桑普拉能源 (SRE) 2013 Q4 法說會逐字稿

Good day and welcome to the Sempra Energy fourth-quarter earnings results conference call. Today's conference is being recorded.

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

Good morning and thank you for joining us. This morning, we'll be discussing Sempra Energy's fourth-quarter and full-year 2013 financial results. A live webcast of this teleconference and slide presentation is available on our website under the Investors section.

With us today in San Diego are several members of our Management team: Debbie Reed, Chairman and Chief Executive Officer; Mark Snell, President; Joe Householder, Executive Vice President and Chief Financial Officer; Martha Wyrsch, Executive Vice President and General Counsel; and Trevor Mihalik, Senior Vice President, Controller and Chief Accounting Officer.

Before starting, I would like to remind everyone that we will be discussing forward-looking statements on this call within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in the Company's most recent 10-K and 10-Q filed with the SEC.

It's important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis and that we will be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and to Table A in our fourth quarter and full-year 2013 earnings press release for a reconciliation to GAAP measures.

I'd also like to note that the forward-looking statements contained in this presentation speak only as of today, February 27, 2014, and the Company does not assume any obligation to update or revise any of these forward-looking statements in the future.

With that, please turn to slide 3 and let me hand the call over to Debbie.

Thanks, Rick, and thanks to all of you for joining us today. 2013 was another great year for our Company and one filled with many accomplishments in our infrastructure projects, partnership initiative and regulatory efforts. We are extremely happy that our Cameron Liquefaction project received the Department of Energy's conditional permit to export to non-Free-Trade-Agreement on February 11.

And with a noteworthy progress we are making in securing our first permit, we expect construction on the project to begin this year. We will provide further details later on the call.

Turning to our financial results, I continue to be pleased with our performance of sustained delivery of top-tier shareholder returns. With the DOE non-FTA permit for Cameron now in hand, we have even greater confidence in the earnings contribution Cameron will provide starting in 2018. This puts us well on our way to meeting our goal of 9% to 11% compound annual earnings growth through 2019.

Additionally, I'm confident that we will execute on some of the growth opportunities we've identified which are not yet in our plans. This would allow us to get to the higher end of that range and I look forward to discussing these opportunities with you at our Analyst Conference next month.

Now, let me hand things over to Joe to discuss the 2013 results in more detail. Starting with slide 4. Joe?

Thanks, Debbie, and good afternoon or good morning to everybody. Our results for the fourth quarter exceeded the expectations we provided on our third quarter call and resulted in a strong finish to 2013.

This morning, we reported fourth-quarter earnings of $282 million, or $1.13 per share. This compares to adjusted earnings of $268 million, or $1.08 per share, in the same quarter last year. Including both the impact of the $77 million 2012 retroactive benefit from our general rate case in California, and the $119 million loss on the closure of SONGS, we reported 2013 GAAP earnings of $1.001 billion, or $4.01 per share.

For guidance purposes, we reported 2013 earnings per share of $4.49, above the midpoint of our guidance range of $4.30 to $4.60 per share. These earnings per share exclude the loss on SONGS but they include the retroactive GRC benefit.

Full-year 2013 adjusted earnings, which exclude both the SONGS loss and the retroactive GRC benefit, totaled $1.043 billion, or $4.18 per share. There were two major factors to 2013 adjusted earnings that arose from our previously announced repatriation strategy and the IEnova IPO. Both of these strategic decisions were designed to create and have, in fact, increased total shareholder value.

Just to recap those in more detail, 2013 was the first year of our plan to repatriate cash from International operations back to the United States. While we pay little in cash taxes on this repatriation, we do have to book an income tax expense when we bring the funds back to the US. For 2013, this tax expense was $63 million, or $0.25 per share. The cash flow to the US from this brand supports our strategy to continue growing our dividend.

Second, in March, we completed the IPO of IEnova in Mexico, which has been tremendously successful, creating significant value for Sempra shareholders. Since the IPO IEnova stock is up over 70% and the value of the Sempra's investment has increased by more than $1.5 billion. This increased value has more than compensated our shareholders for the $26 million, or $0.10 per share dilution we reported in 2013.

In addition to those factors, as discussed on our third quarter call, the Mexican government enacted tax reform that keeps the Mexican corporate tax rate at 30% after 2013 as opposed to a scheduled reduction to 28% under prior law. This change will have only a minimal impact on growing earnings but did negatively affect 2013 results by $13 million due to the required adjustment to our deferred tax liabilities. When taking these items into consideration, I can see that the health of our underlying business remains strong and in line with our long-term growth aspirations.

Now let's go through the segmented results in more detail, beginning with SDG&E on slide 5. At San Diego Gas & Electric, earnings for the fourth quarter of 2013 were $119 million compared to earnings of $110 million in the fourth quarter last year. Fourth quarter earnings were higher, primarily due to $28 million of higher CPUC-based margins, net of expenses, partially offset by a $10 million impact of lower authorized CPUC and FERC returns, and $4 million of lost SONGS earnings due to the plant closure.

For the year, SDG&E reported adjusted earnings of $471 million as compared to $484 million in 2012. Earnings in 2012 included a $22 million higher income tax benefit, resulting from the change in the treatment of repair expenditures that related to the year 2011. In 2013, we also partially offset impacts from the lower authorized rates of return and loss of SONGS earnings with higher CPUC-based margin, net of expenses, as SDG&E identified operating efficiencies to improve their performance.

