Good day, and welcome to the Sempra Energy First Quarter 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Faisal Khan. Please go ahead.
Good morning, and welcome to Sempra Energy's Q1 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 Jeff Martin, Chairman and Chief Executive Officer Joe Householder, President and Chief Operating Officer Trevor Mychajluk, Executive Vice President and Chief Financial Officer and Peter Wall, Chief Accounting Officer and Controller. 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, May 7, 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 Jeff.
Thanks a lot Faisel. I'd like to thank everyone who attended our Investor Day here in San Diego. We appreciated having the opportunity to provide a comprehensive update on our strategy and capital plans and enjoyed taking many of you to visit our LNG facility in Baja, California as well as SDG and E where we highlighted our wildfire mitigation program and showcased our other California utility assets. We hope you came away from our conference with the following. 1st, we have a sharper strategic focus.
2nd, we've improved our capital discipline. And third, we are investing in a high performance culture. Since our Investor Day, we held our internal top 300 leadership meeting. Leaders across our company came together here in San Diego to discuss steps we're taking to better align our 20,000 employees to directly support our strategic mission of becoming North America's premier energy infrastructure company. There was a great sense of energy amongst the team as we set our course for the next year and beyond.
From an execution standpoint, we continue to make progress on our goals. Just last month, we completed the sale of our wind assets, which brings the total cash proceeds from our renewables and midstream divestitures to approximately $2,500,000,000 well above market expectations. Next, our focus is successfully completing the planned sale of our South American businesses, which we're targeting to close around the end of this year. Proceeds from our asset sales will be used to advance our strategic mission by funding growth, while also strengthening our balance sheet by paying down parent debt. Now looking forward, Sempra is well positioned.
Our business is at the intersection of 2 key trends that are transforming the energy markets: the transition toward cleaner energy, which is happening market by market and the U. S. Is growing dominance in the global energy markets. We expect our assets to play a key role in furthering both of these trends, which in turn should create jobs both in the United States and Mexico, bolster the economies of both countries and drive future value creation for our shareholders. Before handing off the call like to highlight that we're affirming our 2019 adjusted EPS guidance range as well as our 2020 EPS guidance range.
Please turn to the next slide where Joe will discuss how we're executing on our operational goals.
Thanks, Jeff. Before touching on some of the legislative discussions happening in California on wildfire risk, I'd like to mention that last week the CPUC issued a favorable proposed decision on SDG and E's wildfire mitigation plan, enabling us to continue to improve our industry leading program. Now on the legislative front, we're pleased with Governor Newsom and the Strike Force' leadership and their proposals. The most important aspects are mitigating the threat of wildfires through measures such as increased vegetation management, advancing emergency response to minimize damage if an event occurs and defining proposals that can help ensure healthy utilities to achieve California's greenhouse gas reduction goals. We believe the Strike Force's recent recommendations of a liquidity fund, a wildfire fund and changes to inverse condemnation help narrow the focus of the Blue Ribbon Commission.
We're actively engaged to help ensure that our customers' and our shareholders' interests are addressed and that our existing wildfire mitigation efforts We're optimistic that effective legislative solutions could be introduced and approved this summer. Although positive headway is being made, the current regulatory environment and threat of wildfires in this state are factors we must take into account in our regulatory filings, including the cost of capital proceeding. Please turn to Slide 6. This CPUC cost of capital proceeding is very important to our 2 utilities because our currently authorized return on equity numbers were last updated in July of 2017 and were the result of a 2 year extension from our last cost of capital proceeding approved in 2013. A lot has happened since 2017 and even more so since 2013.
Over this time period in California, customer needs, state mandates, energy goals, the environment, the regulatory construct have all changed considerably. They've had a corresponding and material impact on the risk profile of California investor owned utilities. Our cost of capital applications reflect this shift in risk and the higher ROEs are designed to help ensure access to the capital markets. Specifically, our request for focus on returns that are commensurate with the increased risk of operating in California, investment grade credit ratings to preserve reasonable rates for customers and maintain access to capital to continue investing in safety and reliability and financial stability. With this in mind, we requested, 1st, an increase to our authorized ROEs.
