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Sempra Energy (NYSE:SRE)

Q4 2011 Earnings Call

February 28, 2012 1:00 pm ET

Executives

Steven D. Davis - Vice President of Investor Relations

Debra L. Reed - Chief Executive Officer and Director

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

Mark A. Snell - President

Analysts

Stephen Byrd - Morgan Stanley, Research Division

Leslie Rich - J.P. Morgan Asset Management, Inc.

Faisel Khan - Citigroup Inc, Research Division

Michael Goldenberg - Luminus Management, LLC

Greg Gordon - ISI Group Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Ashar Khan

Mark Barnett - Morningstar Inc., Research Division

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

Vedula Murti

Naaz Khumawala - BofA Merrill Lynch, Research Division

Stephen Huang

Michael S. Worms - BMO Capital Markets U.S.

Neil Stein

Unknown Analyst

Chris Shelton

Operator

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

Steven D. Davis

Thank you, and good morning. I’m Steve Davis, Vice President of Investor Relations and Corporate Communications. This morning, we'll be discussing Sempra Energy's fourth quarter and full year 2011 financial results. A live webcast of 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, including Debbie Reed, Chief Executive Officer; Mark Snell, President; Joe Householder, Executive Vice President and Chief Financial Officer; and Bruce Folkmann, Acting Controller.

You'll note that Slide 2 contains our Safe Harbor statement. Please remember that this call contains forward-looking statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance.

As you know, they involve risks, uncertainties and assumptions, so future results may differ materially from those expressed on our call. These risks, uncertainties and assumptions are described at the bottom of today’s press release and are further discussed in the company’s reports filed with the Securities and Exchange Commission. It's important to note that all the earnings per share amounts in our presentation are shown on a diluted basis, and that we'll also be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and the Table A of the financial tables in our fourth quarter and full year 2011 earnings release for reconciliation to GAAP measures.

With that, I'll turn it over to Debbie, who will begin with Slide 3.

Debra L. Reed

Thanks, Steve, and thanks to all of you for joining us today. On today's call, I'd like to accomplish several things. First, we'll review our fourth quarter and year-end financial results. We'll then talk about our dividend increase and I'll give you an operational update on our businesses.

Now to the financial results. Earlier this morning, we reported fourth quarter earnings of $292 million or $1.21 per share compared with $280 million or $1.15 in the same period last year. For the full year 2011, we recorded earnings of approximately $1.4 billion or $5.62 per share compared with 2010 earnings of $739 million or $2.98 per share. On an adjusted basis, earnings for the full year 2011 were $1.1 billion, which excludes a gain of $277 million that we reported in the second quarter to reflect the write up in value of our investments in Chile and Peru. Adjusted earnings per share for the full year 2011 was $4.47 compared to $3.93 per share of adjusted earnings in 2010, which is an increase of 14%.

I'm very pleased with our strong results in both the fourth quarter and for the year. Each of our businesses performed extremely well, enabling us to beat the upper end of our adjusted earnings per share guidance for 2011 which was $4.30.

Now regarding the dividend. I'd like to mention that earlier this morning, we announced that our Board of Directors have authorized a 25% increase in our quarterly dividend, which brings the annualized dividend to $2.40 per share. You may recall that last February, we also increased the dividend by more than 20%. The strong and growing operating cash flows from our utility and contracted infrastructure businesses, we expect to continue to grow the dividend while reinvesting capital to achieve above average long-term earnings growth.

Now let me hand it over to Joe so he can take you through some of the details of the financial results, beginning with Slide 4.

Joseph A. Householder

Thank you, Debbie. San Diego Gas & Electric earnings for the fourth quarter were $158 million, up from $105 million in the year-ago quarter. The fourth quarter of 2011 included $50 million of earnings related to increased wildfire insurance premium recovery for an 18-month period and $13 million of higher equity AFUDC earnings compared to the year-ago period.

I'd like to point out that in December of both 2010 and 2011, CPUC approved SDG&E's request to recover the increased cost of wildfire insurance premiums. SDG&E has one additional request pending to recover increased wildfire insurance premiums, which we expect the commission to approve in the second quarter. $15 million of the benefit we recorded in the fourth quarter of 2011 reflects this anticipated cost recovery. Going forward, the anticipated recovery of wildfire insurance is contained in SDG&E's 2012 general rate case.

SDG&E also expects to recover any costs incurred that are associated with the 2007 wildfires in excess of amounts recovered from its insurance coverage and other responsible third parties, as we've disclosed in our 10-Ks and 10-Qs. As of the end of 2011, SDG&E has booked a regulatory assets of $594 million associated with its anticipated recovery.

Full-year 2011 earnings increased to $431 million from $369 million last year. The increase of $62 million was due primarily to $31 million of higher equity AFUDC earnings, net of higher interest expense and $28 million for higher revenues related to wildfire insurance premiums, net of the higher insurance expense.

Moving to Southern California Gas. Fourth quarter 2011 earnings were $79 million compared to $74 million in the fourth quarter of 2010. For the full year 2011, earnings for SoCal were $287 million compared to earnings of $286 million in 2010.

Now let's go to Slide 5. Sempra Pipelines & Storage recorded earnings of $70 million in the fourth quarter of 2011 compared with earnings of $39 million in the same quarter of 2010. The increase was due largely to $24 million of higher earnings from our operations in South America through the accretive acquisition we closed in April of last year. For the full year 2011, Sempra Pipelines & Storage recorded earnings of $527 million compared with earnings of $159 million in 2010. Excluding the $277 million gain that was recorded in the second quarter of 2011, related to the acquisition of controlling interest in the operations in Chile and Peru, earnings were $250 million in 2011. The increase from the prior year was primarily due to $55 million from the increased ownership interest in South America, $13 million of higher earnings from the Mexican pipeline assets that we acquired in April 2010 and $10 million from nonoperating foreign exchange effects related mainly to a U.S. dollar-denominated cash balance, previously held in Chile.

Now, please turn to Slide 6. Sempra LNG had earnings of $24 million in the fourth quarter of 2011 compared with earnings of $18 million in the prior year's period. For the full year of 2011, Sempra LNG had earnings of $99 million, up from earnings of $68 million in 2010. The increase for the full year was due primarily to higher earnings from contracted cargoes that were not delivered. Earnings in 2011 also included $18 million in marketing activities that we currently do not expect to recur in 2012.

I'd also like to take a moment here to discuss our contract with the Tangguh partners to supply LNG to our Energía Costa Azul terminal. We entered into this contract in 2004 and the 20-year contract became effective in the second half of 2009. You may recall that the contract permits our counter-party to divert cargoes to other markets in exchange for a fee. Given the wide disparity between the price of natural gas in Asia and the U.S., we have seen a significant increase in the amount of diverted cargoes and a resulting in increasing our earnings. In light of these market conditions, we have amended this contract to provide enhanced value to both parties, including certainty of cargoes for Sempra and additional flexibility for the Tangguh partners. For Sempra, this will result in more consistent earnings from that contract going forward.

