桑普拉能源 (SRE) 2014 Q2 法說會逐字稿

Good day and welcome to the Sempra Energy second-quarter 2014 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. Today we'll be discussing Sempra Energy's second-quarter 2014 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 second-quarter 2014 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, August 7, 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. On this call, we will discuss our second-quarter financial results and provide you with key operating and regulatory updates. This morning we reported second-quarter earnings of $269 million, or $1.08 per share. Together with a outlook for the second half of the year, we expect to be at or above the midpoint of our 2014 guidance.

Given our strong operating performance and success in delivering planned projects on schedule, combined with the progress we're making on capturing some of those additional development opportunities, we are on track to achieve our 9% to 11% growth rate through 2019. Notably, our Cameron Liquefaction project has achieved several key milestones, and we expect to begin construction this year as planned. On June 19, we received our FERC order, and yesterday we executed the financing document and made the final investment decision with our partners.

In Mexico, IEnova is on schedule to place in service the first phases of the Sonora and Los Ramones Pipelines by year end. We are extremely proud that since January 2013, IEnova is the best-performing IPO in the Americas and the second best-performing IPO worldwide. In Peru, commissioning of the Santa Teresa Hydro project will begin this month. In the US, REX east-to-west flows of 1.8 Bcf per day are now fully contracted. Also this past week, we signed a power purchase agreement with Edison for a 94 megawatt expansion at our Copper Mountain Solar facility.

On the regulatory front, our California utilities received a positive final PSEP decision in June. We are also continuing to work on the development projects that could provide additional upside to our five-year plan and sustain our superior growth rates. Examples include LNG, natural gas pipelines, renewables and hydro in Peru, and we will talk about these projects later in the call. Now let me hand things to Joe to discuss the second-quarter results in more detail, starting with slide 4. Joe?

Thanks, Debbie. Sempra's second-quarter consolidated earnings were $269 million, or $1.08 per share. This compares to adjusted earnings of $258 million, or $1.04 per share in the same quarter last year.

Moving to guidance, as Debbie just mentioned, we now expect to be at or above the midpoint of our 2014 guidance of $4.25 per share to $4.55 per share. Let me elaborate a bit on what this guidance range includes. Consistent with our development and partnership model for renewables, we include the promote we recorded on the CMS 3 project in the first quarter and the promote we will record on ESJ next quarter for the formation of these joint ventures. We also now include the $9 million additional charge we recorded in the first quarter related to the SONG settlement agreement. However, we do not include any possible gain on the sale of the remaining block of our Mesquite combined-cycle power plant, nor do we include anything for the tax reform proposals being discussed in Chile.

Before proceeding to earnings for each of the business units, I would like to also mention one timing-related fracture factor I discussed on last quarter's call. Remember that in the first quarter of 2013, we recorded a $63 million deferred tax expense related to the IEnova IPO restructuring. In the first quarter of 2014, we reported $12 million of estimated deferred tax expense to reflect a portion of the planned repatriation for this year. We recorded another $12 million of deferred tax expense in the second quarter of 2014. Our estimated annual tax rate reflects the recording of deferred tax expense each quarter in accordance with the full year's planned repatriation.

Now let's turn to slide 5 for details on SDG&E. At SDG&E, earnings for the second quarter were $123 million, up from adjusted earnings of $115 million in the second quarter of 2013. We are really very pleased with this result, as the increase was due primarily to higher CPUC-based margin and improved operating performance.

Please turn to slide 6. For SoCalGas, second-quarter earnings were $80 million. Compared with the second quarter of 2013 SoCalGas had $9 million in higher CPUC-based margin in improved operating results. Offsetting items included a higher tax benefit in the second quarter of last year, and certain costs for our pipeline safety enhancement plan, or PSEP. Specifically, we incurred $6 million of PSEP costs in prior periods that were denied recovery in the final PSEP decision.

Now let's move to Sempra International on slide 7. At our South American utilities, second-quarter earnings were $42 million, up from earnings of $34 million in the second quarter of 2013. The increase was due in part to higher operating earnings from growth in customers and energy sales, combined with reduced costs. In addition, we had a $4 million loss in the second quarter of last year from the sale of our investments in Argentina.

For Sempra Mexico, second-quarter earnings were $34 million versus earnings of $26 million in the same period last year. $11 million of AFUDC equity earnings in the second quarter largely accounts for this increase. As you will recall, we began recording AFUDC equity on the Sonora pipeline, since it is an asset that has a regulated rate of return and qualifies for regulatory accounting treatment under US GAAP. Partially offsetting the AFUDC earnings was the effect of foreign currency translation on deferred tax balances in the second quarter of 2013.

Now please turn to slide 8. At Sempra US Gas and Power, the natural gas segment earned $4 million in the second quarter of 2014. Second-quarter earnings are lower this year compared with last year, due primarily to mark-to-market gains on our gas storage positions in the second quarter of 2013.

Second-quarter earnings for the renewable segment were $18 million versus $15 million in the same period last year. The increase is largely attributable to higher operating performance and deferred tax benefits for assets currently being placed in service. With that, let me hand the call back to Debbie to discuss slide 9.

