Good day, and welcome to the Sempra Energy First Quarter Earnings Conference Call. Today's call is being recorded. Now at this time, I'd like to turn the call over to Faisal Khan, Vice President of Investor Relations. Please go ahead, sir. Thank you.
Good morning, and welcome to Sempra Energy's Q1 2018 financial presentation. A live webcast of this teleconference and slide presentation is available on our website under the Investors section. Here in San Diego are several members of our management team, including Jeff Martin, Chief Executive Officer Joe Householder, President and Chief Operating Officer Trevor Mihalik, Chief Financial Officer Dennis Areola, Chief Strategy Officer and Executive Vice President of External Affairs and South America Martha Wersch, General Counsel Peter Wall, Chief Accounting Officer and Controller and Alan Nye, Chief Executive Officer of Encore. Before starting, I'd like to remind everyone that we'll be discussing forward looking statements on this call within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today.
The factors that could cause our actual results to differ materially are discussed in the company's most recent 10 ks and 10 Q filed with the SEC. It's important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis and that we'll be discussing certain non GAAP financial measures. Please refer to the presentation slides that accompany this call and to Table A in our Q1 2018 earnings press release for a reconciliation to GAAP measures. I'd also like to mention the forward looking statements contained in this presentation speak only as of today, May 7, 2018, and the company does not assume any obligation to update or revise any of these forward looking statements in the future. With that, please turn to Slide 4, and let me hand the call over to Jeff Martin.
Thanks, Faisal, and welcome to the team. As much as we enjoyed filling your questions in the past, it's nice to have you on this side of the call today. I'll start by thanking Debbie Reed and acknowledging the pivotal role she's played in Sempra's growth and success. This company clearly would not be in the position it's in today without her leadership and vision. Our succession plan was designed to ensure a continuity of leadership and the recent executive appointments demonstrate our commitment to continue our focus on delivering long term value creation for our shareholders.
I'd also like to welcome everyone into their new roles as well as the Oncor team and thank Al and I for joining us today. We were just in Dallas a few weeks ago meeting with their top 200 leaders and could not be more excited about the opportunities that lie ahead. Oncor's strong pure play electric T and D business solidifies our footprint in the Gulf region and just as importantly improves of our domestic utility earnings. With these changes, I'd like to reiterate that Sempra's value proposition still holds true. Our team remains focused on pursuing strong growth with the utility like risk profile.
We remain committed to maximizing shareholder returns through strategic, disciplined investments and growing dividends. Lastly, we're reaffirming our 2018 adjusted EPS guidance of $5.30 to $5.80 per share. In doing so, it's also important to point out that we're tracking 2 non cash items that could impact this guidance range later in the year. Trevor will cover those later in the call. Please turn to the next slide.
As we highlighted on the Q4 call, we had 4 near term priorities. 1st, delivering on our growth strategy. 2nd, executing on our California regulatory goals 3rd, ensuring that all three trains at Cameron produce LNG in 2019 and 4th, continuing to analyze opportunities to strengthen our balance sheet to support future growth, which we will address in greater detail at our upcoming analyst conference. Let me start first with growth. We have improved visibility into our long term growth strategy with the closing of ENCORE, almost 1 month earlier than planned.
ENCORE is a substantial addition to our business mix and creates a significant platform for us. We're expecting our portion of ENCORE earnings for the partial year of 2018 to be in the range of $320,000,000 to $360,000,000 Also, you recall that to support that transaction, we executed on a $9,600,000,000 financing plan. The $5,000,000,000 of debt that we raised was approximately 5 times ever subscribed and a $4,600,000,000 of equity and equity linked offerings were well over 3 times oversubscribed. Additionally, it's worth noting that over 80% of our equity offerings were allocated to existing shareholders. 2nd, we're moving forward with our California regulatory priorities.
In April, our California utilities submitted updated rate case testimony that includes projected impacts from tax reform. We're pleased to say that this will benefit our customers through lower projected bills at SoCalGas and through increased wildfire mitigation investments at SDG and E with no expected impacts to bills. Additionally, ORA recently submitted their testimony, which keeps the process moving forward. We expect TURN and other interveners' testimony will be submitted shortly. We're focused on advancing these rate cases as they'll help our California utilities continue to provide safe and reliable energy to the communities they serve.