With that said, we currently expect 2012 earnings from LNG to be more in line with our prior guidance of $50 million to $70 million, as the benefit of the contract amendment will be offset by lower natural gas prices. Over the longer term, however, we expect earnings from our existing LNG operations to be roughly $65 million to $85 million per year. As you may recall, Sempra LNG will no longer be a reporting segment starting with the results in the first quarter of 2012, and we do not expect to regularly provide earnings guidance for this business going forward.

Now, please move to the next slide. Our generation business recorded a loss of $6 million in the fourth quarter of 2011 compared with earnings of $43 million in the same quarter of 2010. The loss in the fourth quarter of 2011 was due to the exploration of the 10-year contract with the California Department of Water Resources, which expired on September 30, 2011, and also to a mark-to-market loss of $9 million.

For the full year 2011, Sempra Generation recorded earnings of $137 million compared with earnings of $103 million in 2010. The increase in earnings for 2011 was due primarily to an $87 million litigation settlement that negatively impacted 2010 results, and due to the lower earnings from our natural gas plants due primarily to the expiration of the CDWR contract.

Now, please to move Slide 8. Through the end of 2011, we recognized the investment tax credits from our solar business as a tax benefit in the year that the new capacity was placed in service. This method, called the flow-through method, created an even earnings profile for our solar business. Beginning in the first quarter of 2011, we will begin using the deferral method of accounting for these projects. Under this method, the book basis of the asset will be reduced by the amount of the investment tax credit, resulting in lower depreciation and more even ongoing earnings as compared with the flow-through method.

I want to stress that this change in accounting method has no impact on the economics of our solar projects. These projects are contracted for 20-plus years with utility counter-parties. The switch to deferral accounting does, however, result in a decrease of approximately $0.40 per share in 2012 compared with the earnings under the old method. The offset to the lower initial earnings will be lower depreciation and higher earnings in future years under the new method.

Taking into account the use of deferral accounting and considering other changes across our business, we are now expecting our earnings per share to be within the range of $4 to $4.30 per share in 2012. And due to strong business unit growth and performance, we continue to expect Sempra's long-term EPS growth rate to be in the 6% to 8% range.

Now, please go to the next slide. As Debbie mentioned earlier, our Board authorized a 25% increase in our common stock dividend. This takes the dividend to $2.40 per share on an annualized basis, up from the current annualized dividend of $1.92 per share. You may recall that our Board established a target dividend payout ratio of 45% to 50% last year. While we are not changing our long-term target payout ratio, we expect to exceed that level for the next several years, and we do expect to increase the dividend as our earnings grow.

One of the considerations behind the dividend increase relates to the significant amount of earnings from our South American utilities and Mexican businesses, coupled with certain tax position. Historically, we have reinvested those earnings into our international businesses.

Beginning in 2013, we intend to distribute current earnings of about $300 million to the United States from certain of our international subsidiaries. The additional amount of cash tax that we will pay is expected to be very minimal in the near-term but the tax will largely be offset by net operating losses from bonus depreciation and renewable energy tax credits. While the use of these tax assets is a good economic decision, it will reduce earnings by approximately $0.30 per share beginning in 2013 due to additional booked tax expense.

We expect to use of most of the repatriated earnings to repay debt and, to a lesser extent, to support the higher dividend we announced today.

The point that I'd like to leave you with is that we have stable and growing businesses, both in the United States and internationally that produce strong cash flows that can support a higher dividend going forward.

And with that, I'll hand the call back to Debbie.

Debra L. Reed

Thanks, Joe. Now let me update you on some of the key activities within our businesses, starting with our California utility. Last month, hearings concluded in San Diego Gas & Electric's and Southern California Gas Company's general rate case proceedings. The schedule for the rate case, which was issued by the commission late last year, calls for a rate case decisions around March of this year. But now we expect the case to be resolved later than what had been set forth in the original schedule. The commission has yet to issue a revised proceeding scheduled, but opening brief have been schedule for April while reply briefs are due in May. It is important to mention that the revenue requirement established in the rate cases will be retroactive to January 1, 2012. And I'd also note that until a final decision is reached, we'll be recording revenues based on currently authorized levels. In the quarter, in which a final decision is reached, we'll record the retroactive increase in earnings since the beginning of the year.

Moving to some of the major capital projects. At San Diego Gas & Electric, construction of Sunrise Powerlink is now more than 75% complete and we continue to expect that it will be going into service in the second half of this year.

Turning to our Pipeline Safety Enhancement Plan. Last week, Commissioner Florio released a proposed schedule, which calls for hearings during the summer and briefs due in October of this year. We're also waiting for the commission to authorize a memorandum account to track the project cost.

Now, I'd like to take you to Slide 11. On renewables business, construction has begun on the 150-megawatt expansion of the Copper Mountain Solar project in Nevada. In December, the CPUC approved our 25-year contract to sell the power generated by the plant to PG&E. We expect to complete 92 megawatts by the end of January 2013, and we'll bring the remaining 58 megawatts into service by 2015.

Also in December, we agreed to partner with BP Wind to jointly develop 2 projects that will have a combined capacity of 560 megawatts at a total cost of $1 billion. These projects include the 419-megawatt Flat Ridge 2 project in Kansas and the 141-megawatt Mehoopany project in Pennsylvania. Both projects are expected to be completed by the end of this year. These 2 projects will more than double the amount of operating net wind capacity at our U.S. Gas & Power business, all of which is in partnership with BP Wind.

We now have nearly 1,000 megawatts of renewables project either in operation, under construction or contracted. We've made tremendous strides in the development of our renewables business and is a great example of how we've been able to leverage an existing asset decision to drive future growth.

Now let's go on to the final slide. I am very pleased to the results of all of our businesses for both the quarter and the year. Adjusted earnings per share grew by 14% in 2011, and we exceeded our financial outlook for the year. While our new 2012 earnings per share guidance of $4 to $4.30 was negatively impacted by $0.40 due to the move to new solar accounting method, the change provides more consistent and growing earnings going forward as we develop our solar portfolio. And with strong business unit growth and performance, we expect to grow our earnings per share at a compound annual growth rate of 6% to 8% over the longer term.

Finally, I'd like to remind you that we'll be holding our Annual Analyst Conference here at San Diego on March 29. At the conference, we'll provide an update on the strategic direction of the company, and we'll provide an overview of our earnings outlook and capital program at that time.

I'll leave the details for March, but we expect to show you a plan that generates above average earnings growth, which when combined with our competitive dividend, provides a compelling investment opportunity.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Stephen Byrd from Morgan Stanley.

Stephen Byrd - Morgan Stanley, Research Division

I just wanted to talk about the dividend and growth here. So then, the new dividend certainly is above the overall payout ratio target, and I think I follow what you're indicating in terms of ability to grow into that and continue to grow the dividend. As we think about dividend growth given that, right now, the dividend is essentially sort of above that long-term payout ratio level, should we be thinking about growth in line with further earnings growth or how should we think about just how that dividend may grow over time?