At SDG and E, we requested a base ROE of 10.9% plus a 3.4% adder for a total of 14.3%, an increase from our currently authorized ROE of 10.2%. We arrived at the wildfire adder by estimating risk associated with potential unrecoverable wildfire liability, premiums required by insurers and premiums required by investors in our catastrophe bonds. At SoCalGas, we requested an ROE of 10.7% compared to its currently authorized ROE of 10.05 percent. And second, an increase in our authorized capital structure to 56% equity for both utilities, which has been our average actual capital structure over the past 5 years and puts us within the range of debt ratios for Moody's A rated regulated electric and gas utility companies. We believe our ROE applications are appropriate based on our financial modeling, input from external consulting experts and taking into account the current capital markets and regulatory environment.
We also believe the applications will help to ensure the creditworthiness and financial integrity of our California utilities. For additional perspective, our base ROE requests are similar to our authorized ROEs prior to 2012, which were around 11%. We submitted our FERC cost of capital filing for SDG and E in October of last year, which included a proposed ROE of 11.2% compared to our current ROE of 10.05%. In terms of timing, settlement discussions have started and are expected to go through the second half of the year. Our requested FERC ROE increase is clearly lower than our proposed CPUC ROE increase.
This is primarily due to the fact that when these applications were filed, events that have occurred since that time and most importantly, differences in the probability of cost recovery between the 2 regulatory jurisdictions. Regarding our 2019 GRC filings, based on the activity we've seen, we continue to believe we'll receive a proposed decision from the CPUC in mid-twenty 19 with an effective date of January 1, 2019. Southern California Edison recently received their proposed decision, but from a timing perspective, each rate case is assessed on an individual basis and is led by different commissioners and administrative law judges. We continue to believe our proposals are in the best interest of all stakeholders involved with a focus on safety and reliability for our customers. Please turn to the next slide.
Shifting to our Texas Utility business. We're happy to report that a settlement has been reached with key stakeholders in Oncor's proposed acquisition of InfraREIT and Sempra's proposed acquisition of 50% interest in Sharyland. The last regulatory steps in the transaction are approval and a final order from the PUCT. This is consistent with our previous timeline and we would expect to close the transaction in mid-twenty 19. Now please turn to Slide 8.
I'd now like to spend a few minutes discussing our infrastructure businesses. Let me start with Cameron. As you'll recall at our Investor Day, we were able to raise Sempra's projected annual run rate earnings guidance range for Cameron LNG Phase 1 to $400,000,000 to $450,000,000 Train 1 continues to achieve key milestones to support its timeline and most recently we introduced feed gas in mid April. We expect to begin producing LNG from this train shortly and began recognizing earnings in mid-twenty 19. Based on updated disclosures, the EPC contractor now expects Train 2 to produce LNG in Q1 2020 and Train 3 to produce LNG in Q2 of 2020 due to a longer construction and commissioning schedule.
Moving on to our development projects, both ECA and Port Arthur recently received non FDA approval to export LNG. Additionally, Port Arthur received FERC authorization to site, construct and operate the LNG facility. These approvals bring us one step closer to reaching FID for these important projects. Related to Enova, we're still targeting commercial delivery of natural gas at the Marine pipeline in the Q2 of this year. At the terminal businesses, Enova announced 2 new capacity contracts with a global integrated oil company.
This included an additional contract for 740,000 barrels of storage at the previously announced Manzanillo Marine Terminal development project as well as 290,000 barrels of capacity at a new storage terminal project in Guadalajara. This new Guadalajara terminal is their 7th terminal project and one of 12 projects currently in development or under construction. Please turn to the next slide where Trevor will review our financial results.
Thanks, Joe. Earlier this morning, we reported 1st quarter GAAP earnings of $441,000,000 or $1.59 per share. This compares favorably to Q1 2018 earnings of $347,000,000 or $1.33 per share. On an adjusted basis, 1st quarter earnings were $534,000,000 or $1.92 per share. This compares favorably to our Q1 2018 adjusted earnings of $372,000,000 or $1.43 per share.
