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Good day and welcome to the Sempra Energy First Quarter Earnings Conference Call. This call is being recorded.
Now, at this time, I would like to turn the call over to Faisel Khan, Vice President of Investor Relations. Please go ahead, sir.
Thank you. Good morning, and welcome to Sempra Energy’s first quarter 2018 financial presentation. A live webcast of this teleconference and slide presentation is available on our website under the Investors section.
Here in San Diego are several members of our management team including Jeff Martin, Chief Executive Officer; Joe Householder, President and Chief Operating Officer, Trevor Mihalik, Chief Financial Officer, Dennis Arriola, Chief Strategy Officer and Executive Vice President of External Affairs and South America; Martha Wyrsch, General Counsel; Peter Wall, Chief Accounting Officer and Controller, Allen Nye, Chief Executive Officer of Oncor.
Before starting, I’d like to remind everyone that we’ll be discussing forward-looking statements on this call within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in the Company’s most recent 10-K and 10-Q filed with the SEC.
It’s important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis, and that we’ll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and the Table A in our first quarter 2018 earnings press release for a reconciliation to GAAP measures. I’d also like to mention that the forward-looking statements contained in this presentation speak only as of today, May 7, 2018, and the Company does not assume any obligation to update or revise any of these forward-looking statements in the future.
With that, please turn to slide four, and let me hand the call over to Jeff Martin.
Thanks, Faisel and welcome to the team. As much as we enjoyed filling your questions in the past, it’s nice to have you on this side of the call today. I’ll start by thanking Debbie Reed and acknowledging the pivotal role she’s played in Sempra’s growth and success. This Company clearly would not be in a position it’s in today without her leadership and vision. Our succession plan was designed to ensure continuity of leadership, and the recent executive appointments demonstrate our commitment to continue our focus on delivering long-term value creation for our shareholders. I’d also like to welcome everyone into their new roles as well as the Oncor team and to thank Allen Nye for joining us today.
We were just in Dallas a few weeks ago meeting with our top 200 leaders and could not be more excited about the opportunities that lie ahead. Oncor’s strong, pure play electric T&D business solidifies our footprint in the Gulf region and just as importantly, improves the scale and diversity of our domestic utility earnings. With these changes, I’d like to reiterate that Sempra’s value proposition still holds true. Our team remains focused on pursuing strong growth with the utility like risk profile. We remain committed to maximizing shareholder returns through strategic, disciplined investments, and growing dividends. Lastly, we’re reaffirming our 2018 adjusted EPS guidance of $5.30 to $5.80 per share. In doing so, it’s also important to point out that we’re tracking two non-cash items that could impact this guidance range later in the year. Trevor will cover those later in the call.
Please turn to the next slide. As we highlighted on the fourth quarter call, we have four near-term priorities. First delivering on our growth strategy; second, executing on our California regulatory goals; third, ensuring that all three trains at Cameron produce LNG in 2019; and fourth, continuing to analyze opportunities to strengthen our balance sheet to support future growth, which we’ll address in greater detail at our upcoming analyst conference. Let me start first with growth.
We have improved visibility into our long-term growth strategy with the closing of Oncor, almost one month earlier than planned. Oncor’s a substantial addition to our business mix and creates a significant platform for us. We’re expecting our portion of Oncor earnings for the partial year of 2018 to be in the range of $320 million to $360 million. Also, you’ll recall that to support that transaction, we executed on a $9.6 billion financing plan. The $5 billion of debt that we raised was approximately five times oversubscribed and the $4.6 billion of equity and equity linked offerings were well over three times oversubscribed. Additionally, it’s worth noting that over 80% of our equity offerings were allocated to existing shareholders.
Second, we’re moving forward with our California regulatory priorities. In April, our California utilities submitted updated rate case testimony that includes projected impacts from tax reform. We’re pleased to say that this will benefit our customers through lower projected builds at SoCalGas and through increased wildfire mitigation investments at SDG&E with no expected impacts to bills. Additionally, ORA recently submitted their testimony which keeps the process moving forward. We expect TURN and other interveners’ testimony will be submitted shortly. We’re focused on advancing these rate cases as they will help our California utilities continue to provide safe and reliable energy to the communities they serve.
