Good day. Welcome to the Sempra Energy first quarter earnings conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Faisel Khan, Vice President of Investor Relations. Please go ahead, sir.
Thank you. Good morning. Welcome to Sempra Energy's first quarter 2018 financial presentation. A live webcast of this teleconference and slide presentation is available on our website under the investor section. Here in San Diego are several members of our management team, including Jeff Martin, Chief Executive Officer, Joseph Householder, President and Chief Operating Officer, Trevor Mihalik, Chief Financial Officer, Dennis Arriola, Chief Strategy Officer and Executive Vice President of External Affairs and South America, Martha Wyrsch, General Counsel, Peter Wall, Chief Accounting Officer and Controller, and Allen Nye, Chief Executive Officer of Oncor. 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-K and 10-Q filed with the SEC. It's important to note that all the earnings per share amounts in our presentation are shown on a diluted basis. 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 first quarter 2018 earnings press release for a reconciliation to GAAP measures. I'd also like to mention that the forward-looking statements contained in this presentation speak only as of today, May 7, 2018. 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 four. Let me hand the call over to Jeff Martin.
Thanks, Faisel. Welcome to the team. As much as we enjoyed fielding 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. 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. To thank Allen Nye for joining us today. We were just in Dallas a few weeks ago, meeting with their top 200 leaders. Could not be more excited about the opportunities that lie ahead.
Oncor's strong, pure-play electric T&D business solidifies our footprint in the Gulf region, and just as importantly, improves the scale and diversity 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 a 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-$5.80 per share. In doing so, it's also important to point out that we're tracking two 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 first quarter call, we had four near-term priorities. First, delivering on our growth strategy. Second, executing on our California regulatory goals.
Third, ensuring that all three trains at Cameron produce LNG in 2019. Fourth, 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 Oncor, almost one month earlier than planned. Oncor is a substantial addition to our business mix and creates a significant platform for us. We're expecting our portion of Oncor earnings for the partial year of 2018 to be in the range of $320 million-$360 million. Also, you'll recall that to support that transaction, we executed on a $9.6 billion financing plan. The $5 billion of debt that we raised was approximately five times oversubscribed, and the $4.6 billion of equity and equity-linked offerings were well over three times oversubscribed.
Additionally, it's worth noting that over 80% of our equity offerings were allocated to existing shareholders. Second, 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&E with no expected impact 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 three-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 condemnation, recognizing the need to build and operate infrastructure to increase resiliency, examining the availability of insurance in areas at risk from wildfires, and needing to modernize utility practice and procedures around fire prevention.
There have been positive developments on the legislative front, with several bills being introduced. Two 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. 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 3 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 parties' interests with the goal of having all 3 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&I, which we believe improves our contractor's overall delivery capabilities and financial strength. Finally, on the growth front, IEnova recently announced the award of a $130 million liquid fuels project with two strong multinational counterparties. The project has 15-year US 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 first-quarter earnings of $347 million, or $1.33 per share. This compares to first quarter 2017 earnings of $441 million, or $1.75 per share. On an adjusted basis, we reported earnings of $372 million, or $1.43 per share. This compares to first quarter 2017 adjusted earnings of $438 million, 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 million of higher earnings at SoCalGas, primarily due to the effect of a lower income tax rate in 2018 on the higher margin of the first quarter. $15 million of equity earnings from our investment in Oncor beginning March 9th, and $8 million of higher pipeline earnings, primarily attributable to assets placed in service in the second quarter of 2017 in Mexico.
Our adjusted quarter results were also impacted by the following: $94 million of higher losses at parent, which include higher net interest expense and preferred dividends, and $23 million of lower earnings due to the recognition of AFUDC in the first quarter of 2017 at Mexico. This was partially offset by $14 million of higher earnings due to the application of revised seasonality in 2018 at SDG&E. I would note, however, that this does not impact their full-year results. Let me talk about two 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. We're closely monitoring the currency movements, but it's still fairly early in the year. 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-taxed 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 million expense, with an estimated full-year impact of approximately $24 million.
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. Until this happens, we're recording the tax as part of our earnings. Please turn to the next slide where I'll 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 three 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 28th. With that, we'll conclude our prepared comments and stop to take your questions.
Ladies and gentlemen, if you would like to ask a question, please signal by pressing the star key, followed by the digit 1 on your telephone keypad. Keep in mind, if you are using your speakerphone, make sure the mute function is released to allow that signal to reach our equipment. Once again, if you would like to ask a question, star 1. We'll pause for just a moment to allow everyone an opportunity to signal. We'll hear first from Julien Dumoulin-Smith. Go ahead, please.
Hey, good morning.
Morning, Julien.
Hey, congratulations. A couple quick questions here. Can you elaborate a little bit further on the pace of 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 it.
For 2018, more importantly, beyond.