With regard to protections for wildfire risk, we along with other stakeholders continue to execute a 3 part strategy to help protect our customers and just as importantly, help ensure the long term health of our California utilities. In fact, we've seen good progress over the last several months. First, together with others, we've helped lead an education campaign with the Governor's Office, Legislature and Public Utilities Commission. In mid March, the Governor's Office and legislative leaders issued a statement recognizing the need to find a comprehensive solution to the increased threat from natural disasters and climate change, which includes updating liability rules and regulations around inverse combination, recognizing the need to build and operate infrastructure to increase resiliency, examining availability of insurance, including areas at risk from wildfires and needing to modernize utility practice and procedures around fire prevention. 2nd, there have been positive developments on the legislative front with several bills being introduced.
2 notable concepts were introduced in these bills. The first of which was the need to adopt standards across the state to reduce wildfire risk. And second, the need to establish objective and measurable criteria that can form a part of a new prudent manager standard for utilities going forward. While the current text of the bills don't specifically address inverse condemnation, we and other stakeholders are also looking to separately address this issue in Sacramento. 3rd, we're making great progress with Cameron Trains 1 through 3.
To be clear, this is one of our top priorities. We continue to expect all three trains to be producing LNG in 2019. Recall at the end of last year, we reached a settlement agreement with our contractor to resolve all claims. This was important because it better aligned the party's interest with the goal of having all three trains producing LNG in 2019. We continue to believe this agreement puts both the contractor and Sempra in a stronger position to meet the current schedule.
We're also pleased with the recent shareholder approval to combine McDermott and CB and I, which we believe improves our contractors' overall delivery capabilities and financial strength. And finally, on the growth front, EONOVA recently announced the award of a $130,000,000 liquid fuels project with 2 strong multinational counterparties. The project has 15 year U. S. Dollar denominated contracts for 100% of its capacity.
It also capitalizes on the continued build out of infrastructure related to Mexico's energy reform by increasing fuel supply capacity in Mexico. In turn, this further helps Mexico's energy mix become more reliable and gives consumers more fuel choices. Please turn to the next slide where Trevor will walk us through the quarter results. Trevor?
Thanks, Jeff. Earlier this morning, we reported 1st quarter earnings of $347,000,000 or $1.33 per share. This compares to Q1 2017 earnings of $441,000,000 or $1.75 per share. On an adjusted basis, we reported earnings of $372,000,000 or $1.43 per share. This compares to Q1 2017 adjusted earnings of $438,000,000 or $1.73 per share.
Let's turn to the next slide where I'll discuss the key drivers impacting the quarterly results. I'd like to start off by highlighting our operational performance, which included $22,000,000 of higher earnings at SoCalGas, primarily due to the effect of a lower income tax rate in 2018 on the higher margin of the Q1. Dollars 15,000,000 of equity earnings from our investment in Encore beginning March 9th and $8,000,000 of higher pipeline earnings primarily attributable to assets placed in service in the Q2 of 2017 in Mexico. Our adjusted quarter results were also impacted by the following: $94,000,000 of higher losses at parent, which include higher net interest expense and preferred dividends, and $23,000,000 of lower earnings due to the recognition of AFUDC in the Q1 of 2017 at Mexico. This was partially offset by $14,000,000 of higher earnings due to the application of revised seasonality in 2018 at SDG and E.
I would note, however, that this does not impact their full year results. Now let me talk about 2 non cash items that we're tracking that could impact our full year adjusted earnings guidance, which Jeff briefly mentioned. First, you'll recall that our primary foreign exchange related exposures in Mexico are related to the taxes on our U. S. Dollar denominated debt and deferred tax balances.
Consistent with prior years, we continue to hedge the monetary positions, so our upside and downsides are limited with respect to large currency movements. Related to this, we've updated our 2018 FX rules of thumb. You can find these rules of thumb in the appendix. Importantly, we're closely monitoring the currency movements, but it's still fairly early in the year. 2nd, we're continuing to evaluate tax reform and its impact.
While the territorial tax system increased the value of our international businesses, we believe a component of it, the global intangible low tax income is impacting us as an unintended consequence of tax reform. The law was intended to prevent transfers of intangible assets to low tax jurisdictions, which clearly is not our case. This quarter the tax was an $8,000,000 expense with an estimated full year impact of approximately $24,000,000 It could also reduce our earnings in future years by similar amounts, but declining over time. We're hopeful that this issue will be fixed with updated regulations or legislation before the end of the year. But until this happens, we're recording the tax as part of our earnings.