Debra L. Reed

Well, Stephen, when we set the dividend level -- the Board, obviously, sets the dividend level. But one of the things we looked at is the long-term earnings growth that we have in our 5-year plan that we'll be showing you at the analyst conference. And as we mentioned, we see 6% to 8% growth in that plan. So we believe that there's still upward potential for that dividend. It may be slightly less than the earnings growth that we have in that plan, but we could still have that 50% payout ratio, 45% to 50%, on a long-term basis and continue to have some growth in the dividend.

Stephen Byrd - Morgan Stanley, Research Division

Okay, great. And then just as a follow-up, as we think about earnings growth over time, you've laid out the target growth level, it sounds like over time, you'll be able to repatriate some capital from Latin America, which sounds great. Sounds like there would be an earnings impact. Does this earnings growth profile reflect in the EPS impacts of that cash repatriation?

Debra L. Reed

Yes, and you will see this, and we're not going to go through the details of the 5-year plan here on this call, but the 6% to 8% that we've quoted reflects in the -- bottoms up strategic review of our businesses, the repatriation scenario and all the things that we're reflecting in our business plans going forward, which we'll share with you in detail in March.

Operator

We'll take our next question from Leslie Rich from JPMorgan.

Leslie Rich - J.P. Morgan Asset Management, Inc.

Just to clarify, so the impact of adjusting the accounting methodology for the solar impacts earnings $0.40 a share in 2012. And then what would -- how should we think about that on an ongoing basis for 2013 and beyond? And I understand you don't want to give specific guidance, but then that separate and apart, I think, from the $0.30 per share negative impact from the higher taxes associated with repatriating the money from Latin America. I'm just not sure to what extent those 2 items are related, if at all?

Debra L. Reed

Well, Leslie, there's actually 2 different things going on, and you correctly indicated that they are separate items. The item where we changed the accounting method for 2012, that's about $0.40 a share. We'll go through the details with you in the analyst presentation because we really have to build up on what solar projects we were planning in each of the years. And so there's some variability in that from year-to-year, but $0.40 is a pretty reasonable number to use for that. And in separate and apart from that is the decision to repatriate, which we would begin in 2013. And we would then be able to see what happens with all the tax law changes potentially and all, but begin the repatriation there and would take a reduction in our earnings outlook for 2013 of about $0.30 related to that. Joe, did you want to add anything...

Joseph A. Householder

No, think that's right. I think over to 5 years, it's a $0.25 to $0.35 for the repatriation cash. It's not cash tax, it's book tax. We'll have a very small cash tax on that. But we'll have book earnings impact of $0.25 to $0.35 over that 5-year period.

Operator

Our next question today comes from Faisel Khan from Citigroup.

Faisel Khan - Citigroup Inc, Research Division

Just to clarify, on the deferral treatment method for the solar tax treatment, that's just on new projects going forward, there is no impact to the previous projects you brought online, is that right?

Debra L. Reed

Yes, I'm going to have Joe describe exactly how that works. Joe?

Joseph A. Householder

When we get to the first quarter, now that we're on the new method in Q1, when we report our results for the 10-Q, we will have to go back and recast the prior year's but it's fairly small. But what you saw in 2011 is under the old method, under the flow-through method, but all of 2010 and 2011 will be recast under this method.

Faisel Khan - Citigroup Inc, Research Division

Okay. And is that the life of the facility, so is it like 20 years of kind of deferrals is how that works?

Joseph A. Householder

Yes, it's over the depreciated life.

Faisel Khan - Citigroup Inc, Research Division

Okay. And just so I'm clear on the foreign tax issue for 2013, because you pay lower taxes in other countries and in South America, the difference basically is the tax that you pay there versus the tax you pay here and that's the $0.25 to $0.35 you're going to end up having to occur next year, is that right?

Joseph A. Householder

Yes. Faisal, this is Joe. That's correct. We have an average tax rate on all of our foreign income that's accumulated throughout all the periods of around 20%. So to bring it back and pay Federal and California taxes is about another 20%, let's say.

Debra L. Reed

One thing I do want to stress that Joe mentioned is that, that there's very little cash tax. It's deferred tax, and so the earnings that we talked about with the $0.30 starting in 2013 is not a cash tax amount. It's a deferred tax amount.

Faisel Khan - Citigroup Inc, Research Division

Okay, got you. Fair enough. And then just on the generation business, if I exclude the mark-to-market loss in the quarter, is there any way for your guys to give us kind of an idea of how much of a drag the gas-fired generation fleet was on that business? Because as I suspect that your -- on a pretax basis, your renewable portfolio was profitable, but at the fossil fuel fleet, that was probably a drag on earnings, but I have no way of kind of figuring that out?

Debra L. Reed

Yes. I'll ask Mark to go through a little bit of high level on that.

Mark A. Snell

Right. Faisal, it's Mark. Your intuition is correct. I mean, we did have a small loss on the fossil fuel fleet. Although in our plans going forward, we expect to operate that fleet profitably even on a GAAP basis, kind of a break even to slightly positive, and certainly very positive on a cash flow basis. And then we also have the earnings from the fossil fuel -- from the renewable fleet in addition to that. But we'll get into the details of that at the Analyst Conference and we'll show you those numbers.

Operator

And we'll go next to Michael Goldenberg from Luminus Management.

Michael Goldenberg - Luminus Management, LLC

I'm sorry if I'm going back to the same questions on accounting, but I just want to be crystal clear on the 2 items that you've identified. On the repatriation of international earnings, the $0.30, the higher tax rate that you'll be paying when you repatriate, is that going to be backed out as a onetime item or basically every year, when you bring it back in, it will just grow at the state of income tax expense that we will see on the income statement?

Debra L. Reed

As we record that, it'll be shown every year. It'll be recurring as a deferred tax item that we'll be recording. As I mentioned, we won't be paying the cash taxes because we'll have a net operating loss, and so those cash taxes for the most part are deferred for 5-plus years. Joe, I don't know if you want to add anymore to that...

Joseph A. Householder

I think that's right. Michael, I'll just add this. I mentioned that we intend, in 2013, to start bringing back current earnings from some of the subsidiaries and our expectation is about $300 million for several years in a row, at least. And so if you think about the book tax effect of that might be about 20% of $300 million for several years in a row.

Michael Goldenberg - Luminus Management, LLC

Got it. And then the other question is on the solar tax credits that changed from onetime to deferral method. So I understand that will significantly smooth out the earnings profile. But based on my understanding, the way other companies do it, there's still a higher tax benefit in year 1 versus year 2 through the end of the life. Can you give us a sense of relative tax benefit for year 1 versus years 2, 3 that will now be for a new solar project?

Joseph A. Householder

Yes, Michael, this is Joe. I'll just try to do it with a rough example. If you spend $100 million under the investment credit method, you would reduce your tax basis by 1/2 of that investment credit of 30. So then you have to book a deferred tax liability, we'll call it 35% of that difference, about $5 million, and then you have $30 million of ITC. So you book the $25 million benefit on the $100 million that you spent. Under the new method, the book basis goes down by the whole ITC, so it goes down by 30. That tax still goes down by 15 and you actually a book a deferred tax benefit of 5. So you're booking 5 instead of 25 in that first year. That's just the one-time sort of 5% of the cost, you're booking it right then.