With regard to protections for wildfire risk, we along with other stakeholders continue to execute a three-part strategy to help protect our customers, and just as importantly, help ensure the long-term health of our California utilities. In fact, we’ve seen good progress over the last several months. First, together with others, we’ve helped lead an education campaign with the Governor’s Office, Legislature and Public Utilities Commission. In mid March, the Governor’s Office legislative leaders issued a statement recognizing the need to sign a comprehensive solution to the increased threat from natural disasters and climate change, which includes updating liability rules and regulations around inverse condemnation, recognizing the need to build and operate infrastructure to increase resiliency, examine availability of insurance in areas at risk from wildfires, and needing to modernize utility practice and procedures around fire prevention.
Second, there have been positive developments on the legislative front with several bills being introduced. Two notable concepts were introduced in these bills. The first of which was the need to adopt standards across the state to reduce wildfire risk; and second, the need to establish objective and measurable criteria that can form a part of a new prudent manager standard for utilities going forward. While the current text of the bills don’t specifically address inverse condemnation, we and other stakeholders are also looking to separately address this issue in Sacramento.
Third, we are making great progress with Cameron trains one through three. To be clear, this is one of our top priorities. We continue to expect all three trains to be producing LNG in 2019. Recall, at the end of last year, we reached a settlement agreement with our contractor to resolve all claims. This was important because it better aligned the parties’ interest with the goal of having all three trains producing LNG in 2019. We continue to believe this agreement puts both the contractor and Sempra in a stronger position to meet the current schedule. We are also pleased with the recent shareholder approval to combine McDermott and CB&I, which we believe improves our contractor’s overall delivery capabilities and financial strength.
And finally, on the growth front, IEnova recently announced award of $130 million liquid fuels project with two strong multinational counterparties. The project has 15-year U.S. dollar denominated contracts for 100% of its capacity. It also capitalizes on the continued build-out of infrastructure related to Mexico’s energy reform by increasing fuel supply capacity in Mexico. In turn, this further helps Mexico’s energy mix become more reliable and gives consumers more fuel choices.
Please turn to the next slide where Trevor will walk us through the quarterly results. Trevor?
Thanks, Jeff. Earlier this morning, we reported first quarter earnings of $347 million or $1.33 per share. This compares to first quarter 2017 earnings of $441 million or $1.75 per share. On an adjusted basis, we reported earnings of $372 million or $1.43 per share. This compares to first quarter 2017 adjusted earnings of $438 million or 1.74 per share.
Let’s turn to the next slide where I’ll discuss the key drivers impacting the quarterly results. I’d like to start off by highlighting our operational performance, which included $22 million of higher earnings at SoCalGas, primarily due to the effect of a lower income tax rate in 2018 on the higher margin of the first quarter, $15 million of equity earnings from our investment in Oncor, beginning March 9th and $8 million of higher pipeline earnings, primarily attributable to assets placed in service in the second quarter of ‘17 in Mexico.
Our adjusted quarter results were also impacted by the following, $94 million of higher losses at parent, which include higher net interest expense and preferred dividends and $23 million of lower earnings due to the recognition of AFUDC in the first quarter of ‘17 at Mexico. This was partially offset by $14 million of higher earnings due to the application of revised seasonality in 2018 at SDG&E. I would note however that this does not impact their full-year results.
Now, let me talk about two non-cash items that we are tracking that could impact our full-year adjusted earnings guidance, which Jeff briefly mentioned. First, we you’ll recall that our primary foreign exchange-related exposures in Mexico are related to the taxes on our U.S. dollar denominated debt and deferred tax balances. Consistent with prior years, we continue to hedge the monitory positions so our upside and downsides are limited with respect to large currency movements. Related to this, we’ve updated our 2018 FX rules of thumb. You can find these rules of thumb in the appendix. Importantly, we’re closely monitoring the currency movements but it’s still fairly early in the year.