Please turn to Slide 10, where I'll discuss the key drivers of our quarterly results. The variance in our Q1 2019 adjusted earnings when compared to last year was affected by the following items: $79,000,000 of higher equity earnings at the Sempra Texas Utility segment resulting from the acquisition of our interest in Oncor in March of 2018. Dollars $66,000,000 at SoCalGas and STG and E respectively related to the January 2019 CPUC decision allocating certain deferred income tax balances to shareholders. This benefit was included in our 2019 adjusted guidance. Dollars 23,000,000 of higher earnings from South American operation, including $15,000,000 at Peru due to an increase in rates and lower cost to purchase power and $7,000,000 of higher earnings combined from both utilities as a result of lower depreciation due to the assets classified as held for sale.
$21,000,000 in lower expense related to foreign currency and inflation effects net of foreign currency hedges in Mexico and $15,000,000 of higher earnings at Sempra LNG from our marketing operations primarily driven by changes in natural gas prices, which was offset by $18,000,000 of lower operational earnings at SDG and E comprised of $27,000,000 of lower CPUC base operating margin in 2019 due to the delay in the 2019 GRC decision while absorbing higher operating costs, offset by $9,000,000 of higher earnings from electric transmission operations and $25,000,000 of higher costs related to increased net interest expense and mandatory convertible preferred stock dividends at parent driven by the Oncor acquisition. Please turn to Slide 11. To recap, we continue to execute on our path to Premier. Looking forward, our key priorities are executing on our $25,000,000,000 5 year base capital plan, optimizing our capital allocation with a focus on strengthening the balance sheet, advancing our LNG development opportunities and engaging with stakeholders in key regulatory and legislative proceedings at our U. S.
Utilities. We believe our strategic mission and disciplined capital allocation plan should help us reach our operational and financial goals well into the future. With that, we'll conclude the prepared remarks and stop to take your questions.
And our first question will come from Greg Gordon with Evercore ISI.
Hi, guys. How are you doing?
Good morning, Greg.
A couple of questions. I think, obviously, the quarter quarterly earnings were significantly better than consensus. And I think that utility analysts, no matter how long they've been doing this, and I've been doing it quite a while, often have time hard time with the quarterly just given how the regulatory model in California causes things to be extremely lumpy sometimes. In this case, it was the utility income benefit that was $66,000,000 positive all in the quarter. I know that you put that that was also you have footnoted that that was also in your full year guidance range that you gave at Analyst Day.
But can you just it's probably not a recurring item even though it's considered an ongoing item. So how do we bridge to 2020 to the growth guidance that you gave for SDG and E and SoCalGas? What are the sort of not in specific mathematical terms, but in general terms that sort of replace that and offset it so that you can show growth despite that item being sort of a one time thing?
Well, thanks for that question, Greg. And obviously, I think there's a number of big levers in front of us for 2019 and you can probably list a lot of these, but obviously we're quite focused on getting our GRC approved for both SoCal Gas and SDG and E. You recall that the year 1 step up in our filed request for SoCalGas was close to a 20% step up and a 10% step up in the attrition for SDG and E. And then in the outer years, SDG and E is roughly 5% to 6% and SoCalGas is at 6% to 7%. So the outcome of the GRC is important both for 2019 and 2020.
And I will remind you that in the recorded results for Q1, we held there are no additional attrition revenues above what we got in 2018. So that should lead to some form of understatement for Q1. 2nd, you recall that we've got our FERC ROE pending. I think we requested 11.2 percent. It's over 100 basis points above where we're currently at.
The expected effective date for that FERC decision independent of when it's going to be ruled upon is the 1st June in 2019. And then obviously, the cost of capital proceeding at the PUC is really, really foundational to what we're trying to accomplish. And in our base plan, we've requested a 10.9% number for SDG and E. You followed us long enough, you recall in the 2,008 to 2012 timeframe, it was slightly higher than that. I think it was around 11.1.
So we think that's adequate. And you did note that we have a 3.4% adder relative to whether the reforms we're expecting this summer are adequately put in place. The same number for SoCalGas is a 10.7% ROE. So in general, there's going to be some moving pieces in 2019, but our ability to execute well around those regulatory initiatives will have a big impact on 2020.
