Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Sempra Energy (NYSE:SRE)

Q4 2012 Earnings Call

February 26, 2013 1:00 pm ET

Executives

Richard A. Vaccari - Vice President of Investor Relations and Treasurer

Debra L. Reed - Chairman, Chief Executive Officer and Chairman of Executive Committee

Joseph A. Householder - Chief Financial Officer and Executive Vice President

Mark A. Snell - President

Trevor I. Mihalik - Chief Accounting Officer and Controller

Analysts

Faisel Khan - Citigroup Inc, Research Division

Stephen Byrd - Morgan Stanley, Research Division

Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Mark Barnett - Morningstar Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Ashar Khan

Michael Goldenberg - Luminus Management, LLC

Operator

Good day, and welcome to the Sempra Energy Fourth Quarter Earnings Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Rick Vaccari. Please go ahead, sir.

Richard A. Vaccari

Good morning, and thank you for joining us. I'm Rick Vaccari, Vice President of Investor Relations. This morning, we'll be discussing Sempra Energy's Fourth Quarter and Year-End 2012 Financial Results. A live webcast to this teleconference and slide presentation is available on our website under the Investors section.

With us today in San Diego are several members of our management team: Debbie Reed, Chairman and Chief Executive Officer; Mark Snell, President; Joe Householder, Executive Vice President and Chief Financial Officer; and Trevor Mihalik, Controller and Chief Accounting Officer.

Before starting, I would like to remind everyone that we will 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 reports 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 will be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and to Table A in our fourth quarter and year-end 2012 earnings release for a reconciliation to GAAP measures.

I'd also like to note that the forward-looking statements contained in this presentation speak only as of today, February 26, 2013, and the company does not assume any obligation to update or revise any of these forward-looking statements in the future.

With that, I will turn it over to Debbie.

Debra L. Reed

Thanks, Rick. On the call today, we'll give you our guidance for 2013, review our fourth quarter and year-end financial results, provide an update on regulatory matters at the California utilities and bring you up to speed on some of our key projects.

Let me begin with the announcement we made last Friday that our board approved an increase in our annualized dividend to $2.52 per share or an increase of 5%. This increase highlights our commitment to growing the dividend while allowing the company to achieve top quartile earnings growth. As we noted last year, we are beginning a plan of distributing cash from our international operations back to the U.S., which will result in our payout ratio being higher than our target of 45% to 50% for the next 5 years or so.

Now let me update you on our guidance for 2013. We now expect to earn between $4.30 and $4.80 per share this year. This guidance includes our estimate of the impact from a final decision in our general rate cases, including a 2012 retroactive adjustment, which will be recorded in 2013. The guidance also includes roughly $0.20 per share related to the benefit from a gain on sale of 50% on the Mesquite gas plant, offset by the roughly $0.30 per share of tax expense related to our repatriation strategy. Lastly, the guidance includes the dilutive impact of our proposed equity offering for Sempra Mexico and related costs.

As you may have read in the press release we issued yesterday, we plan to sell between 15% to 20% of Sempra Mexico at a public offering in Mexico and a private offering in the United States and internationally. This offering is expected to close by April of this year and is consistent with the strategy that we've discussed previously of having some local ownership of our international businesses.

As I mentioned, this transaction is fully incorporated in our 2013 guidance. However, securities regulations prevent us from discussing this transaction until the offering is closed. I don't like the idea of having an analyst conference where we cannot fully discuss issues. So I have decided to move our conference until the second quarter after the offering is expected to close. We can then openly talk about results from the transaction and should also have more to share regarding progress on our Cameron JV and our general rate cases.

Since our analyst conference will now occur in the second quarter, we want to give you more data today on our outlook for 2013 and beyond, and Joe will do so after he reviews our financial results for the last year. So let me hand things over to Joe now.

Joseph A. Householder

Thanks, Debbie. I will begin on Slide 4. Earlier this morning, we reported fourth quarter earnings of $293 million or $1.18 per share. Excluding the $25 million after tax receipt from Kinder Morgan related to the sale of its interest in the Rockies Express Pipeline, or REX, adjusted earnings for the fourth quarter of 2012 were $268 million or $1.08 per share. In the fourth quarter of 2011, we reported earnings of $285 million or $1.18 per share, which included a $50 million benefit from the CPUC's approval for the recovery of wildfire insurance premiums at SDG&E.

For the year, we reported earnings of $859 million or $3.48 per share. Excluding the $239 million impairment charge we recorded on REX during the year and the effect of the Kinder Morgan receipt I just mentioned, our adjusted earnings for 2012 were $1,073,000,000 or $4.35 per share. This compares to adjusted earnings in 2011 of $1,054,000,000 or $4.36 per share.

The performance of our business was exceptional for both the quarter and the full year, considering it does not include any impact from the pending general rate cases. Last quarter, we told you that without a final decision in the 2 GRCs, we expected 2012 adjusted EPS to come in around the low end of our guidance range of $4 to $4.30 per share. However, our adjusted earnings were closer to the midpoint of that range of $4.16 per share after excluding the $0.19 per share tax benefit for the change in life insurance holding periods that was recorded in the second quarter.

