Good morning. I'm Faisal Khan, Vice President of Investor Relations.
I'm pleased to welcome everyone to Sempra Energy's 2018 Analyst Conference. For those of you in the room today, your safety and the safety of our employees is important to us. In the case of an emergency, there are 2 exits towards the back of the room. Please follow them to the red lights and follow them to the stairwells to exit the building if there is an emergency. For those on the webcast, you will be able to submit questions via the webcast screen.
We will then collect those questions and incorporate them into our Q and A sessions with the audience. Before starting, let me remind everyone that we'll be discussing forward looking statements today 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 annual report on Form 10 ks and quarterly report on Form 10 Q. I'd also like to note that the earnings per share amounts in our presentation are shown on a diluted basis and that the forward looking statements speak only as of today, June 28, 2018, and the company does not assume any obligation to update or revise any of these forward looking statements.
Furthermore, some of the financial information is presented on a non GAAP basis. We will reconcile those figures to the closest GAAP figures in the appendix. Before I go through the agenda and introduce our management team, I just want to say a few words about the team I joined at Sempra, because I know so many of you in the audience and on the webcast. Having followed the company over the last 17 years, along with other securities in the major oil, refining, pipeline, midstream and utilities industries, I've always known from the outside that Sempra is a high performing organization with a high level of integrity and discipline. I believe many of you think the same way too.
Having watched the company endure the California energy crisis, the shifting commodity price backdrops and in the financial crisis, I came to respect Sempra's ability to weather these events and emerge a stronger company. I've only been an employee for the company for the last two and a half months. I can say that everything I came to expect of this management team and the employee base is better than I thought, and I couldn't be happier to be a part of this organization. With that, let's get to today's agenda. We will first hear from our CEO, Jeff Martin, on his vision for the company.
We will then immediately hear from Dennis, our Chief Strategy Officer, on how we conduct our annual strategic review. We'll then dive into the utilities with presentations on 1st, California 2nd, Texas and then third, the South American utilities. We will then open it up to Q and A on the utilities. We would like to hold
Q and A on
the vision and strategy towards the end. Following this Q and A, we will hear from our infrastructure team. First, LNG and then second, IEnova. We will then have another Q and A session on infrastructure. After this Q and A, we will run through our financial plan.
And finally, Jeff will make some closing remarks, and then we'll open up to Q and A on any topic. After that, we'll have lunch in the bevy room. For those of you who can't stay for lunch, we have bag lunches for you as well. So without any delay, I'd like to introduce Jeff Martin, Sempra's Chief Executive Officer.
I appreciate the warm introduction, Faisel, and I want hall today and to those folks who are joining us on the webcast. I think for those of you who have worked with me for the last 10 plus years, I think, since I was back in the Head of Investor Relations, this is always an event that your management team looks forward to. We also enjoy the events when they're in San Diego when we can bring more members of our management team. But today, I think we have one of the largest attendances that we've ever had, and we're very appreciative folks being here even though it's a little bit rainy. The first thing I want to do is to take a moment to introduce our management team.
If everyone will indulge me for a second when I call your name, stand until I can finish introducing everybody. I'd like to start by introducing someone you all know very well, Joe Householder, our President and Chief Operating Officer Trevor Mihalik, Executive Vice President and Chief Financial Officer Dennis Areola, our Chief Strategy Officer Martha Wersch, our General Counsel. If I still please stand as our VP of Investor Relations. We're also pleased to have a former Board member with us today. And now the CEO and Chairman of Villanova, Carlos Ruiz Viva Mexico, very excited about the World Cup.
Tanya Ortiz, our Chief Development Officer Nelly Molina, the Chief Financial Officer, IEnova a new member of our team, Alan Nye from Oncor, Chief Executive Officer. We've also got our Vice President and Treasurer, Kate Collier. Just one quick point on Kate. We've had 70 meetings in the last 10 months with our credit rating agencies, and Kate has been leading those. We're very appreciative of that, Kate.
Joyce Rowland, our Senior Vice President, Chief Administrative Officer and Chief Human Resources Officer. And just to the back, we've actually brought the Chief Financial Officer from Encore right behind Joyce, Don Clevinger. Thank you, Don, for being here and supporting Alan. We've also got the Director of Communications, Jeff Bailey, a proud UCLA grad working for Encore. Thank you very much.
Two real quick points before
I get to my slides. The first of which is, today is the birthday of Swartzboro Company. Actually, on June 29, it represents the 20th anniversary for Sempra. So going all the way back to June 29, 1998, and the formation of Sempra, it was the first day we traded on the New York Stock Exchange. So one of the things we're going to talk about today is the pride we have in some of our past accomplishments and more importantly, the pride we have in our people because it's those two things which cause us to have a lot of confidence about our ability to execute going forward.
Secondly, one of the themes of today is we're a company of ideas. We do not have a monopoly on good ideas, right? There has been a serious outreach program on May 1 when I announced my new vision for 2022. Inside of Sempra is referred to as people, priorities and culture. I've touched 8,000 employees in the last 60 days.
We've had multiple meetings with
the rating agencies. I've met with all of our regulators. There's been broad outreach to our investors, and we're very open about a dialogue about how we can do 2 things: number 1, improve our earnings per share growth well into the future and number 2, take our capital and return it to you in the form of a dividend. I think sometimes one of the things that gets lost is the importance of the dividend in this conversation, you're going to hear a lot about it today. So as part of that outreach, one of the things that we spent time with our investor group was what's most important when you come to Sempra's Analyst Conference.
Now normally, we have this in March or April of every year. We are trying to time it this year to coincide with our anniversary, so there's a little bit of a delay. But these eight questions really came out of our conversations with our top investors, right? Folks want to know what is your long term vision for the company? What is your business strategy?
What is your plan to optimize your portfolio today? In a very disciplined way, what is your strategy going forward in a phased opportunity to unlock more value for our investors? What's your base capital program? We're pretty excited. 1 year ago, we had a 5 year plan to invest about $14,200,000,000 Today, the number is $15,000,000,000 for 3 years, and we're going to spend time identifying $24,000,000,000 of new investment opportunities that are not currently in the plan.
Most also want to know what your new growth opportunities are, what's your expected EPS growth rate, what's your planned commitment to the dividend, how you expect to grow it And finally, why
is it important to have
a strong balance sheet? So every presentation is intended to hit on all these things. And in case we don't do it in a way which is clear enough, this last slide in your book answers each of your questions, all right? So let's get started. In terms of how we plan to drive shareholder value, there's a big focus inside of our company.
We challenge it all the time to say we're willing to look at the world differently, and it starts with customers. We believe the modern energy company has an opportunity not just to acquire new customers, but find new and better ways to serve them. So as we think about value creation, it starts with positioning our portfolio in the best markets in the Americas, making sure we understand the needs of customers. In fact, in California, progressive energy reforms have led to a high focus on renewables, They've led to a high focus on intelligent integration of batteries, capacitors and ultra capacitors. It's led to a big trend line around electric vehicles and electrification.
And these are the type of things that we've taken from that jurisdiction into all the businesses that we serve across our various companies. And finally, in terms of investments, you're going to hear us talk today about how we allocate capital, why that's so important, and we're going to go through what our capital allocation ladder is that we update every 12 months. So in terms of our business model, we're all about owning and operating utility infrastructure. I think the key thing for us is it doesn't matter to us whether we're owning and extending our transmission grid in Texas. We're also building or getting ready to propose $1,000,000,000 transmission project across Northern Mexico today or extending transmission in Chile.
We're focused on businesses that have T and D like risk, that have similar weighted average cost of capital, shared growth drivers around good demographics and good business growth and really a portfolio of synergies around people, around processes and technology. Now just last week, I was down in Hatbury, Louisiana before I got a chance to visit some folks in Dallas, and we did a tour of our LNG facility, which is going quite well, and I'm looking forward to Joe's presentation on that later this morning. And I got a chance to spend time with a fellow named Ronnie Aquino. I first got to know Ronnie when he was building the Regas terminal in the middle part of last decade. Ronnie left that opportunity and helped us build out our salt dome caverns in the Gulf.
Then he moved over to SDG and E, and he was one of the lead construction experts and helped us build the Sunrise PowerLink. At the time, it was the largest investment that SDG and E had ever made. I got to know Ronnie a little bit better when he built the copper 2 solar facility in Nevada. That's the time I got to meet President Obama and host him at that facility. And now we've moved him back to one of our most important projects at Cameron.
So no matter what's going on at Sempra, we're trying to take our best resources, particularly around construction expertise, to lead and help us make sure that we're not only making the best decision about how to invest capital, but we're executing in the way in which we have confidence. Probably the most important slide of the day. I'm going to spend time on what we rolled out at Sempra on May 1. My vision is the new CEO of where we're taking this company between now 2022. Let's start with where we're going in the future.
We've made the decision over 15 months to study with our Board of Directors and with outside experts that we're going to reposition this portfolio around North America, and it will increasingly become focused on the United States. In the meantime, we're going to do several things. We've announced a basket of divestitures today. These are businesses that we care a lot about but that someone else might assign more value to or don't meet our internal hurdle rates. We're selling our U.
S. Wind portfolio. We're selling our U. S. Solar portfolio, and we're also selling all of our U.
S. Midstream businesses that are not directly linked to our LNG business. At the same time, over the last 10 months, we bought Encore. Pretty good for a 10 month period of time, right? So as we go forward, what is our commitment?
In Phase 2, we're going to give an update on our next steps regarding how we can optimize this portfolio to provide more value to our shareholders. That will occur in Q1 of next year. We're going to do Phase 3 in Q1 of 2020, and the goal is to focus on several things. Across the bottom of this slide, you can see some of the issues that we're balancing as we look at opportunities to optimize our portfolio. So today, when we spend time with our rating agencies, the continued progress of the Cameron facility in construction to make sure it's commissioned on schedule is a central feature in how we think about the strength of our balance sheet.
Today, the problems we have to solve in California are a central feature in terms of how we think about credit and balance sheet strength. So whether you're looking at IEnova, whether you're looking at Chiquita, whether you're looking at Luz Del Sur, all we're going to try to do is make sure we choreograph our next steps regarding divestitures and optimization around continued improving our balance sheet because there's an opportunity to do both, make sure that we've got the strength to continue growing our dividend to meet all of our growth initiatives at the same time that we're maintaining a strong balance sheet, and it requires a disciplined commitment to a phased approach to shine a light down the path of value creation for our shareholders. This is very important to us. You're going to hear all of our management team refer to this 3 phased approach as we go forward today. So I made reference earlier to attractive markets.
So what does that mean from a Sempra perspective? 1st and foremost, it means good demographic trends. About 3 years ago, I did some work with an outside consultant when I was at San Diego Gas and Electric, and the work with that consultant indicated that 80 percent of America's demographic growth between now and 2,030 would occur in 3 states: Florida, Texas and California. We have a Tier 1 leadership position in California. We have a Tier 1 leadership position in Texas.
We're the only investment opportunity amongst public utilities that gives you exposure to both of those markets. They have good business fundamentals, constructive regulatory environments. We're very impressed with Texas. Think the job that they've done with retail access is really important. The way they've positioned the quality of their T and D portfolio is very important.
The way they use tracker mechanisms, think, is a model for California. There are meaningful growth opportunities in all of our core markets, and we think that there are realizable portfolio synergies. We'll refer to these continually throughout today's presentation. There we go, right there. Starting with California, America's number one economy, 5th largest economy in the world.
They've got roughly 38,000,000 consumers in California. Between SoCal Gas and SDG and E, we serve 25,000,000 consumers. I talked about this a little bit earlier, But a lot of what we've learned in this market is now moving across a lot of the other markets we serve. Today, there are active discussions in both Peru and Chile to model those markets with advanced metering just like California and just like Texas.
I talked
a little bit about Texas, America's 2nd largest economy, a 10th largest economy in the world, leads the nation in 2 critical areas: number 1, energy production overall as well as energy consumption. Also leads the United States in wind, California holds the mantle of the highest penetration of renewables on a percentage basis, but Texas leads the country in terms of wind penetration. Mexico. I'm actually quite excited about Mexico. 130,000,000 consumers.
Many people think this is the fastest growing consumer market in the Western Hemisphere, 15th largest economy in the world. We expect that the GDP of this country will double in the next 2 decades, and there's lots of opportunities. We're very focused on the fact that America has roughly 90 days of refined product storage. Mexico has a number closer to 2, right? You're talking about many parts of that country that has electric and natural gas infrastructure, much like the United States in post World War II.
We have been part of fundamental change in Mexico. And the most important thing as you think about the future of that country is, are energy reforms benefiting consumers? Are we aiding them in greater energy independence? Do they have more competition for fuel choice? And are prices at the pump and to the consumer actually declining?
We think the answer is yes in all those categories, and we're very proud of our EONOVA team in leading that leadership opportunity. I would also briefly talk about LNG. Obviously, this is a core part of our portfolio. By 2,035, we believe that there'll be a 75% increase in LNG. And here's what's interesting to us.
You're going to hear Alan and I talk today about what he refers to as explosive growth in the Permian as people move from generating their own electricity in the oil and natural gas fields and connecting to an expanding greener electricity grid. It's driving new growth at that company. But it's those same producers that are benefiting from the investments we're making in Louisiana and Texas and potentially even Mexico is to take that same natural gas to new markets, particularly in Asia. As we look at the Asia opportunity, we've gone back and looked at various studies, but between Asia and the subcontinent of India, it represents 70% of all incremental demand growth in energy between now and 2,035. So how do we allocate capital?
I made reference to this earlier. This has to be your A game. There's nothing more important inside of Sempra than making sure you've got a lot of discipline around how you allocate capital. We focus on attractive risk adjusted returns. Those are different market by market.
We look at businesses with scale. I talked about being the number one leader today in Mexico, the number one leader today in Texas, the number one leader today in California. Those are the markets we want to play in. We want to be the dominant energy leader in every market we serve. Credit ratings.
Today, at the end of December in 2017, our debt to cap ratio was 56%. We have a plan not just to grow our earnings per share, not just to grow our dividend in ways which we believe are differential to market. We have a plan to reduce debt, particularly at the parent company and lower that to 52% or 53% by 2020. We've also grown a lead in dividend growth. And I'll tell you, one of the things I'm very concerned about sometimes that get lost in conversation, there is a completely overlooked opportunity around the dividend.
There is no question that our management team is focused on the total return opportunity. Since 2010, your company has ranked 2 in growing the dividend across all companies in the S and P 500 Utility Index. And between now 2020, we'll either be 1 or we'll be number 2 in that same index by way of comparison. Now in terms of our prioritization ladder, another misunderstanding is people think we put a lot of money offshore. We don't put dollars offshore.
We haven't put dollars offshore for a long period of time. Peru, Chile and IONOV are all self funded, okay? Our priorities when we allocate capital have to do with our capital plan, right? And as you can see on this slide, that $15,000,000,000 target for 3 years, not 5 years, has to do with our domestic utilities, right? $13,300,000,000 will be deployed.
You're going to hear Joe and Al and I go into great detail about that and LNG. Let's talk about 3 at this point of the key narratives today. Number 1, what you've heard us talk about is our belief that we're going to reposition this portfolio around North America and increasingly around the United States, number 1. Number 2, you've heard a commitment from this management team to divest assets not only to support our growth initiatives but to support our balance sheet. We're going to do it in a phased disciplined way.