Thanks. My second question, a bit more general. The governor's framework is released by his, I think he called it a strike team or strike force, contemplates several ideas to solve the wildfire, the structural wildfire problem. And one of them is the idea of this catastrophic wildfire fund. And the understanding is that multiple constituencies would be asked to potentially contribute to capitalize that including the state, but also including the utilities.
And that would create a buffer between utility balance sheets and potential future wildfire claims such that inverse condemnation would essentially in many ways be immunized
and then
PUC would deal with fault later. I mean, how do you contemplate that? Is that a viable outcome for you? Because in some ways, I think investors look at it and say, well, that's a little bit frustrating from a Sempra specific perspective since you have best in class wildfire safety provisions. You haven't had a fire in 10 years and yet you might ask to be contribute some amount to this fund.
In the long run, it might be in the best interest of your shareholders to contemplate that. But then on the other hand, you have the best in class safety record. So can you talk about how you're thinking about the evolution of this negotiation and what that might look like?
Yes. That's a very thoughtful question. Let me try to do this. I'm going to give you a couple contextual comments first and then I'll talk about some of the levers that could be put in play that would bridge that buffer that you referred to. First off, we probably will stop short of forecast and an outcome, but I can say across our management team, we have growing optimism that we'll get some things done this summer that will be adequate.
First off, I commented on this on the Q4 call, but Governor Newsom has really shown some strong leadership. And I think one of the things I try to focus on Greg is up and down the state, all the right people that you'd expect to be at the table are highly engaged, which I think is promising. Secondly, you referenced the strike force report, but it does lay out a roadmap for preventing future wildfires in the future. And this is a point you made a comment on SDG and E. We've been a leader in this regard.
We've been recognized nationally. So I think that it gives us some credibility to be at the table. And then thirdly, the commission that was established under SB 901 as this report due to the legislature on July 1. I think that will be an important thing for all the investor owned utilities and its investors to track. But there are 3 key working groups out of that commission now focused on utility cost recovery standards, wildfire funding mechanisms and insurance affordability.
And the heart of your question goes to this issue of wildfire funding mechanisms. And I would say this, independent first off, we think it's a good idea to have this type of fund in place. I think it provides confidence to the market. It protects the utility balance sheet. And just as importantly, it gives people who have incurred damages, Greg, access to liquidity, which I think inspires some confidence in the marketplace.
But the mechanism by which that funding level is met and the funding level is determined continue to be in play. I don't want to speculate too much except to say that I know that the reduction of the subrogation rights of insurers that provide wildfire insurance to consumers is actively under consideration. Also know that there's a variety of things in the existing rate making formula in California, such as the Department of Water Resources bonds, which are rolling off here in the short term. So there's going to be some headroom in existing rates relative to how we might raise those dollars. And like you, we've also heard some of the discussions around potential equity contributions.
It's probably quite frankly too early to speculate on that, except to say that we are certainly a significantly small fraction of the state in terms of exposure. We have invested $1,500,000,000 to date, in hardening our backcountry and our vegetation management programs, we spent another $300,000,000 So around fire science, our risk, fuel content in the backcountry, if something like that came to the fore, we certainly think that any contributions from us should recognize the points that you made, which we're in a materially different situation.
Thank you. Very clear. Have a good morning.
Thank you, Greg.
Our next question will come from Steve Fleishman with Analyst and Wolfe Research.
Hi. Thank you. Excuse me. Turning to Cameron. Could you just, first of all, clarify the dates are all first LNG dates.
So in terms of actually turning it into earnings producing asset, is that like 3 months after, 6 months after? What is the rough timeline for turning it commercial?
Yes. What we usually look for is it's usually 4 to 6 weeks after you get first LNG, you get to substantial completion as well as earnings.
Okay. And then I know this isn't an issue by 2021, but just for 2020, how should we think about the delay in terms of your guidance range?