Now let's go through the results for each of our segments beginning with our 2 California utilities on Slide 5. At San Diego Gas & Electric, earnings for the fourth quarter were $110 million, down from $158 million in the year-ago quarter. The decrease is primarily due to the CPUC's approval for the recovery of 18 months of wildfire insurance premiums in the fourth quarter of 2011.

For the year, SDG&E earnings increased to $484 million from $431 million in 2011. This increase was driven primarily by higher earnings from the Sunrise Powerlink and a reduction in tax expense as a result of the change in tax treatment for certain repair expenditures.

Moving now to Southern California Gas. Fourth quarter 2012 earnings were $99 million compared to $79 million in the fourth quarter of 2011. The increase was driven largely by a lower effective tax rate in 2012 due to a change in the way gas pipeline repair costs are handled for tax purposes. Under IRS guidance, certain repair expenditures that are capitalized for book accounting may be deducted from taxable income when incurred, creating a tax benefit under regulatory accounting. This is similar to the issue we discussed last quarter related to SDG&E.

Full year 2012 SoCalGas earnings were $289 million, up slightly from $287 million last year. Please keep in mind that until we receive final decisions on our general rate cases, we continue to record revenues based upon 2011 authorized levels, plus an adjustment for recovery of incremental wildfire insurance premiums at SDG&E based on CPUC's decisions for recovery of prior year's increased premiums. In the quarter the general rate cases are decided, we'll record the cumulative impact of the decision from January 1, 2012.

Now please go to Slide 6. At our South American Utilities, earnings were $46 million in the fourth quarter of 2012 compared to $39 million in the year-ago period. Earnings in the fourth quarter of 2011 were negatively impacted by a $6 million nonoperating foreign currency exchange loss related to U.S. dollars that were held in Chile at the time.

Full year earnings for South American Utilities in 2012 were $164 million compared to adjusted earnings of $148 million in 2011. The 2011 adjusted earnings excluded the $277 million remeasurement gain that was due to our acquisition of additional ownership in these companies. The increase in adjusted full year earnings is primarily due to this increased ownership level.

Our South American Utilities continue to perform very well and grow at levels that exceed what you typically see for U.S. utilities. For the year, our business in Chile and Peru grew their customer base by a combined 3% and electricity sales by a combined 6%, and we expect those trends to continue.

Fourth quarter 2012 earnings for the Sempra Mexico segment were $35 million compared with $80 million in the same period last year. Essentially, all of the decrease was due to a pricing change in an intercompany agreement with Sempra Natural Gas, which became effective in January of 2012. The reduction in Sempra Mexico's quarterly earnings is offset by an improvement in Sempra Natural Gas's performance for the fourth quarter of 2012. The new agreement is a market-based contract where Sempra Mexico records revenues for the sale of the power generated by the Mexicali power plant and pays fees to Sempra Natural Gas for energy management services and for the purchase of fuel.

Full year 2012 earnings at Sempra Mexico were $157 million, down from $192 million last year. The decrease was primarily a result of the intercompany agreement change that I just discussed.

Now please turn to Slide 7. Moving on to Sempra U.S. Gas & Power, the Natural Gas segment earned $19 million in the fourth quarter of 2012. Excluding the $25 million benefit of a receipt related to the REX sale, the segment lost $6 million. The cash received from Kinder Morgan reimbursed us for an economic loss that was resulting from the change in tax depreciation that was triggered by the sale of their 50% interest in the pipeline. The $6 million loss in the fourth quarter compares to a loss of $36 million in the fourth quarter of last year. The improvement in results is mainly due to the change in the intercompany agreement for the Mexicali plant that I discussed in our Sempra Mexico results, offset in part by lower earnings from our U.S. LNG marketing operations.

For the year, Natural Gas lost $27 million in 2012, excluding the impact from REX. This compares to earnings of $115 million in 2011. The decrease is due primarily to the expiration of the CDWR contract in September 2011. You will also recall that Cameron LNG is now part of this segment, and lower gas prices, coupled with the development costs for the liquefaction facility, are affecting our U.S. LNG business, and therefore, the Natural Gas segment.

The Renewables segment generated earnings of $14 million in the fourth quarter of 2012, up from a loss of $2 million in the same period last year. The increase was driven by the addition of new solar and wind assets. Earnings for the year in Renewables were $61 million compared to $7 million last year, also driven by the addition of solar and wind assets.

Now let's move to Slide 8. As Debbie mentioned at the outset, we wanted to give you more color on our outlook for 2013 and beyond. We're very confident in our long-term growth prospects. In fact, we believe that the long-term growth rate of 6% to 8% that we announced to you last year is very achievable with just the expected growth of our core businesses and the projects we recently just announced in Mexico. In fact, as we look at our plan through 2017, we see that about 90% of our projected earnings for that year are either regulated or contracted, giving us excellent visibility into our future prospects.