Thanks, Joe. Now we will give you an update on our major businesses, starting with LNG. As I mentioned earlier, on June 19, we received the FERC order authorizing construction and operation of our Cameron Liquefaction project. In July, FERC provided Cameron with a notice to proceed onsite preparation activities. Now that all FERC hurdles have been cleared, the only remaining significant regulatory step is receipt of the final DOE non-FTA permit, and we expect to receive this permit and begin construction later this year as planned.

Yesterday, with our partners we also executed the financing documents and completed all requirements for making the final investment decision, commonly referred to FID. Financing commitments for the project totaled $7.4 billion and will be provided by JBIC and a group of 29 international commercial banks, some of whom are insured by NEXI. Cameron received 16-year financing and highly competitive pricing due to the quality of its lenders, sponsors, and customers. The transaction represents one of the largest project financings in US history.

Now please turn to slide 10. At our analyst conference in March, we discussed our interest in growing our LNG business. We are continuing efforts in this area, with an initial focus on expanding existing assets. For our Cameron facility, now that we have reached FID, we will begin working with our partners to complete the development plans and initiate the FERC process for trains 4 and 5. We believe the Cameron expansion will be one of the lower-cost alternatives, especially when compared to greenfield development.

Our ECA LNG plant in Mexico is also well situated from a market perspective, as the only brownfield facility on the West Coast. We are focused on determining the critical path items that would influence the feasibility and size of a potential export facility at ECA. These include issues around gas supply and delivery, customer interest, existing contracts, and regulatory requirements. A positive development is that Mexican energy reform legislation now includes a basic framework for private-sector LNG exports. In addition to ECA, we are assessing design options and feasibility for our potential Port Arthur facility in Texas. We will provide updates on our progress periodically, and are optimistic about our ability to grow our LNG business with Sempra's existing assets and capabilities.

Now please turn to slide 11. Our US Gas and Power business has two other project updates. On the REX pipeline, the 1.8 Bcf per day of existing east-to-west capacity is now fully contracted. REX put a portion of this capacity in service in June, and the full capacity will be in service by next summer. All of this capacity, except 0.2 Bcf per day, represents the capture of development opportunities additional to our five-year plan. On July 31, US Gas and Power also executed a power purchase agreement with Edison for a 94 megawatt expansion at our Copper Mountain Solar complex. For this project, we would expect to achieve commercial operation by the end of 2016 and have a 50% ownership share. Under the agreement, Edison would purchase power beginning in 2020.

Now please turn to slide 12. Moving to Sempra Mexico, the initial phases of the Sonora and Los Ramones pipelines are both on budget and on schedule to be in service by year end. Each represents an investment of around $500 million. IEnova secured financing in June for the 155 megawatt ESJ wind project, and in July, they finalized the sale of 50% of the project to InterGen. Regarding development projects under Mexico's five-year infrastructure plan, official bid documents for the first two natural gas pipelines have been published. The first project is about 155 miles and will eventually connect with one of the proposed pipelines to be constructed in the United States. The second project is about 260 miles in northern Mexico.

Tenders for these projects are due in October, and IEnova is preparing to participate in both bids. The two projects together would likely represent investments of over $1 billion. In addition to these two projects, three pipelines in the US and five more pipelines in Mexico are planned to be tendered in 2014. Opportunities in other sectors will also be bolstered by the energy reform efforts that just passed. As one of the largest energy companies in Mexico, we are looking forward to the opportunities that energy reform will bring in sectors such as liquids transportation, gathering and processing, and power transmission.

Now turning to Peru, we expect to begin commissioning of the 100 megawatt Santa Teresa hydro project this month. Building upon our success for this project, we are exploring several additional hydro opportunities in the country. Luz del Sur has been granted a temporary concession on hydropower project Santa Teresa 2, with a potential design capacity between 250 megawatt and 300 megawatt. We are progressing on environmental and feasibility studies and have begun conducting local outreach. Additionally, in southern Peru, we are assessing feasibility and design of two hydropower projects that could provide a combined capacity of around 350 megawatt. All three hydro projects are potentially large, technically sound investments, and we intend to make a decision on moving forward on these by early next year.

Now please turn to slide 13 for an update on our California utilities. SDG&E and SoCalGas have both been making important headway on several regulatory issues. On June 12, we received the final PSEP decision. The decision is favorable in that it adopts our overall implementation framework and approves a process for cost recovery and balancing account treatment, subject to a reasonableness review. This decision covers expenditures in populated areas, and consistent with what we reported at our analyst conference, capital expenditures are estimated to be about $1.5 billion through 2018. On July 25, we submitted a notice of intent to file the 2016 general rate cases for both SDG&E and SoCalGas. After CPUC staff reviews these submissions, the utilities expect to file an official application in the fourth quarter of 2014. The CPUC final decision is scheduled for late 2015.

Now let's finish by turning to slide 14. In summary, we are on track for another strong year. We expect to be at the midpoint or higher of our 2014 earnings guidance. Our core businesses are performing well. We received a positive PSEP decision at our California utilities and are on schedule with our major projects, like Cameron LNG and our Mexican pipeline. We are also making great headway on some of our development opportunities. REX has an additional contracted volume, and we are seeing many opportunities for growth emerging in both Mexico and Peru.

