Good day, ladies and gentlemen, and welcome to the Third Quarter Earnings Call. Please note that today's call is being recorded. And at this time, I would like to turn things over to Faisal Khan. Please go ahead, sir.
Good morning, and welcome to Sempra Energy's Q3 2019 earnings call. A live webcast of this teleconference and slide presentation is available on our website under the Investors section. Here in San Diego are several members of our management team, including Joe Householder, President and Chief Operating Officer Trevor Mychajluk, Executive Vice President and Chief Financial Officer George Balisic, Group President and Peter Wall, Vice President, Controller and Chief Accounting Officer. Before starting, I'd like to remind everyone that we'll be discussing forward looking statements 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 ks 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'll be discussing certain non GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. I'd also like to mention that the forward looking statements contained in this presentation speak only as of today, November 1, 2019, 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 4, and let me hand the call over to Joe.
Thanks, Faisal, and thank all of you for joining us today. Normally, Jeff would lead this call, but he and Dennis are currently traveling overseas for our LNG business, meeting with current and future partners and customers. So I'll be filling in for him today. I'll start off by saying that this quarter's strong operational and financial results reflect our company's focus on execution and demonstrate progress towards our mission to be North America's premier energy infrastructure company. I'll provide a more detailed business update later in the presentation, but our recent accomplishments include placing Cameron LNG Train 1 and the project's shared facilities into service, while also advancing commissioning and construction of the 2 remaining trains, reaching a constructive resolution with the CFE in relation to our 2 pipelines in Mexico and placing the marine pipeline into service, receiving a constructive general rate case final decision at SDG and E and SoCalGas with a focus on safety and reliability progressing the sale of our South American businesses by announcing sales agreements for both Peru and Chile increasing the CapEx plan at the Texas utilities to keep up with the continued growth Encore is seeing in and around its service territory And finally, continuing to progress our LNG development projects as highlighted by the recent MOU announcement with Mitsui.
In sum, it's been a remarkable year for our company. All of the positive regulatory, legislative and operational developments we've recognized year to date give us increased confidence in our financial outlook. With this in mind, we're raising our full year 2019 adjusted EPS guidance from our previous range of $5.70 to $6.30 to a new higher range of $6 to $6.50 Additionally, based on California Utilities 2019 GRC final decision, coupled with the announced sales of our South American businesses, we're affirming our full year 2020 adjusted EPS guidance range of $6.70 to $7.50 As we look towards the rest of the year, we remain focused on our strategic goals to help drive shareholder value and benefit all of our stakeholders. Please turn to the next slide. You'll recall that we presented a similar version of this slide at our Investor Day earlier this year.
We believe it's worth highlighting again given the progress we've made in repositioning our portfolio. It's hard to imagine that just last year, we were active in 18 states in the United States and 3 foreign jurisdictions. Now, we've narrowed our focus to 3 states and 1 foreign jurisdiction. We believe that we've high graded portfolio by exiting our U. S.
Renewable generation and South American businesses and replace them with higher quality T and D earnings. This focused strategy allows us to concentrate on growing our Tier 1 position in some of the most attractive markets in North America, which have strong business fundamentals and meaningful growth opportunities. Please turn to Slide 6, where I'll review the recent developments related to our South American businesses. We first announced the decision to sell our South American businesses in January of this year with a view of recycling capital into growth at our utilities and infrastructure businesses and to reduce parent debt. The sales of these businesses represent an important strategic shift for our company and is another example of our ability to effectively optimize our portfolio while increasing value for our shareholders.
The combined sales price of over $5,800,000,000 reflects the quality of these businesses and we're very pleased with the results of the sales process to date. We've laid out a general timeline of the transactions on the slide and expect the sales of both our Peruvian and Chilean businesses to be completed in the Q1 of 2020. Before I move on, I would like to recognize George, Trevor, Dennis and the team for a great job getting us to this point in the sales process. I would also like to recognize the wonderful teams in Chile and Peru run by Francisco and Milly. They have done a fantastic job over the past 20 years and added a lot of value to Sempra.
Please turn to the next slide, where I'll discuss some of the recent business updates at SDG and E. I'll first discuss the general rate case. As a reminder, this is the first time that the risk assessment mitigation phase or RAMP process was integrated into the GRC. Importantly, this takes into account safety and reliability spending as directed by the California Public Utilities Commission. You'll also recall that the GRC usually represents a sizable portion of our capital plan, but does not capture FERC related investments or CPUC projects addressed outside the GRC.
This proceeding also does not change our utilities authorized cost of capital, which is being addressed in a separate proceeding. Now, let's review the key details of the final decision issued in late September as it relates to SDG and E. Overall, we're pleased with this decision as we believe it fairly balances customer rates and critical investments needed to help ensure the delivery of safe, reliable energy. The decision approved the following for SDG and E. A 2019 test year revenue requirement of $1,990,000,000 which represents an increase of approximately $107,000,000 or 5.7 percent over 2018 authorized revenues, as well as overall post test year revenue requirement attrition rates of 6.7% in 2020 and 4.8% in 2021.
