SRE SRE
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/26/2013

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 - VP, IR and Treasurer: 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 of this teleconference and slide presentation is available on our website under the Investor 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; Trevor Mihalik, Controller and Chief Accounting Officer.

Before starting, I'd 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 diluted basis and that we'll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and to Table A in our 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 - Chairman and CEO: Thanks Rick. On the call today we will give you our guidance for 2013, review our fourth quarter 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 five 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 the 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 in 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 transition 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 ultimately talk about results from the transaction and should also have more to share regarding progress on our Cameron JV and our general rate case too.

So, as 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 - EVP and CFO: 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 wild fire 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 $1.73 billion or $4.35 per share. This compares to adjusted earnings in 2011 of $1.54 billion or $4.36 per share. The performance of our business was exceptional for both the quarter and 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 two 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 at $4.16 per share after excluding the $0.19 per share tax benefit but the change in life insurance holding periods that was recorded in the second quarter.

Now let's go through the results of each of our segments beginning with our two 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 premium 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 treatments 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 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 non-operating 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 re-measurement gain 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 combined 3% and electricity sales by 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 US 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 exploration of the CDWR contract in September of 2011.

You will also recall that Cameron LNG is now part of this segment, and lower gas prices coupled with the development cost for the liquefaction facility are affecting our U.S. LNG business and therefore the natural gas segment.

The Renewable 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 are 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 overtime.

We would expect to have a CAGR through 2017 of 8% to 10% assuming we are successful on just the few of these additional development opportunities. I'm looking forward to 2019, which should be the first full-year of operations for all three 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 are pleased with our great growth prospects supported by long-term contract and regulated assets.

Now, please go to Slide 9. We also felt it's important to 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 two California utilities include our estimate of the 2012 retroactive impact of our rate cases that will be booked in the quarter when 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 and power forecast includes the benefit from the gain on the sale of Mesquite. It is important to note that we also accelerated the completion of two large solar projects in 2012, which resulted in somewhat downward effect on our 2013 guidance for this unit. The international business unit range includes a dilutive impact of our reduced equity ownership in Sempra Mexico and the payout 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 - Chairman and CEO: Thanks, Joe. Now, I'd like to provide you updates on our businesses, beginning with the key regulatory subsidiaries at SDG&E and SoCalGas. On December of last year, we received a final decision on the CPUC and the cost of capital proceedings. That decision granted ROEs of 10.3% and 10.1% at SDE&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. (indiscernible) also called for SoCalGas to now use the same triggering mechanism as the other IO use 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're awaiting a proposed a final decision on our two general rate cases and based on recent communications with the assigned commissioner, we understand there have been resource constrains 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 the recovery of incremental wildfire insurance premiums at SDG&E. 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 two of this facility at a reduced power level for a period of five 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 requirement for the facility should be removed for 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 trans was $512 million, which includes rate base of $275 million. The remainder of the investment is made up of CWEP and nuclear fuel. Additionally, SDG&E recorded replacement power cost of $77 million in 2012.

On our wildfire cost 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 cost 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 our Memorandum Account last year to book cost related to PSEP, pending final approval of the plant. 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 it's actually cost of service, including an authorized ROE. We have requested and 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 our Western Proxy Group plus 50 basis points for our membership in (indiscernible) ISO plus an additional 50 basis points for business risk unique with SDG&E. The new rate should be effective on September 1st 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 260 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 625 megawatt block of 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 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 a formal FERC application making us one of only four 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 expected 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 prospect to LNG export. Both the common and response period for the study have expired and DOE should now be in a position to review application and grant permit. 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 result of this report should not have a significant impact on our timeline and we continue to effect to be ready to start construction on this facility early next year. The facility is now being designed to a nameplate capacity of 13.5 million tons per annum, providing an export potential of 12 million tons per annum. This increased capacity has raised our incremental construction cost estimate to $6 billion to $7 billion. The total cost of the facility, including the cost of our original facility plus interest during construction, financing cost, 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 facilities and we now expect the terminal to begin operations in the second half of 2017 with all three 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 various 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.

Transcript Call Date 02/26/2013

Operator: Faisel Khan, Citi.

