are you?

Great.

Let's see. Most of my questions have been answered, but I just want to make sure if I'm -- if we think about the repatriation issue, if we think about the kind of like the status quo, such that nothing changes, how many years of NOLs and other types of things do you have such that you could repatriate $300 million a year back to the US with minimal cash taxes?

Joe?

Yes, this is Joe. We're expecting, depending on how all this plays out; but assuming the status quo, we would probably repatriate about $300 million a year through around 2018.

Okay.

To use at both NOLs and -- sorry, go ahead.

So you've got about five years or so with very minimal cash tax?

Yes, we have several years of net operating losses that we could absorb, and then we also have renewable energy credits that we can use.

Okay. We spent a lot of time talking about the EPS growth off of these headwinds of 6% to 8%, but all of these headwinds have had no effect on cash. Can you talk about the cash flow growth rate over the next five years compared to the EPS growth rate, should we -- will we see a commensurate increase in cash flow growth or is -- or are we going to see the reverse of what we've just seen where cash flow's fine and EPS reported GAAP has these headwinds, and then EPS improves, but cash flow is kind of stable or doesn't keep up? Can you talk about the growth rate of cash flow over the period?

Yes, I would just say that I wouldn't see a big disconnect between cash flow and earnings over the period of time. If anything, the cash flow should be a little bit higher for the tax regions that we talked about and then some of our assets are cash flow positive, but they're not producing as strong of earnings. So I would say that for the purposes of where we are today, we'll go through that again at the analyst t meeting, but the purposes of where we are today, you could assume they're relatively parallel.

Okay, and one last question. In terms of where payout is and that type of thing, and obviously with the outsized uptick in terms of dividends today, should we think that going forward that just kind of a plug that dividend growth going forward should be somewhere like half of like your targeted growth rate from here going forward?

Well, I would say, our Board looks at this every year and the decision that they made this year with the larger increase in dividend was not predictable last year. But if you just kind of look at our earnings and you look at getting to a 50%, 45%, 50% payout ratio, you can envision the opportunity over the five-year growth rate that we have that we should be able to continue to increase the dividend at some level that's slightly less than our earnings growth rate. So, I mean, I think that we'll show you some of this when we show you the five year earnings growth rate and we show you the earnings, and then you can kind of look at that dividend payout ratio and figure for yourself about how much greater it can be over the period of five years.

Okay. So I just want to make sure that at least in EMS terms of what I understand, you've got a running room of about five years or so in terms of various NOL tax credits such that irrespective of US tax policy, you'll be able to repatriate $300 million a year with minimal cash credit and that the growth rate on cash flow going forward is going to be comparable if not superior to what you're going to -- what you're striving to achieve in terms of GAAP EPS growth rate.

That's correct.

Okay. Thank you.

And we'll take our next question today from Naaz Khumawala from Bank of America.

Good afternoon, Naaz.

Good afternoon to you all. Had just a couple of -- one clarification question and then just a couple of other questions. On the $0.30 a share of hit, is that all in '13, or is that like $0.06 a year for the next five years? I was confused about how that was kind of said over the call.

The $0.30 per share is -- it continues. It doesn't increase but it basically continues for that period of time. It's based upon the amount you repatriate that year and what -- if you're repatriating $300 million a year every year, then you have that hit for that one year for the deferred tax on the amount you're repatriating. So as long as you're repatriate -- let me just clarify. As long as you're repatriating, then you would have that. If we decided to repatriate in 2013 and then something changed our view and we elected not to repatriate in 2014, then we would not have that $0.30 again in 2014. And we do have a lot of flexibility in this as to how we choose to repatriate and when we make those elections.

Okay. Thank you. And I think the last time Mark had said that you had about $1 billion of cash overseas, is that more like $1.5 billion now if I just do 300 times five?

This is Joe. I think you're probably referring to when Mark was talking about how much cash we had available including -- that was prior to the acquisition of the South American utilities. So we have basically brought back or used in investment, cash. There's not any big amounts of cash sitting there today.

Okay.