Now please turn to the next slide, while I hand it back over to Jeff.
Thanks, Trevor. We're excited to be hosting our Analyst Conference next month in New York, where we'll be providing important updates regarding our future business plans. We'll review our overall strategy and vision, updates on each business segment and our overall capital and financing plan, including how we expect to recycle capital. We've spoken to many of you and consistent with the feedback we've received, we'll be updating our approach to guidance by laying out our earnings expectations for the next 3 years. In doing so, our goal at this year's conference is to provide a detailed view of how we plan to create shareholder value well into the future.
We hope you'll be able to join us in New York. The date of our conference is June 28. And with that, we'll conclude our prepared comments and stop to take your questions.
We will hear first from Julien Dumoulin Smith. Go ahead please.
Hey, good morning.
Good morning, Julien. Hey,
congratulations. So a couple of quick questions here. Can you elaborate a little bit further on the peso sensitivity and just how you think about your set of hedges to the extent to which that they might not necessarily be linear with the previous disclosures and how to think about the sensitivity impact even just now just
to get that out of the way?
Sure. I'll pass that out.
For 2018, but more importantly beyond.
Right. You recall that we tend to focus on 2 different baskets, Julien, when we talk about FX. We've got the deferred tax assets into the future. We've also kind of hedged, as we've talked about in the past, our current monetary liabilities. So for the quarter, we had FX and inflation impacts of roughly negative $30,000,000 The two key takeaways I'd give you is you got to remember that E and O and all of its projects are U.
S. Dollar denominated. So that impacts how we account for those cash flows. And you can see this in Table F. If you look at Table F, it gives you a better sense of underlying economics of the Enova.
And the second point to reiterate is it's a non cash impact. So what we do is each year we use some form of costless collar and that reflects how we hedge our current monetary liabilities. And then as you think about future years to the second part of your question, that gets reset every year. So as you go into next year, those hedges roll off and we hedge the forward year. So from a guidance standpoint, we don't think about the future any differently because of the results in Q1.
Excellent. Thank you very much. Perhaps just to follow-up on that. Obviously, over the last few days, we got some developments in SoCal around some gas pipeline efforts. Can you talk about some of the mitigating factors there on that specific project more broadly?
And then and also just maybe just to hit the gas demand question for SoCal, obviously, we've seen a number of developments around thermal projects more broadly. How do you think about gas demand and more importantly gas infrastructure demand in light of the latest pipeline developments with PD?
I think you're referring to our pipeline safety and reliability project. And for some context, Julian, this is part of the overall PSEP program that the commission kicked off back in 2011, where they asked all of the natural gas transmission operators to ensure that they either pressure tested or replaced pipelines. Typically, these are pipes of older vintage that had not been previously tested. And the pipeline in question is referred to as we refer to it as Line 1600. It's one of 2 lines that bring gas north to south into San Diego.
It is of older vintage and what we have done is we've filed for that project really under the PSEP program with a view toward replacement with a larger diameter pipe. And in this proposed decision, what it appears is they're focused on that they prefer that we either pressure test it or rescission portions of it and replace portions of that pipe. And I think at this point in the process, it's relatively early. But our goal is to make sure we work with the commission and staff and stakeholders really around one view, which is to make sure the pipe is safe. So that's kind of our approach going forward.
And I don't think I'll read into it in terms of how we think about gas demand going into the future. We've got over 90% of the state's space heating and cooking is done with natural gas. So this is more about a safety issue, making sure that we're being responsive to the 2011 order from the commission.
Excellent. Thank you very much.
See you soon.
Thank you, Julien.
And now we will take a question from Greg Gordon with Evercore ISI.
Hi, Greg.
Thanks, guys. Congratulations, Jeff, Faisel. So just to confirm what you said earlier that these impacts, these currency impacts are non cash. So the ongoing impact on the underlying economic value of the business is really not material as it pertains to these exposures, right?
That's correct.
Okay. And then what form might we in order to look for so we understand the implications of the potential for clarification on this tax issue? Is that something that the Treasury could fix through issuing a rulemaking? Does there have to be a formal legislative patch? Could it be 1 or the other?
Can you explain to us what the paths for clarification on that issue are?