Faisel Khan - Citi: Two questions from me and I will 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 - Chairman and CEO: Let me just remind you that when we talked about the plant and the cost of 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 this 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 us steady supply of export at 12 Mtpa. Our partners wanted the facility size 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 add downtime and still be able to export that on an ongoing basis.

Faisel Khan - Citi: And just on – I know you guys will limit in 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 little bit more granularity on that, I mean is it the country risk that is an issue or is it that 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 - Chairman and CEO: Faisel, these 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, yeah.

Operator: Stephen Byrd, Morgan Stanley.

Stephen Byrd - Morgan Stanley: I just want 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 are growing EPS, as you noted in remarks, you are excluding the earnings benefit from 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 - Chairman and CEO: Yeah. 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 are not going to quantify that amount, but if you looked at our 2013 estimate, the only exclusion that we are taking out of that for our growth projection would be the 2012 retro effect of the rate case.

Stephen Byrd - Morgan Stanley: Understood. So, that in the 430 to 480, it does have in it the retroactive impact and Mesquite as well or did I get that wrong on Mesquite?

Debra L. Reed - Chairman and CEO: It has both the retroactive impact to the rate case in Mesquite in the 430 to 480 and the range is wider than we normally would get because we have two years of rate case affect coming in to 2013 now because of the delay. Joe I think you wanted to add a little bit of color.

Joseph A. Householder - EVP and CFO: You're right, Mesquite is in there and that's sort of a one-time thing, but we also have some one-time 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 off that, it's not that big.

Stephen Byrd - Morgan Stanley: Then 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, do you have any further color on the risk inherent in some of these allegations that procurement was done improperly or anything further that you could say on just the situation with Mitsubishi?

Debra L. Reed - Chairman and CEO: We have had no access to any of the reports that have been published in the media. So, 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, 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 is to be shield warranty coverage, Mitsubishi will have. And that 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 situations. So I think this will be a prolonged process of trying to get to the root issues. Our focus is to ensure that when the facility is restarted, the Unit 2 is restarted, that is 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: Neel Mitra, Tudor, Pickering.

Neel Mitra - Tudor, Pickering: A question on liquefaction. In your slides now you're saying that it will 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 - Chairman and CEO: Yeah, 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 worth of liquefaction. So it's a very small amount in 2016. Now we're looking at it coming on – starting in the middle of 2017 and then all three trains being completed by the end of 2018.

Neel Mitra - Tudor, Pickering: 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 - Chairman and CEO: Yeah. I have Joe go through that with you.

Joseph A. Householder - EVP and CFO: So a couple of things are occurring. As I just mentioned, when Stephen was asking his question. We do have some one-time 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 will be mostly a one-time issue and then it won't be the same going forward.

Neel Mitra - Tudor, Pickering: Then it will come back to kind of what you've guided to in the last presentation?

Joseph A. Householder - EVP and CFO: Yeah.

Operator: Michael Lapides, Goldman Sachs.

Michael Lapides - Goldman Sachs: 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 last Analyst Day and just kind of how you are thinking about whether CapEx from here grows from 2012 levels, kind of flat lines, and declines, just big picture?

Debra L. Reed - Chairman and CEO: Yeah, if you look at the big picture of CapEx what we gave you at last Analyst Meeting is looking pretty good for the two 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 at SoCalGas are higher than that because we are now implementing the Smart Meter Program and we expect to get a decision on the PSEP and so the long-term at SoCalGas we gave you numbers last year of $1 billion to $1.2 billion over the five-year period. Those look like pretty good numbers over the five-year period and at SDG&E we gave you numbers last year of about $1 billion to $1.1 billion, which look to be pretty good over the five-year period at SDG&E.

Joseph A. Householder - EVP and CFO: This is Joe. Michael, if you see on Slide 8, those $14.6 billion capital program (and not to run the conference if you) 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 Lapides - Goldman Sachs: 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 - Chairman and CEO: Yeah, let me just try to go through that and then I'll have Joe add anything to it. But basically the only thing that was recorded in 2012 was an increase was 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 and 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'll be back to more of a normal basis. I don’t know Joe is there any…

Joseph A. Householder - EVP and CFO: No, that's correct.

Michael Lapides - Goldman Sachs: And then final item, how are you thinking now about growth on the US gas and 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 you are thinking as on both wind and gas-fired generation.