We're wide open on ideas how to do that. And number 3, we're going to unlock value with our LNG business. Now there are a lot of people that came to see us in 2011 that thought we should sell our regas terminal down in Louisiana. Some of the biggest names in the energy markets ask us to sell it at roughly $1,100,000,000 $1,200,000,000 roughly your carrying value. But there were some folks at Sempra that were pretty patient about it and actually had
a different view of the
world, right? We were incredibly wrong in the middle part of the last decade like a lot of people, but we had a vision that we could turn that facility around. So instead of selling in 2011, what we decided to do was contract with some customers we had some good relationships with that actually privileged the fact that we were America's largest natural gas distribution business. The fact that we understood customers, the fact that we understood the importance of seasonality and reliability was a big part of how we negotiated, particularly with all three of the customers at Cameron. And what that's led to now is instead of selling that business at basically book value, we now have line of sight to $12,000,000,000 of cash flow after debt service, and we're not finished.
Our goal for the 2nd time, by the way, is to grow that business and find the opportunity to structure it in a way that we can highlight value for our investors. Many of you recall, we took this walk 2 or 3 years ago to unlock value around LNG with our TRV proposal, right, when everyone thought that the MLP marketplace was the best marketplace. We were going to use our midstream portfolio to bridge to Cameron coming online. I think we made the best decision. We're going to continue to grow this portfolio, but you're hearing a commitment from us that along that path as we grow that business, we're going to highlight value.
Let's talk about total returns. You've heard me emphasize on this stage today the importance of the dividend. Let's take a look back, 20 year anniversary. I'm going to be blowing out some candles today with you. Over that same period of time, if you look at the California utilities, which are pure play, right, no diversification.
We respect those folks a lot. We work with them very closely in all the key initiatives in California. It produced a 200% total return. Across that same period of time, the S and P 500 Utility Index produced a 2 56% total return. A lot of things happened.
California energy crisis, major downturn in the credit markets. We're now undergoing some challenges in California around inverse condemnation. There's a lot of things that have changed in the marketplace, including interest rates. Your company, over that same period of time, has produced a return of 664%. Now you don't do that being a pure play utility in our business, right?
You've got to make sure that you understand how you want to manage your portfolio and allocate capital. What are the most attractive markets to position your business in? And when it's time to sell a business that you think is more valuable to someone else, like Peter Drucker used to say, it should be a race. It should be a race to divest that business, right? So one of the things we're going to talk about is how do we produce these type of returns over 2 decades.
First off,
this is a little bit of an eye test. But you recall at the same time that the company was founded, we began making an investment in the commodities business in Greenwich, Connecticut. The investment originally was roughly around $200,000,000 And over a period of 6 or 7 years, we grew into Calgary, Geneva, London, Singapore and Houston. And when we sold that business several months before the credit crisis, we're able to return about $2,600,000,000 to the company. It was a wonderful investment just before the energy crisis in California and just before the credit crisis here in the United States.
Secondly, when we were managing through the energy crisis, we had 1 California utility went bankrupt, The 2nd California industrial and utility was insolvent, and we made a pretty bold move to unlock 3 combined cycle plants that formed a fleet that we held in the Western United States of roughly 3,000 megawatts, the best single investment our company has ever made. We signed a 10 year contract with the California Department of Water Resources. Over that period of time, we brought back something over $202,000,000,000 of net income to the company. But just as importantly, in 2009, when I was the CEO of Sempra Generation, I decided I didn't like what we were looking at in terms of letting that become a merchant fleet as that contract with the state began to roll off, and we began a disciplined process phased to sell that portfolio and redeploy into our renewables business. We moved between $2,000,000,000 $3,000,000,000 out of this portfolio, which was merchant, into a long dated contract portfolio in Renewables, which we're now looking to exit again.
And you can see the thoughtfulness and engagement around strategic planning, understanding the markets you work in and making sure you're ahead of where the market is going. Finally, let's talk about regas. I acknowledged earlier, we could not have been more wrong in the middle part of last decade. I think we were with the rest of the herd on this point, but we were committed to the fact that we had an expertise here because of our background and knowledge of serving customers and the importance of how you contract with folks, having good credit ratings, the importance of long term contracts and that commitment, which I made reference to earlier, has now generated line of sight to $12,000,000,000 in new cash flow for our company. So So where are we at today?
We've announced the sale of our U. S. Wind portfolio, our U. S. Solar portfolio and our U.
S. Midstream business, excluding the facilities that are directly serving our LNG business. 2nd, we've announced our vision for 2022, right? That is our true north for our company. And everything you hear today is going to be about executing toward that vision of the future.
So again, it was a diversified model around semi situated businesses with a similar cost of capital, a commitment to portfolio synergies and good capital allocation that over long periods of time have produced superior returns. What has been happening inside the portfolio over that same 20 year period of time? Look, a lot of folks like generation, a lot of folks like commodity risk. You can see in the first half of last decade, we were long commodities and long independent power production. As we've managed this portfolio, we've tried to high grade it toward taking on more of a T and D type risk profile.
And I'll tell you something. It went back to 2014 and our year long strategic planning process, which is owned by our Board of Directors. It's not owned by a committee of 2 people. It's owned by every member of the Board of Directors in 2014, 2015 2016, and there were several inescapable conclusions from our analysis. Number 1, we don't want to participate in generation.
We don't want to be in the IPP business, and we prefer not to be in the generation business inside the utility. We're actively looking to move out of that business completely and reduce our procurement portfolio. That's why that analysis led to us to go after Encore. Encore was not opportunistic. We knew exactly what we wanted.
We had studied it for 3 years, and it was about executing in a way we thought was better than others. In the same time frame, obviously, we've now announced some divestitures. We've gone from basically $10,000,000,000 of assets in 1998 to $60,000,000,000 of assets, and there's been 2 things that took place. At the bottom of this slide, there's been 2 share buybacks, 1 in 2000 and 1 in 2,008, and those were executed at a weighted average price of $30 Now there's someone in the room with us today that I still can time on the phone with, and they were talking about their portfolio. And their flagship portfolio today has a dollar cost average price in their portfolio of $40 And what that's really reflective of is everybody has the right to have a different view of the marketplace, the right to what their own investment horizon in, and it's my job to meet all of them, right?
I have to execute quarter by quarter with our management team, but it's just as important that we have a long range view of where we're going as a company. And I think our history causes us to have confidence in our future. This is my last slide. There's been a lot of discussions about the importance of earnings. Our company doesn't focus on earnings very much.
What we focus on is providing outsized EPS return opportunities. So on this slide, guided range from 2018 to 2020 is a 13% return annually. Now that will be adjusted at the time that we sell our renewable portfolio. We'll come back and update these numbers for you. The second thing I'll say is dividend growth.
We expect through 2020 to grow our dividend at 8% to 9%. We grew it at 9% this year. We grew it 9% last year, and we've been one of our industry leaders since 2010. I'm very pleased to be here today. I'm grateful for those folks that have joined us on the webcast.
I'm grateful that everyone came here today to hear this. The next step I want to go to is I want to provide you more detail about the importance of our strategic planning process. I'd like to invite someone to the stage that I work with quite closely. When I was the CEO of SBG and E from 2014 to 2016, my partner was Dennis Arriola, who was the CEO of SoCalGas. I'd like to invite Dennis to the stage.
Thank you, Jeff, and good morning. It's good to be here and to see so many familiar faces. It's funny because both Jeff and I had the opportunity to work in Investor Relations, so we had a chance to meet with many of you over the years. What I want to do in the next several minutes is really amplify a little bit more on what Jeff was talking about on our strategic planning process because I think it's important to understand how we do things at Sempra and the fact that the Board owns this process. But obviously, your management team is very involved in helping to drive it.
And I can tell you
that over the last 10 to 15 years that I've been directly and indirectly involved with that process, both as a business unit leader and now at the corporate side, that it's a very exhaustive process. It's a very iterative process. And it's something that we take very seriously, and it's been evolving. And I think it's getting better. And one of the reasons we I think it's getting better, and it's partly because of what we're trying to do today, is to give you our shareholders and our owners a better understanding of what we do and how we do it because I think it's been apparent that we need to communicate a little bit more effectively with all of you.
And that's what we're trying to do here today. So
as we see if this is clicking here.
So the magic slides here.
Let me
try one more time here. This thing is zipping around here. Okay. I'm going to look to our AV guys here to get us back on track. Anyways, this what we've been talking about from the strategic planning process, really evolves over time.
And what we've been doing is working with our Board on this process. This isn't a one time project where we work on a PowerPoint presentation and we put it away. But it's really about trying to take information from throughout the company, working with our business unit leaders, working with corporate and actually without reach to a lot of you. I think during the process as Jeff became CEO and as Trevor became the CFO, we've been talking to a lot of you here in person and people on the webcast to get those ideas. Because as Jeff likes to say, we're a company of ideas.
And what we've done throughout the time is to get those ideas and also working with outside advisors to figure out what's the best future for Sempra.
And I
can tell you that, that internal process is one where we don't all run to one side and agree. There's a lot of debate. There's a lot of challenges with the assumptions. And I think that makes us a better company all in all. And what I can tell you is that this process really started, the one that we're talking about here this morning, started back in 2016 when company wide, we started an initiative that we coined Fueling Our Future.
And what we did was we brought in an outside consulting firm, a very well known firm that had worked with other energy companies and utilities and industrial companies to look at our cost structure. How could we be more efficient? To look at how we manage risks? To look at what revenue enhancing opportunities there were? And we did this by looking at best practices outside, but also by talking to employees inside that were close to these processes so that we could understand how we could be a more effective, a more efficient, a better risk managed company.
And by and large, we were able to do with throughout all this work, we identified over $200,000,000 $200,000,000 of opportunities both on the capital side and on our O and M side where we could be a better company. And as a result of that, we're in the 2nd year of implementation and execution of that process, and we're saving our customers at our utilities over $65,000,000 a year.
Now some of that may
not be going down to the bottom line, but it's extremely important because we're focused on rates and the impact to our customers as well. So that work is continuing on. And so in February of this year, we kicked off our regular review cycle and that was part of the development process of again, working with our Board. And as Jeff mentioned, the Board owns our strategy process. The Board owns the strategic direction.
And working with management, we put together a plan. And Jeff, as our new CEO, has coined it vision 2022. And we're rallied behind this plan. And so when he became CEO in May, we rolled it out to our employees. And what did we do?
We reached out to a lot of you again and to our key stakeholders because it's important for us to get input and feedback. And we weren't looking just for a stamp of approval. We wanted to be challenged. And so we worked with our advisors, many who are with us today as well, to make sure that we were on the right track, to make sure that we were understanding customer trends, what was going on in the market, the pros and cons of what could happen if we input went one way versus another. And as part of the Vision 2022, we established, as Jeff mentioned, the 3 phase portfolio optimization process.
The first, which we announced here this morning with the asset sales of U. S. Wind and solar and the optimization of the midstream businesses. And now we're in the execution phase of that. We also we've started the 2nd phase, which we can talk a little bit more about as well.
And in that second phase, we're going to be looking more and
more at
South America.
I'm going
to go into a little bit more detail on our South American assets in just a bit. But I can tell you that the optimization criteria that we've used for all of our businesses are listed here on the left. And we look at everything, things that you probably look at as an investor or as a sell side analyst. What are the earnings growth, not just today and in the past, but in the future? How do we look at them from a risk standpoint?
What growth prospects are there? Are these markets that we want to be in? What are the impacts to our balance sheet? Does the market truly give us clear valuation to the assets that we manage and operate? And at the end of the day, also, what are what's going on from a tax perspective?
And we know that in some cases, it's not overly transparent what the tax consequences are of holding, growing or selling something. So we want to do a better job of being able to articulate that. So in Phase 2, which we're underway right now, we're looking at our South American operation. And in some cases, it might make sense to continue to grow and invest. In other cases, it might make sense to look at different partnership opportunities or monetization.
And we expect
to roll that out to you
in February or March in Q1 of 2019. A lot of work going on there. And again, this isn't just an inside look. We're talking to people. We're looking at the market.
We know that some of the markets in South America are relatively frothy now. So we're taking that into consideration here. What I wanted to do here, and Jeff touched on this, and as the new CEO, he has the prerogative of taking any of our slides and incorporating them into his presentation. So let me just hit you with a punch line here. Sometimes timing is really important and timing and patience.
And sometimes when companies don't do something, you may say, well, they're being lazy, it's the status quo. But sometimes that is a strategy. And I think that what we did with Cameron, the fact that we looked at the pros and cons of exiting in 2011 and we didn't do it was a specific strategy and an action. We realized that we thought we could make more value and create more value for our shareholders, for you, if we kept that asset rather than taking the money in the short term and running by taking that asset and developing it. And as a result, you're going to hear Joe Householder talk more about the $12,000,000,000 of cash that's going to be generated from that business, what we're doing to continue to expand our LNG business.
And down the road, we may decide that the LNG business long term may not be the right fit for Sempra and our shareholders. But we'll look at that in our Phase III. Once cameras is up and running and operational in 2020, we'll have the opportunity to look at that and how it fits within the overall Sempra portfolio and we'll make that decision. We'll be communicating that to you as we go along. So with that, what I'd like to do is call up
our President and Chief Operating Officer of Sempa, somebody that I've worked with, I
think, close to 20 years now, Jay Householder. And Joe is going to start giving you an overview of our California utilities. Joe?
Good morning. How's everybody doing? It's good to see so many familiar faces. And as Dennis said, we're really happy to form a new team, and I'm very excited to be working with Jeff and Dennis and the rest of the team that was introduced as we go forward. And really excited about us spending a lot of time on strategy.
It's something that's been very important to me over the course of my 4 years working and I've been very involved in it over the last many years as we've grown and developed Sempra. And you saw the returns that Jeff showed you, they're fantastic. When I came to the company, the stock was $25 I wish I had all those options, how it is with college tuition. As Jeff mentioned, we are in the most attractive markets in the world, and that is particularly true in California where we have fantastic utilities. Our returns in California, those utilities have been earning above the authorized ROE for many years, as many of you have recognized and asked us about over the years.
As Jeff mentioned, in California, we have over 25,000,000 consumers. At the end of last year, we had about $14,000,000,000 invested in California rate base. California, as you know, continues to lead the nation in clean and safe energy policies, and that completely aligns with our basic mission, which is to provide very safe, reliable and cost affordable energy to our customers. You can tell that our California utilities have a long standing history in providing the necessary infrastructure that's needed to facilitate California's transition to a clean energy future. And recall, this is important.
Our California utilities do not earn on the sale of electricity or the sale of gas. And in that regard, they're very much a T and D company similar to Encore. I want to tell you, I'm very pleased, although I just have taken over this role, with the significant accomplishments that our 2 California utilities have made and these are listed here on the slide, you can see them. We're moving forward very clearly with our GRC, the general rate case at both utilities and we're encouraged by the intervener's testimony. And we will continue to work with them to see if we can settle the case, which for many years decades, I guess, you've seen us try to settle cases because we think that's an effective and efficient way to go forward with our businesses.
The California utilities also are focused on operational excellence, and you can see that's highlighted here with the recent Edison Award. I was there with Scott Drewry, you'll see a picture in a moment, when the EEI held their annual meeting in San Diego. It was hosted there and Jeff got up and introduced the mayor and we had a very good forum with the electric utilities across the globe meeting in San Diego. And just by coincidence, San Diego Gas and Electric won the 2018 Edison Award. It's a very prestigious award, and we won it for good reliability and fire preparedness.