Yes, I'll touch on it and I'll pass it to Trevor to provide additional clarification. But this is one of these things that inadvertently came up as part of
the overall
tax reform package. And the way the calculation works is it picked up companies like ours that actually own controlling interest in foreign jurisdictions. So we're planning on working with Treasury to get some technical corrections, but Trevor, you might want to provide additional color for Greg.
Sure, Greg.
So yes, we are looking
at trying to see if treasury would be willing to work with the company to get a technical correction on this. Right now, treasury is working through it. But if you take it at the black letter of the law, treasury is saying the way the law reads, it's inadvertently and they acknowledge that it's inadvertently picking up companies. So we're looking at a path either through a technical correction or through some kind of legislative fix on this.
Okay. Thank you. Joe, if you don't mind, could you give us an update on how things are going visavis productivity at the Cameron site? There's been some concern that the, a, at a high level, the unsolicited bid for McDermott could cause some inadvertent risk to your revised transaction, to the revised structure of the deal, but then that 2, away from your project that CBI recently announced a delay in another project, which caused people to then move back and start worrying about Cameron's. Can you give us some to the extent you can give us some comfort or color around those things that would be helpful?
Hi, good morning, Greg. Thanks for that. Yes, I was just at the site 2 weeks ago and I was there and we had our Cameron LNG board meeting at the site and we toured the site and I can tell you it was pretty impressive. There was substantial progress there compared with the last time that I had visited with the other Board members from Japan and from France. And we had a very good meeting.
We took a long tour. There's substantial work going on. CV and I and Chiyoda still maintain that they're on the path to get us the LNG from all three trains in 2019. It's looking very good. I was very impressed with the productivity I saw with the number of people there with what they were doing.
So that was all going well. As to your question about the CBI McDermott merger, yes, that was 2 weeks ago, a little bit of a scare, but both companies voted to approve the merger. And so that's moving ahead and it's supposed to close on 10th. So we expect that is moving ahead. Certainly when we saw the subsea offer to McDermott, we all started looking at that and what would it do.
But frankly, things are going well at the site. So we were prepared to deal with that should it have gone that direction, but I'm happy to say that it's moving down the right path.
And then the Freeport delay, is there any reason for us to make a read through there as to the ability of your the JV to complete the project on the current schedule?
Thanks. Look, I'm not going to talk about the Freeport project, but I don't think there's any read through there. They reported that, I can say through the scuttle, but that wasn't a little bit surprising. A lot of it, I think, had to do with the floods that they had Houston, which had more impact on them than it had on us.
Okay. Thank you, guys.
Thank you, Greg.
And now we'll hear from Ryan Levine with Citi.
Good morning. Good morning. Good morning. Does the recent movement in Permian gas differentials and the recent competitor pipeline announcement push out the timeline to develop P2K or is everything moving unchanged?
Thank you for that question, Ryan, and congratulations on your promotion. That's an important project for us. We are monitoring that situation at this point. We don't have an update on P2K other than what we've said publicly in the past.
Okay. And then could you frame the incremental investment opportunity regarding SDG and E's wildfire, potential wildfire mitigation program?
Thank you. One of the interesting things about that program is we started back in 2007. I think our experience back then has really informed our approach around hardening the system, improving our standard operating procedures around wildfire and climate change risk, including I think just probably over a half decade ago actually starting an active program of de energizing its circuits on a case by case basis when we were in extreme weather and we thought that safety was in doubt. And in terms of the capital programs, the biggest one we have going forward right now is obviously the Cleveland National Forest Program. That's between a $600,000,000 $700,000,000 capital project.
And what it's doing, Ryan, is it's upgrading over 80% of our 69 kilobytes and above circuits in the backcountry, most of which are in the most dangerous wind condition areas. And you're moving that from wood to steel poles and you're using wider conductors or spreads. But they'll be continuing to assess ways of taking deploy capital to make the system more safe.
Thanks. And then last question for me. What's the current outlook for ECA's mid scale projects and what size trends are currently being contemplated?
Thank you, Ron. And one of the things we're looking forward to doing at the analyst conference is providing kind of a full update on each of our development projects. Obviously, over the last 3 to 4 years, we've been relatively bullish on that 2023 to 2025 window. So that's something we're looking forward to providing updates on. But Joe, do you want to give a quick update on kind of how you're thinking about the size of the mid scale versus the full scale project down in Baja?
Sure. Thank you, Jeff. Hi, Ryan. We have the project, as I mentioned before, fully permitted for the large scale facility at this point in time. And we are getting a lot of interest, as I mentioned, in a mid scale facility that could be done more quickly and get to market sooner.