It's worth noting that the 2020 2021 post test year attrition amounts for capital investments are significantly higher than the O and M attrition amounts. This is a reflection of our commitment to thoughtfully invest capital related to safety and reliability, while efficiently and effectively managing O and M costs. These increased revenue requirements will support improvements in critical energy infrastructure and risk mitigation. Now let's turn to the cost of capital proceedings. Regarding the FERC cost of capital, all parties have reached a negotiated resolution and we submitted an offer of settlement in mid October.
The settlement requests an authorized ROE of 10.6%, which includes the 50 basis point Cal ISO adder. This represents a 55 basis point increase from our currently authorized FERC ROE of 10.05%. We expect the commission to issue an order on this matter in the first half of twenty twenty. For the CPUC cost of capital proceeding, we continue to expect a final decision toward the end of this year. Regarding our initial and ongoing contributions to the California Wildfire Fund, we are expensing the total contributions over the estimated period of benefit, which we estimate to be approximately 10 years and we would record additional charges if a wildfire event occurs and the fund is reduced.
Please turn to the next slide. I'd now like to take a moment and address the recent wildfire situation across the state. Our thoughts are with the 1st responders, firefighters, residents and the broader communities being impacted by these terrible events. Importantly, wildfire safety and risk mitigation are a top priority for us within our service territory, and we continue to be vigilant, monitoring weather patterns and potential wildfire threats, while remaining engaged with our customers and communities in order to maintain critical lines of communication. As a reminder, investing in wildfire mitigation is not something new for our company.
In fact, we've invested approximately $1,500,000,000 in related efforts over the past decade. This includes deploying the most highly concentrated weather station network in the U. S, installing over 100 high definition cameras across our service territory, replacing over 21,000 wood poles with steel poles, developing weather and fire models based on years of collected data, allowing us to forecast potential weather events several days in advance and fire hardening approximately 75 percent of our electric transmission lines with a goal to fire harden the remaining 25 percent over the next few years. Another example is our FireSafe 3.0 project, which continues to build on our foundation of industry leading mitigation efforts and includes utilizing artificial intelligence and machine learning to improve situational awareness, introducing a new vegetation risk index, enabling satellite wildfire alerts, and improving our unprecedented weather data network with high speed capabilities. In combination, these items should further enhance our ability to deliver safe and reliable energy to the communities we serve.
This is just a glimpse of the type of project highlights we'll be providing at our Investor Day next year. Now please turn to Slide 9 where I'll discuss developments at SoCalGas. The recent final decision in the GRC also marked the first time the ramp process was integrated for SoCalGas. It approved the following: a 2019 test year revenue requirement of $2,770,000,000 which represents an increase of approximately $314,000,000 or 12.8 percent over 2018 authorized revenues, as well as overall post test year revenue requirement attrition rates of 7.9% in 2020 and 5 percent in 2021. Similar to SDG and E, SoCalGas' 20 20 20 21 post test year attrition amounts related to capital substantially outpace O and M.
The increase in the revenue requirement related to capital and corresponding increase to rate base should enable us to make critical investments in our infrastructure system around safety and reliability for the benefit of our customers. An example of this is the continued support for SoCalGas' Pipeline Safety Enhancement Plan and notably the GRC approved 32 PSEP projects plus 284 valve enhancement plan projects over the next 3 years. Now please turn to Slide 10 where we'll talk about Texas. The macro and business environment in Texas remains one of the strongest in the U. S.
And Encore recently announced another increase to their already substantial 5 year capital plan, as shown by the chart on this slide. The increase is mainly related to the growth seen in and around Encore's service territory with growth CapEx accounting for about 2 thirds of this capital plan. Importantly, these infrastructure investments will help facilitate renewables integration in Texas, keep up with the growth in West Texas and the Dallas Fort Worth area, and strengthen and expand the grid for the benefit of Oncor's customers and the communities it serves. Accounting for this increase, they now plan on spending approximately $11,900,000,000 over the 5 year period between 2020 2024. Encore is clearly a great example of focusing our portfolio on attractive growing markets.
Please turn to Slide 11, where I'll discuss Sempra LNG. This past quarter had some notable accomplishments at our LNG business. Specifically, we placed Cameron Train 1 in service and continued to progress our LNG development projects. I'd now like to discuss the Cameron LNG project in a little more detail. Specifically, I'd like to highlight that the 2 companies Chiyoda and McDermott that collectively make up our EPC contractor are joint and severally liable, so if one is unable to perform its duties, the other is required to complete the project.
Both Chiyoda and McDermott, along with their subcontractors, continue to be on-site and active in the project. We remain confident about the Cameron LNG project schedule. Train 1 and the project's shared facilities are already in service and Train 2 has begun its commissioning process. In fact, Cameron LNG estimates that the project is over 96% complete. Additionally, the schedule for Trains 23 remain unchanged.