Now please turn to slide 6. Fourth quarter 2013 earnings at Southern California Gas were consistent with last year at $98 million. This quarter's results were impacted by $30 million of lower tax benefits as earnings for the fourth quarter of last year included the full year's impact of the change in tax treatment for repair expenditures. This tax impact was offset in the fourth quarter of 2013 by $19 million of higher CPUC-based margins, net of expenses, and $12 million of reduced tax expense related to prior year's income tax issues.

SoCalGas increased annual adjusted earnings by $50 million to $339 million in 2013. This increase largely reflects $36 million of higher CPUC-based margin, net of expenses, in part due to operating efficiencies that SoCalGas identified to improve performance. Higher 2013 earnings also include $15 million in pipeline integrity expenses that are now being fully recovered in rates.

Now let's move to Sempra International on slide 7. At our South American utilities, fourth quarter 2013 earnings were $43 million compared to $46 million in the fourth quarter of last year. Full-year 2013 earnings were $153 million. Excluding the $11 million loss on the sale of our Argentine investments, this segment was in line with our expectations.

Fourth quarter 2013 earnings for Sempra Mexico segment were $26 million versus earnings of $35 million in the fourth quarter of last year. Fourth quarter earnings reflect the $13 million increase in deferred income tax expense due to the change in tax law I discussed earlier and an $8 million decrease resulting from our non-controlling interest at IEnova.

These effects were partially offset by $9 million of higher net earnings as a result of recording AFUDC earnings for pipeline construction. For the full year 2013, Sempra Mexico's earnings were $122 million compared with $157 million in 2012. Similar to the quarter, the decrease in earnings resulted from the end-of-year change in Mexican tax law and a $26 million dilutive effect from the IEnova IPO.

Now please turn to slide 8. Moving to Sempra US Gas & Power, the Natural Gas segment earned $9 million in the fourth quarter of 2013 compared to a loss of $6 million in the year-ago period, after excluding the $25 million payment received from Kinder Morgan for tax impacts related to the sale of their interest in REX. Higher fourth quarter earnings were due primarily to a lower of cost or market adjustment that occurred in 2012 related to the purchase of an LNG cargo in the fourth quarter of 2012. And a change in intercompany marketing agreements that reduced costs in 2013.

For the full year, Sempra Natural Gas reported 2013 earnings of $64 million. Included in this amount is a $44 million gain on the sale of one block of the Mesquite Power Plant. Fourth quarter 2013 earnings for the Renewable segment were $6 million compared with earnings of $14 million in the fourth quarter of 2012.

Higher earnings in 2012 reflects $12 million of higher deferred income tax benefits as a result of assets placed into service in 2012. For 2013, annual earnings of $62 million include $24 million of gains associated with our new solar joint ventures.

Let's please turn to slide 9. Turning now to our guidance for 2014, we are reaffirming expected consolidated earnings for the year to fall within the range of $4.25 to $4.55 per share. Overall, our near-term and long-term prospects remain very strong and we're looking forward to giving you more detail on our outlook at next month's Analyst Conference.

In addition, the Board voted in February to increase our annualized dividend by approximately 5% to $2.64 per share. We recognize that returning capital to shareholders is important, and we remain committed to providing a strong and growing dividend to the owners of Sempra. Once Cameron is in construction, we intend to recommend a higher dividend growth as an alternative to a larger, one-time increase after Cameron is operational.

Now let me hand the call back to Debbie to discuss slide 10.

Thanks, Joe. As I mentioned at the outset of this call, we were pleased to receive our permit to export to non-FTA countries from the Department of Energy on February 11. We are also the first on the list of proposed LNG projects to have received a Draft Environmental Impact Statement from FERC.

FERC scheduled calls for issuance of a Final EIS on or before April 30, 2014. This is the last major step in securing our FERC order authorizing the construction and operation of the project and we expect to receive that order this summer.

In addition to progress on permitting, we are finalizing terms on the lump sum construction contract with our preferred EPC contractor. The cost estimate for the project remains in line with the $6 billion to $7 billion of construction costs and $9 billion to $10 billion of total costs that we have consistently projected.

We have also made substantial progress in securing financing. We are working with the Japanese export credit agencies to finalize their loan commitments and earlier this month, we signed a commitment letter with commercial banks worldwide as part of a very successful commercial bank syndication.

Given these developments, we continue to have confidence we will be able to close long tenure borrowing at very attractive rates, Subject to FERC's final approval, the project remains on track to start construction in 2014. And we still expect all three trains to come on line throughout 2018, with the first full year of three train production in 2019.

Considering the progress of our Cameron LNG facility, we want to take this opportunity to update you on our thinking around a potential MLP strategy. We have a great asset in Cameron and we know that it could serve as a very strong anchor for an MLP, as it will provide natural dropdowns given a significant cash flow underpinned by 20-year contracts. Since those cash flows don't start for several years, we continue to explore ways to jumpstart an MLP using our own storage and pipeline assets or by developing or buying other assets.

After much analysis, we've determined that, currently, our existing assets don't provide the certainty of cash flows to support the formation of an MLP that would generate the premium valuation our shareholders deserve. We will continue to assess this. In fact, assets like REX are well-positioned to secure contracts for transport of gas out of the Marcellus and Utica and could help start -- help jumpstart an MLP.