Michael Goldenberg - Luminus Management, LLC

And what will be the tax benefit now in years 2 through 5, 6 our life of the project?

Joseph A. Householder

Your $30 million will reduce depreciation. It's not going through the income line. It's going to reduce depreciation over the 25 or so years, 25-year life of the project.

Debra L. Reed

Yes, I would say, we will go through this in detail at the analyst conference and go through some examples and also that you'll be able to see the effect of this.

Operator

[Operator Instructions] Moving on, we'll hear from Greg Gordon from ISI Group.

Greg Gordon - ISI Group Inc., Research Division

I'm sure you realized you were opening up Pandora's Box when you gave us some, but not all, of the goodies from the Analyst Day. But I just wanted to ask, just structurally speaking, clearly, the earnings -- you re-based the earnings here in 2012 by making the accounting change on the solar, which I think most of your investors and analysts would say was the right way to go. But I guess when I think about '13, '14, '15, it's clear how you're generating the incremental cash flow to fund the dividend payment. Thank you for articulating that. You're going to show us at the Analyst Day what the offsetting factors that sort of fill in that $0.30 incremental, sort of headwind, associated with the noncash tax impact. Because in order for you to sort of -- if we think about a straight-line 5% to 6% earnings growth rate, you'd have to have a fairly significant offsetting earnings growth driver in that year to not have sort a growth rate at least in '13 that looked like your longer term aspiration. So are you going to be able to show us what the sort of the puts are that offset that sort of incremental headwind in '13 when we see you in March?

Debra L. Reed

Yes, we will show you, when we see you in March and what we've shown you before, which is the 5-year growth rate. And the growth rate is not going to be necessarily even in each of these years. It's not necessarily a linear function. And I so I don't want to leave you with that impression. But over the 5-year period, we're looking at 6% to 8% growth in our plan over the 5-year period of time, and we'll be able to show you how that occurs. And what fills in that growth, and a lot of it, if you look at our 2 utilities as an example, over the 5 years, SoCalGas is going to grow at about 7.5%. And SDG&E over 5%. So you have a lot of it embedded in projects that have already been approved at our utilities or are in the regulatory process of our utilities, then we'll go through all of that at the analyst conference.

Greg Gordon - ISI Group Inc., Research Division

So we shouldn't assume a linear progression but over the sort of normal 5-year forecast horizon that you usually roll forward, you'll be able to sort of validate how you get to [ph] that aspiration?

Debra L. Reed

Yes. That's how you should look at it.

Operator

We'll take our next question from Paul Patterson from Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

I wanted to ask you just, I mean, I guess I don't want to belabor this and it sounds like a lot it is going to be other analyst meeting. But just to clarify, the $0.30 of impact in future years associated with the repatriation, you guys are still expecting to grow 6% to 8% growth in spite of that, correct?

Debra L. Reed

That's correct. The 6% to 8% growth over the 5-year plan period includes the impact of everything we've talked about today. And it also includes the bottom-up review of all of our businesses. And as an example, if you look at what we talked about with the forecast for 2012 in our guidance, we would have been at $4.40 to $4.70. It was $0.10 higher than where we were last year based upon the performance of our businesses but then that's reduced by the $0.40 from the change of accounting method which, again, has no economic effect on the business. But we've heard from a lot of you that you would like to have a better sense, not to have to time when these projects go into service precisely. And so this allows for that type of greater predictability. All of that's incorporated, the repatriation is incorporated. And with all of that, we're looking at 6% to 8% growth over the 5-year time frame.

Paul Patterson - Glenrock Associates LLC

Okay. And then the $0.40, and I know you went through these, the calculation on the book deferral and what have you, just, what is the impact of the $0.40 in 2013, if we could just get a little bit of flavor for that, in other words, by taking a hit in 2012, there will be a benefit in 2013. Do you guys have a rough approximation as to what that would be?

Debra L. Reed

Yes, we're going to hold off to go through the 2013 numbers at the Analyst Meeting. The only thing that we wanted to do was to let you all know that we were making this change, so we didn't surprise you with that at the Analyst Meeting. So we wanted you to know we're changing in terms of repatriation and the rationale behind that. Again it's a good economic decision for us because we have this net operating losses that we can use now by doing this, and we just wanted to give you awareness of that. We will go through all the details at the Analyst Meeting.

Paul Patterson - Glenrock Associates LLC

Okay. And then just on the decision to do the repatriation from the international business, could you just like give us a little more flavor as to sort of what's kind of caused this? I mean, is it simply because of the international outlook versus tax issues? And just in general, is there any issue with respect to potential changes because we keep on hearing about tax reform in various things showing up regarding taxing of foreign entities, and taxing of just, in general, I mean, vast changes perhaps in the tax code. I mean just in terms of your flexibility with respect to this issue and what have you?

Debra L. Reed

Yes, that's an excellent question. And we spend a lot of time on this. I'll give you a very high level on it then I'm going to have Joe go through the details on the flexibility. But from a strategic standpoint, these businesses are doing really well, and they are generating a great deal of cash, and if we did not repatriate cash, we would build up excess cash in excess of what we need to grow those businesses by 6% to 8% per year, of something over, around $1.5 billion. And that it didn't seem appropriate to us to keep that cash offshore, and be able to fund all of our growth and not look at some changes to the capital structure of those businesses because we have the ability to put leverage on those businesses locally. We feel that is a better long-term capital structure for those businesses. And with this net operating loss that we have, because of the bonus depreciation and because of the solar tax credit, if we were going to repatriate funds, then this would be the best time to do that, but for any type of tax holiday and all. And I'm going to have Joe talk to you about our assessment of that and what flexibility we have, because we do have a great deal of flexibility relative to changing our timing of repatriation based upon what might happen within a national tax policy. Joe?

Joseph A. Householder

Okay. Thanks, Debbie. Yes, Paul, exactly what Debbie was saying, this started out in our strategic review and our capital allocation process and looking at the international operations, what their requirements were, the very low debt-to-cap ratios we have in those countries and then the overall tax position as Debbie articulated. And we took all that into the account. Then we thought about, well, what would be the effect if there were a change in tax policy. So what we've decided to do, and this is why we're announcing it now, is we want to let you know is that we were thinking about doing this in 2013. We would like to be able to see what happens with the election. See what happens with tax policy. It's not clear to me that very much will happen, but there's a lot of people talking about it. But what we intend to do is start taking the earnings effect of it in 2013 but probably not actually repatriate the cash until the end of the year, which gives us a long runway from now until the end of 2013 to see exactly what's going to happen with tax reform. If anything happens, it's likely that if it's going to benefit us, we'll know that, and then we would be repatriating anyway. As Debbie said, we have more cash buildup there than we need to even grow those earnings at 6% or 8% and towards the top of that range. So this -- a repatriation build that would allow cash to come back at lower rates would benefit us more. If it goes the other way and something like the President's proposal that came out, and says you're going to have to pay a minimum tax even if you don't bring the money, then what we're doing now even makes more sense. We might as well bring it here and use it in the U.S. and use up these tax assets that we have sooner than we would otherwise use them.