So we are talking to potential customers on that, but also continuing to talk to customers about the large scale and we will see
through this
year how we think about which way to go there and the site can accommodate both. But we currently are permitted for the large one. We're seeking potentially to have a carve out of some of that permit for the mid scale, so we could move forward with that more quickly if that's what we choose to do. But there is a lot of customer interest for getting the LNG earlier in the cycle and that's what we're focused on today.
Okay.
Thank you.
And our next question will come from Michael Lapides with Goldman
Sachs. Hey, guys. Thank you for taking my question. And Jeff, Joe, congratulations to you, to Trevor and to the rest of the folks there.
Thank you, Michael.
I'm looking at Slide
12. And can you remind me the rate base the weighted average rate base on an apples to apples comparison, so excluding FERC assets for San Diego Gas and Electric, what that was in 2017, the California rate base for 2017 for SDG and E and Stratogas?
We'll track that down for you on the call. I will give you one feedback is in the revised ERC filing, which we noted, just in terms of eliminating the bonus depreciation for 2019 adds $400,000,000 of rate base to from in 2019 going forward. But I'll pass the comparison to Trevor and you can give that feedback to him, Trevor.
Sure. Good morning, Michael. The rate base for SDG at the end of the year for CPUC was about $5,400,000,000 and for SoCal, it was about $5,900,000,000 And roughly that's pretty close to where
it is today. They're roughly equal.
Got it. And can you just remind us, that's a pretty big growth rate year over year if I think about ending 2017 versus weighted average 2019. If I think about that as a compound growth rate, that's a pretty big uptick. And then I assume it's kind of pretty similar as you filed going out into 2020 2021. What are the biggest drivers of that?
I think if you think back over our analyst conference year over year, we've always been messaging Michael around kind of a 5 year capital deployment at both utilities of around 12,000,000,000 dollars and that backs into roughly $1,200,000,000 a year per utility. And that will vary depending upon the year in the cycle. But most of SDG and E's investments have come around modernizing its distribution transmission grid. A lot of this has to do with improvements to sub stations, line extensions, adding to new growth and some of the capital programs we put in place at the time that I was leaving the utility, like I referenced, the Cleveland National Forest Project is a big driver currently. The 2 at SDG and E I'd refer to would be Cleveland National Forest Project and the soccer project, which is the Southern Orange County Reliability Project, which was an important upgrade for us.
And then at SoCal Gas, most of this has been driven by their temp and dip programs as well as some of their PSEF work.
Got it. And how in the ORA testimony, it seems there's some multiple things that one could take as a positive. Just curious, how are you looking at the potential for your even settling a rate case? I know it's been a long time since we've seen a California utility actually settle 1, but you never say never?
Well, I would start with saying it's early in the process and it was probably too early to read too much in the ORA filing. There were 2 things I thought that we were somewhat optimistic about, which was their recognition of the need, Michael, for a 4 year rate case cycle. I think probably over time, this is probably the path I think California is heading toward. And secondly, they also picked up our request to have 2 way balancing for seen for wildfire insurance. But to the larger issue is that this is obviously an important rate case for us.
It's one we're going to follow closely. You remember it's being premised in the around the ramp filing. So this is really important that we're kind of creating a hierarchy of capital requests regarding what we think is most important from a safety standpoint. And I'll pass it to Joe to make some provide some more color.
Thanks, Jeff. I just wanted to go to your question about settlement. Our history has been that we seek to find common ground with the other parties and believe settlements are efficient and effective for everybody. So we'd continue to certainly work with the parties toward that end. We think that the other interveners are filing testimony next week.
And so except for our last cycle when the commission just wasn't in a position to move forward on that, we've always worked to settle our cases.
Got it. And one last one, guys. I apologize for monopolizing some of that time. What significant capital investment opportunities at either of the 2 utilities and that aren't necessarily approved yet today are outside of the GRC filing, meaning might be done in separate side dockets at the CPUC or might be FERC related assets?
Look, I think probably the best place for us to address that is probably at the analyst conference. But one of them we talked about earlier was the PSRP project, which is pipeline safety and reliability project, that's between $600,000,000 $700,000,000 That's the one that we got a PD on where they recommended a different solution. Also, one that came up in the ORA filing is the issue of OMIC. You may recall there was kind of a put call feature with Calpine relating to their Otay Mesa plant. That's something that could come into our plan depending upon the outcome of that.