Well, I think in my prepared remarks, we talked about the fact that there's really no change. I mean, frankly, you go back to analyst conference and we were looking at different contingencies for the year, we build in the expectations of a potential delay like this. But 2021, I think to your point, Steve, is still when we expect full run rate earnings. And you recall that at our Investor Day, we raised our expectations around that to $400,000,000 to $450,000,000
Okay. And then maybe just switching gears on to California wildfire fixes. So all the right people together, etcetera, just do you think it's feasible to get done by this July timeframe? Are you more focused on just by the end of the session? And what will kind of where are you keyed off of to kind of say that this will get done?
Well, we're actually entertaining some of the key stakeholders in Sacramento here in San Diego later this week. Actually, we have a group of senior folks in administration touring our Wildfire Science Center here at SDG and E, which we think is positive. All the right conversations are being had. We certainly think Tony Atkins, who's from San Diego, has a very important role to play in the Senate. The governor's got the right folks on it.
Guggenheim is their independent financial advisor. They've been meeting with all the credit rating agencies. In fact, some of the agencies actually been out to Sacramento. So we think to your original point, all the right folks are at the table. I continue to be very keyed off of this July 1 date, which is the date that the Blue Ribbon Panel is supposed to make their report to the legislature, which I think is important.
And then obviously, there has been a commitment to try to get a bill that is comprehensive to the legislature by the middle of July, which I think is the second data point to follow. But look, I go back to the point, Steve, that this is the 5th largest economy in the world. We have had a premium regulatory climate here for several decades. I think there is growing recognition in all of my conversations that they understand the value of having A rated balance sheets from their investor owned utilities. And I think that we remain optimistic that we'll get something done.
One last quick question just on the GRC. So we did finally get an Edison GRC and I guess some of the issues there were mixed, but I know you filed your GRC, I think was the first one done under the ramp filing mechanism. So I guess the question really is how should we view the Edison proposed decision as a barometer at all for yours?
I'll make a couple of comments and see if Joe wants to add some. But internally, Steve, the way we've talked about it is it's apples and oranges, right? So this risk assessment program that we use for our rate case really went into all the fundamentals of how you rank a hierarchy of risk operationally in your service territory. And then you've got to tie that to expected capital spending, right, to make sure that you end up with a different risk mitigated set of outcomes. If you look at the backdrop that the commissions were reviewing our ramp based GRC, that backdrop is around how we take risk out of the system and move toward more constructive regulation.
So I'm not sure how much precedent I would assign to the Edison case. But Joe, do you want to add anything about how you're thinking about our rate case?
Sure. Thanks, Jeff. Hi, Steve. I think you have to consider a few things when you think about it. First, each rate case filing is very different.
They have different assigned commissioners, different staffs, different ALJs. We've already talked about the ramp. I don't need to repeat that. But our filing incorporates safety and reliability spending as directed by the PUC. A large component of the filing for SDG and E was including additional wildfire mitigation efforts that include accelerating the hardening, increased vegetation management above and beyond what we have to do additional fire prevention technology.
And if you look at the wildfire mitigation plan that we had, that was just approved, there's little additional capital in there because most of it's already incorporated in this GRC ramp request. And at SoCal kind of the same thing. It's a continuation of integrity management for transmission, distribution and storage. So we think we have a very thoughtful filing around safety, reliability and most of all importantly, affordability for our customers. So we think as Jeff said, they're apples and oranges.
Thank you.
Thanks, Steve.
Next we'll go to Julien Dumoulin Smith from Bank of America.
[SPEAKER JULIEN DUMOULIN
SMITH:] Hey, good morning. Can you hear me?
[SPEAKER JULIEN
DUMOULIN SMITH:]
Good morning, Julien. Loud and clear.
Excellent. So perhaps just to clarify a couple of things that have already been followed up on here. How do you think about the wildfire mitigation plans and some of the responses and proposed decisions that came back of late on the ALJ side? And suppose how do you think about translating a wildfire mitigation plan into some form of prudency? And now given the way that things have been developing, how do you think about clarifying that from a legislative perspective?
Obviously, this is one nexus. I'd be curious on your perspectives.
Yes. I'll make two comments in that regard and Joe you feel free to come in behind me. But you recall that our wildfire mitigation plan was focused on fire hardening, vegetation management, increasing our aerial support. So we have a 24 hour capability with a nighttime flying helicopter. And then you may recall, Julian, we've got 170 7 weather stations in the back country.