Additionally, we have many new development activities in each of our businesses. These are highlighted in a blue box on that slide, and these should allow us to exceed the 6% to 8% growth target over time. We would expect to have a CAGR through 2017 of 8% to 10%, assuming we are successful on just a few of these additional development opportunities. And looking forward to 2019, which should be the first full year of operations for all 3 trains of liquefaction at Cameron, we would expect our growth rate from today through 2019 to be closer to 9% to 11% annually, assuming the same success rate on the development projects. We're pleased with our great growth prospects, supported by long-term contracts and regulated assets.

Now please go to Slide 9. We also felt it's important provide you with our business unit guidance for 2013, which we have not traditionally done on this call. The table on Slide 9 provides the buildup by business unit of our new guidance range of $4.30 to $4.80 per share. The earnings ranges for our 2 California utilities include our estimate of the 2012 retroactive impact of our rate cases that will be booked in the quarter final decisions are reached. Once we have the final decisions, we will provide you with a more definitive view of the impact.

Our U.S. Gas & Power forecast includes the benefit from the gain on the sale of Mesquite. It's important to note that we also accelerated the completion of 2 large solar projects in 2012, which resulted in somewhat downward effect on our 2013 guidance for this unit. The international business unit range includes the dilutive impact of our reduced equity ownership in Sempra Mexico and the parent line includes the tax expense associated with our repatriation strategy, which is supporting our higher dividend.

With that, let me hand things back to Debbie.

Debra L. Reed

Thanks, Joe. Now I'd like to provide you updates on our businesses, beginning with the key regulatory proceedings at SDG&E and SoCalGas. In December of last year, we received a final decision from the CPUC in the cost of capital proceeding. That decision granted ROEs of 10.3% and 10.1% at SDG&E and SoCalGas, respectively. Importantly, the decision also granted increased equity ratios of 52% for both utilities.

Additionally, a proposed decision was issued last week in the second phase of this proceeding, which calls for a continuation of the current methodology of the triggering mechanism for a change in the cost of capital. The PD also calls for SoCalGas to now use the same triggering mechanism as the other IOUs in California, which is based upon a utility bond index. A final decision on the second phase of the cost of capital proceeding should be issued in the first half of this year.

We are awaiting a proposed and final decision on our 2 general rate cases. And based on recent communications with the assigned commissioner, we understand there have been some resource constraints at the CPUC, and we should expect the final decision in the first half of this year. We continue to record revenues and manage our businesses based upon 2011 authorized levels, plus an adjustment for recovery of incremental wildfire insurance premiums at SDG&E. And as Joe noted, we will record the entire retroactive impact of the final decisions, including the piece related to 2012, in the quarter in which a final decision is reached.

Moving to SONGS. In the fourth quarter of last year, Southern California Edison, the majority owner and operator of the plant, submitted a plan to the Nuclear Regulatory Commission to restart and operate Unit 2 of the facility at a reduced power level for a period of 5 months and then shut it down for further inspection. The NRC has not set out a detailed timeline yet, and we have no assurance about the exact length of time it will take the NRC to review that plan.

The CPUC has also issued an order instituting investigation, or OII, that will determine whether some or all of the revenue requirements for the facility should be removed from rates. This OII has been split into multiple phases and is likely to take several years to be completely resolved. As of the end of last year, SDG&E's total investment in SONGS was $512 million, which includes rate base of $275 million. The remainder of the investment is made of CWIP and nuclear fuels. Additionally, SDG&E recorded replacement power costs of $77 million in 2012.

On our wildfire costs recovery proceeding, the CPUC issued a ruling late last year that essentially kicked the can down the road on this issue. The commission allowed our utilities to maintain their memo account, tracking fire-related costs. So that we may file future applications requesting recovery subject to reasonableness review. We continue to believe that it is probable that we will be permitted to recover a substantial portion of the costs related to wildfire claims through customer rates.

In regards to our Pipeline Safety Enhancement Plan, or PSEP, all briefs have been filed, and we expect a final decision on our long-term plan this year. As you will recall, we received approval for a memorandum account last year to book costs related to PSEP, pending the final approval of the plan.

Last week, we filed our new transmission formula rate case with FERC. This filing is substantially similar to our current formula rate and ensures that SDG&E earns no more or no less than its actual cost of service, including unauthorized ROE. We have requested an ROE of 11.3% as compared to the current ROE of 11.35%. The requested ROE consists of a base ROE of 10.3%, based on the median of a western proxy group, plus 50 basis points for our membership in the Cal-ISO, plus an additional 50 basis points for business risks unique to SDG&E. The new rate should be effective on September 1 of this year.

Now please turn to Slide 11. Moving now to U.S. Gas & Power. In December of last year, we announced that the cities of Los Angeles and Burbank had approved a 20-year agreement to purchase 250 megawatts of solar power from our proposed Copper Mountain Solar 3 project in Nevada. Construction on this facility should be completed by late 2015.