But you're right, there will be filings outside of the rate case. The Cleveland National Forest was an example. But in terms of forward looking projects, those are the ones we'll try to address for you later in June.
Got it. Thank you, Jeff. Much appreciated guys.
Thank you, Mike. Appreciate it.
Hey, just one point of clarification with regards to the GRC. We have received ORA. We just haven't received term. We expect to receive term later this month.
Now we'll move to a question from Paul Patterson with Glenrock Associates.
Good morning, guys. How are you?
Good morning, Paul. How are you doing?
All right. Just to circle back on the tax thing, what do you guys have intangibles overseas? And is this sort of transfer pricing or transactions occurring? Or is it just could you just elaborate a little bit more on it?
Yes. Paul, this is the global intangible tax. We don't really have any intangibles overseas. This thing was designed to target folks that were moving intangible earnings from 1 jurisdiction to a lower tax jurisdiction. We're not involved in anything like that.
We just got controlling interest in foreign companies and this has inevitably picked us up. And by the way, it's hitting other industries beside the utility industry. And that's why we just want to make sure we get the technical correction as soon as we can. Okay.
I think this is Joe. Hey, Paul, this is Joe. The other interesting thing is now with tax reform, the U. S. Has the lowest tax rate of the countries we're in.
So it would make no sense for us to be transferring it. But Jeff is right. I mean, we have intangible technology, but we're not transferring it from 1 company or one country to another.
Okay, great. And then just on the it sounds like if I heard you correctly, the inverse condemnation issue you plan to have in separate legislation in Sacramento, is that correct? And just if you could elaborate a little bit more on the timing or how you felt that might show up?
Yes. Paul, we've got kind of this 3 tiered approach. So obviously, we're going to exhaust our regulatory remedies at the commission related to our WEMA request for rehearing. We're also working with stakeholders up and down the state to try to find a legislative solution. I think you saw in our prepared remarks, there's been several different bills have come forward, some of which are constructive and some of which are less constructive.
But in terms of whether we expect legislation this year or next year, our goal is to work with all the parties and the states to see if we can't get something done this year. So that remains our goal.
Okay. And do you think inverse condemnation will be part of these bills or do you think it will be a separate bill? I'm sorry if I was a little confused by the statement.
Well, the bills that come forward today have not fully addressed inverse combination. So we're hoping to have a bill that comprehensively addresses that. But I think what's interesting is the dialogue across the state now is really starting to recognize that this is not an investor owned utility issue. This is a state of California issue, right? This has to do with residential owners and whether they can procure insurance.
It impacts municipal utilities and impacts insurance companies. The trade unions are involved. So this is a large issue across the state. And I think what we're looking for is a bill that comprehensively address all the impacts from land use management to the liability rules impacting utilities.
Okay. Thank you.
Thank you, Paul.
Next, we'll hear from Lisanne Yalahong with Azela Research Consulting.
Thank you. Congratulations to Jeff, Joe and Trevor, well deserved and just fantastic. And Pfizer, very astute move to San Francisco.
Thank you, Lasan. Thanks
a lot. You bet. Couple of things. First of all, you had to look under the kimono Encore. Any surprises, good or bad and any change in CapEx thinking at Encore?
No. We're pleased to have Alan Nye, their CEO join us today on the call, Hassan. And as I indicated, I've attended my first board meeting there with Debbie, who's also on the board with me. We've gone out there and met with their top 200 leadership group. And I think one of the things that most excites me is from a cultural standpoint in terms of how they lead that company, their priorities, their commitment to using capital to lower the cost of Texas consumers is very much in line with how we do business.
So I think just from a starting point, the culture and the fit is going very, very well. And I thought I might just pass it to Alan to talk about anything that he's seen on the horizon he's excited about in terms of his capital plan and some of their priorities.
Yes. Thanks, Jeff. And I couldn't agree more. After all we've been through, we're thrilled to be here. We agree with you.
It couldn't have gone any better so far. So thanks for that. With regards to capital, we already have a robust $8,400,000,000 capital plan over the next 5 years. We're in a state that's growing. There's good growth in our state.
We're seeing residential premise growth at 2% and consumption growth around 1.5%, consistent with what we've seen in the last few years. So there's good growth. We're going through the planning process with our Board and we'll look at a capital plan again in October. That's kind of where we are right now. And again, we're really glad
to be here. Thank you, Alan.