Second, we’re continuing to evaluate tax reform and its impact. While the territorial tax system increased the value of our international businesses, we believe the component of it, the global intangible low tax income is impacting us as an unintended consequence of tax reform. A law was intended to prevent transfers of intangible assets to low tax jurisdictions, which clearly is not our case. This quarter, the tax was an $8 million expense with an estimated full-year impact of approximately $24 million. It could also reduce our earnings in future years by similar amounts but declining over time. We’re hopeful that this issue will be fixed with updated regulations or legislation before the end of the year. But until this happens, we’re recording the tax as part of our earnings.
Now, please turn to the next slide while I hand it back over to Jeff.
Thanks, Trevor. We’re excited to be hosting our analyst conference next month in New York where we’ll be providing important updates regarding our future business plans. We’ll review our overall strategy and vision, updates on each business segment and our overall capital and financing plan including how we expect to recycle capital. We’ve spoken to many of you and consistent with the feedback we’ve received, will be updating our approach to guidance by laying out our earnings expectations for the next three years. In doing so, our goal of this year’s conference is to provide a detailed view of how we plan to create shareholder value well into the future. We hope you will be able to join us in New York. The date of our conference is June 28.
And with that, we’ll conclude our prepared comments and stop, to take your questions.
[Operator Instructions] We will hear first from Julien Dumoulin-Smith. Go ahead, please.
Hi. Good morning. Congratulations. So, a couple of quick questions here. Can you elaborate a little bit further on the pace of sensitivity and just how you think about your set of hedges to the extent at which that they might not necessarily be linear with the previous disclosures? And how to think about the sensitivity impact you’ve just announced just to get that out of the way for ‘18 but more importantly beyond?
You’ll recall that we tend to focus on two different baskets, Julien, when we talk about FX as we’ve got the deferred tax assets and into the future we also kind of hedge as we’ve talked about in the past our current monetary liabilities. So, for the quarter, we had FX and inflation impacts of roughly negative $30 million. The two key takeaways I’d give you is you got to remember that IEnova and all those projects are U.S. dollar denominated. So, that impacts how we account for those cash flows. And you can see this in table F. If you look at table F, it gives you a better sense of underlying economics of the IEnova. And the second point to reiterate is it’s a non-cash impact. So, what we do is each year we use some form of costless collar, and that reflects how we hedge our current monetary liabilities.
And then, as you think about future years, so the second part of your question, that gets reset every year. So, as you go into next year, those hedges roll off and we hedge the forward year. So, from a guidance standpoint, we don’t think about the future any differently because of results in Q1.
Perhaps just a follow up on that. Obviously, over the last few days, we got some developments in SoCal around some gas pipeline effort. Can you talk about some of the mitigating factors there on that specific project more broadly? And also just maybe, to hit the gas demand question for SoCal, obviously we’ve seen a number of developments throughout thermal projects more broadly. How do you think about gas demand and more importantly gas infrastructure demand in light of the latest pipeline developments with PD?
I think you are referring to our pipeline safety and reliability project. And for some context, Julien, this is part of the overall PSEP program that the Commission kicked off back in 2011 where they asked all of the natural gas transmission operators to ensure that these are either pressure tested or replaced pipelines. Typically, these are pipes that are old or vintage that had not been previously tested. And the pipelining question is referred to as we refer to as line 1600. This is one of two lines bring gas north to south into San Diego. It is either old or vintage. And what we’ve done is we’ve filed for that project really under the PSEP program with a view toward replacing the larger diameter pipe. And in this proposed decision, what it appears is they’re focused on that we -- they prefer that we either pressure test it or rescission portions of it, replace portions of that pipe. I think at this point in the process, it’s relatively early. But our goal is just to make sure we work with Commission and staff and stakeholders really around one view, which is to make sure the pipe is safe. So, that’s kind of our approach going forward. And I don’t think I’ll read into it in terms of how we think about gas demand going in the future. We have got over 90% of the state’s heating and cooking that’s done with natural gas. So, this is more about a safety issue, making sure that we are being responsive to the 2011 order from the Commission.
And now, we will take a question from Greg Gordon with Evercore ISI.
Just to confirm what you said earlier that these impacts -- these currency impacts are noncash. So, the ongoing impact on the underlying economic value of the business is really not material, [multiple speakers] right?
That’s correct.