On our pending sale of a 625-megawatt block of the Mesquite Power Plant, we have received the necessary approvals and believe the transaction should close shortly. As I mentioned, last quarter, the sales price was about $600 per kilowatt and should result in an after tax gain of about $50 million that will be reflected in our first quarter 2013 earnings. We continue to make progress on contracting and -- the remaining capacity and are working diligently to find ways to maximize the value of that asset.

Before moving on, let me give you an update on our liquefaction project at Cameron. In December, we filed our formal FERC application, making us one of only 4 terminals to have done so. The FERC permit process should take about 9 to 10 months from our submission date, and I would expect that we will be granted our FERC permit later this year. We also sent out bid packages to EPC contractors earlier this year and expect to get those bids back and select the contractor in the second half of 2013.

The DOE commissioned a study that was released last December and had a very positive outlook on the prospects for LNG export. Both the comment and response periods for the study have expired, and DOE should now be in a position to review applications and grant permits. While we do not know specifically how DOE will handle the permit applications that have been filed, we are confident that ours is strongly positioned to be among the first to be reviewed and granted.

As I mentioned last quarter, the delay in issuing the results of this report should not have a significant impact on our timeline, and we continue to expect to be ready to start construction on the facility early next year. The facility is now being designed to a nameplate capacity of 13.5 million tonnes per annum, providing an export potential of 12 million tonnes per annum.

This increased capacity has raised our incremental construction cost estimate to $6 billion to $7 billion. The total costs of the facility, including the cost of our original facility, plus interest during construction, financing costs and required reserves, is estimated to be $9 billion to $10 billion.

We now also expect the earnings contribution from the project to be higher than our previous forecast. Sempra's joint venture partners have begun to announce sales to customers of LNG from the Cameron facility, and we now expect the terminal to begin operations in the second half of 2017 with all 3 trains completed by the end of 2018.

Now let's move to the final slide. 2012 was a very good year for our company, but I'm really excited about our future potential to provide strong growth and earnings from very tangible projects. We are confident that we have the right strategy to achieve long-term earnings per share growth of 6% to 8%, with future opportunities that could enhance our growth profile even further. We believe that this profile, in combination with our growing dividend, makes Sempra a very compelling investment opportunity now and into the future.

With that, I'll stop and open up the call to take any questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Faisel Khan with Citi.

Faisel Khan - Citigroup Inc, Research Division

A couple of -- 2 questions for me and I'll get back in the queue. The first one, if you could just repeat the numbers you had on the liquefaction facility. I think your original -- if you go back to what your original estimates were and then what your new estimates were and what the increases are from the original estimate to where you are today, and I understand the higher earnings contribution from the project now that it's a higher cost project. Then I have a follow-up question for that.

Debra L. Reed

Sure. Let me just remind you that when we talked about the plant and the cost of that the plant previously, we did not include any of the interest or the cost that's associated from putting our assets in. So the cost that we were referring to previously was a $6 billion cost, and that was really the incremental of the cost of the facility without the financing cost and -- or capitalized interest cost. That cost now is estimated to be between $6 billion to $7 billion. And the reason for that is that in order to give a steady supply of export at 12 mtpa, our partners wanted the facility sized to 13.5 mtpa so that their actual export could be at that level of 12. And so we upsized the facility on the nameplate basis. The license still remains as a 12 mtpa export, but that gives us the ability to have downtime and still be able to export that on an ongoing basis.

Faisel Khan - Citigroup Inc, Research Division

Okay, got it. And then just -- I know you guys are limited on what you can say on the Mexican IPO. But if I can ask in terms of the strategic rationale behind pursuing the IPO, I think you mentioned was you wanted foreign ownership of these assets, given where they sit. Can you go into a little bit more granularity on that? I mean, is it the country risk that is an issue, or is it that you're growing the assets in that country and so you need to raise equity to fund the capital expansion in that particular area?

Debra L. Reed

Yes. Faisel, due to securities rules, we are not able to talk about that. What I will say is that we are very pleased with our Mexican businesses and the performance of our Mexican businesses. But I cannot talk anything about the offering at all or the rationale behind it, yes.

Operator

We'll take our next question from Stephen Byrd with Morgan Stanley.

Stephen Byrd - Morgan Stanley, Research Division

I just wanted to take a look at Slide 8 and make sure I understood the growth outlook, and thanks very much for the clarity that you provided here. It is very helpful. As you think about the baseline upon which you're growing EPS, as you noted in the remarks, you're excluding the earnings benefit from the sort of 2012 adjustment that shows up in 2013. Would that also exclude Mesquite? And I guess what I'm trying to better understand is what would that range be upon which you are projected to grow your EPS? Can you just provide a little bit further color on that?

Debra L. Reed

Yes. The base that we're using, the only exclusion for 2013 from that base would be the retroactive effect of the rate case, and we're not going to quantify that amount. But if you looked at our 2013 estimate, the only exclusion that we're taking out of that for our growth projection would be the 2012 retro effect of the rate case.

Stephen Byrd - Morgan Stanley, Research Division

Okay, understood. So the -- in the $430 million to $480 million it does have in it the retroactive impact and Mesquite as well, or did I get that wrong on Mesquite?