Switching to our other LNG projects, we've recently begun limited site activities at Port Arthur and our teams continue to advance discussions with interested customers for the remaining facility capacity. Based on the current project schedule, we're targeting an FID on Port Arthur around mid-twenty 20. At ECA Phase 1, we plan on reaching FID in Q1 2020, a bit later than our year end target. Overall, the project continues to make progress and we're taking some extra time to evaluate EPC proposals from 2 highly qualified bidders. We believe this process will help drive the long term value of the project to Sempra and its shareholders.
Please turn to Slide 12. At Sempra LNG, we're committed to advancing our LNG development projects. This slide is a great representation of how active our LNG marketing team has been and the resulting MOUs, HOAs and SPA that we've been able to secure through these efforts. It's also a positive reflection of quality of these projects and the confidence in our ability to develop them. A good example of this is the recent MOU with Mitsui.
The MOU contemplates Mitsui's potential purchase of up to 1 third of the available capacity at Cameron Phase 2, as well as the potential offtake of approximately 1,000,000 tons per annum of LNG and equity participation in ECA at Phase 2. As I mentioned earlier, Jeff isn't on the call today because he's traveling overseas with Dennis Arriola for our LNG business, meeting with current and future partners and customers. This is a great example of how these marketing efforts have significant participation at the highest levels of our organization. Our management team realizes our LNG business is a large contributor to the company's projected growth. With this in mind, we're focusing on bringing our LNG development projects to fruition and securing binding offtake agreements in order to help meet global energy demand and deliver value to our shareholders.
Please turn to the next slide and we'll go over developments in Mexico. Mexico continues to be an attractive market for us with substantial growth opportunities premised on energy accessibility, reliability and emissions goals. At Sempra Mexico, Enova continues to execute on infrastructure projects in Mexico that should help it provide increased affordability and accessibility to cleaner, more reliable energy for its rapidly growing population. Notably, the team recently reached a resolution with CFE regarding the Guaymas, El Oro and Marine pipelines and subsequently put the Marine pipeline in service in mid September and announced the Border Solar project, which is contracted with high quality counterparties. I'd also like to highlight that given these developments and expected positive momentum, Inova recently raised its dividend by approximately 5%.
Now, let me turn the call over to Trevor, who will review our financial results beginning with Slide 14.
Thanks, Joe. Earlier this morning, we reported Q3 2019 GAAP earnings of $813,000,000 or $2.84 per share. This compares favorably to Q3 2018 GAAP earnings of $274,000,000 or $0.99 per share. On an adjusted basis, the Q3 2019 earnings were $425,000,000 or $1.50 per share. This compares to our Q3 2018 adjusted earnings of $339,000,000 or $1.23 per share.
Please turn to Slide 15, where I'll discuss the key drivers of our quarterly results. The variance in our Q3 2019 adjusted earnings when compared to last year was affected by the following key items. $34,000,000 of lower earnings at Sempra Renewables related to assets sold in December of 2018 April of 2019. $24,000,000 of lower earnings at SDG and E from electric transmission operations primarily due to a FERC formulaic rate adjustment benefit in 2018 and $14,000,000 of lower earnings at Sempra LNG, primarily due to lower earnings from our marketing operations, mainly driven by changes in natural gas prices. This was offset by Cameron Train 1 commencing commercial operations in August of 2019.
These items were offset by $60,000,000 of higher earnings at the California utilities from higher CPUC base operating margin authorized in 2019, predominantly driven by the GRC final decision. Please note that our year to date results reflect the additional $196,000,000 retroactive benefit from the GRC final decision for the 1st 6 months of the year. $58,000,000 of higher equity earnings at the Sempra Texas Utility segment due to impacts of Oncor's acquisition of InfraREIT. Higher distribution revenues resulting from an increase in volumes driven primarily by weather and higher transmission revenue driven by rates and $38,000,000 of a variance at Sempra Mexico due to impacts from foreign currency and inflation effects net of foreign currency hedges. This large delta year over year was primarily driven by an $11,000,000 benefit in the Q3 of 2019 from a depreciating peso compared to $27,000,000 of expense in the Q3 of 2018 from an appreciating peso.
Please turn to the next slide. We're pleased to say that this was a very successful quarter, both operationally and financially. We're continuing to execute on our goals and are progressing our mission to be North America's premier energy infrastructure company. In line with this, as Joe previously indicated, we're raising our full year 2019 adjusted EPS guidance range and affirming our full year 2020 adjusted EPS guidance range, driven primarily by the constructive GRC decision at our California utilities, as well as the robust proceeds expected from the announced sale of our South American businesses. These proceeds should allow us to pay down parent debt and fund growth at our U.
S. Utility and infrastructure businesses. Importantly, we remain focused on achieving our goals, including maximizing long term shareholder value. Before we open it up to Q and A though, I'd be remiss if I didn't thank Joe for his invaluable contributions to the company. As most of you know, Joe will be retiring soon.
He has played an integral role in the growth and progression of our businesses during his nearly 2 decade career at Sempra Energy. We'll all miss him and we wish Joe and his family the very best in his retirement. With that, we will conclude our prepared remarks and stop to take your questions.