As you saw with our IEnova IPO, we are focused on structures that increase value for Sempra shareholders both today and into the future and we will time a possible MLP accordingly. Using Cameron as a strong foundation for a future MLP is bolstered by the many exciting prospects we have to grow in and around the LNG and Gas Infrastructure businesses.

Mark will provide you with more information on these emerging opportunities at next month's Analyst Conference. At that time, Joe will also go into more detail about our MLP thought process.

Let's now turn to slide 11 for an update on regulatory proceedings for our California utilities. In January 2014, SDG&E filed an uncontested multi-party settlement agreement with FERC on our electric transmission formula that established an authorized return on equity of 10.05%. The FERC order approving the settlement should be issued by the end of the third quarter in 2014, but will be retroactive to September of last year, and a settlement will be in effect through December 2018.

The settlement specifically allows SDG&E the right to apply for incentive adders on future projects and determines the equity ratio based upon actual equity recorded on December 31 of each year. In terms of the settlement, are reflected in our fourth quarter 2013 earnings and in our 2014 guidance.

Second on SONGS, the CPUC's proceedings remain ongoing and while the commission is encouraging parties to engage in settlement discussions, we expect a final resolution of all proceedings to take some time. We continue to believe that the amount of our remaining regulatory asset is reasonable and will be recovered.

Now please turn to slide 12. In Peru, our Santa Teresa Hydro project remains on schedule and should be completed later this year. The 100-megawatt project is our first generation project in Peru and I'm confident it will be the first of many additional projects we will execute there. In fact, Mark, Joe and I recently visited South America and are enthusiastic about prospects for growth in Chile and Peru.

We will discuss more specifics at the conference next month but there are a number of possible projects with South America that fit very well with our strategy, including gas pipelines and electric generation and transmission opportunities.

In Mexico, we also continue to move ahead on our many infrastructure projects. Construction of the first phase of our Sonora Pipeline project is on schedule and on budget and this 300-mile segment is expected to be completed in the second half of 2014. A second segment of the pipeline is projected to start operations in the second half of 2016.

In January, construction began on the Los Ramones 1 project as part of our joint venture with PEMEX and that pipeline is also expected to be completed in the second half of 2014. We continue to work on finalizing the contract for our participation in the northern phase of Los Ramones II and I anticipate these negotiations will conclude very soon. As you'll recall, we expect to have a 25% share of this segment of the pipeline.

Finally in Mexico, last quarter we started construction on the 156-megawatt ESJ Wind project, which is supported by a 20-year contract with SDG&E. As we discussed last quarter, formation of a 50-50 joint venture for this project was delayed due to our original prospective partner's decision to exit the wind development business. However, negotiations are progressing well with other interested parties and I'm confident we will finalize the JV very soon.

Finally, in the first quarter of 2014, we made the decision to hold for sale the second block of the Mesquite Power Plant in Arizona. It continues to be our goal to complete our exit of the merchant generation business and we are making good progress on the sale of this asset. However, since we do not yet have a contract for sale, we are not including the transaction in the guidance that we reaffirmed today.

Now let's finish by turning to slide 13. In summary, 2013 was another very good year for our Company, demonstrating how well our business strategy performs under changing market and regulatory conditions. We have already made significant progress on planned infrastructure projects and with over $2 billion of projects scheduled to come online before next year, I'm equally optimistic about future earnings.

Sempra's diversified portfolio and focused strategy on long-term contracted cash flows positions us well for growth in the years ahead. And with that let me stop and take any questions you may have.

Thank you.

(Operator Instructions)

Greg Gordon, ISI Group.

So can we take the commentary around the time horizon for the ability for you guys to flow to an MLP part and parcel with your willingness to be more aggressive on dividend in the intermediate term, as the financial balancing act you're making in order to try to drive the best shareholder value for your investors, until the point where you get to a viable portfolio of MLP-eligible assets?

Well, as I said, I think just the Cameron asset alone has great potential for an MLP, with the ability to drop down that in pieces over time and have clear visibility to that, and as the debt is paid off, the earnings increase and that there's some good upside from that asset.

Right now, as we look at the other assets we have, we don't feel that it would be in our shareholders' interest to do a bridge strategy without those assets, but I will say we're constantly looking at other assets that we could potentially acquire. And if we found some good assets that would create a good bridge strategy, we're not opposed to do that.

On the dividend issue, we have a great deal of confidence now about Cameron coming online. After getting the non-FTA permit and being where we are in the FERC process, we're feeling very confident about this project going online with all three trains coming on in 2018 and then full three-year operations -- three train operations in 2019.

And so -- and as we look at our dividend, we've had a policy of 45% to 50% payout ratio. We see the earnings coming in 2018 and 2019 and we really think that we can do that dividend and it's not being consistent with any MLP strategy. Joe?

Greg, I'll just make another point. I don't see them as very linked at all. I think that we have really strong earnings and growth in our other businesses besides just Cameron, and so this dividend is in response to our continually growing earnings from that.

And as we look forward and study the MLP, we'll have enough cash flow from LP and GP units to keep our dividend even post an MLP. So I don't see that as any kind of a bridge. It's from the strong earnings that we have.

Thanks. That's exactly the answer I was looking for. Follow-up question, have you considered -- you've been so successful in the IEnova transaction. Have you considered as a -- instead of an IPO of your MLP-eligible assets, doing a strategic transaction with another entity with an existing GP where you contributed your assets for a GP stake, and thus helped to drive further growth for that other entity and therefore added value to the GP shares that you would be acquiring?