Paul Patterson - Glenrock Associates LLC

Makes a lot of sense. Finally, just the Tangguh and the lower gas pricing, you guys mentioned the contract changes and amendments and lower gas prices kind of offsetting each other. Could you just give us a flavor as to the impact of both of those?

Debra L. Reed

Yes, I'm going to ask Mark to...

Mark A. Snell

Yes, with respect to Tangguh, we renegotiated the contract and where we ended up with is, we allowed our partners to have more flexibility to divert cargoes, and we were compensated for allowing that extra flexibility. And that offset the effect of lower gas prices on our plan going forward. So all in all, it was a positive for them, and it actually is a positive for us to because we have a guaranteed number of deliveries. It's a small number, but it's the total amount we need to keep the plant cool. And we're also allowed to divert a cargo to other our facility in the Gulf, which eliminates the need to buy an expensive cargo there to keep that plant cool. So I think, all in all, the renegotiation, it's always kind of trite to say that it's a win-win but it's truly one that would turn out better for both parties.

Paul Patterson - Glenrock Associates LLC

Okay. So the financial impact of that versus to get lower gas prices is sort of what?

Mark A. Snell

Yes, kind of flat.

Paul Patterson - Glenrock Associates LLC

Okay. But what was the impact, I guess, from one of them?

Mark A. Snell

Well, we're not disclosing what the financial impact of the contract is. But you'll see it in the LNG numbers when we do the Analyst Conference.

Operator

We'll go next to Ashar Khan from Visium.

Ashar Khan

Just wanted to, I don't know, I guess, coincidental, I was just looking -- I just want to understand the assumptions, I think if I understand. But if I look at Slide 2 from the last deck that you provided at your Analyst Conference, the 2011's outlook was $4 to $4.30, growing 6% to 8% percent and then we came to a $5.50 to a $5.80 number as part of the 2015 target. So if I -- using what you are pretty consistent, of course, we lost, now, '12 is back to $4 to $4.30, the growth rate is 6% to 8% EPS. So I'm assuming the range if I impute it from last year, the range should be similar because the growth rate hasn't changed, the base is the same and so the range should be I guess '16 should be $5.50 to $5.80 if I impute what was done last year. And am I thinking through this rightly? The base is going to be '12 and you're looking towards the '16 targets.

Debra L. Reed

I'm not going to give you the '16 target until we get to the Analyst Meeting. But I think your calculations do make sense, and we'll go through the details of '16 and what our estimates are at the Analyst Conference. But your methodology is how we get to our 6% to 8%.

Ashar Khan

Okay. And then if I could just go back, I guess the business that -- I'm just looking through which did better than forecast, one was pipeline and storage. I guess it came out $2.50 versus the high-end of $2.20. I know there was $18 million from a kind of like a tax related issue when you brought the money thing. But is there anything in that business that I guess the rest of the gains were all permanent better operations that are going to go on forward, just trying to ...

Debra L. Reed

Excuse me, I'm sorry...

Ashar Khan

No, just trying to get a sense of the strength of the business, I'm assuming it's permanent and we can grow from there?

Debra L. Reed

The main thing that happened, of course, in pipes and storage, is we acquired the South American utilities in April of last year. And that, that business -- those utilities performance will be ongoing, and we'll have a full year's effect of that this year. So when you look at the earnings in pipes and storage and the significant increase there, it's largely from the acquisition.

Joseph A. Householder

There were up couple of a onetime things that I think were mentioned that there was some gains from some cash, some U.S. dollars we held in Chile at the time. It's not there anymore. But originally, it was there. And there was some foreign exchange gain of about $10 million and we had some Mexican tax benefits in that business also. So there's a roughly $20 million in there that was I would say more a onetime than continuing.

Operator

Moving on, we'll hear from Mark Barnett from Morningstar.

Mark Barnett - Morningstar Inc., Research Division

Mark Barnett, Morningstar. Just a couple of quick questions, maybe out of the weeds here a little bit. So you know you had at the end of last quarter 2 plants left to kind of on the contracting side after the expiration of the DWR contract. And I'm wondering how those plants are looking and whether you had finalized kind of marketing those for the next few years?

Debra L. Reed

Let me have Mark talk about that because this -- clearly, as part of our strategic review, we have looked at every market and we have looked at every asset, and we've done a full assessment. And so let me have Mark just comment on that and again, we'll be going through a lot of this detail at the Analyst Day.

Mark A. Snell

Good question, Mark. Let me talk to you a little bit at how we're looking at these assets, and I think it will be indicative of kind of our entire strategic review process. The first thing we're doing is we are doing a fairly thorough market review of what we think those assets would sell for in the marketplace. And we're just about done with that with respect to the plants. And then as we figure out what that number is, then we look at what we believe our earnings from those operations will be. And we then, frankly, do a very simple calculation and say that if we got those proceeds, could we do better in other parts of our business? And we're kind of making that evaluation right now. But if we can think we can do better someplace else with that money, we're likely to move it into another part of the business. If we think that the current market just doesn't put enough value on those and we're getting an extraordinary return on the value we can get, we're likely to hold them for a while until that situation changes. Obviously, we wouldn't do that if we thought it was going to get worse. But if we thought it was going to get better, we'd continue to hold them. And we're making that, and we'll probably have some of those decisions done by the Analyst Conference. But we are looking at those. We put everything on the table, and it's just a way that we're thinking about it right now. And, frankly, I think we're in -- it's that process that just continues to move forward.

Mark Barnett - Morningstar Inc., Research Division

All right. And I guess this is probably something else you will, so forgive me, you will probably address at the Analyst Day. But you received at the end of last month the initial permit for liquefaction from Cameron, I believe. And then I know that there's a second round for exploring the countries without free-trade agreements. I'm just wondering, had you already initiated that or are you waiting to sort of evaluate what you want to do on the investments side to apply for that second license?

Debra L. Reed

Yes. In terms of that, we filed for and received the U.S. free-trade export license from DOE already in January. And we also filed separately for the non-FTA countries, which is now pending. We also have to file a FERC permit, which we would expect to do sometime around the second quarter of this year. And that's likely to take 12 to 18 months. So that's kind of the timeline we're on.

Operator

And we'll move on to Michael Lapides from Goldman Sachs.

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

Debbie, rate case. How do you think about how far apart you guys are versus the interveners at both SDG&E and SoCalGas, kind of what's the bid? How far are apart are you on both O&M and on actual rate base expectations? And what are the likelihoods of settlement? You guys have been one of the best at settling rate cases in California over the years. Just curious to see where we stand now.