And then, what form might we -- in order to look forward, so we understand the implications of the potential for clarification on this tax issue? Is that something that the treasury could fix through issuing a rulemaking? Does there have to be a formal legislative patch? Could it be one or the other? Can you explain to us what the paths for clarification on that issue are?
I’ll touch and then I’ll pass to Trevor to provide additional clarification. But, this is one of these things that inadvertently came up as part of the overall tax reform package. And the way the calculation works is it picks up companies like ours that actually own controlling interests in foreign jurisdictions. And so, we’re planning on working with treasury to get some technical corrections. But Trevor, you might want to provide additional color for Greg.
So, yes, we are looking at trying to see if treasury would be willing to work with the companies to get a technical correction on this. Right now treasury is working through it. But if you take it as the black letter of the law, treasury is saying the way the law reads it’s inadvertently and they acknowledge that it’s inadvertently picking up companies. So, we’re looking at a path either through a technical correction or through some kind of legislative fix on this.
Thank you. Joe, if you don’t mind, could you give us an update on how things are going vis-à-vis productivity at the Cameron site? There has been some concern that A, at a high level, the unsolicited bid for McDermott could cause some inadvertent risk to your revised transaction, to the revised structure of the deal. And then two, away from your project that CBI recently announced the delay in another project which caused people to then move back and start worrying about Cameron. So, can you give some -- to the extent you can give us some of comfort or color around those things that would be helpful.
Yes. I was just at the site two weeks ago. And I was there and we had our Cameron LNG board meeting at the site. And we toured the site and I can tell you, it was pretty impressive. There was substantial progress their compared with the last time that I had visited with the other board members from Japan and from France. And we had a very good meeting. We took a long tour. The substantial work going, CB&I and Chiyoda still maintain that they are on the path to get us LNG from all three trains in 2019. It’s looking very good. I was very impressed with the productivity I saw with the number of people there with what they were doing. So that was all going well.
As to your question about the CBI McDermott merger, yes that was two weeks ago a little bit of a scare, but both companies voted to approve the merger. So that’s moving ahead and supposed to close on the 10th. So, we expect that is moving ahead. Certainly, when we saw the Subsea offer to McDermott, we all started looking at that and what would it do. But frankly things are going well at the site. So, we were prepared to deal with that, should it have gone that direction. But, I’m happy to say that it’s moving down on the right path.
And then, the Freeport delay, is there any reason for us to make a read through there as to the ability of your -- the JV to complete the project on the current schedule?
Thanks. Look, I’m not going to talk about the Freeport project, but I don’t think there is any read through there. They reported that I can say through the scope, but that wasn’t little bit surprising. A lot of it I think had to do with the floods that they had in Houston which has more impact on them than it had on us.
And now, we will hear from Ryan Levine with Citi.
The recent movement in Permian gas differentials and recent competitor pipeline announcement push out the time line to develop P2K, or is everything moving unchanged?
Thanks for that question, Ryan. And congratulations on your promotion. That’s an important project for us. We are monitoring that situation. At this point, we don’t have an update on P2K other than what we’ve said publicly in the past.
And then, could you frame the incremental investment opportunity regarding SDG&E’s wildfire, potential wildfire mitigation program?
One of the interesting things about that program is we’ve started back in 2007, I think our experience back then has really informed our approach hardening the system, improving our standard operating procedures around wildfire and climate change risk, including I think just probably over half decade ago, actually starting an active program of deenergizing the circuits on a case-by-case basis when we are in extreme weather, and we thought that safety was in doubt. And in terms of the capital programs, the biggest one we have going forward right now is obviously the Cleveland National Forest program that’s between $600 million and $700 million capital project. And what it’s doing Ryan is it’s upgrading over 80% of our 69 kV and above circuits in the backcountry, most of which are in the most dangerous wind condition areas. And moving that from wood to steel poles and they are using wider conductors or spreads, but they will be continuing to assess ways to take and deploy capital, make the system more safe.
And then, last question for me, what’s the current outlook for ICA’s midscale projects and what size trains are currently being contemplated?
One of the things we are looking forward to doing at the analyst conference is providing full update on each of our development projects. Obviously, over the last three to four years, we have been relatively bullish on that 2023 to 2025 window. So, that’s something we are looking forward to providing updates on. But, Joe, do you want to give a quick update on kind of how you think about the size and the midscale versus the full scale project down in Baja?