Right. You'll recall that we tend to focus on two 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. For the quarter, we had FX and inflation impacts of roughly negative $30 million. The two key takeaways I'd give you is you've got to remember that IEnova and all those projects are U.S. dollar denominated. That impacts how we account for those cash flows. You can see this in Table F. If you look at Table F, it gives you a better sense of underlying economics of IEnova. The second point to reiterate is it's a non-cash impact.
What we do is each year we use some form of a costless collar, that reflects how we hedge our current monetary liabilities. Then as you think about future years to the second part of your question, that gets reset every year. As you go into next year, those hedges roll off, we hedge the forward year. 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? Also, just to hit the gas demand question for SoCal, 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. For some context, Julien, this is part of the overall PSIP 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. The pipeline in question is referred to as Line 1600. It's one of two lines that bring gas north to south into San Diego. It is of older vintage, what we had done is we'd filed for that project really under the PSIP program, with a view toward replacement with a larger diameter pipe.
In this proposed decision, what it appears is they're focused on that they prefer that we either pressure test it or re-section portions of it and replace portions of that pipe. I think at this point in the process, it's relatively early. What 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. That's kind of our approach going forward. I don't think I would 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. 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.
Now we will take a question from Greg Gordon with Evercore ISI.
Hey, Greg.
Hey, guys. Congratulations, Jeff, Faisel. Just to confirm what you said earlier, that these impacts, these currency impacts are non-cash. The ongoing impact on the underlying economic value of the business is really not material.
That's it. That's correct.
to these exposures, right?
That's correct.
Okay. Then what forum 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 one or the other? Can you explain to us what the paths for clarification on that issue are?
Yeah, I'll touch on it, then I'll pass it to Trevor to provide additional clarification. This is one of these things that inadvertently came up as part of the overall tax reform package, the way the calculation works is it picked up companies like ours that actually own controlling interests in foreign jurisdictions. 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. Yeah, we are looking at trying to see if Treasury would be willing to work with the companies to get a technical correction on this. Right now, Treasury's working through it, 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. 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 vis-a-vis productivity at the Cameron site? There's been some concern that, A, at a high level, the unsolicited bid from McDermott could cause some inadvertent risk to your revised transaction, to the revised structure of the deal, but then that, two, away from your project, that CB&I recently announced a delay in another project which caused people to then loop back and start worrying about Cameron. 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. Yeah, 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. We had a very good meeting. We took a long tour. There's substantial work going on. CB&I and Chiyoda still maintain that they're on the path to get us the LNG from all 3 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. That was all going well.
As to your question about the CB&I-McDermott merger, yes, that was 2 weeks ago, a little bit of a scare, but both companies voted to approve the merger, that's moving ahead and is supposed to close on the 10th. We expect that is moving ahead. Certainly, when we saw the Subsea 7 offer to McDermott, we all started looking at that and what would it do. Frankly, things are going well at the site, so we were prepared to deal with that should it have gone that direction. I'm happy to say that it's moving down the right path.
The Freeport LNG delay, is there any reason for us to make a read-through there as to the ability of the JV to complete the project on the current schedule?
Thanks. Look, I'm not going to talk about the Freeport LNG project, but I don't think there's any read-through there. They reported that, I can say through scuttlebutt, that wasn't a little bit surprising. A lot of it, I think, had to do with the floods that they had in Houston, which had more impact on them than it had on us.
Okay. Thank you, guys.
Thank you, Greg.
Now we'll hear from Ryan Levine with Citi.
Good morning.
Morning, Ryan.
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. Then can you frame the incremental investment opportunity regarding SDG&E's 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 the circuits on a case-by-case basis when we were in extreme weather or we thought that safety was in doubt. 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 million-$700 million capital project. What it's doing, Ryan, is it's upgrading over 80% of our 69 kV and above circuits in the backcountry, most of which are in the most dangerous wind condition areas.
You're moving that from wood to steel poles, you're using wider conductors or spreads. They'll be continuing to assess ways that they can deploy capital to make the system more safe.
Thanks. Last question from me. What's the current outlook for ECA's mid-scale projects, what size trains are currently being contemplated?
Thank you, Ryan. 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 three to four years, we've been relatively bullish on that 2023 to 2025 window. That's something we're looking forward to providing updates on. Joe, do you want to give a quick update on kind of how you're thinking about the size and 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. We are getting a lot of interest, as I've mentioned, in a mid-scale facility that could be done more quickly and get to market sooner. We are talking to potential customers on that, but also continuing to talk to customers about the large scale. We will see through this year how we think about which way to go there, and the site can accommodate both.
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. 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.
Our next question will come from Michael Lapides with Goldman Sachs.
Hey, guys. Thank you for taking my question. Jeff, Joe, congratulations to you, to Trevor, and to the rest of the folks there.