Thank And we'll go first to Greg Gordon of Evercore ISI.
My first question is on the FERC settlement. Does that mean that you and the other parties to the case have all agreed on that number and are submitting it for approval? And if so, who are the parties that have agreed that that's a fair return for your forecast
Hi, Greg. Yes, thanks for the question. Yes, this settlement means that all the parties have agreed to push this forward and let the FERC make a final decision on this. We expect that final decision to occur in the Q1. At this point.
There are some proceedings that will take place in November, but all the parties to the case and I don't have them all at my fingertips, but we can get you those if that's important to you. But everybody has agreed to go forward with these numbers. So that's what we expect to get pushed out in the 1st of the year.
The CPUC is a party, correct?
Yes.
Thank you. My next question is the wildfire amortization. Are you guys assuming that that is going to be amortized through ongoing earnings? Are you going to continue consider that a non operating item? Because yesterday or the day before on Edison's call, they indicated they would be considering that a non operating item for earnings reporting purposes?
Yes. Thank you, Greg, for that question. I'll speak to it at first and then I'll probably have Trevor add to that. I think first I would say you have to recognize that there is a pretty significant difference in the amounts that we each contributed based on the size of our territory and all the work we've done over the last decade at doing all the work we needed to do, the risk view was that our contribution was lower. And so it's less material to SDG and E than it was to Southern California Edison and then further less material to Sempra.
But we're evaluating that. I did look at what they did. And the way they do core, non core is probably a little different than we do adjusted earnings. Let me ask Trevor if he has another comment on it.
Yes. Thanks, Joe. Hey, Greg. Again, from what Joe said, this is going to be a fairly immaterial amount for us and we're anticipating it could be about $30,000,000 a year, given a 10 year amortization cycle on it. And so we're still looking at it.
I think one of the things we probably will do is give prominence to it and try to break it out so that it's very clear, clearly shown on the face of the financials. But we're still evaluating that. But again, from our perspective, we generally do not exclude smaller items, and this would be a recurring item over a 10 year amortization period. So I think our treatment may be different than Edison's.
Okay. My last question is this. So reiterating your guidance is a pretty bullish outcome, I think, because the guidance, as it was said, included the earnings from Chile and Peru. And so basically, what you're telling us is pulling out what was the expected earnings contribution from Chile and Peru, net of the initial savings from deleveraging with the proceeds and the outcome from the positive outcome from the rate cases and the CapEx increase in Texas that you've basically been be able to offset the removal of those earnings completely, if not almost completely. Is that a fair summary?
Yes. Thank you, Greg. Look, we've had a remarkable year, as I said in our opening remarks thus far this year. And the proceeds that we're getting from the South American sale, the tax savings we've had there and a GRC out of this risk ramp case that is that allowed the capital that we need to run the utilities in a safe and reliable manner. All of our businesses are doing well and we're very focused on the strategy and we're very pleased that we're able to maintain the guidance for next year based on the operations, based on the GRC, based on South America, all the elements you mentioned.
It's very solid.
Thank you, guys. Congrats.
Thanks very much. Our
next question will come from Steve Fleishman of Wolfe Research.
Hi, good morning. So just a broad question on California. Obviously, first, congratulations, you have continued to manage the fire season very well for 3rd year in a row. And but it's just been obviously a kind of interesting 2 weeks in term for the whole sector the state. So maybe just some perspectives on how you're thinking about any changes from the governor, the commission, how you're managing your shutoff plans, if at all?
And anything about the structure of the sector of the state? I'd just be curious how you're taking this all in?
Thank you, Steve. It's a broad question. I have quite a bit that I'd like to say about it. So bear with me probably. And I appreciate your comment.
We didn't have any significant wildfire, catastrophic fire in our territory this year. We faced very severe weather conditions, but safety is top of mind across our companies in California and in Texas where we've had some pretty severe tornadoes. But I want to start out with saying how proud I am and how proud we are of our team at SDG and E. I was actually over there at the emergency operations center a day before yesterday during the peak time, which was sort of between 10 in the morning and noon here. And I've been there many times in non weather conditions and practice sessions and that's always interesting and I'm excited to see it.
But seeing them in action, taking immediate decisions as the conditions change and it's not just the people in that room, that room is buzzing and they're all working together really well, but it's all the people in the field. I'm listening to phone calls back and forth about live conditions in the community, allowing the team to really have see on the ground, right? We have all these cameras, but now we have people on the ground and that on the ground experience helping them make prudent decisions. I saw them turning off lines based on what was going on, on the ground to save lives and reduce the potential for fire. So I just want to congratulate our team.
I actually asked Carolyn Wynne, who is the COO at SDG and E to come and I'm going to ask her to speak about this in a minute. But I want to touch on a couple other of the points that you made. I think the governor did a really good job coming into office, working with the legislature and the companies, resetting the prudency standards, the presumptions, letting the CPUC consider factors within and outside our control, looking at humidity, temperature, wind speed. It's been an incredible difficult couple of weeks. So we've had a big head start and but we're not stopping.