I would say we look at all of those things, Greg. That -- the thing that we have got to be sure is that with the Cameron asset, we want to be sure that our shareholders get the right kinds of splits, have the right kind of long-term structure for our assets that we're going to put in. And if we found something that would work with that, we would definitely be open to considering it. But we're not going to rush to get something out that devalues our assets in the long term.

Thank you. Take care.

Neel Mitra, Tudor, Pickering.

I just had a follow-up on the MLP question. So you're not willing to use the bridge strategy with REX right now but with where midstream assets are going for in terms of valuation, how you expect to compete without having an MLP in place to buy some of these assets?

Well, what I said was that if we looked at our existing assets right now, putting them in an MLP to do a bridge strategy, we didn't think that was the best thing. What I also said though is that some things are changing with the value of those assets as we might see in the future. And as you know, that the effort to basically have REX flow bidirectionally are moving forward.

And that could offer some opportunities if we can have contracts that extend beyond the expiration of the existing contracts. So we just did a non-binding, open season and that had some -- gave us some promise that there's some real upside with that asset potentially.

So we will continue to look at that. And if we had to make an acquisition for a bridge strategy that made economic sense in the long term, we would look at doing what made economic sense in the long term.

Okay. Got it. And secondly, on the 9% to 11% growth rate, trying to bridge that with the previous 6% to 8% growth rate before, I guess, you guys included Cameron for 2018 and 2019. So does the 9% to 11% include projects that are not in the development plan or not in the earnings plan right now? Could that exceed 11% or is it -- you'd be closer to 9% without those projects and towards the higher end of the range if you executed on some of those growth projects?

Yes, we'll go through this in detail at the analyst meeting, but when we look at that range of 9% to 11%, the 9% basically includes what we have in our base plan without incremental growth, and Cameron at full operation in 2019. We will go through the upsides that we have in our -- that are not in our plan but our upsides to that plan at the analyst meeting, but there are a lot of things happening in that regard.

A number of bids are coming out in 2014 even that could add to that and get us towards the high end of that range. And that's what I commented on, is if we pick up some of those projects, we could definitely be towards the high end of that range by 2019.

Got it. Thank you very much.

Matt Tucker, KeyBanc Capital Markets.

Congrats on a nice year.

Thank you.

Apologies. I want to beat up once more on the MLP topic. (laughter) Assuming you don't make any major acquisitions and your existing assets don't change in such a way that you view them as more MLP-able between now and Cameron does start operating, should we assume that it is your plan to form an MLP with Cameron as the anchor in 2018 or 2019? Or are you still not sure that you'd go that route when you get to that point?

Well, I mean, these are discussions that obviously we will have with our Board of Directors as we get closer, but if everything stays as it does today, and there's opportunities to grow that midstream business with cheaper equity and do that, then that would be our intent. But that's a while off, so things could change, tax laws could change, interest rates could change, but as we look at it today, that's the direction we would be headed.

Thanks. And just to clarify on your comments around the dividend growth, you're planning to propose accelerated dividend growth starting, I guess next year, assuming that Cameron enters construction as opposed to staying on the same trajectory you've been on recently, and waiting all the way till 2018 for more of a step change. Is that correct?

That's generally correct. Let me just have Joe talk about how we're thinking about the dividend.

Yes, as we said, we right now today have a dividend payout ratio that is higher than the 45% to 50% that we've set with the Board long term because of the repatriation plan, and we just recommended it and they approved an increase of almost 5% now for this year.

And what we said is once Cameron is in construction later this year then when we go to them for next year's dividend, we think we will suggest a slightly faster pace that will allow us to get to the 45% to 50% in 2019. So you can kind of assume that will be suggesting something more of a straight line from 2015 to 2019 that gets you to that 45%, 50%.

Got it. Thanks. And just on the Cameron financing, is that pretty much just waiting for FERC approval before that gets secured? Or are there other issues that you're still working through?

Mark, why don't you talk a little bit about where we stand on Cameron in general, including the financing?

Well, I think in general, we're in very good shape and I would point out that -- just to comment on with in line with the dividend question, just to remind you all, that this whole project, we're committing existing assets. And we fully expect to finance and use the contributions from our partners to finance construction. So that's not a drain on our cash.

So we certainly are able to raise the dividend without -- there's no concerns there. As far as financing goes, and Joe can comment on this as well but we have -- we had a very, very robust response to our financing efforts, and we are highly confident of being able to completely finance this project without any problems.

Very helpful. Thank you. (multiple speakers)

(multiple speakers) where we are with the EPC, too. Just --

We're in the final weeks of negotiating the EPC contract. And what I can -- what I will say is that we will have -- we will come out of this with a contract that is a lump sum turnkey project contract that shifts the construction risk to the EPC contractor. And we -- I think there was always some concern whether that would happen, but the market has been good around that. And we have a very nice contract that we're very happy with, with a very experienced builder.

Good to hear. Thanks again.

Michael Lapides, Goldman Sachs.

Thank you for the update today and for taking my questions. I want to ask about the underlying assets within the US Natural Gas business. Can you talk a little bit about what you're seeing with gas storage economics, given the volatility we've just seen over the last couple of months, and whether a change in the economics has started to appear in gas storage or whether the gas storage market appears somewhat distressed -- depressed still?