With that, let me stop and take any questions that you may have.

(Operator Instructions)

Julien Dumoulin-Smith, UBS.

First, can we discuss REX here for a second in the context of what's in the five-year plan versus outside? Could you give us a little bit of a sense -- what does 25% mean, if you could define that? And then also, regarding the non-binding open season, where is that shaking out as far as you've received interest, if you could comment a little bit more, if you wouldn't mind?

Okay. I'll start, and we did put a slide in the package, because we do understand the REX issues are kind of confusing. So if I could refer you to the slide, and the slide number is 17, I think that would help you understand what's in and what's not in the plan. So let me walk you through that.

If you look at the Seneca Lateral piece of that, that's 0.6 Bcf, and about 0.25 of that went into service in June of this year. That piece was in our plan; we expected that to happen. That was in our five-year plan.

But what has now been contracted is an additional 1.6 billion in addition to that, and that comes in over phases. The next phase of that is another 400 or so that will come in at the end of this year and provide some upside to our plan next year and beyond. And then the remaining 1.2 Bcf comes into service in the middle of next year, and that is, again, incremental to what we had in our five-year plan. So this is a really positive thing for us just with what we have under contract.

In addition to that, there was a non-binding open season that was conducted in May. And that we're in negotiations with parties on the results of that, and we will announce the results of that when we've concluded those negotiations, which are underway right now.

Great. Is there a timeline on the negotiations?

I would say within the next couple months, we would anticipate something coming out.

Great. And then --

Again, I would just say none of that was in the plan. So whatever that is, that was not in the plan either.

Excellent. And then moving back to the LNG side of the equation, could you comment a little bit on where you stand on incremental contracts for both of the projects of 4.5 and ECA? And perhaps specifically where you sit in the decision FTA versus non-FTA?

Yes. What I'm going to do is give you a high-level, and then I'm going to turn it to Mark to go through project by project and what we're looking at there. I would say the great thing that we have is that when we look at our Cameron facility, it is a very commercially viable facility. We think it's really well-positioned in the marketplace, and we also believe our eco-facility would be very well-positioned in the marketplace.

So a lot of effort is underway to look at the next steps at those facilities. And then we have this wonderful location with Port Arthur, and what might we be able to do with that? So we are very focused on the next steps. And let me turn it to Mark to talk a little bit about that.

Okay. With respect to Cameron, I think, as Debbie says, a great facility. I think the thing I would add to that too is that the partners in the facility are world-class trading partners with extensive LNG businesses. So while we have not signed contracts yet for trains four and five, we're really just beginning starting to think about that as we've completed FID and moved forward with the constructions of trains one through three.

So I think that the next step for us is to talk with our partners, decide how much capacity everybody would like, and then to see if we're going to market any of it out to other parties. And that hasn't really begun yet, but I think that's something that will be in the works now that we're moving forward with FID.

And I would just say with that facility, too, is there are -- the big point here is that facility, along with our eco-facility being brownfield sites, obviously have a cost advantage and a construction advantage over any of the greenfield sites. So it's our expectation that the market will look to brownfield sites, ours included, but also including others, and expansion of those existing facilities first before they really look at a lot of greenfield opportunities.

With respect to ECA, we are undergoing studies right now to determine the amount of gas that's available for the facility and the cost of delivering that gas into the facility. And then once we determine that, which we think will take us towards the end of this year, once we determine that, we'll lay out some plans for the size of the facility and start marketing to customers.

We have a lot of customer interest, and we don't think that the acquiring customers will be a big issue. But we haven't started that marketing yet, because we haven't sized the facility, but we're in the process of looking at the parameters to do that.

And then with respect to Port Arthur, it's a great site. It is a greenfield site. We think the advantages of Port Arthur is that it's such a large site and has such good water access that the possibility of doing things beyond just LNG are there. There's other -- it's actually been proposed in the past as a crude terminal and other types of activities. And we think those activities could co-exist with LNG, making it, in the long run, one of the more cost-effective greenfield sites in the country.

So those are all positives in where we're going, and then did you, Debbie, do you want comment on the process?

Yes. You asked the question, Julien, about the DOE non-conditional FTA. And going through the conditional FTA was really where the review, the extensive review occurred with DOE. So we would anticipate in the next few months to see the DOE non-conditional FTA. We've seen recently other companies get their conditional FTAs. We haven't seen any change in criteria, so we would expect that to be coming out in the next couple of months.

And then that would allow us to begin really full construction on the site, but we are doing some site preparation activities. We've gotten the authority from FERC to be able to do that, and so we're actually working on the site right now.

Excellent. Well, thank you very much for the thorough response.

Steven Fleishman, Wolfe Research.

Couple questions. First, just with the final financing terms and the like, are all the numbers you've given for Cameron one to three still right in line with what you've said before?

Yes. We did, I think, a couple of things. We've given you the range of $9 billion to $10 billion. We're still in that range. And we looked at the financing. The financing came in very competitively, as I mentioned in my comments.