We have very low debt to cap ratios, as I mentioned. So we have the ability to grow those -- we're not going to repatriate funds that we need there to grow the business, and we also have the ability to borrow there if we want to fund additional investments beyond the really good growth that they have.

Okay. Thank you. Then just the last question on California. On the pipeline safety memo account that you had applied for, do you know what kind of timing you expect to receive that for this year?

Well, the memo account, we're anticipating sometime in the first half of the year getting the memo account established and the assigned Commissioner Florio basically set the schedule for the proceeding that would have the closing briefs filed in October, hearings in the summertime and then closing briefs in October. But we would expect the memo account to be put in place before that time. The other thing that was very positive is that in his decision setting forth the procedural schedule, he encouraged us once the memo account was established, to begin the rate collection of that so that there was not spikyness in terms of the rate recovery. So I think you'll see some movement in the first half of this year on the memo account, and then later half of this year, early next year on the whole termination or completion of the proceeding.

Okay. And then just in terms of how much of the $3.1 billion if you did get the memo account let's say mid-year, how much of that spend could you potentially do in '12, or how much have you anticipated in guidance?

In terms of what we would do in '12, it wouldn't be a great amount in '12. It would certainly be less than $100 million, and a lot depends on the timing of the memo account. But I would not anticipate a lot of expenditures in '12. It would be more of a ramp-up and then in '13 we would begin.

And so I think you before had included about $400 million of pipeline safety spend in your five-year CapEx; is that right?

What we had for pipeline safety spend, we had $1.4 billion over the five-year period of our plan. And as I said, when we did the 2012 numbers, we did a bottoms up for 2012, so we looked at the situation that we feel that we're in today and what we think is going to happen today and we re-did our guidance for 2012. So whatever was in 2012 would now be deferred most likely to 2013 and that the total amount is still anticipated at $1.4 billion over a five-year period.

Okay. That's very helpful. Thank you.

We'll take our next question from Steven Wang from Carlson Capital.

Hi.

Good morning, Steven.

Good afternoon. I was just want to double check, reconfirm something. The long-term growth rate we're starting at the $4.00 to $4.30, 2012 base; is that correct?

Yes.

And then, Joe, the second question I had was you mentioned that you would go back and recast the '10 and '11 solar and then bring it back forward. So is that basically you'll do like a one time charge in '13 first quarter and then it'll kind of add $0.05 a share of earnings going forward per year? So you're basically taking '10 and '11 earnings and adding $0.05 a year going forward?

The 2010 and 2011 -- the financials will just be recast as if we had been on the other method in the prior years, and so there will be slightly higher earnings over the 25 years because we're moving those credits going forward into the future years. There's no one time effect in 2012 or 2013 of it, there's just a continuing slow amortization of the ITC over the 25 year life.

Right. But it would add about $0.05 to ongoing -- in that ballpark of ongoing earnings starting from '13 and going forward?

I'm not sure where -- how you're computing that number, but we'll go over this at the analyst conference.

But it should add a couple pennies of earnings going forward because you're smoothing it out.

It should add a modest amount; that's correct.

Okay. Great. Thank you.

Our next question comes from Michael Worms from BMO.

Hello, Michael.

Hello. Mike Worms. Just a quick question on the repatriation of the money in South America. At one point I thought the plan was to build some transmission lines down there and to potentially build another hydroplant or two. So are those plans now mute and you're going forward with just bringing back money to the US, can you kind of give us some color on that?

No, those plans are still in existence and when we've done our five year plan, we've incorporated the requirements to have that growth. We're still looking at transmission projects. We're looking -- we're building a hydro project right now in Peru that should be online in around 2013. And we have other hydro projects in Peru that we're bidding on as well as transmission projects in Chile. Those projects are still incorporated in our plan, and we have the ability through operating cash flows from those businesses and local debt. We talk about the fact that those businesses really don't have any debt on them, and that we really feel that there's a preferred capital structure for those businesses where we would pay off some of the US debt with the repatriated dollars and have local debt on those businesses, which makes more sense for the projects that we're doing. So that's the way we would structure those projects in more of the kind of cap structure we'd like to see there in the long-term.