Look, what I think is important is we think the state's policies, the customer trends and growth prospects in California itself give us a great opportunity to continue to grow our business and lead the industry. Let me talk about wildfire risk mitigation. I think you can tell that over the last 10 years since we had our wildfire in 2007, we've taken very proactive steps and used technology and implemented a very comprehensive fire risk mitigation program, which includes not only hardening the system, but creating situational awareness and firefighting resources to help protect our customers, our communities and employees. I can tell you nothing is more important to Jeff, myself and the rest of our team than sending people in our communities home and sending our employees home every night in a safe way with no wildfires. We continue to play a very active leadership role in setting the policies and the standards for this.
And I've previously mentioned to you that it's our plan to address the situation with inverse condemnation in 3 ways. 1st, we're going to vigorously fight for recovering our WEMA policy through the rehearing at the CPUC. And I think you've heard us say before, if that doesn't occur, we're going to take it to the courts. We believe that we should be able to recover that money. 2nd, in the legislature, we're working very hard to reform the inverse condemnation and set aside some new prudent manager standards that will tell us how to design, operate and maintain the systems for the critical infrastructure that's necessary.
Once you have those prudent manager standards, it should be easy for the CPUC to determine that we met those standards and not have the liability attached to us. On this front, I can tell you we're very pleased with what's happening in Sacramento and with the Governor's office. We continue to talk. We're very aggressively working in Sacramento and San Francisco. And I'm hopeful that we're going to see some good outcome of that before the legislature ends at the end of August.
3rd, we are doing something also that's different. We're working with policymakers, the other investor owned utilities and many others to evaluate different types of insurance models to improve the ability to have an overall insurance market that functions. Let me tell you, we're differentiated from the other 2 utilities in this regard. We are actually able to procure insurance at reasonable rates. And over the years since 2007, we've been able to find really innovative ways to get insurance at more reasonable costs and find different avenues to find insurance companies that are willing to serve our market.
As I mentioned a moment ago, at EEI, CG and E was named the winner of the 2018 Edison Award. That happened to provide us the award for grid resiliency and fire preparedness. I'm want to show you a video in a moment that shows our operational efforts to build a stronger and more resilient region. And for those of you that are on the webcast, the video is available on sempro.com. With that, I'm going to have him roll the video, and I'll get out of the way.
Over the last 10 years, we have made significant investments to reduce the threat of power lines being an ignition source. In high fire risk areas, we have converted more than 16,000 horsepower poles to steel poles. Additionally, we're using stronger, thicker wire and increasing the space between the wires on each pole to reduce the chance of debris getting caught in the wires. The steel poles are also taller, so objects on the ground don't contact the wires. Protecting our system from wildfires also has us investing in new technologies.
SDG and E engineers are implementing a new system which turns off electricity on a broken power line before it touches the ground, avoiding a possible ignition. Weather and wildfires are our biggest threats. That's why we built the largest utility owned weather network in America. There are 170 weather stations in our service area to track constantly changing conditions. SDG and its efforts have been publicly praised by both regulators and legislators in California.
It's pretty clear they've got better meteorological data and better fire risk calls than anybody else.
I visited that site and it is phenomenal.
Recently, SDG and E unveiled new high definition cameras that provide a live streaming view of San Diego's most fire prone areas. These cameras provide situational awareness like no other. Final agencies can take over the cameras to pinpoint a blaze and improve response time.
SDG and E from
our perspective is leading the pack of utilities to be conscientious in protecting their residents.
Our meteorologists provide daily microclimate forecasts
They run-in high fire threat conditions a 1,000,000 simulations a day using a supercomputer to determine the risks for wildfire ignitions and they're able to pinpoint with quite high accuracy of where fires are likely to start.
And they created the fire potential index using weather data to rate the daily fire potential. When weather conditions threaten our system and de energize power, That decision is based on many factors, including data from our weather network and crews in high fire risk areas. If one doesn't mind, we are prepared to respond quickly. Our aircraft credit is available as a firefighting asset and contracted fire engines with firefighters are ready for rapid response. We continue to modernize our system and collaborate to protect people and property.
As this collaborative approach is leading our industry, we were honored to receive the 2018 Edison Award. Considered the electric power industry's most prestigious honor, this award is a testament to SDG and E's strategic investments to help strengthen the power grid, increase situational awareness and create operating protocols to enhance the entire region's ability to respond to wildfires. Together, we're committed to making each day safer than the last.
Look, I think this is really important. We're using technology. We're using various different techniques. We have the meteorology, we know where the wind speeds are, we actually will cut the power off, we've worked very closely with our customers who are actually happy to have us turn the power off because they don't want to lose their homes. And this is really critical.
And I probably, in the last 3 or 4 weeks, have had 3 or 4 texts from Scott Drury saying we're sending the air crane out because there was some fire somewhere in San Diego when it was hot and dry. It wasn't something that was caused by us. But we don't want a fire spreading throughout our region harming our customers, our employees. So we are very focused on this. Our goal is no fire.
No fire, no liability. Critical. Not only does the 10 years we've been working on this help San Diego, but we've been sharing this with our colleagues in Chile because their climate and their region looks very much like San Diego, and so we're ensuring that we help them because they have the same kind of conditions. In addition, at SDG and E and SoCal, we're sharing best practices around reliability and safety with our colleagues in the 2 South American utilities as well as at Encore, and we have a lot to learn from Encore as well. They've had smart meters for a long time.
They're using their smart grid in many different ways, and we are sharing technologies across the company to help safety and reliability, very important. Let me talk a little bit about the capital assumptions, the planning assumptions that you'll see in the plan that Trevor will show later. Consistent with what we've done for decades, when we have a rate case going on, we use the attrition mechanism from the last rate case, which in this case is 3.5% attrition throughout this 3 year plan. We don't try to estimate what the outcome of the rate case is going to be. The ROE assumptions are those that are regulated today.
That's the assumption that we're making for ROE. As I mentioned, for many, many years, maybe decades, we've been beating that authorized ROE at both companies. This results in projected combined income of over $1,000,000,000 at the 2 utilities as you see on the slide. In order to give you some visibility to the future, we're providing some visibility to rate base growth out into 2022, and you can see the numbers on the slide. That will drive future earnings growth together with Oncor's, and you'll see that in a minute.
What's not in this case is any assumption about the 2019 general rate case. This is the first case where we've had the risk mitigation phase approach that was requested by the CPUC. We're the 1st utilities to go through it, and that's going to allow for operational improvements in safety and reliability. And we're really pleased with what we've seen from the interveners. We think, as I mentioned a moment ago, that we can get to a resolution on this before the end of the year.
Here's the capital plan for the next 3 years. You can see that it's again focused on safety and reliability. It's evident in this plan, over 80% of it is focused on those critical policy objectives. The majority of the projects that are listed here have already been approved. A few of the highlights are the Cleveland National Forest, is some of the area you saw in the video, ongoing efforts to fire harden or underground lines.
As you know, we have a lot of underground lines in Southern California. And there's an 8 80 square mile area in Eastern San Diego County that we're focused on because that's where the biggest threats are. The PSEP plan is nearing its end for both SDG and E and SoCal, but SoCal is now starting to move into subsequent phases That's in the plan. We were disappointed that the commission the other day decided to deny a replacement of Line 1600. We think it's a critical line serving San Diego.
It's an important line. They did ask us to work with the Safety Division to do the testing and replacement of some of that line, and we think that's going to require a significant amount of work and capital. And so that's still in our plan because we are continuing to work on that with them, and we'll see what the outcome is in the future. We also had recently approved a 70 megawatt battery storage to enhance local reliability. But we don't stop there.
We continue to look for new capital investments. And listed here are about $1,000,000,000 that we think can be added to this plan over this time frame. New policy mandates continue to provide opportunities to invest in energy storage. And AB-two thousand eight hundred and sixty eight authorizes 166 Megawatts of Distributed Energy Storage just in San Diego's territory. We recently filed for 100 megawatts of such utility owned storage to provide good resiliency for fire stations and emergency operation centers, and We're going to continue working on that.
We think that will be finished by the end of next year. We see this as a great growth opportunity for us and really aligned with the state's carbon reduction goals. Talking about carbon reduction, I'm going to talk about 5 dairy biomethane projects. I think you know what that means. Hows?
That's renewable natural gas, folks. And that's the 5 pilot projects we're going to do in California, which I'll discuss a little bit more in a second here. So let's talk about sustainable energy, really critical. We believe that natural gas is going to continue to play a very vibrant role in reducing GHG emissions across the world. And in California, it's going to start reducing hydrocarbons emissions coming out of heavy duty vehicles and transportation using renewable natural gas.
Yesterday, we actually put out a release at SoCalGas talking about some incentives that we're putting out for the truck fleets, and that's been a continuous process. So we're going to start to see cleaner and cleaner air. I actually mentioned to the folks that it feels like my whole life, over 40 years of working, I've been cleaning there in Los Angeles, and I can tell you it's a lot cleaner. When I worked at Unical, we had a lot of incentives to have cleaner gasoline, reduce emissions from refineries, So we couldn't touch the mobile area. AQMD doesn't have any authority over the mobile area.
So what did we do? We came up with a very innovative plan, which says we're going to pay to take clunkers off the road. That was hugely successful and really reduced smog in the Los Angeles area. What you probably don't know is Los Angeles is the number one manufacturing and industrial center in the United States. These industries rely on natural gas, and renewable natural gas can significantly reduce GHG emissions for those businesses without disruption to their current operations, and that will help keep California's economy very strong.
And more than 90% of California's residents, like myself, rely on natural gas every day in their homes. And if you convert all of those to electric, it's going to cost some $70,000 per home, per household to change the appliances and over $1,000 additional per year. I can tell you we have an aggressive campaign around natural gas throughout the SoCalGas business and many, many of our customers, including homeowners, including chefs, they do not want this conversion to electric. So they want natural gas, and I think the state is starting to see that natural gas is an important element to maintaining the electric grid, but the need for gas fired fleets to help the renewable energy grid. Let's finish up with San Diego Gas and Electric and their focus on sustainable energy.
What's important here is transportation sector is about 50% of GHG emissions. I mentioned ago AQMD has no ability to deal with mobile sources. Decarbonizing the transportation sector is essential to GHG reduction. And furthermore, the governor has issued a goal, happens to be the same goal that China has, for 5,000,000 electric vehicles by 2,030. The San Diego region is about 10% of the state, so that's about 500,000 EVs by 2,030 in our territory.
That's pretty interesting because if you had 500,000 electric vehicles in our territory, that's about 40% of our peak load every day. There could be a significant amount of electricity going across our system and opportunities for new infrastructure. Our grid is a clean energy platform and has a heavy emphasis on clean transportation, and it's going to result in new investment, as I mentioned a moment ago. So with that, I'm going to turn this over to our newest colleague, Alan Nye, the new CEO of Encore.
Thank you, Jeff.
Good morning, everyone. As Joe and I think Jeff both said, my name is Alan Nye. And as of March 9, I'm the new CEO of Encore Electric Delivery Company. And I haven't been associated with the utility with publicly traded equity for a long time. So I haven't done an analyst conference in a long time, But Jeff promised me you're all very nice.
So I'm looking forward to getting to know you. We got an exciting story. I'm looking forward to talking to you about Encore this morning. I'm going to give you a little bit of background. We're going to talk about what we're seeing in Texas, which is really exciting.
We'll talk about our projections, and then I look forward to your questions at the end. So let's talk about Encore. As Jeff said, as Sempra is looking to position more to a T and D risk profile, a Tier 1 position and Tier 1 area, that's what we are. We're a pure T and D wires play. No commodity risk, no retail customer risk, no generation risk.
We have a very large service territory that you see up here on the right, about 54,000 square miles. In that service territory, we power the lives of more than 10,000,000 Texans. We have about 134,000 miles of transmission distribution lines and right at 1,000 substations and switching stations. You're going to hear me talk a lot about growth this morning and what we're seeing in Texas. In this service territory, we have 3 of the top 10 fastest growing cities in America, 4 of the top 10 fastest growing counties in America.
We serve the Dallas Fort Worth Metroplex region, which is the fastest growing metropolitan area in the country. And as Jeff said, I'm going to talk to you a little bit about the Permian Basin. And you see our service territory extends out to Midland Odessa. We're seeing growth in certain areas of the Permian Basin around 400% over historic levels. That's only 7% of our revenues overall, but it's a great growth opportunity.
So let's talk about our operations.
Top right work, yes. Top right, something we're very proud of and something we guard very carefully. We're the low cost provider in Texas by about 6% to our friends at TNMP and by about 28% to the highest cost density on the right. From an operations perspective, we are top decile in safety. That's our most important job.
We focus on it every day. Reliability, we're trending in the right direction for the last 5 years, but we're not where we need to be. We have a plan in place to be top quartile again in the very near future. We're meeting all our customer and operations, PUC metrics. As I said before, we have about 134,000 square mile or miles rather of transmission distribution.
Unlike San Diego, about 70% of our distribution is overhead. On the transmission side, I want to make one point, and that's the 3rd bullet under transmission, over 1,000 transmission distribution substations. That's important because in ERCOT, when need is identified for a new transmission facility, transmission projects are awarded based on endpoint ownership. So like us, when you have over 1,000 endpoints from which to build to or from, you're obviously well positioned for growth in transmission. Distribution.
We have a fully deployed AMS, our advanced meter system, 3,500,000 meters, but we're only in year 3 of 10 of our Smart Grid program, which provides us, I think, a really good opportunity to invest in the system in a manner that's really going to benefit our customers and really help us with our reliability numbers. Talk about Austin. I spent much of my life in Austin, especially the last 4 years. We have very constructive relationships with our regulator and with and I think some people miss this, not only our regulator, but with the parties that practice before those agents before the agency in our cases. Constructive, I don't mean we always win by long shot, but I think the last 12 months is a good indication of what I mean by constructive.
We were able to, over the last 12 months, get December transaction approved, settle a major rate case, get our 1st distribution tracker approved, which I'll tell you about in a minute, and do a swap with another utility for $400,000,000 of assets, all right? And we did all 4 of those things by settlement. We didn't have to try any of them. That's what I mean by constructive relationship. People have asked me, and I'll save you the question, what does the turnover at the commission mean?
We lost 2 excellent commissioners, and I think we got 2 new excellent commissioners to replace them. I've been practicing at the PUC since right when I got out of law school in 'ninety three. And since that time, I believe there's about 17 commissioners that have been appointed to commission since I started practicing there. The one constant is this company's ability to get along, to cooperate and to work constructively with each of those commissioners and each of those commissions. We don't anticipate that's going to change, and we're committed to make sure that it does not.
All right. Let's talk about our plan.
Our assumptions come out of
our most recent rate case, 9.8%, 42.5%. We are seeing historically and we are seeing now, experiencing now, about 2% premise growth, 1.5% load growth. We have I should make this point. We have the 3rd bullet under key assumptions. We have something fairly unique in ERCOT, and that is we have both a distribution and a transmission tracking mechanism.
Each of those allows us to update our invested capital on the respective categories without having a full rate proceeding. So on the transmission side, we can get the lag down to about 5.5 or 6 months from in service date to when we actually have the investment in rates. Distribution takes a little longer, but the lag on distribution is down to about 15.5, 16 months. So they're both very effective mechanisms for allowing us to get investment quickly into rates. The plan produces the results that you see before you.