Debra L. Reed

Thank you, Michael. It's nice to speak with you this morning. In terms of the rate case, as you mentioned, we have a history of settling our cases, and the thing that I would note it that while the numbers between ourselves and the DRA staff may seem large on the surface, when you start drilling into them, there are a lot of the things that have been litigated time and time again in rate cases. They deal with what's the relative level of compensation or they deal with how we account for certain depreciation of asset. So there are issues that have been raised multiple times in rate cases. They have been litigated and/or settled and settled in the favor of how we filed them in the rate case. So I don't feel like we're truly as far apart as it might seem when you look at the filings that have been made by the parties and ourselves. We have been in discussions with parties. But I also say, we have a strong case. We completed the hearings in January. And if we're not able to reach a settlement that we think is the right amount for us to operate our business safely and effectively, then we are fine going through the regulatory process. But we do have a history, as you mentioned, of settling, and we always like to be able to try to work with the parties and see if we can't come up with a resolution that works for everyone.

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

Got it. One other thing, rate case or tied to the regulated utility subsidiaries, what's remaining in terms of incentive compensation of earns -- incentive structure that the utilities can earn above and beyond kind of the traditional GRC? I'm thinking gas and -- your purchased gas incentive. I'm thinking energy efficiency. What's left going into 2012 versus what is kind of already halted and won't be there going forward?

Debra L. Reed

Okay, let me try to hit the major categories. We have at the gas company the gas cost incentive mechanism, and that is remaining in place. In fact, we've just got a draft decision this week, granting or recommending that we receive the incentive from what we filed last what year. And then we have a storage incentive mechanism at the gas company that allows us to market storage and to the extent we recover more than our embedded cost and there's a sharing mechanism on that. In terms of energy efficiency, that is up for review right now by the commission as to what is going to be a mechanism for energy efficiency going forward. And so we're not quite certain as to what the mechanism will ultimately be, but that is something that's up for review. And then at SDG&E, we also have a gas PBR mechanism similar to what we have at SoCalGas. And so those are the key mechanisms that are still in place.

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

Got it. Last item, renewable projects. Obviously, you've got a lot in the hopper. How do you think about whether you have the capability to expand upon that in the next 2 to 3 years, not necessarily next 5, but thinking more near-term, next 2 to 3 years, meaning the potential for incremental solar projects in all likelihood?

Debra L. Reed

Well, as you know, we have exceptional land position. And that -- as an example at ESJ in Northern Mexico, we have a project now that is just the first phase and maybe about 10% of the total capacity potential to be built at that location. That is for approval at the commission on March 8. So that there is some great opportunity there for wind potentially to grow. We have land positions adjacent to our power plants in Arizona and Nevada, and then we have a land position in Central California, all of which we will participate in RFPs and be able to bid out. And then we have some partnerships that we've formed where we work with other companies as we have with BP to take partner projects that they have and us be a 50-50 partner. Mark, I don't if you want add any more color to that.

Mark A. Snell

Well, I just would say I think it is a very robust pipeline that we have. And I think we'll continue to grow the business at significant rates. And it's a very profitable business for us. About look at all of our options down the line with respect to renewables, I think we're pretty excited about where it can take us and where it'll go. There's all kinds of options with respect to capital availability and things, where we can put very -- continue to put very little capital into it and get great earnings and great returns.

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

Got it. I'm sorry, I wanted to cheat - last one here. Joe, I want to simplify the tax issue. In 2012 GAAP tax rates versus cash tax rates, and if you can give that for '13 as well, that'd be great.

Joseph A. Householder

Just a minute, Michael, let me grab that. 2012, let's say our GAAP tax rate is going to be around 30%. Cash tax rate will be fairly low. I don't have a percentage, but we would have a modest Californian tax and probably between California and our foreign businesses, maybe around $100 million of tax.

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

Okay. In '13?

Joseph A. Householder

In '13 -- or '12. In '13 I think we'll get more into those numbers when we get to the conference.

Operator

We'll take our next question from Vedula Murti from CDP Capital.

Vedula Murti

Let's see, most of my questions have been answered, but I just wanted to make sure if we think about the repatriation issue, if we think about the kind of like the status quo, such that nothing changes, how many years of NOLs and other types of things do you have such that you could repatriate $300 million a year back to the U.S. with minimal cash taxes?

Debra L. Reed

Joe?

Joseph A. Householder

Yes, this is Joe. We're expecting, depending on how this plays out, but assuming the status quo, we would probably repatriate about $300 million a year, to around 2018.

Vedula Murti

Okay. So you can do that with...

Joseph A. Householder

So you've got both NOLs and -- sorry, go ahead.

Vedula Murti

So you've got about 5 years or so with very minimal cash taxes?

Joseph A. Householder

Yes. We have several years of net operating losses that we could absorb. And then we also have renewable energy credits that we can use.

Vedula Murti

Okay. And we've just spent a lot of time talking about EPS growth off of these headwinds of 6% to 8%, but all these headwinds have had no effect on cash. Can you talk about the cash flow growth rate over the next 5 years so does the EPS growth rate? Should we -- will we see a commensurate increase in cash flow growth or are we going to see the reversal which we have seen, where cash flow is fine and EPS reported GAAP has these headwinds and then EPS -- and then EPS improved, but cash flow kind of stable or doesn't keep up? Can you talk about the growth rate of cash flow over the period?

Debra L. Reed

Yes, I would just say that I wouldn't see a big disconnect between cash flow and earnings over the period of time. If anything, the cash flow should be a little bit higher for the tax reasons that we talked about. And some of our assets are cash flow positive, but they're not producing stronger earnings. So I would say that for the purposes of where we are today, we'll go through that again at the Analyst Meeting. The purposes of where we are today to assume they're relatively parallel.

Vedula Murti

Okay. And one last question. In terms of where payout is and that type of thing, and obviously, with the outside uptick in terms of dividends today, should we just kind of think that going forward, just kind of plug that dividend growth going forward should be somewhere like half of like your targeted growth rate from here going forward?

Debra L. Reed

Well, I'd say our board looks at this every year. And the decision that they made this year with a larger increase in dividend was not predictable last year. But if you just kind of look at our earnings and you look at getting to a 50%, 45%, 50% payout ratio, you can envision the opportunity over the 5-year growth rate that we have that we should be able to continue to increase the dividend at some level that's slightly less than our earnings growth rate. So I mean, I think that we'll show you some of this when you show you the 5-year earnings growth rate and we'll show you the earnings and then you can kind of look at that dividend payout ratio and figure for yourself about how much greater it can be over the period of 5 years.

Vedula Murti

Great. I just to make sure that in terms of what I understand, that you've got a running room of about 5 years or so in terms of various NOLs and tax credit such that irrespective of U.S. tax policy, you'll be able to repatriate $300 million a year with minimal cash back, and that the growth rate on cash flow going forward is going to be comparable, if not superior, to what you're going to -- what you're striving to achieve in terms of GAAP EPS growth rate.

Debra L. Reed

That's correct.

Operator

And we'll take our next question today from Naaz Khumawala from Bank of America.

Naaz Khumawala - BofA Merrill Lynch, Research Division

I had just a couple of one clarification question and just a couple of other questions. On the $0.30 a share of hit, is that all in '13 or is that like $0.06 a year over the next 5 years? I was confused about how that was kind of said over the call.