Thank you.

James Heckler from Levin Capital Strategies has our next question.

Yes. Hi, it's actually Neil Stein from Levin Capital. How are you?

Hi, Neil, how are you?

Good. Had a couple more questions on the repatriation issue just as it relates to the growth rate, so you'll book a $0.30 adverse impact, EPS impact from repatriation in 2013. Are you still able to grow 6% to 8% in that year, or are you saying this 6% to 8% is applicable over the long term and maybe you can't grow in '13 by that amount?

Yes, I'm not saying that it's going to -- I think I made a comment before and I'll restate it. Our growth is going to be 6% to 8% over a five-year time frame, and that there will be some unevenness in that growth from -- not every year is going to be 6% to 8% over the prior year. Some years may be 3%, some years may be 9%. And a lot of it has to do with when projects come in, especially some of our renewable projects and when they start providing earnings, and so that -- we've never grown evenly. If you kind of look at our historical growth, it's been over a longer term time frame that we give you the projections. And then when we see you at the end of March, we will give you the projections as we have on what our growth rate is over the longer term, and then what we expect it to be in each of the early years.

Well, could you say, are you able to specifically offset this $0.30 impact in '13?

We're not giving 2013 guidance today, and so I'd rather wait and go through all of that with the total plan at the analyst conference. We've given you the 2012 guidance, which is what we always do on this call; and then when we get to the analyst meeting, we will go through and lay out for you what our expectations are over the five-year time frame and in 2012, 2013.

Well, let me ask this. There's a possibility you may book $0.30 maybe in one year or just a couple years. I guess there's also -- is there also the possibility you may book it, meaning you'll repatriate $300 million in cash every single year over the five year period; is that a possibility? And if you were to be booking this $0.30 adverse impact from the repatriation tax, would you still be able to grow 6% to 8% over the five-year period?

Yes. I mean, what we've assumed is that we would have the $300 million a year repatriated every year over the time frame of the five years; and even with that, that we would have a 6% to 8% growth rate over that five-year time frame.

Okay. Thanks very much.

Your next question today is from John Alli from Decade Capital.

Hi, John.

Hi. Sorry to keep asking about this. Just to be clear, the 6% to 8% growth -- so even in year five, if you took the repatriation you'd still hit that number?

Yes.

Okay. In that year?

Yes. The way we've looked at it is we've calculated the growth over the five-year plan and it includes the change in solar accounting and it includes the repatriation.

Every year?

And we look at it over the five year and we said the compound annual growth rate over that five-year period would be 6% to 8%. Now, that doesn't mean that every year it grows 6% to 8% over the prior year. It's not always even. But if you look at it over the five-year time frame, then the average growth rate, the CAGR in earnings ends up being 6% to 8% over the five-year period.

And this is Joe. Just to confirm, the repatriation is in the plan from 2013 through the remainder -- not in 2012, but 2013 going forward.

Yes. The other thing I would say is that we're not going to give you the 2013 number today, but it's always positive growth. We're not going to have a decline in growth over the period of time, but it's not always going to be 6% to 8% year over year over year on a linear basis, but it will always be positive growth, even taking into account the $0.30.

Okay. And the $300 million a year, how does that relate to the earnings you get every year? Meaning what percentage of earnings is that? Are you just releverring the business?

It is -- most of the earnings from Mexico and Peru that we don't need in the business.

Okay. I guess what's the level of international earnings every year? And the other question I have is the Peru and Chile, how fast are they growing?

Well, Peru and Chile have growth rates of about 6% to 8%, and that's been the historical growth rate and that's kind of the projected growth rate without some of the special projects. That's just inherent in the basic utility business there is that you're running around 6% to 8% growth in total electric demand in those two countries and then about 3% to 4% customer growth each year. And then in addition to that, we have these special projects like the hydro projects and transmission projects.

Okay. But just the run rate business is about 6% to 8% in terms of net income?

Yes. Yes, towards the high end of that.

Got you. And how much cash do you have overseas internationally?