We have the project, as I mentioned before, fully permitted for the large scale facility at this point in time. And we are getting a lot of interest, as I’ve mentioned in the midscale facility that could be done more quickly and get to market sooner. So, we are talking to potential customers on that but also continuing to talk to customers about the large-scale. And we will see through this year how we think about which way to go there, and the site and accommodate both. But, we currently are permitted for the large one we are seeking potentially to have a carve-out of some of that permit for the midscale. So, we could move forward with that more quickly. And that’s what we choose to do. But there is a lot of customer interest for getting the LNG earlier in the cycle and that’s what we are focused on today.
And our next question will come from Michael Lapides with Goldman Sachs.
I’m looking at slide -- and could you remind me the rate base -- the weighted average rate base on an apples-to-apples comparison, so excluding FERC assets for San Diego Gas and Electric? What that was in 2017, the California rate base for 2017 for SDG&E and SoCalGas?
We will track that down for you on the call. I’ll give you one feedback is in the revised GRC filing, which we noted, just in terms of eliminating the bonus depreciation for 2019 adds $400 million of rate base in 2019 going forward. And I’ll pass the comparison to Trevor and you can give that feedback to him, Trevor.
Sure. Good morning, Michael. The rate base for SDG&E at the end of the year for CPUC was about 5.4 billion and for SoCal it was about 5.9 billion. And roughly that’s pretty close to where it is today. They’re roughly equal.
Got it. And could you just remind us, that’s a pretty big growth rate year-over-year of I think about ending 2017 versus weighted average 2019. If I think about that as a compound growth rate, that’s a pretty big uptick and then I assume it’s kind of pretty similar as you filed going out into ‘20 and ‘21. What are the biggest drivers of that?
I think if you think back over our analyst conference, year-over-year we’ve always been messaging, Michael, around kind of a five year capital deployment at both utilities of around 12 billion and that backs into roughly 1.2 billion a year per utility. And that will vary depending upon the year and the cycle. But most of SDG&E’s investments have come around modernizing its distribution transmission grid. A lot of this has to do with improvement to substations, line extensions, adding to new growth. And some of the capital programs we’ve put in place at the time and honestly, even utility like I referenced to Cleveland National Forest project is a big driver currently. The two SDG&E I’d refer to would be a Cleveland National Forest project and the SOCR project, which is the Southern Orange County Reliability project which was an important upgrade for us. And then at SoCalGas, most of this has been driven by their tip and dip programs as well as some of their PSEP work.
Got it. And how -- in the ORA testimony, it seems there’s multiple things that one could take as a positive. Just curious, how are you looking at the potential for your even settling a rate case? I know, it’s been a long time since we’ve seen a California utility actually settle one. But, you never say never.
Well I would start with saying, it’s early in the process and it’s probably too early to read too much into the ORA filing. Two things, I thought that we were somewhat optimistic about which was their recognition of the need, Michael, for a four-year rate case cycle. I think, probably over time, this is probably the path I think California is heading towards. And secondly, they also picked up our request to have two way balancing for wildfire insurance. But to the larger issue is, this is obviously an important rate case for us. It’s one that we’re following closely. You’ll remember being premised around the ramp filing. So, this is really important that we’re kind of trading hierarchy of capital requests regarding what we think is most important from a safety standpoint. And I’ll pass it to Joe to provide some more color.
Thanks, Jeff. I just wanted to go to your question about settlement. Our history has been that we seek to find common ground with the other parties and believe settlements are efficient and effective for everybody. So, we’d continue to certainly work with the parties towards that end. We think that the other interveners are filing testimony next week. And so, expect for our last cycle when the Commission just wasn’t in a position to move forward on that, we’ve always worked to settle our cases.
Got it. One last one, guys, I apologize for monopolizing some of the time. What significant capital investment opportunities that either of the two utilities -- and that aren’t necessarily approved yet today are outside of the TRC filing, meaning might be done in separate side dockets at the CPUC or might be FERC related assets?