What we're looking at now is at the $10 billion range being somewhere towards the middle of the range that we've given you for the first few years of operation. And then as the loan starts to be amortized, we would anticipate that over time, the annual earnings would be $400 million or so. So $300 million to $350 million is still a range we would see being closer to the midpoints of that range in the first few years of operation, and then we would see being in excess of $400 million after the loan starts to amortize.

Okay. And then to set expectation, what's a reasonable time frame to think about potential contracting of trains four and five?

I can't really answer that question. I will tell you that it's something that is a big focus for us and that we're going to put a lot of energy into it, just like we did getting Cameron done. But that you've got to get -- you've got to do the same things we went through Cameron.

And the good thing is we've been through the FERC process on that site, so it's not a new site to go through the FERC process. So telling you a time frame on that, I can't tell you. I'm hoping it would be expedited, because we've already been through the FERC process on that side. But I really can't give you a time frame at this point.

Okay. And then just one last question on the -- you've given your three scenario options on MLP back at the Analyst Day. Any new thinking on those three options, or is it pretty consistent with what you said then?

Let me have Joe talk about that, because we continue to do work in this area. And clearly, with the situation with REX being as positive as it is, we constantly are looking at that. So let me ask Joe to hit that.

Thanks, Debbie, and Steve, thanks for the question. As she said, it's some subject that we spend a fair amount of time on, because it's very important to us and to the shareholders. And we're looking at the MLP space and the Yieldco space actually. And the ones that have the highest visible growth, particularly with large drop-down portfolios, those have the lowest yields and the potential for the highest value.

And so let me tell you a little bit more about what we really are doing. We're continuing to evaluate that value proposition, and we're studying the legal and financial aspects of both the MLP and the YieldCo space. And as we've noted before, having the clear growth strategy for the business is the critical element. So we're very excited about our growth at Sempra and focused on executing, as Debbie said, on all these projects that we're doing.

At the same time, we're focused on getting the best market value for the shareholders on this growth, and that current MLP Yieldco structure appears to offer the good opportunities for that. So we haven't made a decision at this time which of the structures is exactly the right one, but we're very focused on it and looking at it and continuing to evaluate all of them as opportunity.

I would just add to that, that we'll look at that in conjunction also with the timing. And as I've said before, part of the analysis is looking at, with an asset as valuable as Cameron, how does the timing fit with splits and things like that? So all that analytical work is part of our assessment.

Okay. Great. Thank you.

Greg Gordon, ISI Group.

Hi, Greg.

The first couple questions checked a lot off my list, so I'll try to be brief. I'll probably fail, but I'll try to be brief.

Thinking about when the revenues are rolling in on the stuff that's not in plan, you've been very clear that 2015, 2016, there's 1.4 Bcf a day of revenue opportunity off of the REX backhaul that wasn't in the plan. Should we assume that should the Clarington West open season become a commercially viable opportunity that that would hit in the second half of 2015? Or does it hit in the first half of 2016, in terms of incremental revenue? What's the timing assumed on the current path to bringing that into the revenue line?

The timing on the current path is sometime the middle of 2015 is that it's expected to go in service. And let me just go through the increments again to be sure the numbers that you have are consistent.

We have 200 to 250 in service now, and that was in the plan. We add incrementally 350 to 400 at the end of this year, and that's additive to the plan. And then we would add the remainder to get to the 1.8, which is another 1.2 in the middle of next year sometime.

Right at (multiple speakers).

And then on the Clarington West, that the timeframe on that is not certain, because with that -- and a lot of that has to do with how you design it and what the volumes are and how you design it. So we don't know what the time frame of that would be.

Right. And Clarington West, if it's successful, would require more capital investment than the Seneca Lateral and the 1.2 that you've already signed up, correct?

Yes. There would be compression for one piece of it and then there would be looping for the other piece of that. For what we've done so far, the capital is really not very large at all. I think it was like $70 million some odd, $80 million.

And the maximum size of Clarington West was another 2.4, or am I overstating it?

No. That's right. That's the maximum size if you do compression and looping.

Great. Then I have one question back on the utility. You gave guidance for a range of earnings for SoCalGas of [360 to 390] in 2015 at your Analyst Day. I'm wondering as you now are analyzing the rate decisions you've gotten, for instance the PSEP decision, where you think you'd come out inside that range?

Well, the ranges that we gave you in March of this year, we would anticipate being in those ranges for SoCalGas.

Okay. Great. Thank you.

Thank you.

Rajeev Lalwani, Morgan Stanley.

Thanks for taking my question. The first is clarification. Joe, when you said earlier you're looking at different options for structures, were you saying that you're considering doing a Yieldco and having Cameron be a part of that?

I was saying that we're open -- we're looking at all of that. We're trying to determine what vehicle might exactly be the best, and we're keeping our options open as to what the right vehicle is. So at this point, it's open.

Okay. And then hypothetically, if you did go down a Yieldco-type route, what other assets in your portfolio do you think would fit well? Obviously, you've got the renewables, but do any other assets come to mind?

That would be probably the primary asset, other than the ones that we've spoken about before that would go into an MLP.

Okay. What about some of like the Latin American assets you have? There have been a couple of Yieldco's with those types of assets.