You probably saw our FireSafe 3.0. We're continuing to innovate and we will help the others try to catch up. But it's been 10 years of hard work, but we just keep wanting to get better and better. I have to tell you on the power shutoffs, I've advocated to Pedro and others like you guys have got to. It's the only way you're going to keep people out of harm's way.
And I have very strong views on this. We have to do it, okay? I think the governor believes that we have to do it. The governor has been very supportive of SDG and E. Power shutoff isn't the first thing we do.
It's a tool and we use it when we have to at the end when there's no other option. But we're continuing to learn, innovate, the people really care and they're razor focused. It's not any time for newcomers, no time for a bunch of forms to fill out, reviews, debates, the situation is intense and we're dealing with people's lives and we have to do it and we know what we're doing and we've proven that we know what we're doing. It's still a challenge, but I think it's manageable if you get the right process in place. I want to have Carolyn take a minute and explain how the last couple of weeks have been and she's in charge of making sure that we're all safe.
Thanks, Joe. Just to give a little context, we're coming off the heels of our 4th Santa Ana red flag event of the season. We saw typical wind speeds consistently blowing at 20 to 30 miles per hour and peaking at 60 to 80 miles per hour in our highest elevations during this operational period. I will tell you that our system held up well given the environmental conditions and there were no major fires, as Joe mentioned. Around 25,000 customers in this last event were impacted by the public safety power shutoff and I'm encouraged with our ability to minimize the customers that are affected as a result of PSPS.
Our capabilities have been really enhanced over the last several years as a result of our investments in more precise controls of our PSPS plans. And I would also add that in the last couple of years, we have been focused on refining our customer outreach and communication strategy as well as our operational readiness and response. Just speaking a little bit more about customer outreach, we understand the impact that these outages have on businesses and families, And this is an area that we've been really focused on. And there are 3 areas that I'd just like to mention. The first is a comprehensive and advanced notification to our customers.
We don't want our customers surprised and we want to provide them with complete information so they can make the appropriate plans for their families and businesses. Having said that, the weather conditions can change on a dime and there are circumstances where we may need to turn off the power to customers that we had anticipated and we are not shy to do so. I would say too, we have worked on the strategic placement of our community resource centers throughout the community to make sure that they're properly placed and to make sure that customers have easy in, easy out access and they have the information and the amenities that they need. And I would say lastly, is our key to building strategic partnerships. We learned very early on that we can't do this alone.
And so in fact, before these events, we had conference calls with our non profit and community based organizations, so that all customers were notified and had the things they need. I think a good example is before this last event, we partnered with Meals on Wheels and the Red Cross to provide the senior communities affected by this PSPS with the amenities that they would need during these cooler Thanks
Thanks, Carolyn. And Steve, let me just add one more thing because you asked a broad question. And one thing I would mention is, as I've watched this and I don't have all the information about the fires up north where we've had fires in several different territories, not ours. It doesn't appear at this time that the magnitude of those fires will impinge on the fund. So I think with the $1,000,000,000 requirement for insurance, these were large severe fires and our heart goes out to all these people.
But it is such that it doesn't appear to me today that that's impacting the fund. It's tough. And I can tell you much the way many of you have been with us for 20 years, much the way we used to manage the commodity business, the CEO, myself, we worry about this stuff every day. Jeff was calling me, he's traveling overseas on the LNG business, but he's been calling me and contacting me every day about this. He worries about it every day.
I worry, then we call Kevin, then we call Caroline. We're on top of it. And it's just something that we have to manage much like people in the Northeast or the Southeast have to manage hurricanes or snow events or whatever. We have to manage this and it's a little bit new for California. California is a mild climate and generally we don't have outages.
This is a different event and we're learning to deal with it. Thank you.
Great, great. Thank you.
You're welcome.
Our next question will come from Julien Dumoulin Smith of Bank of America.
Proceeds in aggregate from Latin America, I'm curious how you think about the 2020 uses at point. Obviously, we're hearing you say debt pay down. Obviously, you've raised your CapEx here. But just ideally, we'll get a little bit more granular as to how you're think about it. And separately, and I know Jeff's not here, how do you think about more strategic uses of this capital, given some of the comments in the last call as well?
Thank you, Julie. And I'm going to turn this over to Trevor in a minute, but we're really pleased with getting full value for these companies. We've run them well for 20 years and we're getting the right value and that's really important and we've talked about paying down debt. But let me let Trevor address your question. You hit on a number of points.
And on the very last one, we're not going to talk about M and A kind of activities, but obviously we're very focused on large capital programs. So Trevor?
Yes. Thanks, Joe. Yes. So Julian, with the amounts of the proceeds that we'd be getting in the Q1 after tax, it's call it roughly between $4,500,000,000 to $4,700,000,000 We would be deploying that cash in the short term over paying down short term debt and then realigning the debt portfolio and then as well as having it support the CapEx growth. Certainly, we're seeing increased capital requirements in the California utilities as a result of the GRC and the ramp filing.