We're going to grow rate base at about 6%, and we're going to produce strong and growing earnings over the next 3 years. Let's talk about our CapEx plan. Those of you who follow us commission over the last few years know that we started off by committing to invest $7,500,000,000 over 5 years. Sempra supported that and made the same commitment. Because of what we've seen in our service territory, we raised that to $8,400,000,000 over 5 years or as you see before you, dollars 5,100,000,000 over 3.
I'll make 2 points about this slide. 1, of the 5.1, if you look at the categories on the right, 3.3 transmission expansion and distribution expansion. So 3.3% out of 5.1% is growth, again reflecting what I'm continuing to tell you we're seeing in our service territory. The other thing I would tell you is that 97% of the capital listed on this page is eligible for recovery through our trackers that we just discussed. But that's not all.
Because of what we're seeing in our service territory, we've identified the need for an additional $700,000,000 to $950,000,000 over 'eighteen through 'twenty. A couple of points about this slide. These aren't hypothetical or fantasy projects, something we have to go create or go find or go win. This is actual growth in our service territory. It's real.
It's needed. It's needed to serve customers. It's needed to improve reliability. It's needed to connect new generation to the grid. It's needed to connect new customers at transmission voltage.
These are real things. They're real projects. The vast majority of the 700 to 950, again, is growth, and the vast majority, again, is eligible for tracker recovery. So in conclusion, I think we got a great story. It's a great time for our company.
We're very excited. We're the lowest cost provider in Texas, and we will be even after our base CapEx plan is built. We've got a lot of growth in our service territory. We've got a robust cap plan, CapEx plan with the opportunity for some additional investment on top of it. We have a constructive regulatory environment with effective and efficient trackers.
And I think we're going to push produce rather good results, 6% rate base and strong earnings growth 2018 through 2020.
I do want to
take this opportunity to thank the nearly 4,000 employees of Oncor who make this company what it is and make this story what it is. And I look forward to your questions later. And with that, I think, Dennis, you're back up. Thank you.
Thank you, Alan. First, what I want to do is I want to congratulate our team from Mexico, made it into the 2nd round of the World Cup. And if you really get Carlos going, he'll let go one of those goals during his presentation. Unfortunately, Peru, they played with a lot of heart. They weren't able to get there.
And I keep having a conversation with Al and I, it is the World Cup, even if the Dallas Cowboys are not playing, okay? So just stay with that. So in addition to corporate strategy, I have the responsibility for managing our South America operations. And actually, I've been involved with our South American operations since we originally made our investments back in 1999. And I've been very proud of what we've been doing over the years to continue to grow these companies.
And what I'd like to do here in the next couple of minutes is really focus on our 3 year plan, talk to you about what we're doing from a capital perspective, the other growth opportunities and what the investment rationale really is, why South America makes sense for Sempra. So as I said, we've been in these countries for nearly 2 decades. And what we've found in both Chile and Peru, if you're going to be in South America, these are the countries you want to be in. They've got a very good regulatory framework. They've been relatively politically stable.
And no doubt that there's been changes, presidents and administrations in both of these countries. But one of the things that we've found, and I think that we're actually really good at, Sempra, is making sure that regardless of who the President is, who the Governor of the state is, we have solid relationships with the regulatory authorities. We established those relationships directly with our management teams on the ground. In the case of the international side, we work with the ambassadors here in the United States, with the U. S.
Ambassadors in each of these countries. So I think we're really well tied into what's going on, and that specifically is true with both Chile and Peru. And the thing that we really like about these two markets in South America is, again, if you're going to be there in South America, these are the 2 companies you want to be with. Cholquinca and Energia, it's the 3rd largest electric company in Chile and the 5th region. And then you have Luz Danfior, which is in one of the largest growing cities in all of the world in Lima, Peru, and it's the largest electric company in Peru itself.
And when you look at the expected economic growth for both of these countries, we're in the sweet spot of where we want to be. From an economic standpoint, you've also got very strong credit ratings, not just for the countries, but for the companies themselves. And we've been conservative in managing them both and they're under leveraged. And as a result of that, what we've been able to do over the years is to make investments and grow these companies without relying on additional capital coming from Sempra. And in fact, if you look at our history over the last 20 years, the vast majority of the capital that we've put in has been with the initial acquisition investments, both back in 1999 and then in 2011 again.
So these have been self funded businesses. And in fact, not only have they generated positive earnings and growing earnings for Sempra, But we've been able to take cash from both of these businesses and recycle it and lend it back to the other Sempra companies so they can continue to grow. So there's synergy there, not only just from a regulatory diversity standpoint and geographic diversity standpoint, but from an economic and cash flow standpoint as well. When you think about it from an operational standpoint, you can see on the right side the earnings growth, and we're expecting within the plan, and we'll go through this, but within the plan itself, an earnings CAGR of about 4%. And again, we're focused on bread and butter or as we say in South America, panimantiquia.
These are bread and butter investments, making our system safe, reliable and focusing on customer service. As Joe mentioned, it's important to make sure that the outside authorities and organizations recognize what you're doing to serve your customers and how you're a safe company. And in the case of both Chile and Peru, we've been recognized. We're very proud of it, and it really goes to the heart of the employees that we have in both of those countries. And you can see here that the assets that we're going to continue to invest as part of our plan, once again, are based upon transit.
T and D risk, as Jeff mentioned. This is what is at the heart of what we're doing in both Chile and Peru. And so our capital plan for both of these companies is, again, the bread and butter. It's the basics. It's really focused on economic growth, on customer growth, what's going on within the mining industry in both of the countries, and we're seeing an upsurge in mining demand and the metals.
And as a result, more and more energy infrastructure is needed. What we're also finding is that regulators are looking to incorporate more and more technology, for example, smart meters. So in the capital plan of $550,000,000 or just less than $600,000,000 for the 3 year period, the regulators, both in Chile and Peru, are starting to look at what they can do with new technologies. So when we look at the incremental potential investments, and again, these are not in our earnings numbers. These are things that we're looking at, that we're working on and developing, but they're really driven off of the growing consumer demographics, what's going on with the economics, mining industries and everything.
And you can see here that we've identified and we've developed and basically we've got ready to continue to go forward with over $2,000,000,000 of additional investments. Now are we going to do them all? Absolutely not. But I think what it says is that there's a variety of additional growth opportunities that if we decide it makes sense for Sempra from a strategic standpoint, if this is the right way to enhance shareholder value, we have alternatives beyond just what we have identified in our 3 year plan. So what I want to do is just point out a couple of things here.
For example, if you look at the first three lines, these are hydro projects. And you heard Jeff say, well, we don't necessarily want to be in the generation business. But the reason that we're interested in these three projects, Santa Perezados, Marques Uno y Marques Los, is because the primary off taker of the hydro generation would be Luz Don Sur. So there is synergy there. And if we decide not to build these projects ourselves, we could have the opportunity to partly develop them and sell them.
So there's monetization or optimization opportunities within those. You can also see that from a smart grid standpoint or smart meter standpoint, both Chile and Peru, the regulation is continuing to advance. And we've been able to leverage with Joe and with SoCalGas and SDG and E what they've already done from a smart meter. So there's synergies in working with our California utilities and bringing those best practices and that expertise to Chile and Peru so that we can get ahead of the game. And so we've identified nearly $400,000,000 of incremental investment that's related to smart meters that is consistent with what regulators want to do and what's good for customers.
The one transaction that I want to point out here is the transmission lines acquisition, about $210,000,000 potentially. This is an acquisition that is out there that we've been looking at. The good thing about this one, if we decide to go forward in Chile, is that a substantial part of the overall transmission lines are within Cholquinto's service territory. So there's natural synergies, there's operating opportunities there. And so those are the types of things that we look at.
We're not looking for something that's completely out of the zone, but it's complementary, it's synergistic and it makes sense for where we want to go. The one project that's not included in this $2,000,000,000 plus opportunity that we've talked about in the past is the Southern Gas Pipeline. And that's something in Peru, excuse me, that's been on and off. I had the opportunity to meet with the new President of Peru just a couple of months ago, along with some
of his ministers, and he's
telling people that he would like to see this project go forward. We're continuing to monitor it. Does that mean that we're going to participate in it? Not necessarily, but I can tell you that we've studied it for the last several years. We're probably as well positioned as anyone to take advantage of it given our pipeline history and experience both in the United States as well as in Mexico.
So again, part of what we're trying to do here in South America is to have several levers or alternatives that we can take advantage of if it makes sense for the long term. And we'll be studying those in the Phase 2 that we talked about. So from a value proposition standpoint, again, what we have in Chilquinta, Energia and Luz del Sur is T and D hyper risk in countries that we're comfortable with. We like the regulatory framework. We like the fact that they're self funding.
Again, they're not drawing money from Sempra. In fact, they're providing strong earnings. They're providing strong liquidity so we can continue to grow the rest of the businesses. We like the fact that there are opportunities to grow that are driven off of the customer demographics and the economic trends that are going on. And the other thing that when we look at these two businesses, they're credit enhancing for Sempra because of the low leverage and because of the cash flow that they generate, they're actually helping our FFO to debt at Sempra.
So there's synergies there from a financial standpoint. And as I mentioned, as we look to do things like smart meters and potentially other pipeline businesses, there's other operating synergies with the other businesses at the Sempra Utilities. So with that, what I'd like to do is invite back up Joe and Alan, and we're going to take a little bit of Q and A that will be moderated by our new grandmaster of IR, Fizocon. Well, some people have said that Pfizer was probably the best looking IR person we've ever had.
And it's that you definitely have that award.
Hey, good morning. Julien Wold Smith Merrill Lynch. A couple of quick questions. First, on the utilities, specifically relating to the total percentage of the company. How do you think about that percentage through the forecast period and what the rating agencies would like to see?
And secondarily, how do
you think about holding on
to the various portfolios of utilities that you own, maybe looking at South America specifically?
And before Dennis answer that, for South America, just so you guys know in the appendix, in the back, there is our tax position on our South American utilities. We know a lot of you asked for that. We've put it in the back of the appendix, so you know exactly what that position is, tax basis and the tax consequences of doing things. Let me answer the second part
of that, Julien. As we've said, in our Phase 2 of our optimization process, we're looking at, do the South American companies, do they fit strategically with the long term vision of what we want to do with Sempra with our 2022 vision. And I think that there's no doubt that they've been very valuable to us in the past. They're valuable today. But as we look at new opportunities in a North American focused strategy and the opportunities that you've heard from Alan and from Joe here, we're going to take a serious look at it.
So there's been no decision made that we're keeping them or we're monetizing them or trying to optimize them in a different way, but we're totally open to that.
Let me take a shot at the first question you asked. When we meet with the rating agencies, and I think Jeff mentioned Kate and her team met with them some 70 meetings across the 3 of them over the last year or so, and I was at many of those meetings. And often, we ask that question, do they have a preference?
And
frankly, actually, they don't have a preference. They actually want us to be invested in strong businesses, and we are invested in strong businesses. Some of them really actually suggested that the diversification benefit of being in South America utilities that are strong T and D utilities, much like ours in California and Texas, was a benefit to us while California was still in the situation it's in while the states are working through the inverse issue. And they also, as Dennis mentioned, have strong FFO and low debt. And the reason is you can see that across our international businesses, we have made sure that we were very smart about our cash.
And Mexico, as I've mentioned to you many times, Mexico was built off of all the money we earned outside the United States in the trading business, which was a substantial amount. Actually, my background as a tax lawyer, I actually formed the joint venture we did with RBS so that we actually had 2 different partnerships, one focused on international, one focused on the U. S. That allowed us to migrate that money from the trading business into Mexico, and we often move money between Mexico and South America. It's a very efficient way.
And so the credit rating agencies look at all those. They actually very much like our infrastructure businesses. And when we went to them over the last year, we talked about did they have a preference of us selling one business or the other. They actually didn't have a suggestion about that at all. So they like all of our businesses because they're good, strong businesses.
Joe, you mentioned in California comfort with ability to get fire insurance. What do you think is the right level of fire insurance? Has your thought sort of risen in terms of the amount of insurance you need to get? How deep is that market? And sort of given fires elsewhere in the state, does that sort of cause you all to rethink the amount of insurance that you want to have?
Steven, is that you? I got bright lights in my eyes. Hi. Look, I don't want to be flip and say as much as we can get, but we like to have a lot because the consequence of a large wildfire going through areas within our service territory can be pretty substantial. And so we would like to maintain a large amount of fire insurance.
And a number of years ago, we migrated our insurance where we had pretty much one big tower of insurance that covered all kind of casualty issues. We migrated that to where we have a separate fire insurance tower, and we worked very progressively to make sure that we actually went to homeowners insurance company and got reinsurance. So we have a very different kind of policy. The other thing we've done is we staggered our policies across a number of years, so we're not reinventing it every year with a whole new bunch of stakeholders. So we work really hard at that, but I think we should have a lot.
And thank goodness, we had a lot back in 2007.
The other thing, Stephen, that we've done directly with the insurance companies, which I think has helped differentiate us amongst companies, is gotten them comfortable with the video that you saw of what we're doing from a technology standpoint, the weather monitoring, everything that we're doing to be proactive to address to not have any wildfires whatsoever.
It's important our GRC too, to see no, if you look at the ORA testimony and our application that we applied for a 2 way balancing account for wildfire insurance. So that was something that the ORA took up too.
It's Paul Patterson, Claremont Associates. Just listening to the debate in Sacramento regarding the wildfire legislation, one thing that's come up is a substantial concern that I heard was not just from the ratepayer advocates about the cost to customers, particularly industrial customers, but just in general, the total rates that have been this is just a generic California issue, not necessarily yours, but that the rates are so high, they all seem to all legislators seem to acknowledge that from an economic development perspective, they were concerned about the level of rates and this is in the context of wildfires being an additional cost to it. Just wondering if you could address what you're seeing in terms of rate base growth and what you see in terms of affordability or how you plan on addressing that issue if you think it is an issue? And just if you could address what seemed to be like I said, the legislators all seem to be agreeing with that as well that there was a problem there. I was just wondering if you could talk to that.
Let me start with the rates, because I think it's you're spot on. We're always concerned about rates, whether it's on the electric side or on the gas side. And that's one of the reasons why we're always focused on what we can do, what we control to reduce our overall costs. And as part of our Fueling Our Future initiative, as I mentioned, we identified over $200,000,000 company wide of both capital and O and M. And we're in our rate case, we identified that we're saving our customers over $65,000,000 a year because we're concerned about that.
Again, we don't make money off of the commodity, as Joe said. So we've got to be able to manage our own cost structure. And I think we've done a really good job over the years, but we're always focused on it. The way that a lot of legislators look at or at least the regulators look at, they do look at the overall rates, but they also look at the overall bill size. And given that a substantial portion of the California population is closer to the coast, their average bills are still on average below other parts of the country.
But I think what you're finding is that because of a large portion of the bill is made up of renewable power and you've got a lot of social programs and everything, the rates themselves, the tariffs themselves are higher than most parts of the country. So there is a lot of attention given.
I think I'd go to a little bit different tact about that, which is what they're trying, I think, to figure out, which is does inverse make sense in the IOU situation? And I think that's what they're really looking at because
in the
instance of I'll go back to our 2,007 wildfires, a tree branch breaks and goes flying through the air and hits the line and all of a sudden, there's $2,000,000,000 of cost. That might not make sense. That might not be the right answer for the customers to pay for that. There might be an insurance program much like as insurance programs, FEMA and other situations that the U. S.