Debra L. Reed

Yes. The $0.30 per share, it continues. It doesn't increase, but it basically continues. We'd factored the time is based upon the amount you repatriate that year and what, if you're repatriating $30 million -- $300 million a year every year, then you'll have that hit for that one year for the deferred tax on the amount you're repatriating. So as long as you're repatriating, and let me just clarify, as long as your repatriating, then you would have that. If we decided to repatriate in 2013 and then something changed our view and we elected not to repatriate in 2014, then we would not have that $0.30 again in 2014. When we do have a lot of flexibility in this as to how we choose to repatriate, and when we make those elections.

Naaz Khumawala - BofA Merrill Lynch, Research Division

Okay. And I think the last time markets said that you have $1 billion of cash overseas, is that more like $1.5 billion now, if I just do $300 million from 5?

Joseph A. Householder

This is Joe. I think you'll probably referring to when Mark was talking about how much cash we had available, including that was prior to the acquisition of the South American utilities. So we have basically brought back or used in investment cash. There's not any big amounts of cash sitting there today. We have very low debt-to-cap ratios, as I mentioned. So we have the ability to grow those. We're not going to repatriate funds that we needed there to grow the business, and we also have the ability to borrow there if we want to fund additional investments beyond their really good growth that they have.

Naaz Khumawala - BofA Merrill Lynch, Research Division

Okay. And then just the last question on California, on the pipeline safety memo account that you had applied for, do you know what kind of timing you expect to receive that for this year?

Debra L. Reed

Well, the memo account, we're anticipating sometime in the first half of the year getting the memo account established. And the assigned, Commissioner Florio, basically set the schedule for the proceeding that would have the closing brief filed in October, hearings in the summertime and then closing briefs in October. But we would expect the memo account to be put in place before that time. The other thing that was very positive is that in his decisions setting forth the procedural schedule, he encouraged us, once the memo account was established, to begin the rate collection of that so that there was not spikiness in terms of the rate recovery. So I think you'll see some movement in the first half of this year on the memo account in the latter half of this year, early next year, on the whole termination or completion of the preceding.

Naaz Khumawala - BofA Merrill Lynch, Research Division

Okay. And then just in terms of how much of the $3.1 billion, if you did get the memo account, let's say, midyear, how much of that spend could you potentially do in '12 or how much have you anticipated in the guidance?

Debra L. Reed

Yes, in terms of what we would do in '12, it wouldn't be a great amount in '12. It would certainly be less than $100 million. And a lot depends on the timing of the memo account. But I would not anticipate a lot of expenditures in '12. It would be more of a ramp up. And then in '13, we will begin.

Naaz Khumawala - BofA Merrill Lynch, Research Division

And so, I think you guys before have included about $400 million of pipeline safety spend in your 5-year CapEx, is that right?

Debra L. Reed

What we have for pipeline safety spend, we had $1.4 billion over the 5-year period of our plan. And as I said, when we did the 2012 numbers, we did a bottoms-up for 2012. So we looked at the situation that we feel that we're in today and what we think is going to happen today, and we redid our guidance for 2012. So whatever was in 2012 would now be deferred most likely to 2013. And that the total amount is still anticipated at $1.4 billion over a 5-year period.

Operator

We'll take our next question from Stephen Huang from Carlson Capital.

Stephen Huang

I was just wanted to double check and reconfirm something. The long-term growth rate, we're starting at the $4 to $4.30 2012 base, is that correct?

Debra L. Reed

Yes.

Stephen Huang

Okay. And then, Joe, the second question I had was you mentioned that you would go back and recast the '10 and '11 solar and then bring them back forward. So is that basically you'll do like a onetime charge in '13 first quarter and then you'll kind of add $0.05 a share of earnings going forward per year? Are you basically taking '10 and '11 earnings and adding $0.05 going forward?

Joseph A. Householder

The 2010 and 2011, the financials will just be recast as if we had been on the other method in the prior years. And so there'll be slightly higher earnings over the next 25 years because we're moving those credits going forward into the future years.

Debra L. Reed

But there's no effect of...

Joseph A. Householder

There's no onetime effect in 2012 or 2013 of it. There's the continuing slow amortization of the ITC over the 25-year life.

Stephen Huang

Right. But it would add about $0.05 to ongoing -- in that ballpark of ongoing earnings, starting from '13 and going forward.

Joseph A. Householder

I'm not sure where -- how you're computing that number, but we'll go over this at the Analyst Conference [indiscernible].

Stephen Huang

But it should add a couple of pennies of earnings going forward. Or are you just moving it out?

Joseph A. Householder

Yes, it should add a modest amount. That's correct.

Operator

The next question comes from Michael Worms from BMO.

Michael S. Worms - BMO Capital Markets U.S.

Michael Worms. Just a quick question on the repatriation of the money in South America. At what point, I thought the plan was to build some transmission lines down there, and to potentially build another hydro plant or 2. So are those plans now and you going forward will just bring back money to the U.S.? Can you kind of give us some color on that?

Debra L. Reed

No, those plans are still in existence. And when we've done with our 5-year plan, we've incorporated the requirements to have that growth. We're still looking at transmission projects. We're building the hydro project right now in Peru that should be online at around 2013. And we have other hydro projects in Peru that we're bidding on, as well as transmission projects in Chile. Those projects are still incorporated in our plan, and we have the ability through operating cash flow from those businesses and local debt. We talk about the fact that those businesses really don't have any debt on them. And that we really feel that there's a preferred capital structure for those businesses where we would pay off some of the U.S. debt with the repatriated dollars and have local debt on those businesses, which make more sense for the projects that we're doing. So that's the way we will structure those projects in more of the kind of cap structure we'd like to see there in the long-term.

Operator

And James Heckler from Levin Capital Strategies has our next question.

Neil Stein

It's actually Neal Stein from Levin Capital. I have a couple of more questions on the repatriation issue and just as it relates to the growth rate. So you'll book a $0.30 adverse impact, EPS impact, from repatriation in 2013. Are you still able to grow 6% to 8% in that year or are you saying the 6% to 8% is applicable over the long-term and maybe you can't grow in '13 by that amount?

Debra L. Reed

Yes. I'm not saying that it's going to -- I think, I've made a comment before, and I'll restate it. Our growth is going to be 6% to 8% over a 5-year time frame. And that there will be some unevenness in that growth from -- not every year is going to be 6% to 8% over their prior year. Some years maybe 3%, some years maybe 9%. And a lot of that has to do when projects come in, especially some of our renewable projects and when they start providing earnings. And so that we've never grown evenly. If you'd kind of look at our historical growth, it's been over a longer-term time frame that we give you the projections. And then when we see you at the end of March, we will give you the projections as we have and what our growth rate is over the longer term and then what we expect it to be in each of the early years.

Neil Stein

Well, could you say, are you able to specifically offset this $0.30 impact in '13?

Debra L. Reed

We're not giving 2013 guidance today. And so I'd rather wait and go through all of that with the total plan at the Analyst Conference. We've given you the 2012 guidance, which is what we always do on this call, and then when we get to the Analyst Meeting, we will go through and lay out for you what our expectations are over the 5-year time frame and in 2012, 2013.