A big portion of that GRC is allocated towards capital around safety and reliability. And then we've also seen an increase in the Texas utilities with the capital going up there. So deploying that capital as efficiently as we can.
Got it. And then maybe if I
can pivot very quickly over to the LNG side of the business, obviously, constructive developments of late, would be curious how you're thinking about public developments and again, however, in whatever form that takes through the course of the next year, especially given the update on Port Arthur to mid next year on FID? What are the thoughts on?
Sure. Thank you. So I appreciate the question. These LNG liquefaction projects are very large, complex and quite competitive. And we are progressing these projects to help unlock North America's energy potential and deliver clean energy across the globe.
And I travel around the world a lot as does Jeff. And we want to get these projects right for our customers and our investors. And in most of these cases, our customers are also investors in the project. And as we've traveled around and I was recently in Japan, Jeff's been in multiple countries in the last 10 days, we were both at the Cameron dedication with all of our current partners and customers at Cameron and others, we find them all committed to ensuring the success of these projects and long term returns. So I know it feels like it's taking time, but this is just us getting it right.
We're highly focused on creating value and I feel really good about the projects and the team. I wouldn't read anything into this. This is us making sure we get the EPC agreements, get the right contractor, get all the things we need to take FID. We are starting to work on financing for Port Arthur, but our partners also have to get comfortable with the returns and everything. Everybody is working toward it.
And so I wouldn't read anything in. These are small months in time when we're talking about 4 or 5 year construction projects and multiple year development projects. We are signing a lot of MOUs and you see that. Partially that is the customers are quite excited about being in some of these projects and they worry that they're going to get left out and they want to sign something. And so we're signing these things, but we're not quite ready.
So we signed an MOU for Cameron expansion. The partners are moving forward. We've got Total telling us exactly how they think we should do it. We haven't voted on anything yet. We've got the expansion at ECA.
We're not ready to take FID on that yet. We don't have all the designs and everything, but people want to have their place and it's important. And so we're making that public. I think as we make progress, we'll try to make you guys can see all the FERC things. You see that we're actually in commissioning and trained to a camera now.
It's a little bit harder in the development phase. I think as you see us start to do something like financing work at Port Arthur, you'll see you'll get the confidence that we have.
Thanks for the time guys.
Thanks Julien. Thanks
Julien. And now we'll take a question from Michael Lapides of Goldman Sachs.
Hey, guys. Couple of questions. One on the California utilities. Can you remind us, obviously, you get this GRC step ups each year for the next several years in EPO SoCal Gas and San Diego Gas and Electric. Are those the only CPUC related step ups you get in these 3 year periods?
And can you get quantify for us what the FERC transmission step up will be at SDG and E for 2020? I know a lot of those have already been settled or are part of settlement agreements.
So a couple of things to address there, Michael. So what we've addressed here is the impact on 2019 through the Q3 of the rate cases, the affirmation of our 2020 guidance without all the pieces, some of that relating to the confidence we have in the rate cases. There's nothing in there relating to the cost of capital, which we expect to get settled by the end of this year that starts effective next year. So that will be a component that we would expect to see. I think you'll get more details around all of this at the Investor Day.
There are some projects that we do at both companies that are sometimes out of the GRC. We'll lay those out and you've seen those before. But we'll give you a lot more clarity into 2020 and beyond at the Investor Day.
Got it. 2nd question.
Sorry, you asked on the FERC question.
On the
FERC question, that one we expect to get finalized next year and we would see a step up from our current rate to the new rate starting then.
Got it. And is that new rate is that settlement document a public document with the rate disclosed or the revenue step up disclosed?
Yes.
Okay. If it's a public document, what's the step up?
It's 10.6
percent. Retroactive.
Retroactive at the beginning of this year. June. I'm sorry, June of 'nineteen.
Yes.
Got it. Okay. I was thinking more of the dollar 1,000,000 amount. Sorry.
We haven't published that.
Okay. Finally, on Cameron, is there a material cost change if you finish Cameron 3 before you've made FID decisions on Cameron IV and V, I would think there would be in terms of like releasing crews and sending folks home. You're not that far away from sending crews home because you're not that far away from having Cameron III done. I'm just curious how you think about that and how you kind of how much that plays a role in the negotiation process and in the planning process with both customers and partners?
Yes, let me speak to that. I mean, 1st and foremost, all of the partners in Cameron are very focused on getting Trains 23 finished and into service before we do anything beyond that. So that's a primary goal and we're getting very close. I mean, we're about 96% finished and really Train 2 is in commissioning and 3 not far behind. So those are almost done, but they still need to finish their commissioning process.
Everybody is focused on that. We are still just in the last couple of weeks have kind of honed in on what we think we want to build there. We haven't announced what that is yet. And we are still deciding how we're going to do that. It's undetermined at this point exactly how we're going to do it or who will do it.