Has for hurricanes and floods and things like that. It may be that we need to with the current climate situation, this is more of a climate issue than it is an investor owned utility issue, right? It's a statewide issue that's affecting communities and everybody else. And so we have to really look at what's the best for the homeowners because what's happening now is the insurance companies are going to homeowners within all the territories in California and really hiking rates because what, 98% of the fires are non wireline cost. So if we're going to have big wildfires in California that have nothing to do with the power lines, Now how are the insurance companies going to cover that?
So much the way that I have a home in South Carolina, well, guess what, I pay a huge homeowners' premium for that. I don't in California. There's something that has to be done there. And I think that's what the legislature is trying to figure out. Does the inverse condemnation pushing all of the costs back on to the purportedly pushing all the cost back on to the utilities, does that make sense?
And I think that's what they really need to focus on.
But on your rate based question as well, I think that not just legislators, but the regulators are getting more comfortable with investing upfront proactively to try to deter or stockpiles before they happen rather than just paying for them after the fact.
Okay. One last question from Joe. Joe Zhu from A1 Capital. If I look at the 3 year capital plan and compare that with your previous capital plan, just look at some of the utilities ex Encore, both the high end and the low end of 2018 2019 CapEx has significantly revised up. For example, 2018 has been up 400,000,000 and 2019 has been up 600,000,000.
Dollars So my question is where does this $1,000,000,000 incremental CapEx going and how will you intend to finance that? Thank you.
Look, incremental capital is coming across all of these phases. It's happening in pipeline integrity. It's happening in transmission. It's happening in the battery services that we're talking about in the slide. So across all of those issues, really around safety and reliability in the transportation sector as well.
So across all of those and the funding is the same way we've been funding these utilities for decades, which is primarily from their cash flow from their operations and borrowing because they have to meet their regulatory capital structure. And so for every dollar that we have to put into them, they maintain that amount of retained earnings. And we've looked over long periods of time how much cash flow has really come out of the utilities, and it is an incredibly small amount that comes out when you consider what the average utility pays in dividends to their shareholders, our California utilities have paid, I think, around 27% or something
like that. 25 percent payout ratio. I'm sorry? 25 percent payout ratio.
25 percent payout ratio. It's incredibly small because our utilities have been growing over the last 20 years. And so the way we fund it is through their retained earnings. There have been a few years over the last 20 years where we actually injected money to help them fund their equity layer, But otherwise, they do it on the balanced capital structure, borrowing and keeping retained earnings.
Okay. So with that, we're going to take a break right now for about 5 minutes. We're running a little bit behind schedule, and then we'll come back and we'll go into infrastructure. Thank you. Hey, Jacob, good to see you.
Thanks for everything.
I wanted to
Sorry about Emily. I just think it's I mean we were really trying to go away. That's all. Yes. Okay.
Let's get going. We've got to discuss LNG and then INOVA.
Okay. Welcome back from the break. We're going to turn our attention now to LNG, a clear priority for our company, as Jeff mentioned earlier this morning. Over the past few days, we've announced a heads of agreement, an EPC agreement at Port Arthur, and we announced an EPC agreement at ECA. And in Washington, D.
C. Right now, the world's largest LNG buyers, sellers and others are meeting to discuss the global growth in LNG demand for a cleaner energy future across the U. S. And the world, a low cost and supply diversity. Jeff and I met with the leadership of many companies that are the world's largest represent the world's largest LNG buyers in the world.
And I can tell you, both he and I were extremely pleased with the engagement and the level of interest we saw from these players. And they're wanting to work with Sempra across all three of our projects. Obviously, we were very pleased to meet and had a very warm meeting with the leadership from Polish Oil Company that we signed the deal with, and that's going to provide them diversity of supply really for the first time for that country. We're very excited to work with them on that and move this project forward. Now let's take a quick look at the current LNG market.
Really excited about the opportunities the LNG market presents for our company and for our investors, for all of you. Notably, LNG demand is expected to grow rapidly, about 75% experience puts us in an excellent position to capture a large part of this growth. First, Sempra throughout its history, as you know, has been a major player across the gas business. We own and operate the largest gas LDC in the United States, and this is very important, I believe it was mentioned earlier, for the utilities that are trying to buy LNG across the globe, selecting safe and reliable volumes to serve their markets. Look, it's in our DNA.
I can tell you that SoCalGas was very instrumental in us getting the earlier regas projects and getting launched at Cameron with the best partners across this space. We own the majority of 1 of the largest and the finest energy company in Mexico. With a long history in the gas infrastructure business. We've demonstrated the capability to permit, to construct and operate gas distribution and transmission, including LNG Regas. And we used to own one of the largest gas trading businesses in the world, and that DNA is still with us.
We continue to benefit from the experience and knowledge with the customers and allowing our new customers to feel confident in our ability to secure, source and deliver gas to the LNG infrastructure to deliver them LNG in a reliable way. 2nd, our strong credit rating and the strength of our balance sheet and our project financing expertise make it attractive to potential customers and equity owners. Finally, we believe these 3 world class developments provide us opportunities at Port Arthur, ICA and Cameron, and they offer our customers diversity and the ability to provide LNG not only from the Gulf Coast, but also the West Coast. And I can tell you, when Jeff and I met with these leaders, they are so excited about being able to source LNG from the West Coast. And while you know it's Baja California, it's actually not California, it's Mexico.
And that plant is owned by our patriots at Enova, and I'll talk more about that in a moment. Now let's talk about the macro environment for LNG. Our investment rationale continues to be bolstered by favorable market dynamics. Global LNG prices have been trending higher and oil prices predict much more. High oil prices and international gas prices, when you compare that with the low Henry Hub prices that are predicted long into the future, provides the U.
S. To be a very low cost producer of LNG for many years. In addition, many countries are implementing cleaner air policies, while renewable capacity growth in any of those regions is not moving as fast as they expected. Natural gas is increasingly viewed as one of the cleanest and low cost solutions. It emits 30% less carbon dioxide than oil and 40% less than coal.
And lastly, LNG is expected to be an increasingly viable source of energy as demand continues to grow around the world. As these needs have shifted, LNG is a viable source for many countries. You can see on this graph on the left, it depicts us, a substantial increase in the number of importing countries from the beginning of this decade to now. Asia alone has almost tripled coming from China, Japan and South Korea, representing about half of that demand. And Europe also continues to be a large player.
We're very happy to be able to sign up with Poland, puts us into Europe, and it's the largest regional increase for new importing countries, doubling from 2000 to 2017. We're seeing countries in this region increasingly wanting to diversify their supply source to add flexibility and reliability to their growing energy portfolio. I can tell you one of the things that we heard from many of these large players is they want the diversity and ability to have flexibility. I think Jeff spoke about this earlier. It's really important for many of these countries that have large seasonal swings to not only have reliable LNG, but they don't need the same volume every week.
And so they need the flexibility to be able to offtake and sell that. And as you've seen, some of these players are becoming trading houses, and that's very important for our industry. So whether it's driven by government economic policies, energy policies, energy independence, price or rapid energy consumption. We think this trend is going to continue its upward trajectory, and we'll discuss that more on the next slide. As depicted on this graph on the left, you can see that in the last couple of years, commitments haven't been made, but they need to be made soon to help mitigate the expected supply gap that you can see on the right.
This gap is beginning to take place in the early 2020s. I can tell you that in almost every meeting that we were with, people were asking us, can we deliver in 2022, '23? That's when they need the LNG. And so we're working hard to find solutions to bring them that gas. So I would expect we're going to continue to see commitments like we saw earlier this week come our way.
We believe we're very well positioned to meet this outpacing demand and our facilities have a competitive advantage and differentiate us from our competition. We'll discuss that more as I go forward. Our competitive advantages are centered around 4 foundational issues. First, low cost production. Cameron and Port Arthur are located in a place where we have significant supply basin diversity and pipeline interconnectivity, and ICA also has multiple gas basins from which to draw, including the Permian, the Rockies and San Juan.
Additionally, we've been working hard on plant improvements to lower the cost of operating those facilities. 2nd, we continue to use and focus on proven technologies, robust design and multiple gas delivery points to be able to deliver reliable energy for over 20 years to these customers. Our projects are going to use that proven technology and most of the customers that we talk to, especially the utilities, want that reliability, they're familiar with it, That's what they seek. They're asking us to see the data room. They want to see the kind of projects that they know will deliver them reliable LNG for decades.
We also understand, as I spoke before about being the largest one of the largest traders in natural gas across this country, we understand the pipeline system very well. And that will allow us to reliably operate these facilities, whether it be in Baja, California, Texas or Louisiana. And we'll be able to meet the delivery schedules that they need. 3rd, as I mentioned, we offer volumetric and destination flexibility. For example, the Asian customers utilizing ICA as their export provider would be able to bypass the Panama Canal and realize delivery times about half of that of shipments from the Gulf Coast.
4th, we really pride ourselves on our credibility and expertise and operating history across the natural gas chain. I mentioned this before. It's really important and worth emphasizing. We're running the largest gas LDC in the U. S.
We have the largest energy company in Mexico operating gas infrastructure. We had the breadth of experience across our gas trading company I used to work with for a long time. And our breadth of experience across the supply basins is also instrumental in helping customers understand that we can deliver LNG to them. In addition to that, I mentioned our strong balance sheet and credit support. We think that's very important for attracting the right kind of customers, and we did that very much with Cameron, selecting the right customers out of the basket of maybe 20 different companies that wanted to seek our partnership there.
We're doing that again with both Port Arthur and ICA. We have many customers that are really attracted to ICA, and we're trying to make sure we pick the best ones. And at this point, I'll talk about it in a minute, we're talking about whether we're building the mid scale project, the large scale project or both. So I think it's easy to see after you take all these factors into account that we're really well positioned to increase the value to you as investors in this company. Of course, for many years, I've been standing up here talking to you about Cameron.
Cameron is very exciting, and I want to tell you that we still continue to emphasis have an emphasis on safety as our key priority, and our contractor is doing extremely well. They have some of the lowest rates in the world around safety at that site. Jeff and I were just there the other day, and there are some 10,000 people working at that site. And I can tell you, we were really pleased with the ongoing progress there. We had some of our directors with us, including the one that is head of the LNG Committee, who is the President and CEO of Fluor.
I can tell you that we also met with the contractor when Jeff and I were in Washington, D. C. At the conference. We met with the head of the 2 companies that represent our contractor, and they really were able to express confidence in the schedule. And I feel really good about that after working very hard on it last December to modify the agreements with them.
So I think there's a very reasonable chance, given sunny days unlike the one here in New York and no hurricanes, that Train 1 will and the common facilities will be complete later this year, perhaps even producing some LNG. But we're really confident about continuing to tell you that we expect LNG from all three facilities in 2019. That results in Cameron being a big contributor to our growth and projected to have full run rate earnings of $365,000,000 to $425,000,000 a year for 20 years. Here's a couple of photos from the site. I'd like to point out a couple of things.
The picture on the left is an overhead view of Train 1 looking to the north end. Notably, we've really installed all the equipment there. We're now finishing up the electrical. And right now, they're going through pipeline loop checks to make sure all the instrumentation is right and working very well. On the right hand side, you see Train 3.
We're finishing up putting the air coolers on top. The rest of the equipment is all there. In the distance, you can see the regas terminal and the berths that were there when we originally built the site that those pieces of equipment and the berths and the tanks will be used in the liquefaction, of course. Now let me show you a picture of the control room. So I'm pretty excited about this because this shows you a picture of the control room.
We have the setup for operating the common facilities. We have 3 sets of operations for each of the trains and plenty of room, as you can see in the back, for the additional expansion trains to put additional control facilities there. What I'm excited about is all the operators, most of the people you see in the picture are operators. Most of the operators are already trained. They're ready to go.
We're just ready to start up. So this has been designed, as I said, to accommodate everything we need to do there. I think an ad lib is the guy that's the 2nd from the right in this picture on the left, that is Dan Callans. He's our Head of Operations, Senior Vice President of Cameron LNG, And he has brought a breadth of experience from working on LNG projects around the globe. And he is now very instrumental with the construction team and the contractor as we get closer and closer to commissioning and be ready that he's going to take over the plant.
So now that we've talked about Cameron, we're moving forward, getting very excited about that thing coming online, the $12,000,000,000 of cash flow that's going to inure to the benefit of you investors. I want to talk about our expansion. That's where the value creation is. So first, let's talk about Port Arthur. I'm extremely excited about the momentum of this project with the announcements we made this week.
We believe Vector will be a world class contractor for us there. The recent HOA, as I mentioned, with Polish, is very exciting for 2,000,000 tons in 20 years. I think securing a European company in this is new for us, and I think that's going to provide great diversity and help us with overall risk profile of the project. And as you know from last year, we have an ongoing MOU with COGAS. We continue to work with them and talk with them.
We had a great meeting with the Head of COGAS when we were there. Jeff and I had about an hour meeting with them. And then they had more additional meetings later in the week. We met a lot of people at that conference, and I can tell you there was a lot of excitement by Jeff and myself coming out of that. This is where the value creation is.
Look, we also had a meeting there with Woodside, and you saw some noise on that. I can tell you that Peter Coleman said he was misquoted. I don't know if it was misquoted or not. He was very frank with us. They're an E and P company.
They're used to having stranded gas somewhere and making an LNG project to take that stranded gas somewhere in the world and they might make pretty significant returns on that. That's what E and P companies look for. They've been working with us for a couple of years. They really helped us engineering on the project. But I also can tell you they've struggled with whether or not a U.
S. LNG project where they're not bringing their gas from a stranded gas field was the right thing for them. And I think it's probably unlikely that they'll invest in the project. But you know what? That's okay with us because the biggest buyers in the world, like a Co Gas or others, they want equity.
And one of the things that we can offer that other companies don't necessarily offer is equity in the plant. And I think we will be very satisfied to have 1 of our customers or 2 of our customers have equity in this plant. That's really good for us. It's the same thing we have at Cameron. We think it makes a commitment and binds the people together.
The other thing Jeff and I talked to a lot of these customers about was taking interest in more than one plant, and we really like that. We like to have partnerships that are lasting and durable. Let me talk about ECA. Look, I want to highlight this project where our business businesses that work with me, the team under Carlos Ruiz at Enova, they own the Regas terminal today. We're working with the LNG team under Octavio, working together.
Look, the team in Mexico has the credibility. They can get the permitting done. They got the permits already done for the large scale facility. They have the government contacts. Like I said, they own the plant.
The LNG team has the expertise, has all the contacts with the marketing teams in the various large world buyers. And so we're working together. We're excited to announce the EPC contractor there. And so let me talk to you about the picture that you're seeing. What you're seeing there is both the mid scale and the large scale.
In the back of the drawing is a picture of what the large scale might look like, 2 big trains, flares on the right, we might move them. But the mid scale can actually fit into the existing regas terminal. And that's what you see there. And you can see where this is liquefaction, where the liquefaction facility would go, the pretreatment plant. So we can actually fit the midscale right in there.
It doesn't disturb where we're going to put the large scale. The differences are we can do the midscale facility with the existing pipeline infrastructure, we believe. The large scale is going to, as Jeff likes to say, be a gun barrel pipeline from the Permian right to ECA. And we're looking at whether we do one of these, the other one or both, and I can tell you there was a lot of excitement in Washington, D. C.