Sure, Michael. Thanks for the question. Let me just start generally and then I'm going to turn it over to Mark to add a few more details. We did talk about REX, and what we see happening there. And many of you have written about what's happening in Marcellus and Utica. You've talked about a lot of the pipelines reversing flow, going into the Gulf area.

And what we see in the Gulf area is we see coal to gas conversion and we -- in the Southeast and in that region and we also see all the LNG export occurring, and that, that -- we think that is going to change some of the dynamics relative to storage, certainly.

And what we're starting to see is an interest in contracting on longer-term basis for some of the storage assets. Because I think others are seeing the same thing, and think that it would be good to get some long-term contracts. Mark, do you want to add a little bit to that?

Yes, I can -- a couple things I would just say is, is that -- and I know you can appreciate the technical nature of some of my comments here. But what we've seen in the past is that we've had a very depressed storage market, with really the only value being recognized is the summer or winter spread that, frankly, has been relatively small and weak over the last few years. We're certainly seeing that change now, we're seeing a higher value for that

But then I think even more importantly, for the first time in probably four years or so, we're seeing a real return to some extrinsic value. So valuing that volatility around the gas market, we're seeing a value putting -- put on that, and we're getting that in our storage rates currently.

So I think that part of the business seems to be coming back a bit. And in fact, I think for the first time, we've actually sold some storage to marketers, which we haven't done in a long time. So there is something going on there. I'm a little bit reluctant to say that it's back to where it was seven or eight years ago, but it's certainly a better market today than it was six months ago.

Got it. And when thinking about REX and the reversal of REX back to, at least a part of REX back to the Midwest, how long do you and your partners think you could -- how long do you think it likely will take before you sign up a lot greater percentage or greater portion of REX to move gas from either the Marcellus or Utica into the Midwest?

Well, we would hope to do that very soon. That -- as I said we had a non-binding open season, and there seems to be a lot of interest in that, and so we would like to pursue that. And then you've also seen all the announcements for the pipeline, some of which actually connect into REX, to reverse flows going from north to south. And so we think this is going to happen relatively soon, with a need for takeaway capacity out of the Marcellus and Utica.

We also are working on the lateral that we've talked to you about previously and that would be in service very shortly in 2014, probably by April. So the whole dynamics of that are changing that area. It's going to change rapidly and we need to be able to respond rapidly, and we will.

Got it. Thank you, guys. Much appreciated.

Rajeev Lalwani, Morgan Stanley.

I had two questions. One, can you just talk about what you're seeing as it relates to the market for buying existing midstream assets as it relates to pricing, things like that? And then second question, specifically on Cameron, with more clarity on financing costs, et cetera, as -- or do you still feel good about the numbers you laid out before in terms of the EPS contribution, et cetera?

Yes. Let me start with the last question on Cameron. Yes, we feel very good about the numbers that we've talked about with Cameron. With everything we've seen, with the EPC contract, the financing and all, as I reaffirmed today, those numbers look good.

I'll talk a little bit about, at a high level, the midstream. I don't want to go into details on assets, but what I think you're starting to see now is a cycle that's been interesting and it's repeated itself multiple times in the E&P business, where you're starting to see more E&P companies look at selling off some of their midstream assets so that they can invest upstream.

So I think what we saw a few years ago is starting to change a little bit, and so we will continue to look at opportunities as those changes occur. Chevron has looked at some asset sales, Chesapeake is looking at some asset sales, and it's very typical when E&P companies decide that they need to invest more upstream for them to look at selling off some of those assets, and so we'll be exploring that.

In terms of our asset pricing, obviously, you're competing with MLPs, and that -- and are interested in getting those assets. And so we will continue to look at every opportunity that is out there and whether it fits for us. The good thing is that we have some opportunities in the LNG space that Mark will talk about more at the conference, but I'll let him just maybe give a little bit on that right now.

Well, I would say that, if you usually think of LNG as being a midstream asset that's certainly MLP-able, we are starting to see opportunities in the LNG space and I'm going to go into some detail on some specifics at the conference. But I think we are starting construction on Cameron with the mindset that this isn't just a single asset business. It is a business that we believe we can grow and we can continue to add to it.

And we're very excited about the opportunity to really have an LNG business and not just an LNG asset. So I think that's what's very exciting and I will say, on the other midstream stuff, it's a very competitive market. The stuff we've seen that's been priced reasonably is stuff that we typically don't want. And the stuff that we've looked at that we want is either not for sale or very, very expensive.

And so we certainly are taking that into consideration, and I think most of you have enough confidence in us that this is a management team that's pretty thoughtful about how we make investments in these kinds of things and we're looking to be -- we are certainly anxious to do something that builds shareholder value but if -- we're also very willing to be patient.

I'd just add to that one thing, too, is we're a very strong Company. We have a very strong balance sheet, and where the 10-year debt is very low, and our after-tax cost of capital for borrowing money to buy something is pretty low. But, as Mark said, we're going to be very disciplined about looking at things and make sure they were the right thing to do.

Great. And just a quick follow-up. So you talked about the asset side. What about actually buying an existing company here or sort of that idea?

I'll ask Mark to add since I've already given kind of my views. So I'll ask Mark to answer--

When you say buying an existing company, you mean as far as in which space?

General partner?