Look, I think probably the best place for us to address that is probably at the analyst conference. But, one of them we talked about it earlier was the PSRP project which is a Pipeline Safety and Reliability Project that’s between 600 million and 700 million. That’s the one that we got a PD on where they recommended a different solution. Also, when it came up in the ORA filing is issue of OMEC. You may recall there was kind of the put call feature with Calpine relating to the their Otay Mesa. That’s something that could come into our plan depending upon the outcome of that. But, you are right, there will be filings outside of the rate case. Cleveland National Forest was an example. But, in terms of forward-looking projects, those are ones we’ll try to address for you later in June.
Got it. Thank you, Jeff. Much appreciated, guys.
Just one point of clarification with regards to the GRC, we have received ORA, we just haven’t received TURN. We expect to receive TURN later this month.
Now, we will move to a question from Paul Patterson Glenrock Associates.
Just to circle back on the tax thing. Do you guys have intangibles overseas? And is there transfer pricing or transactions occurring or is it just -- could you just elaborate a little more?
Yes, Pau. This is the global intangible tax. We don’t really have any intangibles overseas. This thing was designed to target folks that were moving intangible earnings from one jurisdiction to a lower tax jurisdiction. We are not involved in anything like that. We just got controlling interest in foreign companies. And this has inadvertently picked us up. And by the way, it’s hitting other industries beside the utility industry. And that’s why we just want to make sure we get the technical correction as soon as we can.
Hey, Paul. This is Joe. The other interesting thing is now with tax reform, the U.S. has the lowest tax rate of the countries we are in, so it will make no sense for us to transferring it. But, Jeff is right. I mean, we have intangible technology, but we are not transferring it from one company or one country to another.
And then, just on the -- it sounds like, if I heard you correctly, the inverse condemnation issue, you plan to have separate legislation in Sacramento. Is that correct? And just if you could elaborate a little bit more on the timing or how you thought that might show up?
Paul, we’ve got kind of this three-tiered approach, so obviously we are going to exhaust our regulatory remedies of the commission related to our WEMA, [ph] request for rehearing. We are also working with stakeholders up and down the states to try to find a legislative solution. I think you saw in our prepared remarks, there’s been several different bills have come forward, some of which are constructive and some of which are less constructive. But in terms of whether we expect legislation this year and next year, our goal to work with all the parties and states to see if we can get something done this year that remains our goal.
And do you think inverse condemnation be part of these bills or do you think it will be separate bills? I’m sorry but I’m little bit confused by the statement.
The bills have come forward today have not fully addressed inverse condemnation. So, we are hoping to have a bill that comprehensively addresses that. But, I think what’s interesting is, the dialogue across the state now is really starting to recognize that this is not an industrial and utility issue. This is the state of California issue. This has to do with residential owners and whether they can procure insurance. It impacts municipal utilities and impacts insurance companies, the trade unions are involved. So, this is a large issue across the state. And I think what we’re looking for is a bill that comprehensively addresses all the impacts from land use management to liability rules impacting utilities.
Next, we will hear from Lasan Johong Auvila Research Consulting.
Couple of things. First of all, you had a month and a half to look under the kimono at Oncor. Any surprises, good or bad, or any changes, CapEx changing at Oncor?
We’re pleased to have Allen Nye, their CEO join us today on the call, Lasan. And as I indicated above, I attended my first Board meeting there with Debbie who is also on the Board with me. We’ve gone out there and met with their top 200 leadership group. I think, one of the things that’s most exciting is from a cultural standpoint in terms of how they lead that Company, their priorities, their commitment to using capital to lower the cost of Texas consumers is very much in line with how we do business. So, I think just from a starting point, the culture and the fit is going very, very well. And I thought, I might just past it to Allen to talk about anything that he’s seen on the horizon. He is excited about in terms of his capital plan and some of their priorities.
Yes. Thanks, Jeff. And I couldn’t agree more, after all we’ve been through, we’re thrilled to be here. We agree with you, it couldn’t have gone any better so far. So, thanks for that. With regards to capital, we already have a robust $8.4 billion capital plan over the next five years. We’re in a state that’s growing. There is good growth in our state. We are seeing residential premise growth at 2% and consumption growth around 1.5%, consistent with what we’ve seen in the last few years. So, there is good growth. We’re going through the planning process with our Board and we’ll look at a capital plan again in October. That’s kind of where we are right now and again we’re really glad to be here.