Debra L. Reed

Yes, that has -- it has -- excuse me, I'm sorry. It has both the retroactive impact of the rate case in Mesquite in the $430 million to $480 million. And the range is wider than we normally would give because we have 2 years of rate case effects coming in to 2013 now because of the delay. Joe, I think you want to added a little a bit of color.

Joseph A. Householder

Yes. Stephen, you're right. Mesquite is in there and that's sort of a onetime thing. But we also have some onetime costs in there in the parent segment related to the transaction that we were talking about a moment ago, with our reduction of our interest in Mexico. So it helps offset that. It's not that big but...

Stephen Byrd - Morgan Stanley, Research Division

Okay, great. And just if I could on SONGS. I imagine, again, here, unfortunately, you probably are limited as to what you're really able to say. But I was just curious if you had any -- as you've looked at the procurement situation and the allegations regarding procurement that are being discussed, if you had any further color on the risk inherent in some of these allegations that procurement was done improperly? Or anything further you could say on just the situation with Mitsubishi?

Debra L. Reed

Well, we have had no access to any of the reports that have been published in the media. So I -- we don't have any special insight as to what the allegations are at all. What I can say is that when we look at the facility and we look at the going-forward process, that there's Mitsubishi coverage, liability coverage, and Edison has filed disputing the fact that it should be capped. And so that will be an issue as we go forward as to how much liability coverage Mitsubishi -- or warranty coverage Mitsubishi would have. And then we've also made a filing at NEIL for insurance. And NEIL has previously covered and it is part of the coverage with NEIL to cover replacement power cost under these kind of situations. So I think this will be kind of a prolonged process of trying to get to the root issues. Our focus is to ensure that when the facility is restarted, when Unit 2 is restarted, that it's done so safely. And that is the most critical aspect to us is to ensure that our partner, who is the operator, Southern California Edison, pays close attention to the safety of the restart of that facility. And I think the rest of this will play out over a few years.

Operator

We'll hear next from Neel Mitra with Tudor, Pickering.

Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

A question on liquefaction. In your slides now, you're saying that it'll be online in the second half of '17. Does that mean that we should, I guess, subtract out the small portion that you've included in the '16 guidance from the last Analyst Day?

Debra L. Reed

Yes. When we looked at -- I think last year, we had something like $20 million or $30 million in for liquefaction. We have like one month's worth of liquefaction, so it was a very small amount in 2016. And now we're looking at it coming on -- it starting in the middle of 2017 and then all 3 trains being completed by the end of 2018.

Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Okay, great. And second question, just on the parent expense. It looks like in your '13 guidance, it's up about $40 million from the midpoint versus the last Analyst Day. What's changed on that?

Debra L. Reed

Yes. I'll have Joe go through that with you.

Joseph A. Householder

So a couple of things are occurring. As I just mentioned when I -- when Stephen was asking his question, we do have some onetime costs in there related to the transaction with Mexico, and then we have a bit higher interest expense. We moved some things between a couple of the segments, but it's mostly that first item. So it'll be kind of a one -- mostly a onetime issue, and then it won't be the same going forward.

Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

And then it'll come back to kind of what you've guided to in the last presentation?

Joseph A. Householder

Yes.

Operator

We'll take our next question from Michael Lapides with Goldman Sachs.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Can you talk a little bit about capital spending levels or expectations at the utilities, both of them, SDG&E and SoCalGas, going forward 2013 and beyond, just kind of what do you see directionally may have changed since your Analyst Day and just kind of how you're thinking about whether CapEx from here grows from 2012 levels, kind of flatlines, kind of declines, just big picture?

Debra L. Reed

Yes, if you look at the big picture of CapEx that -- what we gave you at last Analyst Meeting is looking pretty good for the 2 utilities, that we spent about $1.2 billion at SDG&E last year and we spent about $700 million or so at SoCalGas last year. And our numbers for 2013 are, at SoCalGas, higher than that because we are now implementing the smart meter program, and we expect to get a decision on the PSEP. And so on the long term at SoCalGas, we gave you numbers last year of $1 billion to $1.2 billion over the 5-year period, those look like pretty good numbers over the 5-year period. And at SDG&E, we gave you numbers last year of $1 billion to -- of about $1 billion to $1.1 billion, which looks to be pretty good over the 5-year period at SDG&E.

Joseph A. Householder

Yes. This is Joe, Michael. Do you see on Slide 8? It says $14.6 billion capital program. But not to upfront the conference because we want to have something to talk about there, but roughly the same percentage is going to be spent in the California utilities as before.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Got it, okay. And I want to make sure I just understand the accounting for how the rate case -- the delay in the rate case impacts 2013 and whether that has any impact beyond 2013.