6 of those will be retrofitted as part of our plan. And we've asked for an incremental $100,000,000 to $200,000,000 associated with our mitigation plan for 2019. And that augments what Joe covered because there's a fair amount of capital just in our ramp based GRC filing. So as you think about that contextually, then you move over to how you might think about assigned liability. What we're trying to do is move away from some type of discretionary standard, right?
So if the goal is to make sure that you're substantially compliant, the whole goal of having this liquidity fund set up is to meet the needs of those people who have incurred losses. Separate and apart from that, you recall, Julien, that the commission always retains discretion regarding penalties, if they think that there should have been a different standard applied. So what we want to move away from is this idea of a discretionary standard where someone's interpolating how well you've complied with your established wildfire mitigation plan.
Yes. Let me just add on to that. Hi, Julian. Look, I think that I'm going to go back up to a different level. We really applaud the work of the Governor and his leadership in trying to address this.
He clearly recognizes the healthy utility companies are a key component of us providing clean, safe and reliable energy. And in order to have healthy utility companies, we have to have certainty of recovery, right? We have to. And that includes costs in operating our business and those incurred as a result of the application of inverse, if we're operating in the normal course. So his strike force has laid out a path for the Blue Ribbon Commission and the California legislature to achieve that.
We think that's the way. And as Jeff said, we need the certainty. And if you were to look at our U. S. Supreme Court filing, it goes through all of this, right?
We have to have certainty of recovery and you can't have a taking. So I think this is the point we need to make.
And then just turning back very quickly to the McDermott side of the equation. Just curious, I mean, are there ongoing negotiations here just to clarify after some of the commentary last week here about the status of the project and not necessarily related to the time line but just cost. And even in that, obviously, there's a lot of activity on their side of the equation. How do you think about your leverage in the situation to ensure not just timely completion, but also completion on budget as it stands today?
Let me take that, Julian. I think, look, for all of you, the most important thing to recognize is that this project is days away from beginning to produce LNG and start delivering it to our customers. And Cameron LNG and the EPC contractor have common goals in getting this world class project completed safely and reliable. And I want to kind of remind you all that Sempra risk manages project and the imminent startup is very exciting for a few reasons. 1, we have a very low cost world class LNG project that has created substantial value for the shareholders.
2, the high return asset that we have is a very high return asset. It's going to begin producing earnings very soon. Cameron LNG, the business is very strong. We have strong partners. We have strong contracts.
And that supports our long term cash flows from this business. So remember, we put in our old project, we're going to get like $12,000,000,000 of cash flows out of this thing. And there have been ongoing discussions with the contractor over the last year or so. They continue to move things a little to the right. You can see in McDermott's materials that they just have, they're going to spend between the 2 of them about $1,000,000,000 to finish this thing.
And so they'd like to get some help, but we would like to make sure we get the project done. We want to make it get it done. We want to get it done as soon as possible. Everybody is focused on it. What we're really excited about is we're starting up right now.
And that's about all I can say right now.
Fair enough. Thank you.
Thank you, Julien.
And Christopher Turnure from JPMorgan has our next question.
Good afternoon, guys. Just to follow-up on the last question, Joe. Is there a way that we can think about kind of your own internal processes for evaluating Cameron timing and cost and construction versus what the contractors are doing there? Because I think you're being very deliberate in your message that that is what they're forecasting, that's what their latest update points to. Certainly, that was your message at the Analyst Day too.
And that was pretty recently that we had a affirmation of the old schedule versus now?
Look, I think that we when I say we, let me talk about Cameron LNG. Cameron LNG is a company. It's owned 50% by Sempra and 16%, 16.6% by the other 3 equity owners who are our customers. Cameron LNG has people on the ground at the site every day as they have since the start up of construction. And they oversee what's going on.
They're big engineering team looking at the forecast of the schedule. I can tell you that McDermott has since last year when they took over CB and I put a lot of focus and effort on this project and have gotten more deeply into the schedule and the cost over time as you've seen in their announcements. I think that David Dixon is very intent on getting this project done. He talks to all the partners as well as to Cameron LNG Management. We have assessed it.