We've spoken about it a little. We haven't really done much analysis on it. It's a lot more complicated, obviously, and inside the utility it probably wouldn't fit that well. But it's certainly something that we are keeping an open mind about.

Okay. Great. And then in terms of, there was a pipeline that was bid, I think in Peru a couple of months back, and I think you were disqualified or there was some sort of issue. I was hoping you could provide an update there and some color on what happened.

Yes. I'm going to have Mark talk about what happened with that.

Okay. Well, what happened was is we were in a competitive bidding situation, and we were in a consortium with other bidders -- with other participants in our consortium. And one of our members at the last moment decided to change ownership percentages, and that caused us to have a technical disqualification. And so our bid was rejected, although we did open it publicly and announce it and it was the best bit, it was the low bid, so I think we would have won.

And it was just unfortunate that we had this technical problem that caused our bid to be disqualified. But I think it gave us a lot of encouragement in the sense that having gone through this process on this pipeline and there's other projects coming up, that we were obviously very competitive. We came up with the lowest price. We think we had a better route and a better approach to the project.

And so I think we're emboldened to think that we're going to be very quite competitive in the future. It's unfortunate we had this little setback, but I think moving forward we look upon this -- our group as positively as one that can win projects down there.

Okay. Just one last question, if I can. In terms of thinking about the potential economics for an ECA and/or a Cameron four and five, how similar, dissimilar, would it be to Cameron one through three, both in terms of the equity investment as well as the returns potential?

Well, I'll take that. This is Mark. Obviously, the expansion is less expensive per ton of production than even the brownfield conversion, to a certain extent. As you get bigger and bigger, then you start -- it becomes less effective because you might have to add tankage and stuff. But with what we're considering, I think we would be very cost competitive, so the costs wouldn't be -- would be less than what we're currently contemplating, and I think that's what's going to make it very attractive.

We would expect similar kinds of returns as we would get. So I think that we would probably share those efficiencies with the market to make sure that we can sell the capacity, so I think those are all positives.

And then with respect to ECA, little different facility there, a little different footprint. But I think roughly speaking, the economics are somewhat the same, but ECA would likely be a smaller facility or will be a smaller facility.

Very helpful. Thank you.

Before I take another question, I wanted to comment on something back on the REX sheet to be sure everyone was clear. On the sheet that we have as 17, it says 25% of the volumes. I just want to remind everyone that we own 25% of REX, so when we're talking about [1.8 and 2.4], not all of that flows to Sempra. I think you all know that, but I just don't want to mislead anyone.

Matt Tucker, KeyBanc Capital Markets.

Hi, and congrats on the Cameron FID.

Yes. Thank you.

I wanted to ask about Mexico first and how you feel about your chances on these two CFE pipeline bids, and if you could comment on how the competitive environment for these bids compares to other pipeline opportunities that you've gone after there recently.

I'll just start by saying that we are really excited about the opportunities in Mexico. And the good thing that we have is we have the infrastructure there. We have the team there. We have the ability to get pipe to the jobs. We have all of that, because we've done projects.

So I think that that -- why competition is probably going to be higher than we saw in the past, I think also, being on the ground with a project that we already have there provides us a great competitive advantage in terms of our ability to show that we can deliver on these projects. We have the two projects coming in this year that are on schedule, on budget, and there are not very many companies that have that kind of proven track record. So I think we're in really good position to compete, and there's a lot of projects that are going to come out. And we're going to be, as we have in the past, selective of which ones we bid on, on the ones that we feel we can be most competitive.

Great. Thanks. And then circling back to Cameron, you mentioned you expect the final DOE approval within the next couple months. What's holding that up and what issues are they still considering? I felt like that would be somewhat automatic, so maybe you could comment on that?

Well, I said within the next couple months. We're not sure. It could happen soon. It could happen -- as DOE is looking at it, I think that one of the considerations was what kind of comments would come in on the FERC issues. And since that appears to have been that there were no comments that were filed timely, that that may change how DOE focuses on it.

Certainly Senator Landrieu has already sent a letter that was made public asking DOE to act quickly on this. And as I said, it's not stopping us from getting on site right now and doing some of that pre-work, but the sooner we can get it, the better. So we're very anxious to have DOE act quickly and hope they will.

And then back to the possible expansion, I wanted to ask about the construction side of that. If hypothetically, you were able to secure commitments and were able to get the permitting process, would you be able to start construction on trains four and five before trains one through three are completed? Or would you have to wait until [really 29 seen] to even start construction?

No, I'm going to have Mark talk about how that might unfold.

No, it really -- they have to be done sequentially, and it's not just a construction issue, but also the terms of the financing require us to finish the projects that are being financed first. So unless we redid some of the financing, it's -- they have to be done sequentially.

So we'd be talking about something like a 2020-type timeframe at the earliest, 2021 maybe for those to come online?

Yes, and it could be a little shorter than that. One of the things we are doing, we are constantly looking at the construction schedule and the construction that we're doing. And we call it a no-regrets construction policy, which is we're anticipating further expansion as we build, so there's certain things that we can pre-build into the process so that we don't have to go back and redo it.