So I think you probably remember from a few years ago when we were going to try to do Train 4, we were going to try to do continuous construction. That ship really sailed because what's going on right now is doing a lot of electrical work. It's being done by subcontractors and the commissioning is being done mostly by Chiyoda people and some McDermott people. It's not the same people that would get go in and start doing pilings again. So the idea of any kind of continuous construction went away years ago.
And so I think I'd leave it with that.
Got it. Thank you, Joe. Much appreciated, guys.
Sure, Michael. Thanks, Michael.
And now we'll take our next question from Shahriar Pourreza of Guggenheim Partners.
Hi, Shar.
Hey, guys. How are you doing?
Good. Let me just follow-up question
on LNG and sort of as you're thinking about cash flows as Cameron Trains 13 continue on pace. But we saw a peer transact and monetize a part of cash flows at a very healthy multiple. So as you guys sort of think about the existing Cameron 1 and 3, even 45 Eco Port Arthur, how do you sort of feel about potentially monetizing some of these cash flows, especially since we just got a pretty healthy public market?
Well, look, I'm not going to talk about kind of an M and A sort of transaction, which that is a bit of. But I would say this, remember, we already have 50% ownership. We don't own 100%. So it's a little bit different situation. We clearly have good value.
You can see the cash flow, the EBITDA from Cameron and we've had good value in the company from Cameron for some time now as we've been constructing it. But I would say we're going to build a pretty large LNG business and I would think that we are going to use that cash flow to help build both the expansion at Cameron and new projects. So that's what I would think we would be doing to create value, to create additional value. We're always open to looking at things like that. But you know, we looked at an MLP some time ago that ship sailed.
But we're always looking at things. I actually think we will wind up using the cash for building our LNG business bigger.
Got it. Self fund each other. Okay, that's good. And let me just shift real quick to Texas. On core, obviously, it's a very healthy CapEx increase that you guys had.
A lot of it was driven on sort of the transmission side. Distribution kind of still remains a little bit modest, totally. At what point can you start to pull forward some of that distribution spend? Should we think about it as an opportunity when transmission spend slows down and you offset with distribution? I mean, you obviously have the economic backdrop to support more spending.
So how do we sort of think about the intermix between distribution and transmission?
Yes, I'll start and I'll ask Trevor to comment. Look, we're very excited about ENCORE and the growth in Texas and there's a lot to do there. And so I think we're very focused on helping them fund that growth. And Trevor, you want to speak to the details that he's asking about on transmission?
Yes. I think when we look at the chart, the big legs of the stool is really in the growth in Texas are in and around the Dallas Fort Worth Metroplex being one of the fastest growing metroplexes and looking at kind of their 2% premise growth on a year to year basis. So that's really kind of on the distribution side. Then you look at the West Texas with the Permian and all what needs to be built out on the transmission side with the Permian. And then the 3rd leg is there's, call it, close to 100 gigawatts in the queue, which is primarily renewables based.
So you see kind of that slant towards more transmission right now as opposed to the growth that we're seeing in and around the Dallas Fort Worth Metroplex. But all three legs of the stool, renewables, West Texas and the Permian, as well as Dallas, are all very, very healthy growth areas for us.
We will now go to Sophie Karp of KeyBanc.
Good morning. How are you guys doing?
Very well, thanks. You?
Okay. Thank you. Congrats on the quarter. Just wanted to go back a little bit to the guidance. Clearly, very impressive that you're maintaining the guidance despite selling and divesting in South America.
Maybe
could you
help us a little bit to bridge how that's how much of that kind of delta is going to be covered by savings on debt versus maybe incremental earnings from Texas and LNG ramp? So maybe if you could provide a little bit more color on that.
Look, I think that as we were able to finalize the sales agreements for South America, assess the rate case, which just got finalized at the end of September and look at all of our businesses as fresh, we became very confident that our guidance range was still good despite the sales. And that was really good news for us because all the businesses are doing well. We have confidence in Cameron and the California utilities, Encore and then the South American proceeds. They all come into play. We're not going to break down segment guidance until we have our Investor Day.
So we'll give you all that detail at that point in time.
Sofia, this is Trevor. I would just add one thing though that with the sale of the renewables that you saw earlier, we were able to maintain our guidance as we recycle that capital. And likewise, with the sale of South American recycling net capital coupled with, like Joe said, a constructive rate case that's really focused on capital around safety and reliability. We feel good that we've been able to recycle capital and maintain guidance. So a huge positive for us in that respect.
Yes, yes. And so maybe just to just double check, does that assume any particular outcomes in the cost of capital proceeding and at the FERC?
No, that's outside of the cost of capital. So that's not in the specific guidance. But again, it most likely would be within that guidance range.
Okay. And the first settlement?
Same thing. It would be in the guidance range. Okay. But it's not specifically included. No assumption on that is built into it right now.
Got it. And then just to confirm on Texas, the incremental CapEx that you're putting at Encore, that would be recoverable through TCOS and DCRFs, correct?
That's right. That's right.
All right. Thank you. So I had I'll jump back into the queue. Okay. Thanks.
And we will now go to Paul Patterson of Glenrock Associates.
Hey, good morning guys.