Yes, sorry -- yes or rather than buying, doing it piecemeal and buying assets to put into an MLP, maybe buy an actual company that has existing assets. Either (multiple speakers) an existing MLP or something else --

I get it. I don't think exactly the same comment applies, which is -- I mean, it's -- the valuation metrics around assets and existing MLPs is pretty much the same, which is the ones you really want are very, very expensive and the ones that are -- look like they're reasonably priced, there's usually something wrong and something we don't want.

So I think the same -- all the same caveats apply, but as Joe said, we're more than willing to move on something if we find the right thing. We just haven't found it yet.

Great. Thank you.

Paul Patterson, Glenrock Associates.

I'm not going to ask you any more about the MLP. (laughter) But just -- since a lot of my questions have been asked, just a few quick ones. Is there any interest -- you guys have previously been in merchant power, you guys have really walked away from that, et cetera, given where prices are and things coming up for sale. Do you guys have any interest at all in that or is that pretty much still off the table?

No, I mean, really, our model now and our strategies, I think that's worked very well for us and that we have plenty of growth opportunities within this model is to do long-term contracted infrastructure. And so merchant business and the volatility of the merchant business doesn't really work well with our other assets.

And so if we could do a long -- a 20-year contract or something and build a plant, but I don't really consider it merchant, yes, we would do something like that. But to be in the market, like what happened with -- when our DWR contracts expired, is not where we want to be.

Okay. Makes sense. Just some real quick clean-up things. The Mexican taxing, did I understand it correctly that it's mostly nonrecurring, that there really shouldn't be any impact going forward?

Yes, going forward -- this is Joe -- going forward, it's $3 million to $4 million a year. It's 2% change in the tax rate on our pre-tax income. It's not big.

And then sundry items, the asset balance increased again. Was there any impact on the earnings for the quarter?

Yes. This is Trevor, Paul. Very limited there. On the sundry items, the increases there were primarily associated with the PBOP assets and the greenhouse gas allowances that increased there.

So that -- the PBOP assets and the pension assets increased by about $95 million, and the greenhouse gas allowances were about $60 million, and then we also had some workers' comp insurance increases there for about $40 million. And then included in there is also the Rabbi Trust, but year over year, that was about the same, so that was really the driver in the increase of the $263 million on sundry.

Okay, but I mean, but for the quarter, was there an EPS impact?

No. There was very minimal impact clearly associated with it.

And then finally, your stock has moved up a lot. Any thoughts of a stock split? I know it's a cosmetic question but just, since I've got you on the phone?

I mean, people always ask us that question. I think when Berkshire Hathaway trades as it does, you kind of feel that most of the buyers can afford the stock as it is. And so unless there's some other compelling reason, it's not something that we would spend a lot of time on, most likely.

Okay, great. Thanks a lot.

Kit Konolige, BGC.

Couple of cleaning up questions. So on the dividend, the dividend growth going forward, the comment was that it -- we would potentially see a slightly faster rate of growth as -- did I write that down correctly?

Well, we had said before a 4% to 5% growth. And if you look at a 4% to 5% growth, and you look at what happens when Cameron comes online with the earnings, you don't quite get to a 45% to 50% payout ratio. So we're looking at -- rather than waiting and doing the 4% to 5%, and then waiting to have a step function increase when Cameron comes online, to smooth out a bit. So that should yield a dividend growth rate that would be slightly higher than we would have done otherwise.

All right. Okay. Fair enough. Okay. And the -- your discussion of SONGS, it sounds as though your expectations are pretty low for any settlement. Is that a fair assessment?

No. I wouldn't assess it that way, but I really can't talk about any settlement discussions. So -- but I wouldn't conclude that it's not possible or that it is possible. I just really can't talk about any kind of confidential settlement discussions.

Right. How about in the absence of a settlement discussion, how long -- can you be any more specific about how long it might take until we get the fully litigated results?

Well, the -- all I can tell you is what the phases are, and there's four phases in the case. And we have a schedule for these first two phases, and we just heard that the first phase is already being delayed. It was supposed come out in February. It will be delayed now until the end of March. And so we're thinking this will certainly take through this year and probably into next year, if you just look at their schedule.

Okay. More CPUC delays, right? (laughter) They never announce that it's coming sooner.

And then one other area that I just jotted down. So on the impact of tax expense on the repatriation, is that going to be a steady impact in years going forward now? In other words, year over year, will there be any change in that?

Yes, let me ask Joe to handle that. The thing I'd just remind you all is this year, we did the IPO. So it was a little different this year, and we repatriated about $200 million associated with that.

Our plan calls for us to repatriate about $300 million a year henceforth. Joe, why don't you talk about the tax on that?

Yes, thanks. So I think what we said a year or more ago when we announced this plan, was that it would go on for about five or six years and that we would have this earnings impact, which would be roughly $0.25 or up to $0.30 a share. It might move around a little bit, just depending on some issues around the tax rules, the way they work and with our other income, but it should be in the neighborhood for about five or six years but pretty [insignificant].

Very good. Okay, and one final area, just to get my thinking straight on this. The growth rate of 9% to 11%, can you give us a sense of what are the building blocks there?

In other words, is that simply the prior growth rate plus a CAGR that would get us to the addition of Cameron when it comes online? Or are there other things going on there?