So I think we can save some time there. So it may not be quite as long a time frame as trains one through three, but it would probably be sequential.

And then looking at the three LNG expansion opportunities you discussed, Cameron, ECA, and Port Arthur, would you be able to rank those in terms of both the probability and the timeline between those three projects?

I think the reality is the expansion of Cameron is probably up there, is probably first, but very close behind is ECA, and that's probably almost a push as to which one could go first. Probably actually maybe ECA could start earlier than the expansion. So I think both of those are at least equal.

And then Port Arthur, because it's a greenfield facility, obviously would take longer to develop, and it could be quite a big facility. So that's further down the road. But I'd keep ECA and Cameron neck and neck.

Thanks a lot. Appreciate the color.

Thank you.

Michael Lapides, Goldman Sachs.

Hi, Michael.

Hey, Debbie. Congrats on a good first half of the year. I wanted to ask about the good old-fashioned utilities. When you think about the -- (laughter).

Right, nobody's asking, and you have really, really, really strong utilities. When you're thinking about the rate cases, how material, meaning how big of a number are we talking about in terms of either requested revenue change or percentage rate change, if you're the intervener looking at it from the other side?

Actually I think that's the real positive that we have. If you look at SDG&E as an example, our filed notice of intent to file the rate case set forth a number of $168 million increase. And on a combined electric and gas bill, that's about 1.4%. And then on SoCalGas, we're looking at a $290 million increase and that's about 5.5% increase in a bill.

But I will remind you that in both cases, the bills are already much lower than the national average. So I think that we have operated our utilities efficiently over time. I think there's a benefit in that and going into these rate cases and asking for what we really need to operate those businesses very efficiently and have it not be huge increases in customer rates.

Okay, and then one question on Clarington West, the part that you're still trying to figure out, you and your co-owners are still trying to figure out what to do with. What's the time line for the open seasons there? And I want to make sure I understood this. What would be the potential range of capital requirements, from your perspective?

Okay. I'll answer the first, and then I'll ask Mark to talk about the capital requirements under the different phases, if that's public. And I'm not sure -- I guess that's not public information. So I won't answer that part of your question. But I will answer the first part of your question.

The non-binding open season went out in May, and that now we're in negotiations with participants in that non-binding open season relative to contractual commitments. So however long it takes to secure those is the kind of time frame that we are looking at. And that's why I said I think we would anticipate something in the next couple of months, most likely.

Got it. Thanks, Debbie. Much appreciated.

Thank you, Michael.

Christopher Turnure, JPMorgan.

Hi, Christopher.

Could you guys give more color on the timing of the rest of the 2014 RFPs for the Mexico pipelines? There's a lot left in there besides just the two that are out there already, and it looks like each one individually will take a couple months at least from start to finish.

There's two that are outstanding right now, and then there's five more that they've announced to come out this year. And that's what's been indicated and that's in the pipeline side.

But I would also focus you on there's other areas of opportunity like transmission, and so, Mark, why don't you hit what we see over the next few months?

Okay, I think -- well, like Debbie said, there's two out right now, and we're actively working on those bids. And then the next five that are coming out, of those, two big ones are in the United States that are for CFE. Those will be probably hotly contested, just because they are the MLPs and everybody can compete with those. So we expect that to be -- have more bidders than the ones in Mexico.

But we do believe that we have some unique things -- properties that we can bring to the bids -- to our bid, and I think that we can be competitive. And we should have a good chance to do that, and we've had a long history, obviously, of working with the CFE, so I think that should bode well in our favor.

But then beyond that, there is a whole list of pipeline opportunities that are scheduled to come into -- to come out in the first half of 2015. And obviously, we're even beginning to look at some of those and be prepared for those, but there is certainly a long list of opportunities on the natural gas pipeline side. But then we also have -- there are electric transmission projects and power-generation projects, also product lines for Pemex.

So I think the story here is that energy reform in Mexico is going to produce billions and billions of dollars of capital opportunities for companies that have a history of operating in Mexico, and our positioning with our IEnova subsidiary makes us probably the premier energy Company to bid on these competitive projects. We're the second largest energy company in Mexico behind Pemex, and we're really the hometown incumbent there. So I think we feel very good about our chances of being successful and participating in this reform. And we certainly look forward to continuing to grow our business down there.

Just to add a flavor of the big numbers we're talking about over time, as part of the infrastructure program that the Mexican government has announced, they've announced 15 generation projects for $13.6 billion, 17 gas pipelines for $13.1 billion, and seven electric transmission lines for $1.7 billion. So you're talking about 10s of billions of dollars of investment in Mexico. And they're moving forward on it, so we think this is going to be a great opportunity area for us.

Okay, and then just on cash repatriation, you guys have some potential incremental opportunities in Peru after the failure of that initial RFP for the pipeline there, and then certainly all of the opportunities in Mexico. Will there be any pause that you contemplate with bringing cash back here as a result of those, and how should we think about that and what's contemplated in guidance through 2018 now with the repatriation?