We've had partners, engineers assess it. We've had our owners engineer assess it. We think the schedule is one that seems very reasonable, but it's in the hands of the contractor, which is Chiyoda and McDermott. So it's up to them to predict the schedule and the cost. We think that what's laid out there, we took that into account when we did our earnings guidance and that's about all I'd say.
Okay. That's helpful color. And then could you just give us a little bit more detail on the LATAM sale process and kind of how that's progressing next milestones to look for? And I guess versus a base case, what might move that schedule forward or backward? Thank you.
The current Thanks,
Jeff.
Thanks Jeff. Yes, we're progressing well on schedule. We've seen robust interest across the board for these businesses and these are great businesses. Interest has been wide ranged from financial investors to sovereign and pension funds. So we're targeting 1st round bids by the end of the second quarter and then go into the 2nd round and then we're still targeting close sometime around the end of the year.
Okay. And nothing that could move that forward or backward based on what you're seeing right now?
No, I think we've got a pretty formalized process that we're working through and we're still adhering to the schedule that we laid out.
Okay, great. Thanks, Trevor.
Yes.
Our next question will come from Michael Lapides with Goldman Sachs.
Hey, Jeff. Hey, Joe. Thank you for taking my question. Real quick, if you had to peg which moves forward first, is it the Cameron expansion, so 45? Is it the first trains at Port Arthur?
Or is it the small train at Costa Azul? And if so, what are the next key milestones we ought to watch for?
Thank you for that question, Michael. And I'll give some color commentary, maybe Joe can add into it. But I think that the one that has the lead advantage currently is we currently have 3 heads of agreement at ECA Phase 1 already fully contracted and all three of those are moving toward having SPAs in place. So just in terms of documentation that one is further alone in terms of being 100% contracted and moving toward more definitive agreements. I would also say that Cameron expansion is something we remain optimistic about.
You recall that when Total stepped into ANGI's position, they made it very clear to their shareholders that one of the attractive aspects of being in the original Cameron partnership was they were committed and interested in seeing the expansion go forward, which you may recall was something we were trying to do several years earlier. So I think you've got line of sight to the 3 participants in the expansion and we continue to have a lot of positive work being done there to make sure that the underlying economic support that. And then obviously at Port Arthur, we've got 2,000,000 tons per annum accounted for with our partner from Poland. We're continuing to have a lot of very positive conversations around Port Arthur and we think that is a remarkable site for a number of reasons. So I think in general, one of the things you recall that we did was we did a bottoms up strategic review of our LNG business over the last 12 months and came away with a view, Michael, that not only is it a core business to Sempra and Sempra can continue to add value in terms of balance sheet and expertise, we really raised our ambitions about what we thought we could accomplish.
So we're actually feeling quite constructive on all three of those projects.
Got it. And then a question on the settlement in Texas. Any impact, meaning the settlement regarding in for REIT and Sherryland, any impact of that settlement on the potential accretion dilution that you discussed when first announced?
I would say that we've gone back and revisited our underlying economics and we feel equally good about how we underwrote that transaction before. Maybe 30 or 40 days of slippage in and out of when we expect to close it. We feel great about the transaction. Frankly, the type of growth that we outlined at the investor conference, Michael, you recall, really had a lot to do with that Central and West Texas opportunity and the InfraREIT transaction actually lays into that growth probably even better than we originally thought when we underwrote the deal.
Got it. Thank you, Jeff. Much appreciated.
Thank you, Michael.
Next we'll go to Ryan Levine from Citi.
Hi. Given the recent weakness in global LNG ARBs, do you anticipate any customers who elect not to nominate or lift LNG from Cameron 1 after the commissioning phase is complete? Can you comment on the nomination process now that you're nearing first half?
I don't know if we'll go into kind of how we think about nominations, Ryan, but I think that we do take questions from time to time about whether we see the overall contract and model change. And based upon our current conversations in the marketplace, Joe has been on the road, I'm on the road, Carlos, Haris. We've got our entire management team bending over to make sure we're talking to the right folks. We still see this as a long term contracting business. And our goal is a first step as we move toward FID is making sure that we have high quality customers contracted for 20 years with very, very strong balance sheet.