Thanks so much. Jeff, until the Encore acquisition, most of them looked at Sempra as kind of a gassy company. Obviously, the acquisition of Encore has just dramatically changed the makeup of Sempra. Going forward, do you care whether it's an electric Sempra is more electric or more gas? Or do you want to maintain an even fifty-fifty kind of split?
Or does it matter at all to Sempra and its shareholders?
No, Lafont, it's a great question. And given your coverage, Everest, over the last 10 years, you recall the middle part of last decade, we had a very large commodity business. We had an IPP fleet in the West that was close to 3,000 megawatts. I think what you've seen us do really is pivot over the last 5 to 7 years to be more of an infrastructure company. So we've moved away from all of our combined cycle plants.
I think we've got one last plant down in Mexicali that we got held for sale. We obviously disposed of our commodity business. And look, we certainly think the whole theme of electrification is a hard trend. We think that natural gas has an important role to play in terms of supporting move toward cleaner energy. But there's no question that our company is focused on businesses just like Eincore, where we can participate more in the infrastructure side of our business and less on the procurement and generation of electricity.
Okay. So, but you don't care whether that's from gas or from electric?
No, we don't care necessarily. But certainly think we have growing interest in a lot of the very positive trends that are taking place around batteries, renewable energy, electrification, transmission, distribution, particularly, LaSalle, in growing markets like Texas, which is a core opportunity for us.
Sure. Last question for Joe, I guess. On Unica, you talked about the need for more demand to be filled out in Asia. Does that mean that Sempra is likely to try and do a mid scale LNG facility first and then build a larger second phase or would you be doing at UJIBDIC here 2 smaller big scale opportunities back to back?
Thank you. And thanks for that question because it is an emphasis. LNG is definitely part of our strategy and so gas is important to us. And with respect to EECA, we haven't made a firm decision yet about how we're going and we're going to use the market to tell us a little bit about what direction to go here. There's tremendous interest in that facility because the buyers do not have to take LNG through the Panama Canal.
And so they really would like to see a facility built there. And I think the market is going to tell us the right answer. I think that we would not be likely at all to build 2 mid scale facilities. If we build a large scale facility, we will do that and we can still build the mid scale on top of that. If we build the mid scale first, we can still build the large one.
There wouldn't be a circumstance probably where we did 2 mid scale facilities. They're going to be in 2 different locations on the site.
Right. No answer, Scott. Thank you very much. I appreciate it.
Thank you, Lisan.
And next up, we'll have Ashar Khan with Versum. Go ahead, please.
Good morning and congratulations to everyone. Jeff, can I just ask so I don't get this wrong because there's a lot of confusion? So as you correctly pointed out that the currency translation is the non economic number for 2018. And as you said in your presentation that you'll be providing us with forecast for 2018 2019 2020 at the Analyst Day. So will that non economic number or the number that you're showing for this year, the sensitivities, will those sensitivities also have an impact for 2020 because the currency has moved against us, the Mexican currency, since December 31 last year?
Or is that only in reference to the year 2018 and hence it has no impact when you share with us your updated 2019 2020 numbers?
Well, Shar, let me start with saying thank you for joining our call and I appreciate the question. The impacts we're talking about are confined to 2018, so it won't have any impact. We'll update our numbers at the analyst conference and any changes to our rule of thumb.
But I'd also mention to
you that over a longer period of time, the peso has been weakening against the dollar. So you go back to the time that we did our IPO of IEnova several years ago, the peso was at a much lower exchange rate. And even since the end of Q1, the dollar strengthened pretty strongly against the peso. So you're going to see these types of moves quarter to quarter. But in terms of foreign guidance, this is confined to 2018.
There will obviously be ongoing impacts to the deferred tax assets. But primarily what we're focused on is the current monetary liabilities and that's a 2018 issue.
Okay. Thank you.
Thank you.
And now we'll hear from Steve Fleishman with Wolfe Research.
Hey, good morning. Just curious on the kind of asset rationalization over and rest of the financing plan. First of all, have you had any discussion with the rating agencies subsequent to closing and how did that go and kind of maybe give a sense of what you're targeting? And secondly, I guess you could have just done this all with equity. So if you pursue other options to complete the financing, it would be better than having done just more equity?