What we have in our plan and what we continue to have in our plan is repatriating $300 million a year. And that we look at that based upon the needs of capital in this country, so as we've told you before, we have a lot of debt capacity left. And so that's what we would go to first. And then we have the ability to issue equity in those two countries, we would look at that as well. So right now, what we're planning on is still the $300 million a year of repatriation.

Great. Thanks.

Kit Konolige, BGC.

Good morning.

Hi, Kit.

Hi. On the possibility of the MLP /YieldCo that obviously has been a hot topic that you've talked about and we have asked you about, any further thinking on any bridge assets that could be put into a hypothetical MLP, let's say, before Cameron was up and running? If I understood you correctly in the past, REX alone, as it was envisioned, you wouldn't really have considered sufficient to be the leadoff batter for the MLP for that length of time.

I'll have Joe talk about this. Joe?

Yes, hi, Kit. While we haven't made any decisions at this point about the exact timing our asset composition, I will remind you what we talked about on the first quarter, the things that are going on at REX that we've talked about today and last quarter are really exciting, because it does give us additional cash flow starting in the middle of next year that we can use in this regard. However, I did note that because we have a 25% interest in REX, it can't be the only asset that goes in there because of some [portiact] issues.

So we need other assets, so what we've talked about is using some of the cash flow from REX, using as we get further along, obviously, the cash flows from Cameron. And now that we have FID, that puts us in great stead for that. But we have some additional cash flows from our LNG facility in Mexico that actually are in the US, and we would use those. We have some other, a little bit of midstream asset revenues, not including the storage that we would put in there.

And then if we did something broader, we could also include renewable revenues. But I think, given what's happened with REX, given that we now have FID, I think we have a mix of assets that we can use, as you call a bridge, to do something between now and 2018, 2019.

So what should we assume is the earliest that you could do something, given the mix that you see in front of you there? Is it sometime in 2015 or 2016?

As I started out to say, we haven't made any decisions at this point about the exact timing. So more to come.

Okay. We'll stay tuned there.

Obviously -- I'll say one other thing, obviously we talked about the CFE pipelines in the US. Mark spoke about that and we think we have a good opportunity to capture some of that. That would be an additional help that would get us there.

Right. And speaking of assets that are being bid out in Mexico, is it your idea that IEnova would be the owner as those assets are built, or let's say for ECA, would there be a different company?

Everything that's located physically in Mexico would be in IEnova, a position. As Joe said, there are some contracts that relate to gas that are not -- that are tied to ECA, but are US assets; those would remain in the US. But to the degree that we developed ECA, to the degree that we're doing pipelines in Mexico, those would be Mexican assets under IEnova. To the degree that some of these Mexican bid pipelines occur in the US, those would not be part of IEnova.

Right. One last question on tax rate, you had some discussion earlier about how the tax rate varies quarter to quarter, depending on what's repatriated, and obviously other factors going on, several moving parts. How should we think about the tax rate, say an annual tax rate, over the next few years? Is it going to be pretty steady, for estimation purposes?

Yes. Over the next several years. This year it'll be just a little under 30%, and over the next several years in the low 30%s, pretty stable.

Great. Thank you.

Mark Barnett, Morningstar.

Hey, good -- I guess it's morning over there, guys. Sorry to jump back into the LNG; you've been talking about it a lot today. And really appreciate all of your comments on it. Just wondering, it seems the agreement or the nature of the agreement for Cameron is a pretty successful one. If you are going to be moving forward with ECA or with the new Port Arthur facility, are you going to be looking for a similar ownership structure?

That is yet to be determined, and we'll look at the option that makes sense for each of those facilities. We have great respect and have worked really well with the partners that we have at Cameron, but that model doesn't have to continue on. And we would be looking at what model would make sense for us at each of the facilities.

Do you think it's possible by the time you're ready to make that decision you might feel comfortable taking on a project like that on your own?

It depends on what kind of contracts we had and all of that -- all I can say is it really depends. I would not preclude it, but it would have to also fit within our Sempra risk profile, and that's what we would look at.

I would say the thing that we would be focused on is that it would be fully contracted.

Yes.

Okay. Fair enough. And one smaller thing, the Analyst Day, you also mentioned the opportunity for some re-gas maybe in Hawaii. Obviously not -- maybe as large an opportunity as some of the stuff you mentioned in this quarter, but just wondering if that's something you have an idea about the capacity that that market might demand eventually? And that's probably, I would guess a lower priority than any of the projects that you've spent so much time discussing already today?

I would say, I'm going to have Mark talk about it, but I would say one potential customer clearly for ECA would be Hawaii.

I think the risk we mentioned it is because there is obviously a real need there. And this is one of those interesting situations where bringing LNG into the island would have two beneficial effects: one, it would be a much cleaner burning fuel source for electricity, because they're using fuel oil now, and two, it would actually lower their costs, because they would go from a crude-based pricing to a natural gas-based pricing.

So it's really got a double benefit in there and a clear need. And we think a desire on the part of the Hawaiian -- of the state government and the local utilities there to move in this direction. So we think there's going to be an opportunity there, and ECA is the natural, logical supply source. So that's why it was mentioned.

We don't have an agreement. We don't have -- we've been talking to them. We think that there's a possibility someday of working something out, but we don't have anything firm.