Thank you, Michael.
I'm looking at slide-
Thank you.
Can you remind me the weighted average rate base on an apples-to-apples comparison, so excluding FERC assets for San Diego Gas & Electric, what that was in 2017, the California rate base for 2017 for SDG&E and SoCalGas?
We'll track that down for you on the call. I will give you one feedback is in the revised GRC filing, which we noted, just in terms of eliminating the bonus depreciation for 2019 adds $400 million of rate base in 2019 going forward. I'll pass the comparison to Trevor, and you can give that feedback to him, Trevor.
Sure. Morning, Michael. The rate base for SDG&E at the end of the year for CPUC was about $5.4 billion, and for SoCal, it was about $5.9 billion. Roughly that's pretty close to where it is today. They're roughly equal.
Got it. 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 and 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 five-year capital deployment at both utilities of around $12 billion, that backs into roughly $1.2 billion a year per utility. That will vary depending upon the year and the cycle. Most of SDG&E's investments have come around modernizing its distribution transmission grid. A lot of this has to do with improvements to substations, line extensions, adding to new growth, and some of the capital programs we put in place at the time that I was leading the utility, like I referenced, the Cleveland National Forest project, is a big driver currently. The two at SDG&E I'd refer to would be the Cleveland National Forest project and the SOCR project, which is the Southern Orange County Reliability project, which was an important upgrade for us.
At SoCalGas, most of this had been driven by their TIMP and DIMP programs , as well as some of their PSEP work.
Got it. 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 one, you never say never.
I would start with saying it's early in the process, it's probably too early to read too much into the ORA filing. There were two things I thought that we were somewhat optimistic about, which was their recognition of the need, Michael, for a four-year rate case cycle. I think probably over time, this is probably the path I think California is heading toward. Secondly, they also picked up our request to have two-way balancing for wildfire insurance. 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'll remember it's being premised 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 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. We'd continue to certainly work with the parties toward that end. We think that the other interveners are filing testimony next week, 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. One last one, guys. Apologize for monopolizing some of the time. What significant capital investment opportunities at either of the two utilities, 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?
Well, look, I think probably the best place for us to address that is probably at the analyst conference. One of them we talked about earlier was the PSRP project, which is Pipeline Safety and Reliability Project. That's between $600 million and $700 million. 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 OMEC. 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. You're right. There will be filings outside of the rate case. The Cleveland National Forest was an example. In terms of forward-looking projects, those are ones we'll try to address for you later in June.
Got it. Thank you, Jeff. Much appreciated, guys.
Thank you, Michael. Appreciate it.
Hey, just one point of clarification with regards to the GRC. We have received ORA, we just haven't received TURN We expect to receive TURN later this month.
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. Do you guys have intangibles overseas? Is there sort of transfer pricing or transactions occurring, or is it just
Yeah.
Could you just elaborate a little more on it?
Yeah. 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 one 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 inadvertently picked us up. 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. Jeff is right. We have intangible technology, but we're not transferring it from one company or one country to another.
Okay, great. Then it sounds like, if I heard you correctly, the inverse condemnation issue you plan to have in separate legislation in Sacramento, is that correct? Just if you could elaborate a little bit more on the timing or how you thought that might show up.
Yeah. Paul, we've got kind of this three-tiered approach. 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. In terms of whether we expect legislation this year or next year, our goal is to work with all the parties in the state to see if we can't get something done this year. That remains our goal.
Okay. Do you think inverse condemnation will be part of these bills, or do you think it'll be a separate bill? I'm sorry if I'm a little confused by the statement.
the bills that have come forward to date have not fully addressed inverse condemnation, we're hoping to have a bill that comprehensively addresses that. 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 it impacts insurance companies. The trade unions are involved. 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 Lasan Johong with Avila Research Consulting.
Thank you. Congratulations, Jeff, Joe, and Trevor. Well deserved, and just fantastic. Faisel, very astute move to Sempra-
Thank you, Lasan
as well.
Thanks a lot.
Yeah. A couple of things. First of all, you've had a month and a half to look under the kimono at Oncor. Any surprises, good or bad? Any change in CapEx thinking at Oncor?
No, we're pleased to have Allen Nye, their CEO, join us today on the call, Lasan. 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. 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. I think just from a starting point, the culture and the fit is going very, very well. I thought I might just pass it to Allen to talk about anything that he's seen on the rise and he's excited about in terms of capital plan and some of their priorities.
Yeah. Thanks, Jeff, 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, thanks for that. With regards to capital, we already have a robust $8.4 billion capital plan over the next five 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. There's good growth. We're going through the planning process with our board, we'll look at a capital plan again in October. That's kind of where we are right now. Again, we're really glad to be here.
Thank you, Allen.