Debra L. Reed - Chairman and CEO: Well, we are very excited about the opportunity of 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 without. So, let me have Mark kind of go through that in a little more detail.

Mark A. Snell - President: Well, look I think obviously the big growth engine is going to be LNG that’s the thing that’s going to really grow the U.S. gas and power business, but until that comes online, I mean we do expect to, we have set a goal of about 1200 megawatts of renewables, we are at about 842 megawatts now and we would expect to reach that goal. We have lot of projects under development. I think they all look pretty good. That business –I think – look it's definitely being hurt by lower gas prices and lower power prices, but I think we have taken the appropriate steps to mitigate those realities and I think you are going to see good growth in that business especially as LNG comes on.

Operator: Mark Barnett, Morningstar.

Mark Barnett - Morningstar: A couple of quick questions I guess, maybe a follow-on to Michael’s question about U.S. gas and power. With the PTC extension, does that kind of increase your appetite from maybe some incremental development outside of what you talked about explicitly or maybe some additional M&A in that area?

Mark A. Snell - President: 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 extensions. So, we have got some catching up to do, but I do thing and it might lend itself to another one project or two.

Mark Barnett - Morningstar: I guess now I have got quick question on equity offerings, not about offering itself I guess, but will the kind of 15% to 20%, will that change kind of your debt financing strategy significantly for this current round of infrastructure projects?

Debra L. Reed - Chairman and CEO: 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: I understand. Maybe you can this one might not cross any line, you can answer this to maybe replicate that elsewhere 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 - Chairman and CEO: Yeah. 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 we've already done really in Peru. So, Chile would be then next area where we would look at that potentially.

Operator: (Paul Patterson, Glenrock Associates).

Paul Patterson - Glenrock Associates: Just a quick – 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 - Chairman and CEO: I'll have Joe talk about it, but a lot of this has to do with the timing of cargos 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 - EVP and CFO: Sure. Paul I think last year if you looked at last year's slides, we said there have been some like $18 million of income we made from LNG marketing activities. It wouldn't reoccur and there is various things as cargo. But natural gas prices slightly impacted some higher cost around the liquefaction development costs impacted. But we don't give detail as per 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 we're looking forward.

Paul Patterson - Glenrock Associates: So it's kind of a timing issue and not something that we should be…

Joseph A. Householder - EVP and CFO: It was mostly a timing issue between years, making more in one year and less in the other.

Paul Patterson - Glenrock Associates: Then in the balance sheet the sundry items I asked about this in the third quarter and again it seems like its jumped a bit here in the fourth and I'm just wondering what was it that's making it grow by about $100 million plus and did that impact EPS, whatever that items was or items were?

Debra L. Reed - Chairman and CEO: 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, if he's looking.

Paul Patterson - Glenrock Associates: While he's looking at that, maybe throughout the rabbi trust or something but while he's looking at that, and just wondering on the LNG, just to clarify that you guys are spending more. Do you expect that 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 - Chairman and CEO: Yeah. I think that our ROI you should assume it's within the same type of range as we've talked before. We are looking just to give you a kind of general range. We are looking at when all three 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 - President: Paul, this is Mark, if you recall last year, 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 tons per annum. That was really a decision of our partners. So they're asking for us to make these modifications in our original thinking and obviously we 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: Then just on the non-FTA, Christopher Smith, the Deputy DOE guy made some comments (Indiscernible) that have been sort of – that I guess have picked up some coverage on what have you in terms of more caution et cetera with respect to non-FTA countries apparently. Is that sort of figured into your estimate 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 yours thinking was?

Debra L. Reed - Chairman and CEO: Yeah. 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 a 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 are going to always here some other side of that, but I think the momentum is largely moving into the direction of approval. I'll ask Mark, because he's actually been meeting with some of the elected officials in the 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 - President: Look, I think all 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 talk to are supportive of exports, but I think what's most important and direct to your question, we expect to get the FDA approval this year. We actually expect to hopefully to get it in the first 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. It's really not affecting our timing, as long as we get at 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: The sundry items, did you guys come up with an answer yet or…?