Well, we just did a large acquisition so we don't have -- we used up a lot of our cash but we are -- like Joe just said too, is we don't have a lot of leverage overseas, and so we have a lot of borrowing capacity.

So roughly how much borrowing capacity? Or what's the easiest way to back into it?

$1 billion, probably.

That's borrowing capacity?

Yes.

Great. Thanks.

Are you ready for your next question?

Yes.

Thank you. And that will come from Chris Shelton from Millennium Partners.

Hi, Chris.

Hi. How's it going?

Great.

Quick follow-up question. I guess in terms of the $300 million that you are repatriating each year, as far as uses of that cash, obviously you had a dividend increase, which will take up a portion of that but what are the kind of -- what are the potential uses for that cash that you see going forward?

Well, I'll cover at a high level and then ask Joe to add anything he wants to. As we said, really the dividend is secondary for the use of this cash. That the majority of this cash is used for debt repayment in the US, and what we're trying to do is repay off some of the US debt and then have some local debt established in Chile and Peru and Mexico for the projects that we're doing there. So that the leverage in each of those countries has the kind of cap structure that we want to have eventually that is the way that those businesses should be structured. They're very underleveraged right now in each of those locations. We would rather have local debt. We think there's a lot of good reasons for having local debt in those countries and then we would like to be able to bring this back while we have these net operating losses so that we can repay some of the US debt.

Got it. Makes sense. And maybe this is an analyst conference question, but what is the -- I guess on the US side, what is the kind of desired level of debt?

We pretty much keep a 50-50 kind of a cap structure, 51-49, in that range.

Okay. And so $300 million a year for how many years would get you -- I guess better question is, where is the balance sheet currently for the US portion, I guess?

It's about 51% debt to cap.

Okay. So if you're repatriating $300 million a year for a number of years, would you expect to kind of use -- I guess use some of that cash in the business as opposed to paying down debt because it seems like you might overshoot the balance sheet capacity?

Yes, you have to look at too what our capital spending is for the five-year period, and so we're looking at spending something like close to $14 billion of capital during that period of time, mostly in our utilities. And so that -- this is what we'll go through at the analyst meeting because you really need to look at this in terms of the five years, what the capital spending is, what the repayment of debt is, what the growth is in our international businesses and see it on a composite basis, which we'll show you at the analyst meeting. But principally to keep our credit stats strong and all, we're intending to use the funds that we repatriate to pay off debt, and then we will be issuing other debt as needed for our capital projects to fund incredible growth that we have with really great projects.

I see. And I guess -- because last year you had some pretty good -- last year's Analyst Day had some pretty good growth assumed without repatriation. Was that the assumption for last year? And now the assumption's that you'll repatriate, so are there kind of other projects incremental to last year; is that the way we should think about it?

Well, in this five-year plan, it's -- another year is added to it and there are some additional projects that we will have obviously in that extra year. But what I want to leave you with is the growth will continue in our South American businesses. We'll be able to fund that and we'll be able to create the capital structures there that are appropriate for those businesses and fund the growth that we showed you last year in those businesses including transmission and generation projects. And then we will repatriate and use the cash to pay off debt, and we'll most likely leverage up those utilities internationally and get the cap structure they should have and produce -- and have more debt then internationally. And then the cash will be used to pay off debt here, so you're basically putting your leverage in the country where you're doing business and bringing back the cash and paying off US debt.

Chris, we expect the debt ratio to stay about the same. We have really solid growth, in our view, look, money's spongeable. So whether we're paying off debt or spending it on new projects, right now, for the first few years, we're spending more than our free cash flow. So we're increasing debt in the early years and paying down some in the later years, but we're roughly keeping our debt ratio about the same. And we're looking at our credit statistics and making sure we have strong credit ratings.

Got it. Understood. I'll leave the rest to the Analyst Day. Thanks so much for the color though.

Thank you very much. Okay. If there are no further questions, then I'd like to thank you again for joining us on this morning's call. And if you have any follow-up questions, please don't hesitate to call Steve, Scott, or Victor; and have a great day. Thank you very much.

Thank you, ladies and gentlemen, that does conclude today's conference. Thank you for your participation.