Good morning, Paul. How are you, Paul?
All right. So just to sort of follow-up on Greg's and Steve's questions. If I understand sort of your answer, it looks like you guys are leaning to basically including an adjusted EPS, the wildfire amortization.
Yes, let me take that one, Paul. What we're leading to is calling it out prominently probably on the face of the financial statements, but probably not carving it out as a separate adjusted guidance. But again, we're still working through that right now. This quarter, it was pretty small. It was only $6,000,000 of earnings.
So we didn't call it out. But again, I think one way or the other, we will show it pretty prominently that people can identify that number on the face of the financial statements.
Okay. And then with respect to the PSs that you guys have instituted, how would they compare? I mean, I realize that they're separate and distinct situations in every service territory, etcetera. But as a percentage of customers, and I think you guys said, I think something in the 100,000 customer range. How does that compare to the number of customers that are being reduced in the service territories to the north?
And how long are these people on average being cut off? How long is their power out? Because from our perspective, I mean, obviously different service territories, different numbers of people, but the reaction to these power shutoffs to the North seem to be rather hostile, which I haven't really I've seen complaints about obviously people being disconnected in your area, in the past and what have you, but I haven't seen anything to this level, if you follow me. I'm just wondering if you could speak to that a little?
Yes. Let me take it first, Paul, and then I think I'll have Carolyn also address it. It's quite interesting and I alluded to this earlier. I've lived in different parts of the country and seen power go out for a variety of reasons, generally weather events, right? You have planned outages, those are usually generally very short in term.
But I've seen weather events across the Eastern seaboard and nobody likes it, but it happens. And if there's ice and snow or wind and it knocks trees down and knocks the lines down, this is what happens. And I've been through periods where the utility in and around Washington DC was you didn't do enough to keep the reliability up. So it's always an issue. I think in California, we've been so used to mild climates and very high reliability that it's a little bit unusual.
And what we've tried to do, and I'm going to let Carolyn speak to this, is we've over the 10 years, we have tried to figure out a way, segment our grid, really take out the power, shut the power off for safety reasons in small areas where the wind speed is just too intense. And that doesn't cause as much issue, although at the very beginning, was difficult. But then we started to build centers for people to go to, got the communications chain. So we learned a little bit by doing. I think up north, they're cutting off a much larger percentage of people.
Of course, they have a bigger territory. I don't think they're at the point yet where they can do exactly what we're doing. They can get there. But I think that's what you've seen a little bit of backlash on. It's something people in other parts of the country have had to deal with for most of their lives and people in Northern California haven't.
Carolyn, can you talk about this because you said there are about 100 of 1000. We had a much smaller number of people out than that. They've had very significant over 1,000,000 I think. Carolyn, go ahead.
Sure. In our last event, we impacted around 25,000 customers, as I mentioned earlier. And I would just tell you that over the past decade, we continue to improve. And one of the things that we did early on after we've had these public safety power shut off, we sent our senior management team to these communities that were impacted to do one thing and that was to listen to customers. What were customers' concerns?
How can we lessen the impact when a PSPS occurs? And that's really where the idea of these community resource centers was generated from us going out and listening to our customers. And in turn, we're showing them the types of conditions that we're seeing and the types of wind speeds that the area is experiencing. And I would just tell you that we're also going out and doing community resilience fairs. So we're out in the communities that were most impacted.
And I have to tell you that over the years, the impact and the response from customers has been actually positive. They're thanking us for turning off the power. And so I'm really pleased to hear that now. Is 100% of the customers happy? No.
But I can tell you that customers are more accepting of the practice that we're doing, and they know the conditions we're experiencing and we're listening on how to lessen the impact to them when we do have to do a PSPS.
You might talk about how long have we had to turn people off and it's different in different areas.
Yes, it's absolutely different in the highest elevation where we've had to do more significant PSPS. But I can tell you in the last the events over the last week, the average duration of these PSPS has been around 24 hours. So we have tried to minimize that. However, we're also careful that we're not going to turn the system back on when the conditions prevail. We do 100% patrols of all of our circuitry and the circuit segments that we de energize to ensure that there's no trees on the line, there's been no damage to the lines.
And surprisingly, we have found things that have happened. We found broken poles. We found broken cross arms. We found trees on wires. So that's the importance of doing these 100% patrols before we turn back customers on.
Okay. Great job, guys. I mean, maybe you guys can profit. Well, I don't well, maybe you guys can help the other guys up to the north and maybe that could be appreciated some more. We do.
Okay. Thanks so much.
Thank you, Paul.
And with that, that does conclude today's Q and A session. I would like to turn things back to Joe Householder for any additional or closing comments.
Thank you all for joining us today. I will see many of you at EEI in about a week. Any event, I'd like to express my gratitude to each of you for the confidence you've had in Sempra Energy and support you've given me and it's been a real pleasure knowing you all. If you have any follow-up questions, please feel free to contact the IR team and have a great day.
And with that, ladies
and gentlemen, that does conclude today's call. We'd like to thank you again for your participation. You may now disconnect.