Jeff, until Oncor acquisition, most people looked at Sempra as gassy company. Obviously acquisition of Oncor has just dramatically changed the make-up of Sempra. Going forward, do you care whether it’s an -- Sempra is more electric or more gas or do you want to maintain an even 50-50 kind of split or does it matter at all to Sempra and its shareholders?
Lasan, it’s a great question. And given your coverage over the last 10 years, you’ll recall in the middle part of last decade, we had a very large commodity business. We had a an IPP fleet in the west that was close to 3,000 megawatts. I think what you’ve seen us do really is pivot over the last five to seven years to be more of an infrastructure company. So, we’ve moved away from all of our combined cycle plants. I think we’ve got one last plant down in Mexicali that we got held for sale. We obviously disposed off our commodity business. And look, we certainly think the whole theme of electrification is a hard trend. We think that natural gas has an important role to play in terms of supporting move toward cleaner energy. But, there is no question that our company is focused on businesses just like Oncor where we can participate more in the infrastructure side of our business and then from a procurement and generation of electricity.
So, you don’t care whether that’s from gas or from electric?
No, we don’t care necessarily. But I certainly think we have growing interest in a lot of the very positive trends that are taking place around batteries, renewable energy, electrification, transmission and distribution, particularly Lasan, in growing markets like Texas which is a core opportunity for us.
Last question for Joe, I guess. You talked about the need for more demand to be filled out in Asia. Does that mean that Sempra is likely to try and do a midscale LNG facility first and then build a larger second phase or would you be doing at -- would you be looking at two smaller midscale opportunities back to back?
Thanks for that question because it is an emphasis. LNG is definitely a part of our strategy and so gas is important to us. And with respect to ICA, we haven’t made a firm decision yet about how we are going and we are going to use the market to tell us a little bit about what direction to go here. There is tremendous interest in that facility because the buyers do not have to take LNG through the Panama Canal. And so they really would like to see if it’s already built there. And I think the market is going to tell us the right answer. I think we would not be likely at all to build two midscale facilities. If we go to large scale facility we will do that and we could still build a midscale on top of that. If we build the midscale first, we can still go with the large one. There wouldn’t be a circumstance probably where we would do two midscale facilities. They are going be in two different locations on the site.
And next Ashar Khan with Visium. Go ahead please.
Jeff, can I just ask, so I don’t get this wrong because there is a lot of confusion. So, as you correctly pointed out that the currency translation is a noneconomic number for 2018. And as you said in your presentation that you will be providing us with forecast for 2018 and ‘19 and ‘20 at the analyst day. So, will that noneconomic number or the number that you’re showing for this year, the sensitivities, will those sensitivities also have an impact for 2020, because the currency has moved against us, the Mexican currency, since December 31 of last year or is that only in reference to the year 2018 and hence it has no impact when you share with us your updated 2019 and ‘20 numbers?
Ashar, let me start with saying thank you for joining the call, and I appreciate the question. The impacts we are talking about are confined to 2018. So, it won’t have any impact. We will update our numbers at the analyst conference and any changes to our rule of thumb. But I’d also mention to you that over a longer period of time, the peso has been weakening against the dollar. So, you go back to the time that we did our IPO of IEnova several years ago, the peso was at a much lower exchange rate. And even since the end of Q1, the dollar strengthened pretty strongly against the peso. So, you’re going to see these types of moves quarter to quarter. But in terms of for in guidance now this confined to 2018. There obviously will be ongoing impacts to the deferred tax assets but primarily what we are focused on is the current monetary liabilities, and that’s a 2018 issue.
And now, we will hear from Steve Fleishman with Wolfe Research.
Just curious upon the asset rationalization and rest of the financing plan. First of all, have you had any discussion with the rating agencies subsequent to closing and how did that go and kind of maybe give us a sense of what you are targeting? And secondly, I guess, you could have just done this all with equity. So, if you pursue whether options to complete the financing, it would be better than having done just more equity?