Yes, basically we'll go through this as an update at the analyst meeting, but as we showed you those charts last year that had our growth rate through 2018, 2017, and then it showed if you added Cameron to that, the 9% to 11%, that's basically what we're talking about. It basically takes what our 2018 earnings would be on our base business, you add the full year of Cameron, and that's what gives you the 9% range. And then there's upside, as we showed you last year, in terms of additional opportunities that could get you towards that 11% range. And we'll go through those in detail at our analyst meeting.

That's great. Thank you.

Mark Barnett, Morningstar.

I learned a new term today, MLP-able, Mike. (laughter) Outside of the US, you've been doing obviously some really good building business down, obviously in Central America, focused on Mexico. But I guess maybe with that [growing] base of assets, and maybe with the growing relationship, particularly with a partner like GDF Suez, do you see maybe some of these partnerships as a beginning of a larger platform for Latin America?

And I guess second part of that question would be, I know your position's already fairly strong but is there any benefit to maybe a more formal agreement pursuing projects or is an ad hoc approach better suited?

Yes, I mean, I will say that we are looking at some bids that will be coming up. And we're looking at partners that are -- would be good partners for us for those kinds of bids. And that, we -- as you can see with our Cameron facility, and what we've done with our renewables business, we are not at all opposed to partnering. And especially if it can create a bigger pie by partnering, we really like that.

So I think there's every opportunity that we would look at partners in Mexico, especially if we want to get into, as we would like, to some of the gathering and processing, and areas like that in Mexico. It would be ideal to have a partner to work with there, and then the same thing, South America. And I would say the same thing in the United States.

Okay. And maybe a further question on Mexico, in particular. I know it's still in progress and you've mentioned the gathering and processing, and obviously, gas infrastructure is appealing. But do you think that there -- given some pretty, I guess, impressive growth fundamentals and investment needs, does electric distribution have any interest in the longer term to Sempra?

This is something that I would just say we are watching. I know that the thing that we're really watching is what happens with rate structures that really allows you to be competitive, and we think the electric business is a good business. There's got to be a lot of capital requirements in that business.

In the long term, we have aging infrastructure throughout the US, so there's a lot of opportunity to invest in transmission as well. So there are parts of that business that we like a lot, and so I wouldn't rule it out.

We happen to own the largest gas distribution company, and we love the gas business. So that -- a lot of our growth is really focused on the gas side, as you see, but that doesn't mean that electric is not of interest to us.

Okay. And I guess in particular, for Mexico, there is still, I guess, a lot of rate formalities, as it were, that have yet to be ironed out around electric distributions, is my understanding?

Yes.

That's correct.

Yes, okay. Thanks. Appreciate that.

Jin Zhou, Avon Capital Advisors.

Actually, it's Andy Levi. How are you doing? Sorry about that. I apologize if the question was asked, because I see the headlines but I was at a different meeting. So I kind of just got back.

But just on the MLP front, and would you guys consider purchasing -- I know it says here on the headlines on Bloomberg that you purchased assets to create an MLP. But would you actually consider buying a small MLP to jumpstart that process?

Yes, we would consider that. What our focus will be on though, is creating the greatest long-term value. And if we saw something like that, that was reasonably priced, we thought we could grow it, with some other assets we have, we would be particularly interested in something where, if you combine the assets that they had with the assets that we had, one plus one would equal more than two.

And if we could find something like that, then yes, we would be open to that. Mark stated earlier that what's been shop, usually is if it's priced reasonably, it's not something we would have much interest in.

And that a lot of the other things just seem already having every potential growth priced in. And so we'll -- if it looks like it would be good for our long-term shareholder interest, we are absolutely willing to consider that as an option.

And I assume you have, obviously, you have the currency to do that. So, I guess that gives you some options, a better way to put it.

Yes.

Right. Thank you very much.

Josh Golden, JPMorgan.

I'm so sorry for asking the question upfront -- it probably isn't the best place to ask you, but can you talk a little bit more about the LNG, Cameron LNG terminal? So from the producer side, where exactly is this gas going to be coming from? Is this more Marcellus/Utica gas or is it more Eastern Texas-type of gas?

And I guess I'm just sort of thinking, in combination, many years ago, you guys made an acquisition of EnergySouth and the storage assets down there. So I'm just trying to think about how all this works together? And really curious, where do you see the gas coming from for this terminal?

Yes, let me ask Mark to answer that, but I just want to be clear on one thing. We don't buy the gas for the terminal. Our customers will be buying the gas for the terminal.

Basically, our contract for this terminal is almost like a take-or-pay contract with a pipeline, where when the facility goes in service, whether they use it or not, we get paid, and that they buy the gas and they sell the gas. So I just want to be sure that you understand how the structure -- before Mike answers your specific question.

Sure do.

Okay, yes, look, I think -- well, this answer is going to sound a little bit like the current administration. It's kind of an all-of-the-above strategy. Our customers are going to acquire gas, both -- they will be Marcellus gas that we expect to flow south into the facility and we'll also, obviously -- the Texas production will flow there as well and there could even be MidCon and other production basins that will flow into this facility.

And if you think about our facility, and the other LNG facilities that are in that region, even with the -- and couple that with the petrochemical businesses and the proposed, petrochemical plants all in that Gulf region, this is going to be a very, very large area of consumption for natural gas. And so supplies will come from all over the -- all of the producing regions will end up supplying this region.

And we're seeing that now and it's actually -- that's one of the things that's creating value for not only our storage assets, as you mentioned, but also some of our pipeline assets that you might not even think about. REX is looking like becoming more of a header system for the whole north part of the country, and that header system is going to feed both going north and south. So we do think there will be some interplay with our other assets.