This week about this facility. People want to go from the West Coast and not go through the Panama Canal. It takes them twice as long, and they're really excited about trying to move forward. Now let's talk about Cameron. We also had a very nice meeting.
We have a new partner next month, we hope. Total is joining the Cameron team as ENGIE sells their business to Total. They had a nice dinner and meeting with the senior executives of that company. And I can tell you over the last 6 months or so since they started that process, I've had a number of conversations with them, and Jeff and I had the same conversation with them. They only are buying this facility to expand it.
They're very interested in expansion. What was more interesting is the conversation we had with them also about ICA. So I can tell you there's a lot of excitement around these two projects. What we want to do is get Total in the door. Hopefully, again, as I said, that's next month.
And then we can start working with Mitsui and Mitsubishi and see that we can do some expansion. We can actually start working on that right now. We actually will probably pick a different contractor to do the expansion, which means we probably wouldn't do that till 1, 2 and 3 are done, but that's not very far away. And by the time we're able to get contracts, it would be about the right time. Before I wrap up, let me highlight the priorities of our LNG business.
1, high priority. Number 1, complete the construction and get Cameron 1, 2, 3 into operation. As I mentioned earlier, we're really pleased with the progress. No delay. We're continuing to see that all three trains are going to be producing LNG in 2019.
And as I said, we we had a lot of sunny days, it might be a little earlier. 2, we continue to pursue offtake agreements at the other development sites. We have world class development opportunities and continue to have really significant interest in these, as highlighted by the HOA announcement we had this week. 3, we need to construct those and place them in service. We have great EPC contractors now in place, and we're excited to be working with them on these projects.
Last but not least, by completing all of these priorities, we believe we have the ability to unlock huge value for you as our investors, and we'll look for the best structure to highlight that value and maximize it. Look, we've done this over and over again. We've bought and sold many businesses, as Jeff said. We took an IPO at Enova to highlight the value of that company. The company has gone from $2,500,000,000 to 8,000,000,000 dollars I couldn't be more excited about this LNG business.
It's an exciting business for Enova. It's an exciting business for Sempra. Talking about Enova, I am very excited to introduce Carlos Ruiz, the CEO of Enova.
Good morning. It's a pleasure to be here with you again. And let me start by congratulating Sempra for the 20 successful years, and I'm sure this is from the beginning of a very promising future. Before I start, I would like to after seeing the presentation, I would like to ask a question, a very important question for me to Geoff. In your new office, I know that you have a really nice map.
Does Mexico is part of North America and Europe? Okay? So I might be more relaxed to turn my presentation. Anyone from Korea, on behalf of 130,000,000 people, thank you very much. These guys beat Germany and allowed us to go to the next stage.
I invite you to drink our loyalty. Well, as you know, you know that it's a leading private energy company. Our assets are strategic, essential and critical for Mexico. Mexico is a very important country. As we have mentioned a few minutes ago, we are the 5th largest economy in the world and this provides very important opportunities for investment, especially in the energy sector.
Please take a look now at this map. During the past 22 years, we have expanded and diversified our portfolio and footprint through organic growth as well as acquisitions. We have generated very attractive returns and maintained a strong balance sheet while operating in a safe environment. Our business model has proven to be quite successful. Our assets are supported by long term take or pay, mainly dollar denominated contracts with credit worthy customers.
I would like to point out, and this is extremely important, that our contracts are solid and enforceable with strong investment protection provisions. Now let's take a look at some numbers that show how our growth has materialized into solid financial performance and significant shareholder value. Our adjusted EBITDA has increased at a time rate of 25%. It has more than doubled from 2013 to 2017 and is expected to triple by 2020 when all our new products come to service. As you can see, our total assets have almost tripled from the IPO to date.
And by the time we finish investing in the projects under construction, this number is expected to reach around $10,000,000,000 In relation to our debt, let me point out that we will keep investment rate by careful managing our capital structure. 2017 was a very important year for us. For the first time, we reached revenue of $1,200,000,000 While achieving this extraordinary growth, we have been able to maintain very attractive returns of 9% to 11% nominal or lever after tax and in U. S. Dollars.
Now let's talk briefly about our capital plan. Over the past 5 years, we have developed several headwinds for price with a total investment of more than $2,500,000,000 We are currently working on additional 10, including a marine pipeline, 5 clean energy facilities and 4 liquidated storage terminals. These are worth over $1,800,000,000 and about half of that amount is expected to be invested in this year. When finished, these projects will further diversify our earnings footprint, asset and customer base. By the way, this chart only includes Greenfield projects.
But let me point out that M and A is also a very important part of our growth strategy. We continue to carefully evaluate M and A opportunities, which have historically contributed to 1 third of our total growth. As I mentioned before, Innovac assets are strategic, essential and critical for Mexico Energy sector. Let me explain the reason why. Our assets are strategic because they promote economic growth and development.
Our assets are essential because they provide access to efficient and diverse energy at a very competitive prices. And finally, our assets are critical because they support the delivery of energy to millions of customers. As I mentioned before, our assets are based on solid and enforceable contracts that have a strong investment protection provision. I believe that you will agree with me that these are extremely important characteristics that differentiate and support our investment. I will now ask Tanja to join me please to further discuss with you investor opportunities.
Thank you, Carlos. Good morning to everyone. I will start by explaining today why Genovese assets are important to Mexico. Let's begin with our gas business. Today, more than 60% of Mexico's gas is imported and more than 60% of Mexico's electricity is generated from natural gas.
Genova owns a very significant portion of the cross border pipeline that allows U. S. Gas to come to Mexico. In addition, our regulated utilities apply natural gas to over 400,000 residential, commercial and industrial consumers in Northern Mexico, and we have infrastructure that enable the supply of propane to 2 of the largest cities in Mexico, Guadalajara and Monterrey. Let me talk about power.
Mexico has very aggressive renewable energy mandates. By 2024, 35% of power needs to come from clean energy sources. EENOVA has over 900 megawatts of wind and power projects in operations and under construction that will help our customers meet those goals. And we are being able to achieve these projects at very reasonable rates of return, while allowing us to be competitive in the market. Regarding refined products, it is important to remember that Mexico is a net importer of gasoline, diesel and jet fuel.
Over the past 12 months, Mexico imported 70% of its gasoline demand, seven-zero. So refined products import infrastructure is critical to supply Mexico's market. So let's talk about where we see future growth. I'm very confident that Yanova will be able to develop large infrastructure projects with long term take or pay contracts. We see about $45,000,000,000 of opportunities in the areas in which we're active, let me discuss them.
In the gas segments, during the past 6 years or so, we have seen a substantial build out of the Mexican natural gas pipeline grid in order to be able to access cheap and abundant gas that's produced in the U. S. But those pipelines are mainly north to south. Now we need pipelines to interconnect Mexico's west to east and very importantly to supply Southern Mexico. The Yuca Pampa Peninsula is frequently curtailed because there's insufficient natural gas supply.
So a lot of opportunities coming up in natural gas pipelines. There are also very, very interesting opportunities in natural gas distribution. Today, only 7% of Mexican households have access to natural gas. The rest of the houses use propane. So this means that there's an in served market of over 100,000,000 consumers to which we can now take natural gas because the pipelines that bring gas from the U.
S. Are now available. And finally, a very important opportunity and this is really strategic for Mexico, underground natural gas storage. Mexico is a net importer of natural gas, but we have no underground natural gas storage, none whatsoever. This means that is this a disruption in any of our cross border pipeline, we will have blackouts in the country.
So the Ministry of Energy has issued a mandate, which requires 45,000,000,000 cubic feet of storage to be built, which is roughly equivalent to 5 days of total national demand. This is, by the way, one area where I really do hope that we will be able to have Sempra support to competitively and quickly enter this market segment, which at the same time, the way it's structured in Mexico will be anchored with long term take or pay contracts. I won't talk about echolucofaction because Joe already discussed that. But in the power market, again, there's a lot of interest from industrial offtakers to continue to contact from renewable energy sources, and only because it's clean, but also because price wise, it makes sense for them vis a vis the other energy or power supply alternative. And finally, as the power market continues to evolve with new participants, Mexico will need transmission to take renewables to the demand center.
With regards to refined product storage facility, this is I think the area that I'm most excited about. This is where my team is spending most of the time. Gasoline prices were liberalized last year and international refiners are racing to the market to capture retail position. Every single day, you see a new BP gasoline station, Chevron's hotel, Exxon. In my entire life, I've lived my entire life in Mexico, I have never seen a gas station that was not panic.
So you're seeing long lines of guard wanting to buy gasoline from BP and from Shell and from Chevron. And however, the existing storage infrastructure isn't sufficient to allow these refiners to bring their product from their refineries in the U. S. To Mexico. So the Ministry of Energy issued a mandate that requires to increase existing inventories.
Three inventories in Mexico are only 3 days. You get bad weather in the port of Veracruz and we run out of cash, literally. So now Mexico needs to increase inventories to 13 days by 2025. As referenced, the U. S, I think, has gasoline inventories of close to 30 days.
Some countries in Europe have inventories closer to 60 days. So we're working hand in hand with these international refiners to build marine terminals where they can unload and store their products. And then we're also building storage facilities closer to the demand centers. And I eventually do think that we will eventually be able to build pipelines between the marine retreat terminals and the inland terminals because right now we're moving the product by rail, which is not very efficient. So 2018 has been a very exciting year for us.
I am very confident that we will continue to be very busy. On the refined product storage area, just last Thursday, we submitted an offer to the Port of Topolovampo in the Mexican Pacific to develop another marine receipt and storage terminal for refined products. This would be our 5th refined product terminal in Mexico. We will have results in a couple of weeks. And just last week too, the Port of La Paz in Baja California Sur issued bid documents for a very similar bidding process for a refined products terminal.
With regards to natural gas, we are working with some of our largest customers in our pipelines to expand some of our pipelines, which will require some additional investments, which I hope we'll be able to announce soon. On the clean energy front, we're in advanced negotiations with several very large industrials to secure power purchase agreements, which will allow us to launch new solar facilities. And finally, probably the largest project in which we're working on this year, It's a new transmission line. This is one of the first transmission lines we did after the energy reform. It's an interconnection from Baja California to Sonora, 700 kilometers, dollars 1,000,000,000 investment.
So from now till December, in addition to the $800,000,000 of opportunities that Carlos described from now till December, we're working on $1,600,000,000 of opportunities, which I believe we can capture. So again, we will be very busy. And with that, I'll turn the presentation back to Carlos for closing remarks. Thank you.
Thank you, Francisco will continue to require important political investments in the sector in order to promote growth. As Tania just mentioned, we have this year, in the next 6 months, projects worth €1,600,000,000 6 projects with a first name and last name. We are working on those in order to try to do so. Now let me explain something very important. Why I believe that we have a competitive advantage to capture these opportunities.
1st, for more than 20 years, Innova has had a successful track record. 2nd, our diversified portfolio and customer base, stable operations and stable cash flows have created a strong platform that will help us to grow. 3rd, we have a strong financial structure that allow will allow us to develop new greenfield products and capture M and A opportunities. 4, and I am very proud of this, we have one of the most experienced management team in Mexico in the new sector. They have extensive regulatory, permitting, construction and operating capabilities.
And finally, but very important, I have to say that because of the waste, we have a very strong sponsor who supports us and provide expertise in order to increase our advantage. As you can see, Innova is very well positioned to continue being a leader in the development of Mexico and infrastructure. Now before the Q and A session, I would like to briefly address a topic that I know is in everyone's mind, this Sunday, Mexican elections. As you may know, I spent most of my professional career working in the Mexican government. Having been working for many different administrations, I can tell you with the highest degree of certainty that during the past 3 years, the country has created a stable democratic system with solid institutions.
Our democracy is now more robust than ever. We have, among other things, independent electoral authorities, a strong political parties, freedom of press and real check on balances. And today, we have a truly independent central bank and public finances are guided by strict disciplined policies. In addition, we have very strong independent regulators, especially in energy and in competition, who will provide certainty to investments. I am confident that regardless of the outcome of innovation, our strong institution will enable a smooth transition of power as we have seen in the past.
Some people say that the result of this election might create a challenging environment, giving potential modifications to public policies. However, I'm really confident that the rule of law will prevail.
There are certain concerns that
the reform might be reversed, and I don't believe that is the case. First of all, during the campaign, no political party has talked about canceling the reform. 2nd, this reform is really required in order to increase the growth of the company and the growth of Mexico and this is essential for any government. And as you know, the reform was approved like a constitutional change that required 50%
of the
federal charmers and 2 thirds of the federal charmers and 50% plus 1 of the local chambers. To change that reform will require also the same, which is going to be quite difficult to obtain. Now let me tell you that for more than 20 years, Innova has been able to work with several administrations to improve any infrastructure and support our economy development. Now that we will do the same with the new administration regardless of the party. Thank you very
much. The Q and A on infrastructure, so those can come back up. LNG and INOVA. Michael Lapides. Hey, guys.
Thank you for taking my question. Just looking at capital budget for Mexico, capital budget flattens out dramatically beginning next year. You're already buying IEnova is already buying back stock today, and you've got a decent capital budget this year. When it flattens out next year and drops significantly in 2019, how does either IEnova or Sempra think about maybe recapitalizing IEnova if growth projects don't come through and repatriating that cash back to its majority owners?
Let me take that. So first, the consistency of approach that we've taken for the last several years is we don't put capital in our plan that isn't in the regulated utilities that's essentially moving forward or it's something that we actually have contracted. So that capital is on 3 projects that are in construction or puts 4 projects that are in construction, and that's what that is. And then Tanya talked about $1,600,000,000 of opportunities that she's looking at, working hard on now. We're getting ready to look at transmission line and we've got the liquids terminals that we're working on.
So I expect that capital. I showed you a slide, I think, last year. It showed if you looked at what we said, which is that for renewables and for Mexico with infrastructure, nothing into the future, but then what did we do substantially more than that? And as Carlos said, part of their business is building infrastructure, part of it has been buying infrastructure. So I anticipate that you're going to see capital needs there.
And the reason that we took them public before was exactly that reason, that they could access capital both from the debt and equity markets, and we've done that twice now going to the equity markets. We already have a dividend, strong dividend at E and O. So there's a lot of capital coming back to Sempra every year through that dividend process.
And then just on the buyback program, we filed the buyback. We have actually bought back.
Yes. I should have spoken about that. I missed that. We talked a lot about what was going on with our stock price, and it was being impacted probably by the election somewhat, probably by the peso movement. And Jeff and Carlos and I spoke about it quite a bit and said, well, I mean in fact, somebody said, why don't you guys support the stock?
And so we looked at it, well, should we buy some stock or should they buy some stock? So all we did was implement a plan that would enable us to buy stock there. I don't want anybody to think that they don't have growth. They have substantial growth.
Here, Shar?
Hey, Joe. It's Shar Guggen. What stage are you at as far as looking at potential equity owners on Port Arthur? And when do you sort of expect Woodside to exit?
So the question, if you didn't hear it, was what stage are we at with Woodside? When would we take on equity partners at Port Arthur? Actually, Woodside had no equity interest in the facility. So this facility is owned by us. They don't have any equity interest.
They were a joint development agreement co participant, and they've been helping us with engineering and design. They've been working with us on marketing. They don't own any of the facility. We could bring somebody in tomorrow. So Jeff and I spoke many times with several companies about their interests.
And if they would step up and take a large volume, they can have a large equity interest.
Ryan and then Julian afterwards.