Right. Well, Steve, thanks for joining the call. And maybe I'll give you a little bit of context. If you go back, one thing you may want to reference as we have this conversation is on Slide 14. There's a little bit of a recap of our financing.
I think to start with the kind of key takeaways, we raised $9,600,000,000 in January. We had in numerous meetings with the rating agencies last fall. And as part of that, they had asked us to kind of target an equity ratio of 65% and that we would fill that out over 18 months or so, which is really the second half of twenty nineteen. And if you apply that 65% target ratio against the 9,600,000,000 dollars that we were looking to raise roughly $6,240,000,000 of equity. And you recall, we've got about $4,600,000,000 that we've addressed so far.
So we've got another $1,640,000,000 of equity. And I use that number notionally. I'm just harkening back to those rating agency conversations. And to your point, yes, we've met with the rating agencies this year in New York around both of those issues, including how the agencies think about increased risk in the regulatory model in California. So as we go through this capital rotation process, as we look to optimize our repatriation program and also optimize our internal cash flows and management across our businesses.
Our goal is to try to preempt as much of that 1,640,000,000 dollars of future equity as we can. So that's one priority. And secondly, one of the interesting observations from the credit rating agencies was how much they value the diversity of our model. So as opposed to being a company that has the majority of its assets just in California, they viewed the acquisition of Encore and the diversity into another regulatory market quite constructively. And interestingly, Steve, they also felt like the diversification of Peru and Chile also had notable benefits from a qualitative standpoint.
Okay. Okay, that's helpful. And then maybe just in terms of on the LNG and Cameron.
So any better sense of
kind of the timing within 2019 for the trains to produce LNG? And just how long is there between starting to produce to being officially commercial?
Right. Just as a brief comment, I'll pass it to Joe if he wants to add some color. But I said this in my prepared remarks and this is essentially the top priority for us, right. We understand, Steve, the impact that this means to us from a credit standpoint and from an earnings standpoint and we have had delays in the past. We're working very aggressively with our partners to stay on track here.
So our fundamental view of turnkey in all three trains next year, so they're in a position to produce LNG is unchanged. But Joe, just because you're at the site recently, you're adding additional color in terms of how we're thinking about
Thanks, Jeff. Hi, Steve. Look, we're not going to give a pinpoint date of each. We definitely have dates that we're working towards, but we still have one more rainy season and one hurricane season to get through. So look, I think you're going to see the 3 coming online earlier in the year, mid part of the year, later in the year.
And I think that's what we're moving toward. As we get closer to having the first phase done, we'll be able to give you a little bit more color, but that would be later in the year when we'll have more certainty. And then each one takes several months to get the commissioning done and then they get into revenue. So clearly, we're going to have revenues from Train 1 and Train 2 as we move through. And then the question about Train 3 will sort of be when did it get done towards the end of 2019 and we just don't have a precise date for that yet.
Okay. And then lastly, just thoughts on ability to get new contracts. I think on the last call, you said hope for maybe even an MOU sometime by the end of this year. Is that still possible?
We certainly believe that, that is possible. We believe that's possible, Steve, and we're working hard toward that.
Great. Thank you.
Thank you, Steve. Thank you.
And now we'll take a follow-up question from Michael Lapides with Goldman Sachs.
Hey, guys. Housekeeping one is probably for Trevor. Can you remind us the impact that tax reform has in terms of the interest deductibility for Sempra?
Yes. We put that out last year. Largely what we said is the way we kind of spoke about the overall impact last year of approximately $0.30 $0.25 $0.30 for the impact of tax reform in 2018. But with regards to interest deductibility, it's largely neutral in 2018 and going forward.
Got it. One other thing, can you remind us size at the year end of 2017 and or now the size of the NOL and what kind of cash taxpayer Sempra expects to be in the coming years?
Sure, Michael. Right now, what we're saying is we have roughly, I think it's a little over $4,000,000,000 of NOLs and we don't foresee being a cash taxpayer over the next 4, 5, 6 years.
Outside of our plan.
Yes, outside of our plan.
Got it. Thank you, Trevor. Much appreciated.
Appreciate it, Michael.
And that will conclude our question and answer session. I'll turn the call back over to Jess Martin for any additional or closing remarks.
Let me just conclude by saying how much we appreciate everyone joining our call and we'll hope that you'll mark your calendars for the 28th June to join us in New York. Also, if you have any follow-up questions, please feel free to contact the IR team. Wish you all a good day.
Ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation and you may now disconnect.