Maybe I will give you a little bit of context. But, if you go back, one thing you may want to reference is we have this conversation on slide 14, there is a little bit of the recap of our financing. I think to start with kind of the key takeaway’s we raise $9.6 billion in January. We had innumerous meetings with the rating agencies last fall and as part of that they’ve asked us to kind of target a equity ratio of 65% and that we would fill that out over 18 months or so, which is really the second half of 2019. And if you apply that 65% target ratio against the 9.6 billion, it meant that we were looking to raise roughly $6.24 billion of equity. And you’ll recall we’ve got about $4.6 billion that we’ve addressed so far. So, we’ve got another $1.64 billion of equity. And I use that number notionally. I’m just harkening back to those rating agency conversations.
And to your point, yes, we’ve met with the rating agencies this year in New York around both of those issues including how the agencies think about increased risk from the regulatory model in California. So, as we go through this capital rotation process, as we look to optimize our repatriation program and also optimize our internal cash flows and management across our business, our goal is to try to preempt as much of that $1.64 billion of future equity as we can. So that’s one priority.
Secondly, one of the interesting observations from the credit rating agencies was how much they valued the diversity of our model. So, as opposed to being a company that has the majority of this assets just in California, they view the acquisition of Oncor and the diversity into another regulatory market quite constructively. And interestingly, Steve, they also felt like the diversification in Peru and Chile also had notable benefits from a qualitative standpoint.
And then, maybe just in terms of on the LNG and Cameron, so any better sense of kind of the timing within 2019 for the trains to produce LNG and just how long is there between starting to produce to being officially commercial?
Right. Just as a brief comment, I’ll pass it to Joe, if he wants to add some color. But I said this in my prepared remarks, then this is essentially the top priority for us. We understand, Steve, the impact that this means to us from a credit standpoint and from an earning standpoint. And we have had delays in the past. We are working very aggressively with our partners to stay on track here. So, our fundamental view of turnkey in all three trains next year, so they are in a position to produce LNG is unchanged. But Joe, just because you were at the site briefly, do you want to add any additional color in terms of how we’re thinking about it?
Look, we’re not going to give a pinpoint date of each. We definitely have dates that we are working toward, but we still have one more rainy season, one hurricane season to get through. So, look, I think, you are going to see the three coming on line earlier in the year, mid part of the year, later in the year. And I think that’s what we are moving toward. As we get closer to having the first phase done, we will be able to give you a little bit more color, but that would be later in the year when we will have more certainty. And then each one takes several months to get the commissioning done and then get into revenue. So, clearly, we are going to have revenues from train one and train two as we move through. And then, the question about train three will sort of be when do they get done, towards the end of ‘19 and we just don’t have a precise date for that yet.
And then, lastly, just thoughts on ability to get new contracts. I think on the last call, you said hope for maybe even MoU sometime by the end of this year, is that still possible?
We certainly [multiple speakers] that is possible. We believe that’s possible, Steve, and we are working hard toward that.
And now, we will take a follow-up question from Michael Lapides with Goldman Sachs.
Hey, guys. Housekeeping ones, probably for Trevor. Can you remind us the impact that tax reform has in terms of the interest deductibility for Sempra?
Yes. We put that out last year. Largely, what we said is -- we spoke about the overall impact last year of approximately $0.30 -- $0.25, $0.30 for the impact of tax reform in 2018. But with regard to interest deductibility, it’s largely neutral in ‘18 and going forward.
One other thing, can you remind us size at the year-end of 2017 or now the size of the NOL and what kind of cash tax payers Sempra expects to be in the coming years?
Right now, what we’re saying is we have roughly -- I think it’s a little over 4 billion of NOLs and we don’t foresee being a cash tax payer over the next four, five, six years.
Outside of our plan.
Yes, outside of our plan.
And that will conclude our question-and answer-session. I’ll turn the call back over to Jeff Martin for any additional or closing remarks.
Let me just conclude by saying how much we appreciate everyone joining our call. And we’ll hope that you will mark your calendars for the 28th of June to join us in New York. Also, if you have any follow-up questions, please feel free to contact the IR team. Wish you all a good day.
Ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation and you may now disconnect.