Ryan Levine from Citi. What role does the broader Sempra platform and midstream capabilities play in Sempra's longer term LNG contracting strategy?
Look, I think that I articulated to you why the LNG business makes sense for Sempra. All the components of our history play a large role in our ability to launch these projects and give customers the confidence and Sempra delivering them reliable LNG over time. As you saw us do in 2015, we're willing to try to do things like we did before with the TRV, MLP, whatever you want to call it, and then oil prices went down and the MLP market went in the tank. And so that's not a viable platform for us. I think we would continue to look for things.
I'm telling you, I believe that we created huge value at Cameron. I think we can create more value at Port Arthur and ECA As a simpler company, an innovative company, they look for the strength of our company. They look for our history. They look for the reliability. With Cameron today, I think I talked about this when we were doing the TRV, our commitments to our lenders, We actually guarantee the debt at Cameron until it's complete, right, and operating.
Those commitments to our customers, to the lenders are there. So it's an important constitution of our LNG business. And we think that once we get these projects further to FID stage, we'll look at it again. We're never afraid to have somebody take an ownership interest in it, but I think it would be foolish to spin this off at this time in our history. And then just on some of
the broader pipeline questions and how they relate to LNG. So Jeff's comments were that we're going to focus on developing the midstream assets that are connected to our LNG facilities to support our customers at those facilities. So building a pipeline from the Permian to IKEA, that's a possibility. P2K could support customer volumes into the facilities at Port Arthur and Cameron. So those are things that we think about in terms of focusing our efforts on the LNG strategy.
Julien?
Yes. Julien Moltz with BAML again. Just can you perhaps delineate clearly what which LNG project is the priority, right? So I hear you with respect to Port Arthur and the developments there and the successes on contracting. But at the same time, I suppose I hear perhaps a little bit more of a positive tone with respect to ECA.
So just if you were to kind of line them up, this is the priority, then you should see this went after and then subsequently, I don't know, it's important to last, maybe it's the other way to ask that.
Before Joe answers that, I had this interesting conversation with our LNG commercial people and they said, we don't prioritize the project, we prioritize our customers. So that goes into some of the concepts that Jeff and Joe were talking about. Okay. I think Faiza is exactly right.
We always prioritize our customers, whether they're in our utility business or in our renewable business or in our LNG business or in Nagel. But it's there is no key to us to prioritizing. We are talking to customers. When Jeff and I had our meetings, when Octavio and Scott had their meetings, we're talking to some of these players about both sites at the same time. And my excitement around ICA is because of its West Coast location, we have incredible interest for that facility.
And so what we need to figure out is which way we're going to go first, and we're working hard to make that decision. And so maybe it will be first, maybe it won't. I mean, I can tell you there are a couple of exciting players that could take big interest in Port Arthur, and it could jump ahead. So look, I told you that ECA facility is fully permitted for the large scale facility. Anya and her team are working hard to see if we can splinter off some of that to do the mid scale if that's what we decide to do, and that's a customer driven decision.
The customers that want early LNG would be able to facilitate moving that platform along quickly. The other facility would just take longer to get done. And so I'd love to do that one. I would love to do the big one. And we just have to see if that's what comes first.
But we're really not prioritizing one against the other. We actually did deemphasize Cameron expansion for a while because ENGIE clearly pulled the plug on it and we have to have unanimous consent. But I can tell you with the conversations we've had with Total, that one might jump to the lead. So I guarantee you, I do not have a list of 1, 2, 3, because we're working all of them.
I would rather not tell you I have priority.
Yes, I have a priority.
I have a priority.
His priority is because when I have good joint conversations. Could you just describe the process that you undertake in terms of picking out the EPIC contractors for the different LNG projects?
Sure. Our team solicited bids from really the 5 biggest, best contractors that do this kind of work and went through a process, brought that down to a couple and then decided on those 2. And Bechtel has done this over and over again, and they've done it very well. I think because, to Julien's question, we might actually end up doing these both at the same time. We didn't think it was probably wise to have the same contractor on both.
And so we decided to go with 2 who were very close at the end. I'll have to tell you that.
Okay. We're going to move to the financials.
Thank you. Thank you. Okay. Good morning. I appreciate the opportunity to get up in front of you and talk about the exciting things that we have and how the financials lay into this.
But before I begin, I just want to say that Jeff and I started reaching out a couple of months ago to a lot of you, our analysts and our investors, and to try to get some of your insights into what we are as a company, how you thought about us with regards to our business platforms and how those fit together and really what we do in providing information with regards to the guidance, how our analyst conference have gone in the past and what you liked and didn't like. And I think that kind of has really been constructive and has shaped the way we're presenting today. You'll recognize this slide from Jeff's presentation, so I'll pick up from where he left off and go into more detail around each one of these areas, which we build onto the 3 financial tenants that I want to cover today: earnings per share growth, the growing dividend and the strengthening of our balance sheet. Our base capital plan through 2020, as you've heard about today, includes about $15,000,000,000 and we remain committed to a T and D like risk investment. And again, approximately 80% of that $15,000,000,000 of planned capital spending is coming from our U.
S. Utilities. This capital is related to safety, reliability and the need for infrastructure in California
and the growing markets that
you heard about that Alan talked about in Texas. The unregulated infrastructure side of the business, consistent with our historical convention, only includes projects that have definitive contracts in place. And so that's why you see that sloping off on the capital in those other areas that we just heard the question on. Off balance sheet, capital includes $4,100,000,000 of 3 year spending at Encore, and this is consistent with what Alan talked about on his $8,400,000,000 This 4,100,000,000 dollars is our share over the 3 year plan. And this 3 year capital plan lays out the opportunities our growth drivers provide, enabling us to take advantage of the changing market dynamics and the relationships we have built across our businesses, while focusing, as Jeff said, on the North American markets.
Turning to the detailed earnings range by segment, which covers really the first financial tenet I want to cover, earnings per share growth. We thought it was important to provide this level of detail for 3 years given the change in the earnings mix through 2020 as Cameron comes online. Our 2018 to 2020 guidance reflects the strong foundation of our regulated utility earnings, complemented by the robust and diverse set of long term infrastructure projects highlighted by Cameron, and again, we believe Cameron is a T and D risk like profile, resulting in long term earnings per share growth that you can see on the right. And the addition of Encore increases our future earnings visibility. I want you to keep in mind though that the forecast exclude the outcomes from the California GRC that Joe spoke about, and we just use the convention of using the attrition rate, which is at 3.5% post 2018.
I'd also like to highlight, as Jeff mentioned earlier, that our planning convention is not to include asset sales in our guidance until the transactions are final due to the uncertainty around the amount and timing of those asset sales. So for this reason, we're still including in these numbers the renewables and the midstream storage business until those transactions are finalized. Again, depending on the amount and proceeds from these asset sales and assuming some level of debt reduction, we estimate that the sale could be slightly dilutive to EPS through 2020. But given that the PTCs are rolling off shortly thereafter, it would become slightly accretive in the out years. And again, one item to note is our EPS ranges assume the forward curves related to foreign currency and the gas curves, which you'll see in the appendix along with some of the other assumptions building up this information.
Turning to the 2nd financial tenant, dividend growth. We remain committed to growing the dividend and believe that our current business gives our shareholders much more visibility into this growth. Historically, we've been one of the leading industry or leading companies in our industry with regards to growing our dividend, and I think, as Jeff said, I think we're in the number 2 spot over the last 7 or 8 years. So consistent with our messaging over the last several years, we continue to target an annual dividend growth in the 8% to 9% range through 2020, which speaks to our commitment to return capital to our shareholders. The 3rd financial tenet relates to our balance sheet.
We are strengthening our balance sheet while funding this $15,000,000,000 capital program and lowering our debt to cap ratio from 56% to 53% and targeting around a more 50% debt to cap ratio over the longer term. And considering the planned asset sales, we could expect our debt to cap ratio could decrease below that 53% by 2020. Our businesses continue to generate strong operating cash flows. And furthermore, the implementation of tax reform has allowed us to say that we're going to repatriate $1,600,000,000 over the 5 year plan, with $500,000,000 of that coming back in 2018. I do want to make a general statement, however, with regards to why we are so focused on strengthening our balance sheet, which helps us to maintain our strong credit ratings.
It's important to fund our utilities and the substantial growth opportunities as in the other businesses. 2nd, it makes us an attractive partner. This is evidenced at Cameron where we were able to attract global LNG players to the project. And third, it keeps our cost of capital low, which allows us to stay competitive and is a benefit to our customers. I'd like to finish up this slide by highlighting how our businesses help support each other, and we've heard a little bit about this today.
Our cash generating businesses in South America are able to support growth in Mexico by loaning cash to Enova. We're repatriating offshore fronts from Peru and Mexico back to the U. S. To support the U. S.
Businesses, and our California utilities are supported by other businesses during years of higher growth when financing is needed to build out the safe and reliable infrastructure in California. Examples of this are when we were building the Sunrise PowerLink, the AMI project and also PSET. Our goal is to make sure our balance sheet is ready for the growth and opportunities that lie ahead. We don't take issuing equity lightly, but we do realize it's a key component of our growing business. 2018 was the first material equity issuance in the last 14 years for Sempra.
And actually, in the last 14 years, we've also repurchased shares twice, I think 54,000,000 shares at an average cost of about $30 a share, and then we issued equity this last January at $107 a share, which I believe demonstrates that we have created a significant amount of shareholder value. As Jeff discussed, we've been effective over the past decade at deciding to sell assets at the right time and enhance our risk profile and fund our future growth. The U. S. Wind business, U.
S. Gas business and the midstream storage business are the most recent examples of this, and the proceeds from these planned asset sales will help set us up for future growth. Not only that, as Jeff and Dennis indicated, the Fueling the Future program that we implemented in 2016 is still ongoing, which has allowed us to manage our costs and optimize our businesses. There have been a lot of changes impacting how we finance our businesses, including the $2 plus 1,000,000,000 of projects that we've announced since last year's analyst conference, OnCourse capital increases since we announced the acquisition, tax reform, the California regulatory environment and most importantly, the growth in all the other businesses that we've heard about today. All this is being absorbed on our balance sheet and operating cash flows.
Turning to the asset sales. As Jeff went through earlier, we have a clear criteria in our ongoing portfolio evaluation. The interconnections of our businesses and the strong growth opportunities help drive our decision making around which assets to sell and when to sell them. We're always looking for ways to create value for our shareholders, and we look to our assets and our growth prospects very objectively. To the extent we can reallocate capital from lower growth businesses or underperforming assets to higher return or higher growth assets, we're absolutely willing sellers.
The evaluation of all of our businesses is an evergreen process. We want to help ensure that we're not just operating assets, but rather that we have businesses that provide strategic opportunities in the growing markets. With so many opportunities in other areas, our decision to sell the U. S. Midstream storage business, the U.
S. Solar and the U. S. Wind businesses is part of our ongoing efforts to recycle capital and finance our growth that we've been discussing today. Our decision to sell the midstream business came after we concluded that we would be in a prolonged period of lower returns on the capital invested in this business.
And our decision to sell both the wind and the solar business is largely because we haven't sufficiently scaled those businesses to the level that we wanted to. We're commencing the sales process with a Board approved plan, and as a result of that, this morning, we announced an after tax impairment charge of approximately $900,000,000 related to all three businesses. As Jeff said earlier, we're looking at the sale of selected businesses in phased approaches. We are well into Phase 1 and are in the execution mode. We continue to assess the other options that Jeff discussed to determine if we can further unlock value for our shareholders as we address Phase 2 and Phase 3.
Now turning to your request, when we had these conversations, you said, look, it's important for us to see what's beyond 2020 in the 3 year plan, and you give us some line of sight. And our primary source of earnings per share growth will come from our California and Texas utilities. Our base plan assumes a 7% compounded annual growth rate in rate base through 2022, rising to over $34,000,000,000 as you can see. And I do want to say again, do keep in mind that our 2019 rate case is still ongoing and our plan just assumes a 3.5% attrition and does not assume any uplift from this GRC, which we believe is actually pretty beneficial and positive given that we're the 1st California utility to go through the ramp process. Also, when we first announced Encore, we made it clear that one of the benefits of the acquisition is the good visibility that it provides to us in the long term growth for the business.
Our assumptions for Encore's rate base reflect the $8,400,000,000 that Alan discussed in his capital plan, and it also has approximately $200,000,000 to $300,000,000 of upside that's not in these numbers, given the growth in Texas and particularly in Encore service territory. And lastly, as Alan discussed, Encore's regulatory environment is very positive given the tracker mechanisms for both transmission and distribution and how quickly you're able to incorporate capital into rate base. Further visibility beyond the 3 year plan is captured in the opportunities we've heard about today that everyone has been talking about. As presented by Joe and Alan and Dennis and Carlos, their businesses have identified over $24,000,000,000 of investment opportunities beyond this base plan. 1st, as Alan and Joe highlighted, over $3,000,000,000 of potential opportunities or upsides at the utilities in a number of projects around safety, reliability and rate reduction initiatives.
And second, we believe that our LNG assets have tremendous upside and growth potential through the advancement of the liquefaction projects that Joe and Carlos just talked about. And third, our teams in Mexico and South America are working on several $1,000,000,000 on projects to bring gas and electricity to these growing markets. We believe our portfolio of assets provides you, our shareholders, visible EPS growth and solid dividend growth with solid risk adjusted earnings. Our EPS and dividend growth are well above that of our peers. Approximately 85 percent of our capital plan is focused on our utilities.
As we've communicated in the past, we're a top EPS and dividend growth company in our space, while maintaining this T and D risk like profile. If there's one message I could leave you all today with here, one thing you could take away is that I think we believe an investment in Sempra is an investment in a company with industry leading historic and projected dividend growth, exceptional EPS growth, a strengthening balance sheet, all coupled with tremendous upside future opportunities. So with that, I'm going to invite Jeff back up to the stage for some closing comments, and then we'll take some questions.
Thank you, Trevor. Thank you. I appreciate everyone's patience. I know the conference is a little bit long. We're going to wrap up here briefly and have some Q and A, and then we'll go outside and join everyone for lunch.
But I talked about early on, our outreach started on May one to make sure that we designed our conference around what was most important to you. Again, here's the 8 questions. I'm going to kind of go through it here in kind of a seriatim way. Long term vision for the company, we've laid out our vision for 2022. We have a lot of confidence that we can center this business around North America and particularly the United States over the next few years.
We think that's the right thing in terms of creating more visibility and certainty about our future growth opportunities. In terms of business strategy, clearly, we think there's a lot of value that has been demonstrated this morning in the last three hours about the ability to make sure that you can invest in high quality regulated utilities and that you can risk adjust your infrastructure opportunities with long term contracts, good credit quality counterparties in a way that you can create a portfolio that has a substantially similar T and D risk profile. The plan to optimize the portfolio, it has to do with being disciplined, right? So as a starting point, think about what we've accomplished in the last 10 months. We've made a historic investment in Oncor.
We've planted a flag in Dallas, Texas and said, this is a core priority for our company. At the same time, we're recycling out of assets today where we think that we can redeploy those dollars better. We're going to exit U. S. Wind.
We're going to exit U. S. Solar. We're going to exit all U. S.
Midstream, except those things which can unlock additional value in our LNG business. And I think as you see us going forward, Phase 2 has already started. We've already had a number of meetings on it. It's about continue to look at our portfolio in a way that we can highlight value for our Inova and particularly LNG, and we're committed to that. 3 key narrative issues: number 1, positioning this business around North America is our North Star number 2, there's not a single business in our portfolio that we fall in love with.