Okay. Thanks a lot. Appreciate it.

Paul Patterson, Glenrock Associates.

Good morning, guys, how you doing? A lot of my questions have been answered, but I wanted to clarify something on the DOE process. The Chris Smith proposal to accelerate -- to streamline the process and have them deal with the approvals at the end of other regulatory agency approvals, I'm sorry if I missed this. What is your expectation in terms of how that's going to proceed?

Well, we think that's moving forward, and we're very positive on that. What we've seen in the queue is that we've spent a lot of money going through the FERC process, and that it doesn't cost that much to go through the DOE process for our Company. But they can block you in terms of timing for the queue, and that we really like the idea of the FERC process becoming the driver. Because that's what requires all of the engineering, all the environmental work, all the things to really make the business decision on the facility.

And we think that this change in process will actually help us in terms of the development of additional [sites for] trains, because we've gone through that process. And I will tell you, it is a stringent process. And you can see now that there are not very many companies that have made it through the full FERC process. In fact, we're the first one that made it through the whole EIF process. So we think it's an advantage to us as a developer having had the experience with that for them to make those modifications.

Because the reason why I bring it up is that, as I'm sure you're aware, API and others made comments that seemed to be critical of that path. And I guess you guys have a different perspective on it. I'm wondering if there's a simple -- I don't want you to go into anything elaborate, but I was wondering is there a simple reason for that or -- if that's not -- ?

Your level of seriousness on these projects is tied to the FERC process, and so your expenditures and your level of seriousness. And with the process that DOE was using with every few months one coming out, you could have projects that may not get developed, may not get the financing, may not have the customers, and have not even begun the FERC process, move ahead in the queue, because they filed something that didn't cost them anything really, to file. And so we think the FERC process really drives your true commitment, because when you file at FERC, you have invested a lot to get there. And so we're supportive of what DOE is looking at.

Okay. I think I understand the difference. And then on -- in general, we've seen some real changes in the global LNG and gas markets, et cetera, and I was wondering where things stand now, and obviously, you guys have a competitive advantage with (inaudible) brownfield and stuff. Just in general, what's your thought about ultimately how much LNG is actually exported from the country?

Or is that -- I'm saying in terms of any market dynamic outlook, has that changed at all from previously when we talked about this? Or I'm wondering when we look at this, like you said, it seems like everybody and his brother is announcing something, and of course, a lot of it isn't probably going to happen. I'm wondering if you could maybe give a little bit of flavor as to how you see the recent changes in the gas markets globally.

I'll ask Mark to talk more about this, but what I would say is it all depends on what the relative cost in the market is. Some of the projects that we're doing now which are brownfield projects, are very cost competitive. One of the advantages that you have in the US or that you would have in Mexico is that you have an infrastructure. And then a lot of these other places, when they're having to build the LNG facilities, they're having to build the pipeline infrastructure. They're having to access new sources of supply. There's different hurdles that go with it.

So we think that our country is really well-positioned on this, and it's hard to say how much of that global market we get. I do think that we can be very competitive in that global market because of some of those issues. Mark?

I would say in the near-term, say between now and 2020 to 2022, you'll see the development of probably the brownfield facilities because those will be the most cost-effective. And that could be somewhere in the neighborhood of 7 to -- call it 8 to 10 Bcf a day. And I think that's what is probably likely to happen.

And then given the size -- I think it'll probably depend a lot on how much the world market is going to grow. Right now we're talking about, there's some estimates out there that the market for LNG could double over the next 10 or 15 years in the world market, and that obviously would create additional opportunities for gas- producing countries. But we've said all along that we don't -- we think other gas-producing countries, especially ones like Qatar and others that have low-cost reserves, are going to be competitive in this market. And they're not going to just cede market share to the US or Canada, or the North American market in general on a whim.

So at the end of the day I think there will be a demand for diversity of supply, which will include North America, and we're going to see other projects get developed and get built. We believe some of those will be ours. But it isn't an unlimited market and clearly, I think we're not approaching it, and I think responsible developers are not going to approach this with the idea that it's never-ending. And so you'll see a lot of proposed facilities, but at the end of the day, we think the actual ones that come online are the ones that will have sold their capacity.

And that capacity market is going to be looking for diversity. It's going to be looking for certainty of supply, and that bodes well for the North American market. And so, I think it'll continue to grow, but it's going to be 2022, 10 Bcf-a-day market and grow from there.

I also would say that there's a lot of things that have been happening in some of the international gas markets that are affecting us. Clearly what's happening in Russia has a big affect. China just announced that their development of their shale is not progressing as they had anticipated, and it's going much slower at much lower production rates and more expensive. And so I think those factors will play out over the next three to five years where you have greater visibility in those areas, which have a lot of impact on what happens to the LNG market as well.

Okay. Thanks so much. Very helpful. Very helpful call in general. Thanks a lot.

Thank you all very much. As always, we have a top-notch investor relations team and that they are there to answer any follow-up questions that you have following our call today. So if you have any additional questions, please contact our Investor Relations group. And thank you so much for joining us today on the call.

This does conclude today's conference. Thank you for your participation.