So that's interesting. I had just one follow-up. So if you look at the basis spread differential, it's really collapsed here over the years and hence, all the feedback, storage, et cetera.

What do you think will happen to basis spread differentials between north, south, et cetera? Do you see those increasing again or how do you see that shaking out?

I think because we're -- we have found gas in so many places across the country and some of those places are so close to the consuming regions, basis spread has collapsed around the country. And I think what you're going to really see is -- and like all infrastructure, we do have a lot of pipeline infrastructure, just some of it's not going in the right direction. So as we make the incremental investments to be able to move gas in the right -- in the direction that we need it to go, you're going to see the basis kind of reduce down to the tariff on those lines.

Okay. Excellent. I really appreciate your time, and thank you very much.

Michael Lapides, Goldman Sachs.

Real quick, I'd like to turn back to the original -- or one of the original businesses, the utilities in California. Can you just talk a little bit about how the agreement with the FERC -- on FERC transmission impacts revenues for 2014?

Sure. Let me go through exactly what the settlement is and then talk about the impact. So it's a multi-party settlement. It's uncontested. It's just an ROE of 10.05%, and it's based upon the actual equity as recorded on 12/31 of each year. It will go from September 1, 2013, to December 31, 2018, so that gives you the duration of this.

And if you look at where we were at a 11.3% ROE to a 10.05% ROE, that's something like $20 million to $30 million a year of impact to the net reduction of ROE, based upon the FERC assets, the FERC rate base that we have, and that has been included in our guidance.

So the numbers that we gave you, we started having this effect in 2013. Once we knew a settlement was pending, we were booking to the settlement amount, and it's reflected in our 2014 guidance.

So when you say it was in the 2013 numbers, meaning that full amount was, so there's no incremental year-over-year Delta or it was part of that 2013 (multiple speakers) part of 2014?

The only incremental would be, as the rate base increases, but it was in the 2013 for the fourth quarter from September 1 forward when the prior rate expired.

Got it. And on the O&M side at both utilities, I mean, you guys, over the years, have been one of the best, if not the best, operator at the utility level. Just curious what some of the operating efficiencies you've been able to find and how we should think about directional trends from 2012 onwards for the next few years in terms of utility O&M?

I would say that we're always -- this is a constant improvement effort at our utilities, as you well know. And so that last year, some of the efficiencies of operations were able to offset some of the things like the reductions in ROEs and SONGS to some extent. And we would see us continuing to work at that level of efficiency, and looking for other opportunities to improve.

What I will say is safety is our first priority, and we will not do anything that would reduce the safety of our service. And so that is a key focus for our people, but new technologies come in all the time.

We have opportunities to change the way we dispatch workers, change the way we time appointments, change the way we use technology to answer customer calls, route customer calls. Those are the kinds of things we really focus on that can improve customer service, improve safety, and reduce costs.

Got it. Thank you, Debbie. Much appreciated.

Winfried Fruehauf, W. Fruehauf Consulting Limited.

Regarding Energia Costa Azul, what was the net income contribution in 2012 and 2013, and also the fourth quarters of each year?

Yes, we don't break it down -- we share our data at segment level, Winfried, so we would not break it down to that kind of a level. You can look at the Mexico segment and see.

But --

But it's -- and it's relatively [higher], it's relatively stable because it's under a long-term contract so it's very little difference when you're involving 2013. It's the same, but we don't give that kind of detail.

Okay. Another question if I may. What was the total foreign exchange impact in 2012 and 2013 and also the fourth quarters of each year?

Across all businesses, it was fairly -- fairly small. I don't have the number right off the top of my head but in the fourth quarters, it was approximately $5 million to $6 million in the fourth quarter of 2014. But I'd need to pull the number to get that specifically for you, and not much different from that for the full year.

Okay. And that was negative?

That's right.

The dollar was strengthening.

Yes. Okay. Well, if you could maybe get back to me please with the numbers, that would be appreciated. That's all I have. Thank you.

Okay, thanks Winfried.

Kit Konolige, BGC.

Just a couple of items. On the 9% to 11% growth rate to get back to that, what's the base EPS that you're using there? Is it the 2013 actual amount?

No. We'll go through that at the analyst meeting. I don't have all of that in front of me right now. We'll update all of that for 2014 through 2019 -- or 2018, and then show you 2019 at the analyst meeting. And I'd rather do it that way versus giving you pieces of information, because I don't want to create confusion around it. And we'll have slides on all of that at the meeting.

Sure. Okay. One other item. I noted that Energen is -- according to reports, is selling Alagasco. You guys have been in that part of the world for awhile. Do you have any interest in gas distribution in Alabama?

We can't really comment on any kind of transactions like that, so --

Okay. Thank you.

That concludes today's question-and-answer session. Ms. Reed, at this time, I will turn the conference back over to you for any additional or closing remarks.

Well, thank you all for joining us today, and thank you for all of your questions. We look forward to answering more questions at our analyst meeting coming up at the end of March, and going through a lot more detail with you at that time.

In the meantime, if you have any questions that you need follow-up on, please contact Rick Vaccari or any of the people in our Investor Relations group to help you in the meantime. And we will see you at the end of March. Thanks.

Thank you. That does conclude our conference. You may now disconnect.