And remember, we're really on the infrastructure side of this business, right. So we want to play an exact same role or very similar to what we're doing at Cameron, which is a
tolling model.
Okay. And then on ECA, with the non FDA approval received, are there any remaining permits that the company is still looking to procure?
Yes. You raise a great point. We've got the non FTA approval to Department of Energy. We also in this year got our Port Arthur approval from FERC. I'll let Joe comment on what other permits we have in Mexico and whether there's any that we're still pursuing.
Thanks, Jeff. Hey, Ryan. Yes, really, the major permit we got earlier about both the large scale and the mid scale site. And then as Jeff just mentioned, the non FDA. What we still need to get and we have applied for and we've done this before is we need our Mexican export permit.
So that's underway. The other things are just small local permits around building the site, but those come later in the process. But the only one that's more significant is this export from Mexico. We expect no problems with that.
Okay. Thank you.
Thanks, Ryan.
Our next question will come from Shahriar Pourreza with Guggenheim Partners.
Hi, Shahriar.
Hi, good morning. It's actually Constantine here for Shahriar. A lot of the questions have been answered, just a couple of kind of housekeeping items. So on the LNG development projects, now that kind of permitting has been progressing, can you talk about how you see kind of the ownership structure? Is it going to be similar to Cameron where some of the off takers might take an equity interest or just how to think about ownership of that going forward?
Thank you for that question. I think as we went through our strategic review of our LNG business over the last 6 to 8 months, we've also been looking as we move toward an FID decision at ECO Phase 1 later this year and hopefully an FID decision around Port Arthur in Q1 of next year. One of the things we're looking at is how we finance these projects and the potential impacts to our balance sheet. But John, a great point, as you saw in the Cameron facility Phase 1, Joe articulated this earlier, our 3 partners are each in for just over 16% participation. We think it's a great model to align the interest of partners around these large capital projects.
And to your point, we expect that will be a model you'll continue to see us replicate going forward. I would say if you went up to a 1,000,000 feet and looked across portfolio of our LNG projects, we like to be in that 60% to 70% range of equity ownership in our projects.
Okay. So kind of thinking about it the same way as it's been. Another just kind of small house keeping item. You mentioned kind of sort of the cost of capital application, the equity ratio was going to kind of shore up the credit ratings. But kind of both from your perspective and I guess what you can reflect from the CPUC, some of the downgrades have come not on the heels of formulaic kind of metrics, but also some of the regulatory and kind of legislative kind of structures around there.
So how are you thinking about that kind of going towards credit metrics?
Well, I mean, we have spent a lot of time with our credit rating agencies. Legislative and regulatory model moves back to standard utility practice and procedure rights. You always expect to have your reasonable costs returned plus an additional return on what's on your investments. I think that's what broke as you recall with the misapplication of the inverse combination model is there's been a leakage of utilities' ability to recover all the costs that they've incurred. So I think it's really a multipart effort.
You've got to get back to the right regulatory regime that allows for the type of funding mechanisms to meet the liquidity requirements. You've got to get an improvement to the regulatory model and you've got to make sure that your return on equity reflects the risk in the marketplace. And I've oftentimes said that your return on equity is intended to be a proxy for the regulatory, financial and operating risk that you see in the marketplace. And that's why we filed our updated ROE request as we have.
Okay. So I guess it's fair to say that kind of progress on all fronts is what you're targeting to get the credit metrics back in line?
That's right.
Okay. Yes, that answers everything for me. Thanks.
Thank you.
And that does conclude our question and answer session today. I'd like to turn the call over to Jeff Martin for closing remarks.
I want to thank everyone for taking the time to join us on the call today. I would say as we've had conversations with our management team, we actually have a lot of exciting things that we're working on right now and look forward to seeing many of you on the road in the next couple of months. And per custom, if you have any follow-up questions, feel free to contact Faisel and and the IR team. Have a great day.
That does conclude our conference for today. Thank you for your participation.