Debra L. Reed

Yes. The -- let me just try to go through that and then I have Joe add anything to it. But basically, the only thing that was recorded in 2012 was an increase with the expected wildfire recovery at SDG&E, because we had been granted that numerous times by the commission. And so that was recorded as estimated additional revenues in 2012. Then in 2013, we would record the retro effect of the true-up of the revenue requirement for 2012 in the quarter which we get a decision in 2013, and then we would look at the 2013 amount of retro for the beginning of this year and then record that. And then from that point on, we would record the 2013 revenue requirement that we actually get, and there would not be any other effect in that -- in 2014 and beyond, other than we get attrition. And whatever the attrition mechanism is in 2014, the revenue requirement would go up by that attrition mechanism. And so we'd be back to more of a normal basis. I don't know. Joe, is there any...

Joseph A. Householder

No. No, that's correct.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

And then final item, how are you thinking now about growth on the U.S. Gas & Power business, meaning you've signed up some of the new contracts on the solar side? Just curious for your views on how much incremental solar growth, how big you want that business to be, and what your thinking is on both wind and gas-fired generation?

Debra L. Reed

Well, we're very excited about the opportunity for that business, especially integrated as the Cameron LNG comes on and some of the other assets that we have that we think will have some uplift with that. So let me have Mark kind of go through that a little bit more detail.

Mark A. Snell

Okay, thanks. Well, look, I think what -- obviously, the big growth engine is going to be LNG. That's the thing that's going to really grow the U.S. Gas & Power business. But until that comes online, I mean, we do expect to -- we've set a goal of about 1,200 megawatts of renewables. We're at about 842 now, and we would expect to reach that goal. We have a lot of projects under development. I think they all look pretty good. That business I think -- look, it's definitely been hurt by lower gas prices, and it's -- and lower power prices. But I think we've taken the appropriate steps to mitigate those realities, and I think you're going to see good growth in that business, especially as LNG comes on.

Operator

We'll take our next question from Mark Barnett with Morningstar.

Mark Barnett - Morningstar Inc., Research Division

A couple of quick questions, I guess maybe be a follow on to Michael's question about U.S. Gas & Power. I know with the PTC extension, does that kind of increase your appetite for maybe some incremental development outside of what you've talked about explicitly, or maybe some additional M&A in that area?

Mark A. Snell

Well, Mark, it's -- I mean, obviously, it was -- it's a good thing. We have to be careful because the projects have to start in 2013. And unfortunately, the industry as a whole wasn't anticipating the extension, so we've got some catching up to do. But I do think it might lend itself to another wind project or 2.

Mark Barnett - Morningstar Inc., Research Division

Okay. And I guess now -- like a quick question on the equity offerings, not about the offering itself, I guess, but will the kind of -- the 15% to 20%, will that change kind of your debt financing strategy significantly for this current round of infrastructure projects?

Debra L. Reed

We just really can't talk about anything that -- relating to any changes in the business as a result of this. So I just want to be very religious in following the securities rules, and I'm getting the signal from our attorneys that we can't answer the question, so.

Mark Barnett - Morningstar Inc., Research Division

I understand. I understand. Well, maybe you can -- this one might not cross any line. Is there a potential to maybe replicate that elsewhere in South -- in your South American businesses. Might that be something to consider, given you mentioned some sort of larger projects down the line?

Debra L. Reed

Yes. I mean we like -- we said previously in the Analyst Meeting, we like the structure that we have in Peru, where we have about 20% local ownership. And we think it's good to have debt and equity capital in the countries where we're doing business. We think that's a very good model. And so we would look at that in Chile. We would look at that anywhere we have foreign assets which we've already done really in Peru. So Chile would be the next area where we would look at that potentially.

Operator

We'll hear next from Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

Just a quick -- a few quick questions. On the LNG marketing operations that negatively impacted the fourth quarter, what was that, and how much was that?

Debra L. Reed

I'll have Joe talk about it. But a lot of this has to do with the timing of cargoes that are necessary to maintain Cameron in its cold state and how those get timed in. So, Joe, do you want to?

Joseph A. Householder

Sure. Paul, I think last year, if you looked at last year's slides, we said there had been some like $18 million of income we made from LNG marketing activities that wouldn't recur, and there's various things as cargo. But natural gas prices slightly impact it. Some higher costs around the liquefaction development cost impact it. But we don't give detail at the segment level even, and particularly at the LNG, and we said last year we weren't going to give more details at the LNG level. But it's an operation that is in this transition, where it's moving from an asset to one that's really going to drive the business. And the size of the Natural Gas segment is going to be close to the size of our International business or SoCalGas. So we're looking forward.

Paul Patterson - Glenrock Associates LLC

So it's kind of a timing issue and not something that we should be [indiscernible].

Joseph A. Householder

It's a timing -- yes. It's really -- it was mostly a timing issue between years, making more in one year and less in the other.

Paul Patterson - Glenrock Associates LLC

Okay. And then in the balance sheet, the sundry items. I asked about this in the third quarter, and again, it seems like it's jumped a bit here in the fourth. And I'm just wondering what was it that's making it grow by about $100-plus million. And did that impact EPS, whatever that item was or items were?