We're always trying to optimize the portfolio, and we've laid out a disciplined three phase approach to do that to highlight value. And thirdly, LNG. We have attempted to do it in the past. We actually have a lot of growing enthusiasm about this business. It will be about timing the efficient frontier of additional growth and development alongside the opportunity to highlight value in that business no differently than we did with Eanova when we took Eanova public.
Base capital plan, dollars 15,000,000,000 1 year ago, our 5 year base capital plan was 14.2. What's in your new growth opportunities? I think Trevor's slide summarized it quite nicely. We see $24,000,000,000 of new opportunities. I think his slide said post 2020.
As Carlos indicated, some of that could come back into 2018 to 2020 time frame. Expected EPS growth rate, 13%. Yes, the earnings growth rate is much higher. Our management team focuses on earnings per share. And secondly, dividend.
One of the first things I said when I came on stage this morning was the importance of the dividend. It's important to me personally. I can convey to you. It's important to our Board of Directors. As we choreograph how we can shine a light down the path toward more value creation, it's really around making sure that we can balance support for a growing dividend and we can grow our earnings per share at above market rate.
Balance sheet is important to us. Trevor noted a number of things in his presentation. We have taken balance sheet pressures around tax reform, lost between $1,000,000,000 $1,200,000,000 of cash tax support over our 5 year plan. We've certainly taken pressures with the delay of Cameron. We've taken pressures with respect to the California regulatory environment, and we are seeing today significantly higher capital spending than we forecasted a year ago.
All of that has been handled inside of our company with respect to reducing cost, managing cash flows, managing repatriation and looking at a very disciplined approach to selling assets. All that's left for us today is to complete what we said we're going to do last year to our rating agencies and to our investors As we think about the equity requirements for Encore, we still have $1,600,000,000 left out there to tackle on the equity side, but we have been very closely choreographing our approach both to equity and balance sheet management because we believe as we execute on our strategic initiatives across the next 3 years, our balance sheet support is very, very important. So with that, I'm going to pause, invite Joe and Trevor and Dennis up to the stage, turn the turn it back over to Faisel to emcee this for us.
Assad? Let's wait till we get everyone on stage. Sonjang, Avela Research Consulting. I have three questions, but I was told to limit it to one, so I'm going to start
with Jeff.
Given the Asian countries inability to adjust the seasonality for the LNG, have you considered potentially providing either cost of service gas to them or storage service to them, which would tie back into your LNG facilities?
It's a great question. Joe made a reference to our meetings with Cogas earlier in the week. And I think one of the things when you think about COGAS, COGAS is really the Southern California Gas Company, right? It's the big national gas distribution business in Korea, and they had dramatic swings in their natural gas uses, Lasse, as you've noted. So in our conversations with them, one of the things is, if you don't talk to them just about price and reliability, you talk to them about the ability to help them swing and meet the flexible needs.
So part of this is in your contractual arrangements, number 1. Number 2, they laid out for us their expectations of how long it's taken them to get gas from the Gulf of Mexico relative to the West Coast of North America, and they clearly see a lot more value assigned to control that logistical schedule. Many of these houses have a trading component today, but the value they're willing to assign is to participate around ECA, right, because you're that much closer and you have much more control over the timing of your logistics and shipping. So I don't think we've completely addressed all the options around seasonality, I can tell you it is front and center in all the conversations with our management team. Mike?
Thank you for that question.
Thank you
very much. Mike Weinstein from Credit Suisse. Just to clarify on the need for equity for this plan going through 2020, you sound like there's no need for equity at all, equity issuances. The plan is fully I just want to clarify, the plan is funded through $3,500,000,000 to $4,000,000,000 of cash flow annually, plus the remaining tax credits and any tax benefits that you have through 2020 because there's a non cash taxpayer, plus the repatriation plus the asset sales?
Is there
anything I'm missing there?
I would be glad to speak to that, which is we put a slide up there with the last remaining equity around Encore is $1,600,000,000 We talked about the steps we've taken fairly aggressively to manage our costs otherwise. As one example, which I think bears mentioning is, you recall last year on our Q2 call, some folks were surprised when Cameron got delayed and we held our 2018 guidance of $5.30 to $5.80 dollars That took between $30,000,000 $40,000,000 of our 2018 plan. As we came into this year, we took about a $79,000,000 hit in 2018 from tax reform. And now with the new general intangible tax, there's another $25,000,000 dollars We've taken $130,000,000 to $140,000,000 of after tax earnings out of our 2018 plan. And the reason we have not adjusted guidance is because we're managing our cash flows, our capital program and the cost initiatives that Dennis Arreola talked about.
And so to your point, we feel quite comfortable that we can manage our business going forward with that remaining piece of equity where we bought a discrete business that's accretive to our shareholders. Now in the future, if we saw the opportunity to buy another asset like Encore, that would be a great example on a discrete basis where we could do something that's accretive. We would certainly look at that. And if we saw capital that's not currently in our plan that was additive that we could not otherwise manage, the last thing we would do is pull the trigger on more equity. And thank you for that question.
Jacob, back over there.
Jacob Kielstein, Argus Research. Outside of core operations, I wanted to know what's going on with Elliot?
I'd be glad to answer that question. We mentioned early on in our presentation today about how open we are to good ideas, right? So we give the folks at Elliot AGLADIG credit. I had the great pleasure with our General Counsel and with Joe and others to work closely with Elliot last year. We probably could not have accomplished the
chance to work with John Kiani back when
he was on the sell side at Deutsche Bank. Had a chance to work with John Kiani back when he was on the sell side at Deutsche Bank. We found the relationship to be very constructive. I flew to Dallas, Texas and sat down with John Wilder, who I have a lot of personal respect for. I think the point from our standpoint is this.
We want to engage with everyone. We have a lot of respect for those folks. They think we have they have added value to the narrative. So when you think about the takeaways from this conference, the output from 15 months of strategic review, let's review that real quickly. Number 1, we agree that we can center this business on North America and increasingly on the United States.
Number 2, we have committed to a 3 phase discrete disciplined capital recycling program. And number 3, we think LNG has a tremendous amount of value and we have the chance to unlock it and highlight that value in the future for our shareholders. And we may disagree on a few assumptions. Mean, if you think about the sell side community today, there are some folks, I think, at JPMorgan that have our LNG business at $14 per share. And someone has it at $22 per share, but the median is $18 The folks at Elliot have it at $40 And I will never talk that down.
I'm going to reach as hard as I can to get there, right? If you take the midpoint of our 2020 guidance, you give us the fulsome multiple on top of that, maybe an 2018 or even a 2020, It layers right into the exact expectation those folks have for our stock. And I think the key to us is we are wide open. Everyone should expect me as the CEO of this business to embrace the LA organization and Bluescape and find a way forward that creates more value for you guys. So this is not about a sport to us.
It's not about theater. The only merits of the case that matters to Sempra Energy is, can we shine a light down the path toward more value creation? And that's what we're committed to engage with those folks on, and we're highly engaged at it right now. Thank you for asking that question. A question back there.
I'll take Julian after that.
Just on your targeted credit metrics, what going forward would your targeted FFO to debt levels be? Or how should we think about the right kind of metrics for the business on a credit point of view?
I'll take it. Yes, sure. I think we are very committed as a company and our Board to our investment grade plus credit rating. And there's no doubt that, as Jeff said, we've had many, many meetings with the credit rating agencies starting last summer while we were looking at Encore and going down that path. And our view here is given this plan and what we've worked with the credit rating agencies is we believe this plan will allow us to get to a level where we will be able to hold our investment grade plus credit ratings over the longer term as we wait for Cameron to come on and as we are derisking the business.
And that was one of the things that we highlighted tremendously today was the derisking of the business over the various years and getting more to a T and D like risk profile. And so that's something we are working with the agencies right They've seen our plan, and we believe by the end of this plan, we will be in the area where we need to be to maintain our investment grade credit rating.
Andy, question on it.
I just have a couple of questions. Just Andy Levi from ExodusPoint. Just simple, just numbers question on the LNG and gas net income that you put out for 2020. What's the drag on that? Randy, the drag on that, you have to consider, as you step back a little bit from the midstream business, there have been other things in that business that have been giving value to the LNG business around development and other things.
And so as Jeff said, the divestiture of that business is those assets that aren't contributing to the LNG growth platform. And so I think if you look at this, what we would say is largely what we've looked at over this period of time, and it was in one of my talking points, was coupled with the sale of the gas business or the wind business and the solar business, those storage businesses would be slightly dilutive to EPS over this 3 year plan because you're really pulling out the depreciation, and that's a long lived asset associated with those gas assets. So the depreciation was roughly $10,000,000 to $15,000,000 a year on those gas assets and then to what extent we can optimize that business going forward.
Let me just add on to that, Andy. I think what you see in when you're looking at the current year, you're seeing both pieces of that midstream business that we're going dispose of, but you're also seeing the cost of running the development business that we're running, and some of that cost is not capitalized today. As we get to FID in a project, some of that cost will be capitalized. Right now, that cost is all being expensed as we don't have FIB on those projects. So that's part of what's going on in there.
And so as we move forward with those projects, some of that will moderate. But we have some cost in that business to do that development and also to oversee Cameron, right? We're the half owner of Cameron, and we have a number of people that are working on that facility and overseeing it. And it gets an allocation it also gets a lot of allocation from the rest of the business, which is an important integral part of our company.
Just in the 2020 number, how much of a drag is just from development costs?
Well, I think we gave you what the run rate of Cameron is, right? That was on the slide. So you can kind of just do the math. It's simple math, but those numbers have increased with tax reform, right? Cameron is going to make more money with tax reform.
Let's take a couple more questions here. Go ahead, Julian.
Julian from BAML again. Just going back to the credit metrics really quickly here. Just to understand this, is the 1.6% in equity sort of
when you think about the asset sales, would you
do that in loop? So it's 1 or the other and depending on the gross proceeds from the asset sales, you would opt not to pursue the common equity? And to the extent to which that you were to get all of the asset sales, I. E, the renewables and the U. S.
Midstream, you would effectively forego the 1.6% and you would hit and be able to maintain the current IG metric?
Yes. What I would say is when we set out to do the Encore transaction, we talked about how tightly choreographed that was with our credit rating agencies. And we made the decision at that time that we would over equitize the transaction, albeit it was still accretive and that we would issue equity sufficient to represent 65% of that transaction value, right? The other thing I would say is the business that we thought we were buying last August is more valuable today in terms of NOLs we had at closing, a smaller amount of contingent liabilities at closing we had forecasted. And now as you've heard today, a dramatically higher capital plan, right?
So on a going forward basis, we've talked about all the different credit pressures we have around our balance sheet. Those are all being met, as I indicated, through cash flow management, cost reductions, repatriation and asset sales. On a discrete basis, the equity we're targeting, Julien, is $1,600,000,000 to complete the accretive acquisition of Encore.
We have one question for the webcast. Can you please address any tax efficient options for Chile, Peru, Mexico that you are evaluating as these seems to be some sort of debate on the subject. So I'll answer part of that question. In the presentation, the appendix, you've given a detailed tax position of these assets because we want people to have that information, we want to be transparent about the tax positions that these assets are in. People can do the math.
And we're happy to have that conversation. I don't know if there's anything else you want to add to that?
Well, look, I'll just add this. This is something that we've looked at off and on for 10 years or more, and we've had many of our advisors look at this with us over time. It's always something that we look at in our portfolio review with our Board. And I know I can tell you that there are a lot of changes in local tax rules that have occurred over time as different companies have tried to come in, many of the Canadian pension funds coming into South America and buying assets. The local countries wised up to that, and they put in taxes for indirect transfers.
So you can't just go sell something at a Dutch holding company level or a U. S. Level and have no local tax. We've looked at this many, many times. It's one of the reasons we have not disposed of that business, although fundamentally, the reason we have the business, we really like it's T and D business and it's very good, it has high returns.
But the dispose of that business will probably cost between $1,000,000,000 $2,000,000,000 in taxes. Local taxes mostly, not U. S. Taxes, local taxes in Mexico, Peru and Chile.
If Mexico is out of the picture,
it's still a significant amount, probably close to $1,000,000,000
And the other thing I would add, and you get back to one of the slides in my original presentation is, as we choreographed moving to Phase II and Phase III, the most important thing to track is continued progress around Cameron. That's a step change in cash flow support for our credit ratings. And secondly, how we go about between now and the end of August, trying to solve this pinhole risk around inverse condemnation in California. These are 2 significant issues with respect to our credit ratings that we're tracking. So as you think about your willingness to do something that would be transformative to exit South America independent of how much leakage there was, We're going to look at all those options, floating businesses on different foreign exchanges, partnering with folks, transacting at the Netherlands.
We've looked at all these options repeatedly over a period of time. Now what has changed for the first time was tax reform and a lower hurdle rate for repatriation in the United States and our ability to use NOLs to offset some of those taxes here in the United States. But I just want to be very, very clear. The reason we favor a disciplined phased approach to portfolio optimization is it needs to be choreographed against our ability organically to continue to support and improve our credit ratings.
Okay. Time for 1 or 2 more questions. Maura?
Two questions. First, you actually have an FFO to debt target. 2nd question, on capital allocation, on the slide it talks the first bullet is risk adjusted returns. And Jeff, you just mentioned you'd consider doing another deal and you mentioned earnings accretion. And I'm thinking about previous conversations after the Encore deal and people talked about earnings accretion and the three conversations on what were the returns on capital being driven from Encore and no one knew the answer.
So how are you driving returns there? Is that the issue or is it earnings accretion? So two different questions. Thanks.
I'll take a shot at it, Joe, and you can lay in 2. But I think that when we look at these opportunities, if you look at it from 2 ways. Number 1, how much value is being created when you buy an asset and number 2, is it EPS accretive, right? So when we look to Encore, we underwrote Mora a transaction that was accretive on its face in August. And our perspective is today that transaction is more accretive than it was before.
Two things in our portfolio with respect to our regulated utilities. Our goal is to always earn our authorized return on equity or higher. And for over several decades, we've been able to do that, for example, in our California utilities at 100 to 200 basis points above authorized. Outside the utilities, we typically target high single digit or low double digit unlevered returns for our infrastructure businesses and fairly consistently have been able to achieve that. The one area where we've taken a lot of growing pressure is around our renewable business.
I think over time, we feel like that, that is a business that probably sits with a company that has a different weighted average cost of capital. And I think this is really actually a robust time in the marketplace where There's a lot of interest in our portfolio, very well developed, great contract portfolio, high quality engineering. And one of the things we have to be able to do as part of Phase 1, Mara, is make sure that we don't just move on to Phase 2. Making sure we sell those assets at the highest level is a critical part of how we support our balance sheet.
Trevor, you want to get the FFO target?
Yes. I think, Mark, to your question on the FFO to debt, we have been working with the agencies. And like I said, we we want to do is target there's different calculations for each of the different agencies, but we want to target being in the investment grade well within the investment grade plus category over the longer term. So that's what we're working with as we are working through with the agencies to understand how we're also derisking the business.
And guys, we've actually run out of time. So what we're going to do is we've got lunch. We have the management team available at lunch and also up here. The lunch is in the baby room, which is upstairs. There are human signs everywhere.
So we will sort of escort you up there. And then we're happy to take any questions up during that timeframe. Thank you all for joining us for this year's Sempra Energy Analyst Day.