Excellent. Jeff, until the Oncor acquisition, most people looked at Sempra as kind of a gassy company. The acquisition of Oncor has just dramatically changed the makeup of Sempra. Going forward, do you care whether Sempra is more electric or more gas, or do you want to maintain an even 50/50 kind of split, or does it matter at all to Sempra and its shareholders?
No, Lassana, it's a great question. Given your coverage of us over the last 10 years, you'll recall the middle part of the 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 five to seven years to be more of an infrastructure company. We've moved away from all of our combined cycle plants. I think we've got one last plant down in Mexicali that we've got held for sale. We obviously disposed of our commodity business. 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 the move towards cleaner energy.
There's no question that our company is focused on businesses just like Oncor, where we can participate more in the infrastructure side of our business and less on the procurement and generation of electricity.
Okay. You don't care whether that's from gas or from electric?
No, we don't care necessarily, but I certainly think we have growing interest in a lot of the very positive trends that are taking place around batteries-
Sure
renewable energy, electrification, transmission, distribution, particularly, Lasan, in growing markets like Texas, which is a core opportunity for us.
Sure. Last question for Joe, I guess. On ECA, 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 looking at two smaller mid-scale opportunities back to back?
Thank you. Thanks for that question because it is an emphasis. LNG is definitely part of our strategy. Gas is important to us. With respect to ECA, 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. They really would like to see a facility built there. I think the market's going to tell us the right answer. I think that we would not be likely at all to build two 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 two mid-scale facilities. They're going to be in two different locations on the site.
Right. No, I understand. Thank you very much. I appreciate it.
Thank you, Lasan.
Next up we'll have Ashar Khan with Verition. 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. As you correctly pointed out, that the currency translation is a non-economic number for 2018, and as you said in your presentation, that you'll be providing us with forecast for 2018, 2019, and 2020 at the Analyst Day. 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 of last year? Is that only in reference to the year 2018, and hence it has no impact when you share with us your updated 2019 and 2020 numbers?
Well, Ashar, 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, it won't have any impact. We'll update our numbers at the analyst conference and any changes to our rule of thumb. I'd also mention to you that over a longer period of time, the peso has been weakening against the dollar. 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. Even since the end of Q1, the dollar strengthened pretty strongly against the peso. You're going to see these types of moves quarter to quarter. 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.
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? Kind of maybe give a sense of what you're targeting. 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. 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 takeaway is we raised $9.6 billion in January. We had innumerous meetings with the rating agencies last fall, and as part of that, they had asked us to kind of target a equity ratio of 65%, and that we would fill that out over 18 months or so, which is really the second half of 2019. If you apply that 65% target ratio against the $9.6 billion, it meant that we were looking to raise roughly $6.24 billion of equity.
You'll recall we've got about $4.6 that we've addressed so far. We've got another $1.64 billion of equity. I use that number notionally. I'm just harkening back to those rating agency conversations. 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 from the regulatory model in California. 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 $1.64 billion of future equity as we can. That's one priority. Secondly, one of the interesting observations from the credit rating agencies was how much they value the diversity of our model.
As opposed to being a company that has the majority of its assets just in California, they viewed the acquisition of Oncor and the diversity into another regulatory market quite constructively. Interestingly, Steve, they also felt like the diversification of Peru and Chile also had notable benefits from a qualitative standpoint.
Okay. That's helpful. Then, maybe just in terms of on the LNG and Cameron. Any better sense of kind of the timing within 2019 for the trains to produce LNG? 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. I said this in my prepared remarks, this is essentially the top priority for us, right? Really, we understand, Steve, the impact that this means to us from a credit standpoint and from an earnings standpoint. We have had delays in the past. We're working very aggressively with our partners to stay on track here. Our fundamental view of turnkey in all three trains next year, so they're in a position to produce LNG, is unchanged. Joe, just because you're at the site recently, you want to add any additional color in terms of how we're thinking about it?
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. Look, I think you're going to see the three 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. Each one takes several months to get the commissioning done, and then they get into revenue. Clearly we're going to have revenues from train one and train two as we move through.
The question about train three will sort of be when does it get done toward the end of 2019? We just don't have a precise date for that yet.
Okay. Lastly, just thoughts on ability to get new contracts. I think on the last call you said hope for maybe even a 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.
Now we'll take a follow-up question from Michael Lapides with Goldman Sachs.
Hey, guys. Housekeeping one's probably for Trevor. Can you remind us the impact that tax reform has in terms of interest deductibility for Sempra?
Yeah. 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 $0.25, $0.30 for the impact of tax reform in 2018. 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 billion of NOLs. We don't foresee being a cash taxpayer over the next four or five, six years.
Outside our plan.
Yeah, outside of our plan.
Got it. Thank you, Trevor. Much appreciated.
Appreciate it, Michael.
That will conclude our question and answer session. I'll turn the call back over to Jeff 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 of 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.