Debra L. Reed

Okay. I'm going to have Trevor, who is looking at that right now, see if he can give you an answer right now. If not, we'll have someone follow up with you after the call. He's looking.

Paul Patterson - Glenrock Associates LLC

While he's looking at that, yes, maybe it's the Rabbi Trust or something. But while he was looking at that, I just was wondering on the LNG, just to clarify this, you guys are spending more, you expect to have higher earnings, there's some change in the scheduling it sounds like, but basically though, the ROI we shouldn't think of being materially changed, is that right? The return on investment with this increase in comps?

Debra L. Reed

Yes. I said the ROI it should -- you should assume it's within the same type of range as we've talked before. I mean, we're looking -- just to give you kind of a general range, we're looking at when all 3 trains are up and operational, in the range of $300 million to $350 million depending -- annually of earnings, depending on what the actual cost of the facility ends up being.

Mark A. Snell

Paul, this is Mark. If you'll recall, last year, I -- at a very early preliminary stage, we said that we would expect earnings of about $300 million. That's now changed to $300 million to $350 million. But I think the most important thing to realize is the additional cost for expansion of the facility is based on, A, number one, better estimates of what it's going to cost. But the expansion of the facility, to be able to operate constantly at 12 million metric tonnes per annum, that was really a decision of our partners. And so they're asking for us to make these modifications in our original thinking and, obviously, we'll -- are paying for those decisions. So this isn't something that we just kind of came up with on our own. This is in collaboration with working with our customers and partners in the facility.

Paul Patterson - Glenrock Associates LLC

Okay. And then just on the non-FTA, Christopher Smith, the Deputy DOE guy, made some comments at NARUC that have been sort of -- that I guess have picked up some coverage and what have you in terms of more caution, et cetera, with respect to non-FTA countries apparently. Any -- is that sort of figured into your estimates in terms of approvals and everything? I mean, you guys went over that in your prepared remarks. But I mean do you see any change in this, or is this pretty much in line with what your thinking was?

Debra L. Reed

Yes. I mean -- I think when you look at the DOE report that came out, when you look at the fact that you've had major media all be in support of the non-FTA and then there was recently a meeting with the Prime Minister of Japan with the President who urged the President to move quickly to allow the export for the benefit of Japan, I think everything -- that you're going to always hear some other side of that. But I think the momentum is largely moving in the direction of approval. And I'll ask Mark because he's actually been meeting with some of the elected officials in Louisiana who are very supportive of the project, and I'll let Mark kind of fill you in on what he's hearing.

Mark A. Snell

Look, I think all of the news -- it's -- obviously, there's always -- there's some detractors, but I think most of them have been identified as having some very specific self-interest. I think the vast majority of the reports that are coming out and the people that we talked to are supportive of the -- of exports. But I think what's most important and direct to your question, we expect to get the FTA approval this year. We actually expect to hopefully to get it in the first half of the year, but irrespective of when we get it this year, it isn't changing our schedule at all. We're moving forward on our plans. We've -- we're -- it's really not affecting our timing any -- as long as we get it this year, we'll be fine. So I think that's the important thing is it's not affecting our timing, and we very much expect to get it this year.

Paul Patterson - Glenrock Associates LLC

Okay. And the sundry items, did you guys come up with an answer yet or?

Debra L. Reed

Yes, yes.

Joseph A. Householder

Yes, Paul, we have an answer. I like your detail orientation. For that $150 million increase, only about $31 million of it is really P&L related, which is, as you mentioned, the Rabbi Trust that we talked about last time, which is going up in value as the stock market increases. We also contributed some funds to that, which was about $40 million. And then there was about $20 million of line to credit fees that got put in there, and those get amortized over time. And then we had sort of a gross up of some workers' comp activity, where we put something into that account and also put a liability, kind of grossing up the balance sheet. But really, the only thing that went through the P&L is about $31 million of earnings from the Rabbi Trust.

Paul Patterson - Glenrock Associates LLC

Is that pretax? Is that after tax?

Joseph A. Householder

That's a pretax number.

Paul Patterson - Glenrock Associates LLC

That's a pre-tax number.

Operator

We'll take our next question from Ashar Khan with Visium.

Ashar Khan

Debbie, going back to your remarks, pretty comprehensive in terms of questions. Once we get the rate case decision, can we expect then in the following quarter that you tighten the guidance for the year?

Debra L. Reed

Well, the -- what we would plan to do is once we get that decision, look at it, and we would most likely tighten the guidance range at that time, once we've had the chance to have a final decision and analyze it. I think that, yes, that's where we're headed right now is to be able to do that.

Operator

We'll hear next from Michael Goldenberg with Luminus Management.

Michael Goldenberg - Luminus Management, LLC

Just to clarify, on the LNG, you're saying ROI will be the same. And it's going to be $300 million to $350 million of earnings, and that's kind of pro rata to what it would have been at 12 and then going to 13 7, so the math works. I just want to confirm that all those numbers are correct.

Mark A. Snell

Yes. It's more related to the cost than it is to the size. But yes, you're on the right track.