Neil Stein

Well, let me ask this. There's the possibility you may book $0.30 maybe in one year or just a couple of years. I guess there is also the possibility you may book at meeting you'll repatriate $300 million of cash every single year over the 5-year period? Is that a possibility? And if you were to be booking this $0.30 adverse impact from the repatriation tax, would you still be able to grow 6% to 8% for the 5-year period?

Debra L. Reed

Yes. I mean, what we've assumed is that we would have the $300 million a year repatriated every year over the time frame of the 5 years. And even with that, that we would have a 6% to 8% growth rate over that 5-year time frame.

Operator

Our next question today is from John Ali [ph] from Decade Capital.

Unknown Analyst

Sorry to keep asking about this. Just to be clear, the 6% to 8% growth, so you're going in year 5, if you took the repatriation, you'd still have that number?

Debra L. Reed

Yes. Again, the way -- yes. The way we've looked at it is we've calculated the growth over that 5-year plan, and it includes the change in solar accounting and it includes the repatriation.

Unknown Analyst

Every year?

Debra L. Reed

And we look at it over the 5-year and, we said that, that compound annual growth rate over that 5-year period will be 6% to 8%. Now that doesn't mean that every year grows 6% to 8% over the prior year. It's not always even. But if you look at it over the 5-year time frame, then the average growth rate, the CAGR and earnings, ends up being 6% to 8% over that 5-year period.

Joseph A. Householder

And then -- it's Joe. Just to confirm, the repatriation is in the plan from 2013 through the remainder, not in 2012, but 2013 going forward.

Debra L. Reed

Yes. The other thing I would say is that we're not going to give you the 2013 number today. But it's always positive growth. We're not going to have a decline in growth over the period of time. But it's not always going to be 6% to 8% year-over-year-over-year on a linear basis. But it will always be a positive growth, even taking into account the $0.30.

Unknown Analyst

Okay. And the $300 million a year, how does that relate to the earnings you get every year, meaning what percentage of earnings is that or are you just re-levering the business?

Joseph A. Householder

It is most of the earnings from Mexico and Peru that we don't need in the business.

Unknown Analyst

Okay. I guess, what's the level of international earnings every year? And the other question I have is, Peru and Chile, how fast as they growing?

Debra L. Reed

Well, Peru and Chile have growth rate of about 6% to 8%. And that's been the historical growth rate and that's kind of the projected growth rate, without some of the special projects. And that's just inherent in the basic utility business there is that you're running around 6% to 8% growth in total electric demand in those 2 countries and then about 3% to 4% customer growth each year. And then in addition to that, we have these special projects like the hydro project and transmission project.

Unknown Analyst

Okay. But just the run rate business is about 6% to 8% in terms of net income?

Mark A. Snell

Yes, towards the high end of that.

Unknown Analyst

Got you. And how much cash do you have overseas internationally?

Mark A. Snell

Well, we just did a large acquisition so we don't have -- we used up a lot of our cash. But we are, like Joe just said, too, we don't have a lot of leverage overseas. And so we have a lot of borrowing capacity.

Unknown Analyst

So roughly how much borrowing capacity [indiscernible] business we could get back into it?

Mark A. Snell

$1 billion, probably.

Unknown Analyst

That's borrowing capacity?

Mark A. Snell

Yes.

Operator

That will come from Chris Shelton from Millenium Partners.

Chris Shelton

A quick follow-up question. I guess in terms of the $300 million that you guys are repatriating each year, as far as uses of that cash, obviously, you had a dividend increase, which will take up a portion of that. But what are the kind of -- what are the potential uses of that cash that you see going forward?

Debra L. Reed

I'll cover the high level and then ask Joe to add anything he wants to. As we said, really, the dividend is secondary for the use of this cash, that the majority of this cash is used for debt repayment in the U.S. And what we're trying to do is repay off some of the U.S. debt and then have some local debt established in Chile and Peru and Mexico for the projects that we're doing there so that the leverage in each of those countries has the kind of cap structure that we want to have eventually. That is the way that those businesses should be structured there. They're very underleveraged right now in each of those locations. We'd rather have local debt. We think there's a lot of good reason for having local debt in those countries, and then we'd like to be able to bring this back while we have these net operating losses so that we can repay some of the U.S. debt.

Chris Shelton

Got it. Makes sense. And maybe this is an Analyst Conference question, but what is the -- I guess on the U.S. side, what is that kind of desired level of debt?

Debra L. Reed

Yes, we pretty much keep a 50-50 kind of a cap structure, 51-49, in that range.

Chris Shelton

Okay. And so $300 million a year for how many years would get you -- I guess where -- the better question is where is the balance sheet currently for the U.S. portion, I guess?

Joseph A. Householder

It's about 51% debt to cap.

Chris Shelton

Okay. So if you're repatriating $300 million a year for a number of years, would you expect to kind of use, I guess, use some of that cash in the business as opposed to sort of paying down debt because it seems like you might overshoot the balance sheet capacity?

Debra L. Reed

Yes, you have to look at too what our capital spending is for the 5-year period. And we're looking at spending something like close to $14 billion of capital during that period of time, mostly in our utilities. And so that -- and this is what we'll go through at the Analyst Meeting because you really need to look at this in terms of the 5 years, what the capital spending is, what the repayment of debt is, what the growth is in our international businesses and see it on our composite basis, which we'll show you at the Analyst Meeting. But principally, to keep our credit stats strong and all, we're intending to use the funds that we repatriate to pay off debt, and then we will be issuing other debt as needed for our capital projects to fund this incredible growth that we have with really great projects.

Chris Shelton

I see. And I guess because last year, you had some pretty good -- last year's Analyst Day, had some pretty good growth -- took pretty good growth assumed without repatriation, was that the assumption for last year? And now the assumption is that you'll repatriate, so are there kind of other projects incremental last year, is that the way we should think about it?

Debra L. Reed

Well, in this 5-year plan, another year is added to it. And there are some additional projects that we will have obviously, in that extra year. But what I want to leave you with is the growth will continue in our South American businesses. We'll be able to fund that and we'll be able to create a capital structure there that are appropriate for those businesses and fund the growth that we showed you last year in those businesses, including transmission and generation projects. And then we will repatriate and use the cash to pay off debt, and we'll most likely leverage up those utilities internationally and get the cap structure they should have and produce -- and have more debt than internationally. And then the cash will be used to pay off debt here, so you're basically paying your leverage in a country where you're doing business and bringing back the cash and paying off U.S. debts.

Joseph A. Householder

Chris, we expect that debt U.S. ratio to stay about the same. We have really solid growth. In our view, look, money is fungible. So whether repayment of debt or spending it on your projects, right now for the first few years, we're spending more than our free cash flow. So we're increasing debt in the early years and paying some in the later years. But we're roughly keeping our debt in that ratio about the team, and we're looking at our credit statistics and making sure we have strong credit ratings.

Debra L. Reed

Okay, if there are no further questions then, I'd like to thank you again for joining us on this morning's call. And if you have any follow-up questions, please don't hesitate to call Steve, Scott or Victor, and have a great day. Thank you very much.

Operator

Thank you, ladies and gentlemen. That does conclude today's conference. Thank you for your participation.

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