Joseph A. Householder - EVP and CFO: Paul, we have an answer. I like your detailed orientation. For the $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 of credit fees that got put in there and those get amortized overtime. 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 was about $31 million of earnings from the (Rabbi Trust).

Paul Patterson - Glenrock Associates: Is that after-tax?

Joseph A. Householder - EVP and CFO: That's a pre-tax number.

Operator: Ashar Khan, Visium.

Ashar Khan - Visium: Debbie, going back to your remarks, pretty comprehensive (on Doran's 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 - Chairman and CEO: 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's where we're headed right now is to be able to do that.

Operator: Michael Goldenberg, Luminus Management.

Michael Goldenberg - Luminus Management: 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 ($700 million) so the math works. I just want to confirm that all those numbers are correct?

Mark A. Snell - President: Yes, it's more related to the cost than it is for the size but yes you are on the right track.

Michael Goldenberg - Luminus Management: And then one question on utilities, the benefit from putting 2012 rate case into 2013, how much is that?

Debra L. Reed - Chairman and CEO: We are not going to give that type of level of detail.

Michael Goldenberg - Luminus Management: The case is pending remember?

Debra L. Reed - Chairman and CEO: It's in our guidance and we have done our estimate in our guidance and we will let you do your own estimate.

Michael Goldenberg - Luminus Management: Is there any way 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 - Chairman and CEO: No, I really can’t go there, I think you saw 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 have the kind of numbers that we have to come up with an estimate.

Operator: Faisel Khan, Citi.

Faisel Khan - Citi: 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 give us some details on that, that will be great.

Debra L. Reed - Chairman and CEO: 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 consistent…

Joseph A. Householder - EVP and CFO: It will be very consistent with last year.

Debra L. Reed - Chairman and CEO: Yes, with last year and last year's plan that we gave you, so I mean nothing that is as a significant change to last year – last year plan.

Faisel Khan - Citi: So, even with the powering up of Sunrise and I guess some of the reduction in capital and renewables you still expect CapEx to remain…

Joseph A. Householder - EVP and CFO: Yeah let me remember…

Debra L. Reed - Chairman and CEO: Yeah. Let me remember at SoCalGas is where we're really starting to spend some money now and then in Mexico, we just received $1 billion worth of the pipeline, two pipelines and then another project in the JV with PEMEX and so the total CapEx is not occurring so much in a renewable space, but that now we want to move to our utility at SoCalGas and then our business in Mexico.

Faisel Khan - Citi: Then for U.S. gas and power, what kind of assumptions are you guys using for the remaining component of your generation portfolio in terms of capacity factors and sparks spreads?

Joseph A. Householder - EVP and CFO: Well, again, we just used 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 - Chairman and CEO: Just remember not only do we have this 625 megawatts block to sell, but then we've also sold another blocks starting in 2015, that's 241 megawatt. So, we got down to where we own a very small portion of that facility and then it hedged over the next couple of years closed to that 241 megawatt that we sold forward starting in 2015 for 25 years. So, there is 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.

Faisel Khan - Citi: Then just there is 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 - Chairman and CEO: No, I think it's funny because we bought that project from Questar and converted that 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 would have to look at 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 have been focused on greatly.

Faisel Khan - Citi: On the cash flow statement looks like last two 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 that some sort of permanent reduction in working capital that's a drag on cash flows.

Debra L. Reed - Chairman and CEO: I’m going to turn that over to Joe and Trevor to do the reconciliation on the cash flows.

Joseph A. Householder - EVP and CFO: Trevor you want to answer that?

Trevor I. Mihalik - Controller and Chief Accounting Officer: Yes, your question specifically relates to?

Faisel Khan - Citi: So, in 2012 negative working capital outflows of $630 million in ’11, you also had working capital outflow of $224, so I was trying to match operating cash flow.

Trevor I. Mihalik - Controller and Chief Accounting Officer: Primarily those there is – those working capital outflows are the right balance (accounts) well as the wildfire payments that we received in 2012 that’s almost $400 million that came in, so there is an adjustment there.

Faisel Khan - Citi: Okay.

Joseph A. Householder - EVP and CFO: The significant portion of it Faisel, is regulatory balancing account changes coming in and out.

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

Debra L. Reed - Chairman and CEO: Well, thank you all for joining us today. 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.