Michael Goldenberg - Luminus Management, LLC

Okay. And then one question on utilities. The benefit from putting 2012 rate case into 2013, how much is that?

Debra L. Reed

Yes. We're not going to give that type of level of detail. It's in our guidance, and we've done our estimate in our guidance, and we'll let you do your own estimate.

Michael Goldenberg - Luminus Management, LLC

Is there anyway to glean from in 2012 how much the fact that you didn't get the rate case impacted earnings? Is that maybe a question you can answer or?

Debra L. Reed

No. I really can't go there. I think you saw our 2012 results. You saw what we had told you in 2012, originally. And if you want to come up with an estimate, I think you can -- you have the kind of the numbers that we have to come up with an estimate.

Operator

[Operator Instructions] We'll take a follow-up question from Faisel Khan from Citi.

Faisel Khan - Citigroup Inc, Research Division

Just a few more questions. Do you guys have a CapEx number for 2013? It seems, directionally, looking at the projects that you guys built out last year and the year before, it looks like that number is coming down this year. But if you could give us some details on that, that'd be great.

Debra L. Reed

I have -- I don't know that I have that now to give. We will definitely give you that at the Analyst Meeting when we do that later this year. But it was pretty -- all I can say is it's pretty consistent...

Joseph A. Householder

It'll be very consistent with last year.

Debra L. Reed

Yes, with last year and last year's plan that we gave you. So nothing that is a significant change to last year -- last year's plan.

Faisel Khan - Citigroup Inc, Research Division

So even with the powering up of Sunrise and I guess some of the reduction in capital in Renewables, you still expect the CapEx to remain...

Debra L. Reed

Yes, let me just -- remember, at SoCalGas is where we're really starting to spend some money now. And then in Mexico, we just received the $1 billion worth of the pipeline, the 2 pipelines and then another project in the JV with Pemex. And so the total CapEx is not occurring so much in the Renewables space, but that's been now -- had a move to our utility at SoCalGas and then our business in Mexico.

Faisel Khan - Citigroup Inc, Research Division

Okay, understood. And then for U.S. Gas & Power, what kind of assumptions are you guys using for the remaining component of your generation portfolio in terms of capacity factors and spark spreads?

Mark A. Snell

Well, again, we just use the forward curve on gas. And I don't know that we've ever disclosed what the capacity factors are, but it's a nominal effect on earnings.

Debra L. Reed

And just remember, not only do we have the 625-megawatt block that sold, but then we've also sold another block starting in 2015. That's 241 megawatts. So we got down to where we own a very small portion...

Mark A. Snell

Right.

Debra L. Reed

Of that facility. And then it hedged, over the next couple of years, close to that 241 megawatts that we sold-forward starting in 2015 for 25 years. So there's not as much. We've done what we told you we were going to do, and we've reduced significantly any of our market exposure to the Mesquite Power Plant, so.

Faisel Khan - Citigroup Inc, Research Division

Okay, got it. And then just -- there's a project that it looks like it's trying to move forward to build an oil pipeline from the Permian Basin into Los Angeles, and some of that traverses along a pipeline that you guys bought from Questar. I was wondering if you guys had any interest, or are you looking at participating in something along those lines or in a project like that?

Debra L. Reed

Well, I think it's funny because we bought that project from Questar and converted it to a natural gas pipeline because we needed it to reinforce our system. I mean, we have not done anything actively on that. We are aware of the project. We'd have to look at the provisions of our rights of way and all of those issues to see if there was anything that we could do in partnership. But it hasn't been something that we've been focused on greatly.

Faisel Khan - Citigroup Inc, Research Division

Okay. And then last question for me, on the cash flow statement. It looks like the last 2 years, you had a working capital drain, $225 million in '11 and $630 million in '12. And I was wondering, does that reverse, or is there some sort of permanent reduction in working capital that's a drag on cash flows?

Debra L. Reed

Okay. I'm going to turn that over to Joe and Trevor to see the reconciliation on the cash flows.

Joseph A. Householder

Trevor, you want to answer that?

Trevor I. Mihalik

Yes. Faisel, your question specifically relates to?

Faisel Khan - Citigroup Inc, Research Division

Yes. So in 2012, the negative working capital outflows of $630 million, and then in '11, you also had a working capital outflow of $224 million. So I'm just trying to match operating cash flow.

Trevor I. Mihalik

Right. Primarily those -- there's -- those working capital outflows are the reg balancing accounts, as well as the wildfire payments that we received in 2012. That's almost $400 million that came in. So there's an adjustment there.

Joseph A. Householder

Yes. Very significant portion of it, Faisel, is regulatory balancing account changes coming in and out.

Operator

And at this time, I'd like to turn the call back over to Ms. Debbie Reed for closing remarks.

Debra L. Reed

Well, thank you, all, for joining us today. We -- if you have any follow-up questions, whatsoever, please feel free to call Rick or Victor. And thank you very much, and we will see you at an analyst conference soon to be scheduled. Thank you.

Operator

This does conclude today's conference. We thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Sempra Energy Management Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts