© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day 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. Rick Vaccari. Please go ahead, sir.
Good morning, and welcome to Sempra Energy's fourth quarter 2017 financial presentation. A live webcast of this teleconference and slide presentation is available on our website under the Investors section.
With me in San Diego are several members of our management team. Debbie Reed, Chairman, President and CEO; Jeff Martin, Chief Financial Officer; Steve Davis, Corporate Group President of Utilities; Joe Householder, Corporate Group President of Infrastructure; Dennis Arriola, Executive Vice President; Martha Wyrsch, General Counsel; and Trevor Mihalik, Chief Accounting Officer and Controller.
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.
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 to Table A in our fourth quarter 2017 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, February 27, 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 4, and let me hand the call over to Debbie.
Thanks, Rick. On today's call, we will review our 2017 results and key accomplishments, both of which highlight an exceptional operational and financial year, and provide a strong foundation for future growth. We believe 2018 will be a transformational year for Sempra with the expected closing of the Oncor transaction, further progression of Cameron and execution of a robust capital plan.
2018 also marks our 20th anniversary. Since our formation, we've continued to strengthen our business with strategic investments that have provided for more than a 600% increase in shareholder value. Later, I'll share some of our key goals for 2018 that should help us continue our strong performance well into the future.
In 2017, we exceeded our adjusted earnings guidance. This morning, we reported full year 2017 earnings of $1.01 per share or $5.42 per share on an adjusted basis, well above the high end of our adjusted EPS guidance range, which was $5.30. Also last week, our board approved another 9% increase to our annual common dividend, bringing it to $3.58 per share. This marks the eighth consecutive year we have raised our common dividend and represents over 40% growth since 2013. It also exemplifies our strong commitment to our common dividend, an integral component of our value proposition.
I'm also pleased to say that we are affirming our 2018 EPS guidance range of $5.30 to $5.80 per share, which now includes both the anticipated near-term effects of tax reform and the expected positive impact of Oncor. Jeff will review the key drivers of our 2018 guidance a little later on.
Please turn to the next slide. 2017 was an exceptional year for Sempra. I want to take a moment to highlight some of the key accomplishments and how we've carried this momentum forward into 2018. First, our full year adjusted earnings increased approximately 8%. The main driver of this outperformance was higher operational earnings across our businesses. Our success stems from our focus on execution, managing our business efficiently, and our ability to find new growth opportunities across our businesses as demonstrated by the approximately $1.9 billion we've added to our already robust capital plan since last year's analyst conference.
Second, we announced the Oncor transaction in August and constructed a plan to achieve approximately 80% ownership of this exceptional company. Once closed, this transaction will enhance our business mix and provide increased and more geographically diversified utility earnings. On that note, we're working to close this transaction expeditiously, and have reached a settlement agreement with all 10 stakeholders. The Public Utility Commission of Texas has requested that a proposed order to approve the transaction be drafted and put before them for a vote as soon as March 8. We have also completed the necessary financing and expect the transaction to close soon after Commission approval.
Please turn to the next slide. Third, our confidence at Cameron is bolstered by another year's worth of construction progress and a constructive settlement agreement that we entered into with Cameron's EPC contractor in December of last year. The agreement resolved all known and unknown claims through the agreement date, falls within the project budget, estimated contingencies with financing commitment, and aligns the interests of all parties to focus on the goal of having all three trains producing LNG in 2019.
Fourth, at our California Utilities, we recently reached a revised settlement agreement regarding SONGS that maintains the outcomes of the original agreement for Sempra's shareholders. If approved by the CPUC, our customers will have added benefits compared to the originally settled case. We also continue to make progress regarding Aliso. As I said on our call this time last year, we've been focused on resolving the remaining Aliso-related issues as expeditiously and safely as possible, including resolving legal claims.
This year, we've made a substantial progress, including resuming reinjection to support reliability and collecting substantial insurance proceeds. In addition, we recorded a $20 million expense based upon progress related to a potential litigation settlement with certain parties. As you can see, we performed well financially and operationally, and resolved many key business issues, thereby, mitigating certain risks. We also identified new growth opportunities and made significant progress on the Oncor transaction.
Please turn to the next slide. I'll now discuss a few of the important items we'll be focused on in 2018. Regarding Oncor, we expect the final decision as soon as March 8. With respect to Cameron, all parties remain focused on Cameron producing LNG from all three trains in 2019. We've included a photo illustrating Cameron's progress in the appendix for your reference. At our California Utilities, we're moving ahead with the 2019 General Rate Case filings in a timely manner and a substantial amount of the investing we requested, in this case, would be used to further enhance the safety and reliability of our systems.
Moving on to California's wildfire situation. We have developed and are executing on a three-pronged strategy, which includes filings on the regulatory front, requesting legislative actions to improve fire safety and provide greater clarity at the California Legislature and continuing operational fire risk mitigation. So far, we have filed a request for rehearing of the CPUC decision and SDG&E's 2007 wildfire preceding. A terribly flawed decision that has created much of the confusion and uncertainty that exists today.
If the CPUC decides not to rehear the decision, we will proceed expeditiously in the courts. I think it's important to know that FERC approved full recovery for the same fires and same facts over four years ago. Legislatively, we are joining a broad coalition of interests focused on helping the state fix the multi-faceted problems associated with the devastating fires that are impacting the state's environment and economy.
More specifically, the situation demand solution. Specifically, three areas that needs to be fix are, the inconsistency between inverse condemnation and the CPUC disallowing cost recovery; the availability and affordability of fire insurance for utilities, businesses and homeowners; and the establishment of objective and measurable criteria on prudency.
Operationally, we continue our decade-long efforts to reduce fire risk within our SDG&E service territory. We believe our efforts to fire-harden our electrical system, to improve situational awareness by utilizing new advanced technologies such as the deployment of 170 weather monitoring stations, and a high tech camera network in fire-prone areas, and to develop strong partnerships and operating protocols with fire agencies, have and will continue to improve the safety of our communities.
Lastly, as we do on a regular basis, we are reviewing opportunities to strengthen our balance sheet, to support growth and maintain strong investment-grade credit ratings. Specifically, we're looking at asset sales, having ongoing discussions with the credit rating agencies, initiating our repatriation plan, utilizing the strong and growing cash flows across our businesses, and finally considering aftermarket (11:12) offerings.
We will provide additional details regarding asset monetization repatriation and other plans to continue to build our balance sheet at our analyst conference on June 28. Please turn to the next slide, where Jeff will review our 2018 guidance. Jeff?
Thanks, Debbie. What we're excited about is having the opportunity to build on our success in 2017 and early 2018. Today, we're affirming our 2018 EPS guidance of $5.30 to $5.80. Two key updates have impacted our business since we last discussed guidance. First, on our fourth quarter 2016 earnings call, we projected the overall impact from tax reform in the 2021 timeframe to be generally neutral.
Now that tax reform legislation is passed, we're pleased to confirm that our long-term assessment remains neutral to slightly positive. We will, however, encounter near-term pressure in 2018, but expect that to be offset as Cameron comes online. Second, with the progress we made on the Oncor transaction, we're now including it in our guidance. Oncor accretion is expected to be roughly $0.20 per share for 2018.
Please turn to the next slide. Next, let me provide an overview of how we think about tax reform. I believe we can all agree that a strong economy benefits all businesses. And since we're strong believers in the need to invest in U.S. infrastructure, tax reform is a clear benefit from that perspective. So over the next few years, you should expect to see us adapt our strategy to take advantage of this new environment.
Next, in terms of our domestic utilities, lower federal corporate income tax rates will benefit customers. This should provide headroom for CapEx spending and allow for an easier path to improve safety, reliability and technology, all of which are priorities for us.
Second, the new territorial tax system increases the value of our international businesses by allowing greater flexibility to optimize our global capital structure and through repatriation of excess offshore cash back to the United States. Also when it comes online, Cameron should realize $65 million to $75 million of increased annual earnings due to the lower tax rate.
Next, let's look back at the impacts of tax reform in 2017. We recorded a non-cash earnings charge of $870 million. About $182 million resulted from the re-measurement of deferred taxes. Approximately $328 million related to the deemed repatriation tax. And roughly $360 million related to the accrual of U.S. state and foreign withholding taxes associated with our planned repatriation of undistributed foreign earnings.
To be clear, the last two items are very important. This now allows us to repatriate approximately $4 billion with minimal, if any, expected foreign, federal, or state tax expense. To take advantage of this benefit, we plan to immediately begin repatriating in 2018 and expect to bring back approximately $1.6 billion over the next five years, with the remaining $2.4 billion returning thereafter as the businesses generate additional cash at the local level.
Please turn to the next slide. Going forward, we expect that tax reform will have a neutral earnings impact in 2020 and become slightly positive longer term. Next, let me address our domestic utilities. We expect the overall impact to our utilities to be generally neutral, and our customers will benefit from the lower tax rate. As previously mentioned, there is an opportunity for increased infrastructure spending while maintaining customer bills. This opportunity to increase CapEx is not included in our current assumptions.
Second, the reduction in the U.S. federal corporate income tax rate has the most significant near-term impact. This is a result of the lower tax shield on our corporate cost, which is primarily interest. However, this negative impact is offset as Cameron comes online and as we reduce parent debt levels.
Next, in terms of undistributed foreign earnings, we expect no material incremental tax expense related to the $4 billion we plan to repatriate. We continue to view our international businesses having strong growth opportunities, and we're also pleased that tax reform provides improved flexibility to bring cash back to the United States.
Regarding interest expense deductibility, we currently assume no limitation. This is based upon our current understanding the application of the law, but could change in the future as additional guidance and regulations are made available. Like many other utility holding companies that are currently not paying cash taxes, we expect to receive lower tax-sharing payments from our utilities. Although the credit rating agencies have viewed this as a negative for the entire industry, we're actually in a unique position to be able to mitigate much of this impact through our new repatriation program.
In summary, here's what's most important about tax reform. First, our businesses that operate at a loss are negatively impacted with the largest impact being felt in 2018. By 2020, we expect tax reform to be neutral as our Cameron LNG facility comes online and increasingly positive over time.
In terms of repatriation, this is a real positive because we now have improved flexibility to bring back $4 billion with minimal or no expected tax expense, and we'll be updating our work with the credit rating agencies this spring with the intent of providing a clear view of how we plan to strengthen our balance sheet over time at our June analyst conference.
Please turn to the next slide where I'll discuss our financial results. Earlier this morning, we reported fourth quarter losses of $501 million or $1.99 per share. On an adjusted basis, we reported fourth quarter earnings of $389 million or a $1.54 per share. Full year 2017 earnings were $256 million or $1.01 per share. This compares to 2016 earnings of $1.370 billion or $5.46 per share. On an adjusted basis, full year 2017 earnings were $5.42 per share. This compares favorably to our 2016 adjusted earnings of $5.05 per share.
Next, please turn to the next slide. The 8% year-over-year increase in adjusted earnings was driven primarily by higher operational earnings in 2017, including $44 million of higher CPUC base operating margin, net of operating expenses, and AFUDC equity at SDG&E; $24 million of lower losses at Sempra LNG & Midstream; $16 million of higher earnings from PSEP and AMI at SoCalGas; and $8 million of higher operational earnings in South America.
Please turn to the last slide where I'll hand it back to Debbie.
Thanks, Jeff. 2017 was another successful year for Sempra. We were able to exceed our 2017 adjusted earnings guidance, while positioning ourselves to make 2018 a transformational year. We also affirmed 2018 EPS guidance and increased our annual common dividend by 9%. All of this can be attributed to execution of our operational plan and leveraging our growth drivers to add significant incremental investments. We look forward to carrying this momentum through 2018 and beyond.
Before closing, I'd like to recognize Steve Davis, whose retirement we announced back in September; and Rick Vaccari, who will also be retiring in March. Together, they have contributed over 50 years of experience at the company. On behalf of the team at Sempra, we wish them both great happiness in retirement.
And with that, we'll conclude our prepared comments and stop, to take your questions.
Thank you. And we'll take our first question from Julien Dumoulin-Smith. Please go ahead.
Hey. Good morning.
Hi, Julien. How are you?
Good. Thank you very much. Congratulations, Rick and Steve. I just wanted to step in real quickly and ask you, first, on the California backdrop. Can you elaborate a little bit more on your thoughts in terms of where this would go from a legislative perspective, first, with respect to any specific governance (20:40) efforts, and then also with respect to any kind of omnibus legislative efforts?
Yeah. I think the timing of your question is great, Julien, because yesterday, Assemblyman Holden had the Utilities Committee come together, and President Picker from the PUC testified before, as did the Head of the PUC staff. And the two things that really came out of that meeting yesterday that I think are significant that we're starting to see as real changes are an urgency to resolve the issues of inverse condemnation and a recognition that there are several factors that impact the cause, the scope, and the spread of fires, and it is irrational to place all of that burden strictly on the utilities. And that was kind of the tone of the meeting yesterday, which I think is a real positive in terms of the focus on what needs to be done to correct that.
One of the things they did yesterday is that the Commission's staff presented some of the best practices, and they relied heavily on the practices that SDG&E has put in place since the 2007 fires, with the use of technology and the actions to look at proactive deenergization when there are risk issues and all. So, I think two things are happening. I think that there is a focus now on having to resolve this inverse condemnation issue legislatively. At the conclusion of the hearing, they asked that the PUC attorneys work with the attorneys for the Assembly, and look at if they're interpreting the legal issues the same. So, I think there's going to be some movement in that area.
And then further, I think this focus on what the utilities can control is the best practices and having the focus be on do the things that you can control, and then the state needs to have a more – a broader look at what can be done to reduce the fire risk, to improve our firefighting efforts, and a whole variety of issues that needs to have a comprehensive solution. But I thought the hearing yesterday was a real positive sign of more attention and urgency.
Excellent. And then just following up on the guidance for 2018, I think I heard you right at $0.20 of accretion for Oncor. Can you elaborate a little bit more? I know this may be a little early days on how you're thinking about that. And then separately and probably related, what's the pace of capital spending you all are thinking about of late? I know this may be a bit preemptive, but obviously there's a few different moving things happening in Texas of late.
Yeah. If you look at Oncor, the $0.20 that we used for this year was to kind of give you a sense of how we offset some of the tax reform implications, and we detailed that in our slides. And Oncor helps us meet a portion of those impacts for this year from tax reform. But the great operations that we've had from our businesses, and you saw the results in 2017, and that was really all of our businesses just performed exceptionally well. So, we see that continuing on until 2018.
And I'm going to turn it to Jeff to talk about any more of the details around the Oncor and how we're looking at CapEx going forward. But we basically share with you, for Oncor, about $8.4 billion is part of their plan over five years. But they're looking at things that they can do in their business that may lead to, over time, some increases in that, especially in terms of some technology.
Hey, Julien. Good morning. As you think back to our analyst conference last spring, you recall that we rolled out a $14.2 billion on balance sheet capital program. We had probably (24:43) another $1.8 billion off balance sheet. As Debbie indicated, that excluded the new $8.4 billion of capital spending, of which obviously 80% of that would be accounted for us related to Oncor. So I think that gives you some sense of going forward. You're probably looking at something close to $3 billion per year with about $2.4 billion of that is a run rate for our utilities. But obviously, we will update that with a little bit more clarity in June.
In terms of the accretion around Oncor, we're obviously moving away from the metric we've used in the past, which was kind of provide a four-year average. But as part of our 2018 guidance, we thought it was appropriate that we could give you our expectation, obviously the closing date is uncertain. There's a few things moving around, but we've approximated the accretion at $0.20 this year. It could be a little bit more or a little bit less, but keep in mind that that also is for a partial year.
Yeah. The other thing, Julien, I would add to what Jeff said is that after our analyst conference last year, we already identified $1.9 billion of incremental CapEx spend. And that's detailed on slide 17 in your packet. And as you know, when we do our plans, we do it a little bit differently than others. We only put projects in those plans that we already have under contract or that are consistent with our regulated business approvals. So, since the analyst conference, we've identified more upside opportunity in terms of the $1.9 billion.
But let me just specify this, if I may, the $0.20 of accretion you're talking about for this year and, obviously, it's a partial year, does that reflect the change implicitly higher versus the four-year average you previously articulated of $0.10 to $0.20, like on a go-forward basis, obviously lots of moving pieces?
Yeah, I appreciate your question. I think the four-year average was what we felt comfortable doing in the fall, because we have lots of moving pieces, Julien, right? You've got issues about when you sell your forwards at what price that the preferred actually transacts at in 2021, the date of closing, so there's a series of things involved here. On a going forward basis, now that we're putting Oncor in our guidance for 2018, that $0.20 number could be slightly larger or less than that. But there really isn't any fundamental change in terms of how Sempra is thinking about it, to the heart of your question.
Got it. Excellent. Thank you.
Thank you.
And our next question comes from Greg Gordon with Evercore ISI. Please go ahead.
Thanks, first off, I also wanted to...
Good morning, Greg.
Good morning. I definitely wanted to give a hearty congratulations to Rick and Steve, both. I've been doing this an awful long time and they make me look like I'm a newcomer and they've certainly always been kind of happy (27:33) professionals. So congratulations, guys.
That is quite a compliment. Yeah. That's quite a compliment.
I know that, Jeff, that you tried to wave us off a little bit here on page 10 when you say that you might need additional equity, but you want to cover that at the Analyst Day.
Right.
So let me ask the question a little differently. How much does your FFO to debt metric come down, all things equal, given the $240 million per year less of tax sharing? And what are other things that may be impacting your FFO to debt metric? And what is the target that you're seeking to achieve in 2019 or 2020? And then what are the levers you can pull that would cause you to not need equity to make that number?
Okay. Let me start and then I'll turn it over to Jeff, because I think the thing that you have to realize with us is different than other utilities is we have Cameron coming online in 2019 and a full year of operation in 2020. And the earnings from Cameron now with tax reform go up by $65 million to $75 million above the $300 million to $350 million we told you. So, one of the things that we're trying to do is work with the rating agencies to look at the significant event that occurs. And tax reform created one event, but that event is really reversed a lot when Cameron comes online in terms of our FFO to debt. And we started working with the credit rating agencies very extensively as we were dealing with the Oncor (29:29) transaction and kind of looking at how our portfolio changes over time, how the cash flows change over time and how our FFO to debt changes over time. And when Cameron comes on, there's significant improvement in our FFO to debt.
Further, last year, when we did our plan for FFO to debt, we far exceeded the plan that we had and the cash flows from our ongoing operations were exceptional. So, one of the things that we're trying to do, and the credit rating agencies have been willing to work with us, is trying to look at this whole pattern over time that we have for our business and look at the way to maintain our credit ratings over that period of time. And part of that is looking at capital rotation. It's been the repatriation. It's looking at better cash flows from our existing businesses, which we achieved last year and all of those things coming together.
And until we put all of those things together in a comprehensive way, I will tell you that's the sequence. And then to us, that's the sequence, and then you look at equity at the end of that. And so, that's the process we're going through right now. And I just want you to understand that that is the process and we'll be ready to go through that with you at the analyst meeting, because we're going through that right now with our board.
So Jeff, do you want to add?
Yeah. I think that, Greg, there were multiple parts to your question and between Debbie's response and mine, please let us know if this kind of satisfies most of what you're asking about. But to Debbie's point, we did extensive work with the rating agencies last fall. We have some more work to do this spring. But I think you recall that as we looked at the Oncor transaction, we had really forecasted to being able to hold investment-grade-plus ratings at both S&P and Fitch, with the likelihood that we would probably be investment grade flat at Moody's. I don't think our assessment has changed since then. Also as part of that work, we really were targeting to maintain those ratings and they were going to allow us some time to get to the optimal debt to equity ratio for the transaction. And you'll recall, we talked about that being completed by December of 2019.
So to Debbie's point, relative to Oncor, not tax reform, we really had kind of a runway to work through the debt to equity ratio and how we balance that for Oncor through December of 2019. Now, as we finished 2017, Debbie's spot on, we really had very, very strong years on FFO to debt last year, one of our best years ever. We were well within the investment-grade-plus thresholds for all three agencies. But the point that you're on is that by reducing the tax-sharing payments, it is a negative for us. But to Debbie's point, that really doesn't start showing up until 2019, Greg, based upon how we're balanced in California and what our expectations are. And when you get to 2019, that's when you're starting to see the three trains of LNG go into production. So, I think there's a little bit of a timing mismatch in 2019. But we've got a plan that we're going to execute on with the agencies this spring. Debbie laid it out, the process we're going to go through. I'm quite comfortable that by the time we get to the analyst conference, we can provide a lot more detail about our expectations.
Okay. That's directionally clear. I appreciate it and look forward to more details later. Thank you.
Thank you, Greg.
Great. Thanks, Greg.
And our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.
Yeah. Hey. First, congrats, Rick and Steve. Best of luck. And so, on the one technicality on the Oncor data and tax reform. How are you treating the debt issued for Oncor? Is that in your tax reform impact or that's just in the Oncor benefit?
Jeff.
We think about that – I would just go through this with you really quickly, Steve. But as the starting point, you recall that interest in our utilities is largely excluded. The rest is subject to the 30% EBITDA limit. We certainly expect – I think this is part of what you're hearing in the call – to lower our parent debt over time. And as part of that process, we'll be allocating parent interest to our subsidiaries with a view that anything that's left over can be carried forward kind of given the strength of future cash flows from Cameron. But to your specific point, our view of the guidance thus far on acquisition debt is like Oncor, like we're talking about for Oncor, is expected to be excluded similar to the utilities.
Okay. Then on the repatriation of $4 billion, can that be done without asset sales or is that – embed some amount of asset sales in there?
What we've looked at, as we said, for this year, about $500 million to come back of cash that we have offshore, know our (34:21) asset sales are part of that $500 million and then about $1.6 billion over the five-year plan period, which includes that $500 million and that doesn't include any asset sales. But the headroom up to $4 billion that we have prepared for would allow us down the line to sell assets or businesses. And to the extent that we had already covered the tax on that $4 billion, then they would not be taxed again. But in terms of our plan that we laid out, we don't have any asset sales currently in that, and that's the work that we're going to be looking at.
Okay. And then just lastly, any updated color on the LNG market in terms of potential growth?
Well, as you can see in the media, it's turned quite positive and there's a lot of interest in the 2022-2023 period. I'll have Joe talk about each of our projects and kind of the interest in the buyers.
Thanks, Debbie. Hi, Steve. Yeah, as you see as Debbie noted in the market and there was a nice comment from Shell yesterday, the market is getting tighter as the excess volumes are being taken up with improving demand. And also, we're seeing quite an uptick in oil prices, again making U.S. LNG very attractive, and the continuation of a current and future Henry Hub gas price continuing to fall. So, I think the bottom line here for us is, we have three projects that are in good shape, they're in permitting, and they're in marketing, and we feel really good about those.
And let me just kind of remind you of what we have and what we're doing, because I think we're a company that actually has multiple projects and all of them we're excited about. So, I'm going to go in alphabetical order. So, read into it that we're staging them in some way. This is alphabetical. So at Cameron, I think that the expansion of Trains 4 and 5 are fully permitted at FERC and DOE. And so, it's a very valuable option for us and our partners, because it's a low-cost build. And our focus today is getting Trains 1 through 3 in service and completed.
And now, the probable entry of Total is very positive for expansion, and you've heard their CEO come out and make it public that they are supportive of expanding the facility. And I've had a number of conversations with them on this topic. And so, we're anxious to keep that process moving. I think they hope to get it done by the middle of the year and they just have to work through all the consents.
At ECA, the one that's just 40, 50 miles south of here, we have a proposed large-scale facility for 12 million tons. It received all of the major permits in Mexico in December. We today – because of market demand and a number of very interested parties who we received letters from expressing their interests and continuing conversations happening even yesterday and today in Asia, there's a lot of interest in us building a mid-scale facility sooner. And so we're looking at a 2.5 million ton facility that would fit on to the ECA site and would not preclude the larger facility from a footprint point of view.
What we're doing now is evaluating a couple of things. One is, are we confident that we have the pipeline access without building any new pipelines to feed that mid-scale facility and are we absolutely confident that if we build the mid-scale facility we won't have problems making sure we have sufficient permitting to do the large scale and that would require of course a large pipeline back to the Permian. So that's ECA, we're very excited about ECA.
And as well at Port Arthur, we have a very excellent location there. We've been working with Woodside now for a couple of years and we've created a really excellent project facility from a technical and gas supply perspective. It's going to be highly reliable and safe and economical, which is what the customers want. We think the LNG unit costs are going to be lower than at Cameron due to the optimization work we've done with Woodside. And again, we think that the market is good. We have the Heads of Agreement we signed with KOGAS last year and we're continuing to work with them and many other participants. And the marketing teams, as I said, are out in Asia and Europe all the time.
So, I think it would be great if we're able to launch at least one of these projects, at least one of them, with HOA this year, followed probably by FID next year. And that puts the production into that window, that ideal window 2023-2024 as the supply/demand curve opens up. So, we're looking good and feeling good about it.
Thank you.
And our next question comes from Michael Lapides, Goldman Sachs. Please go ahead, sir.
Hey, guys. Couple of just nuts and bolty type questions. Just curious, California rate base, you all talked briefly on today's call about how tax reform could lead to incremental investment opportunities without it negatively impacting customer rates. Can you give a little bit more disclosure on what are the opportunity set areas you're thinking about?
Well, as you know, we just filed our rate case, Michael, and it was the first rate case that we've had at our utilities that uses the Risk Assessment mechanism, RAMP, as it's called, to identify and prioritize spending in our utilities. None of that is in our plan. As you know, when we do our financial plan, we take what our last rate case is. We look at the attrition levels that have been authorized, and that's how we plan going forward.
So I think as we look at it, we had a pretty robust rate case request that was driven by this Risk Assessment mechanism. We think with the tax benefits that flow through customers, that will create a reduction in rates that hopefully will allow (40:30) the Commission to approve the kind of request that we have in our rate case.
Got it. And when I look at the rate case docs, one of the things that hasn't happened yet is when you filed the case, bonus depreciation was still expected for the next couple of years. Obviously, with tax reform, that's gotten pulled out. Just curious, like if I just took your rate case request, how material is that to like your multiyear rate base views?
Yeah. What I have is just the impact in 2018 and 2019, because we had assumed bonus depreciation was going to be going away over the timeframe phasing out (41:05). So in 2018, it gives us about an extra $100 million of rate base, and then in 2019 about $200 million of rate base. But as I said, when we do our planning, we don't put any of the future years in the planning. We just use what we have authorized with the attrition. And when we do our five-year plans, we carry that out on that basis, and we do not put in the incremental request that we made.
Got it. And I have one – and this maybe a Jeff question, one around Oncor, because you made the comments about no longer kind of anchoring to the $0.10 to $0.20 four-year average accretion. In your year-one accretion, you've kind of pegged at $0.20 or so, plus or minus a little bit. Just curious, are you seeing the potential to where Oncor – either due to synergies, due to growth projects, due to kind of the limited lag, due to the DCRF and TCOS, are you seeing where Oncor could even be more – significantly more accretive than when you first entered the transaction?
Michael, I appreciate the question. I mean, obviously, we've entered into our merger agreement back on August 21 and there were probably – I'm making the number up – 30 different variables that impacted how we thought about the business economically. And as you went through the last six months, obviously, our stock price changed. But at the same time, they finished their rate case, right. So, you added a lot more certainty for them to finish their rate case in November. Their overall capital program has gone up. Our assessment of their NOL position had increased. We had forecasted last summer some contingent liabilities. That amount has declined over time.
So there has been some puts and takes over the last six months, but I don't think we think about the business fundamentally any different. We think, from a strategic standpoint, it gives us reach and scale into what we think is probably the most important energy market in the country. I think that the accretion numbers we've given you for 2018 is really reflective of how we felt about the transaction previously. So, it's not like we're looking at it fundamentally different. We're just kind of zeroing in now with less variables.
You still have things out there, Michael, about what price does you preferred convert at, when do you unwind some of your equity forwards and at time it is, and what the timing of closing is. But we feel pretty comfortable about the transaction generally from an accretion standpoint. But probably more than anything else, we're excited about it means in terms of giving us a really nice growth platform in the Gulf.
Got it. And if you don't mind, one more. What's your target, either FFO to debt or debt to EBITDA? Like, where do you want to be, even if it's a couple of years post-Cameron or like what's your long-term aspiration?
Yeah. I think the way that I would speak to that is I think we're very comfortable that we want to be an investment-grade-plus company. We indicated earlier on the call that we were well within those thresholds for all three agencies earlier in the year. I think if you look back at our Q4 results, we've got a debt ratio of roughly 56%. We've got about $19 million (44:23) of total consolidated debt. And across our five-year planning period, we feel more comfortable at or below 50% from a debt ratio standpoint. And I think that we'll continue to work on our FFO to debt.
The challenge you have with that question, Michael, is the overall business risk profile is also changing. So, that comes lower as you add a quality asset, like Oncor. And similarly, the quality of the cash flows from Cameron impacts that. So, conceptually, the overall business risk profile should be declining at the same time that you're working through these competing items of lower cash tax-sharing payments with the addition of Cameron coming online here in the next 18 months.
Got it. Thank you, Jeff. Thank you, Debbie. And Rick, Steve, congratulations, guys.
Thank you, Michael.
Thanks, Michael.
And our next question is from Shar Pourreza, please go ahead, with Guggenheim Partners.
Hey, guys.
Hi.
So just sort of thinking about, again, just incremental accretion opportunities for Oncor and, again, not to preempt things. But with deal closure sort of around the corner, what are your thoughts on looking at acquiring the TTI piece? And also, a little bit more curious, as you manage this business over the next few months or years, do you see sort of an opportunity to request a removal of the ring-fencing provisions in time, and maybe look at recapitalizing, especially in light of the structures your peers are afforded in and out of the space (45:51)?
Yes. Let me just address the TTI portion first. And, as we have expressed multiple times, we think TTI's interests are very much aligned with our interests. So, we are happy to have them as a 20% owner. But should they decide that they wanted to exit, we definitely would want to have an opportunity to consider the purchase of their share. And so that we think we are fine with the 80% ownership and TTI as a partner. We've met with them on a couple of occasions. They have the same kinds of interests about growing that business. There's no disconnect between ourselves and them in terms of how they look at that business. Of course, over time, it would be great if they decided that they wanted to exit, that we would have an opportunity to step in and own 100% of what we think is a preeminent company.
In terms of the growth opportunities on Oncor and the ring-fence, we have accepted those terms with the parties. And what we think we need to do is we need to show those parties over time, through our exceptional management of this company in conjunction with the Oncor management, that those kinds of protections are not going to be needed over time and that we can live with all of them. We spent a lot of time looking at them. We don't think that they're going to impact materially how we do our business with Oncor. However, none of the other utilities in Texas have them. And we don't like the idea of having something that other parties in the state wouldn't have on the long term.
But I don't think that as we look at those elements, I don't think it will change at all how these businesses perform. And the management of Oncor, the board of Oncor, we all have great alignment in terms of how this business needs to grow. And we see great growth potential in the Texas market and in Oncor itself. So, we are very happy that we're getting close to closing this transaction. We think it will be a tremendous investment for Sempra shareholders over time. And if nothing changes, we can live with it. But over time, if we can make some changes to the structure, we're more than willing to do that.
That's helpful. And then just as you guys think of projects like ECA, can you sort of give us any thoughts on what you're seeing in Mexico and sort of these potential reforms and the impact to IEnova assuming like AMLO wins. It's clearly kind of been a bare argument around the story. So, what are you sort of seeing with boots on the ground there?
Yeah. In fact, I'm going to have Joe talk about that, because he was in Mexico just a few days ago and there was a lot of discussion about Mexican elections, about NAFTA and about our investments there. And I will just say we feel pretty darn comfortable with where we are and what Mexico needs going forward, and not thinking that there's going to be a lot of change. But Joe can add some more color from being there.
Sure. Yeah. I think the overall theme is, our business strategy there, in Mexico, at IEnova, are with Mexico's efforts to reduce the cost of electricity and fuel to all of its consumers. And we believe that those efforts will continue and not change, regardless of which candidate is elected to be the next President of Mexico. And I think it's too early to tell who will win that. But we feel really good about the business. I'll come back to ECA in a second. And we're doing what we can to help the consumers in Mexico.
And the one thing to remind yourself is that it requires two-thirds vote in the Houses and 51% of the states to overturn the energy reform. That's a high hurdle. But remember, the most important thing for you to take away from this is almost everything we've done in Mexico didn't require energy reform. We were doing the pipelines. We had the regas terminal. We had our utility businesses. Almost everything we've done down there didn't require energy reform and wouldn't be upset by that.
So, it's something we don't want to see happen, we don't think will happen, and we're very involved. I've been quite involved with Dennis Arriola in our Washington office and people in Mexico on NAFTA and reminding all of the secretaries in each of the three countries how important it is. We'll see where it goes.
But go back to ECA for a minute. Look, you might remember that PEMEX has been, for the last couple of years, our partner in trying to help develop the ECA site, and now we have a new agreement with them where they're not going to participate anymore. But going forward, IEnova and my LNG team, we're working together on trying to turn that into a liquefaction facility.
However, remember, until 2028, we have great contracts for the regas terminal, and we want to keep those in place. They provide substantial EBITDA and earnings for us. We think there's a good opportunity here. And as I said, we just got the permits in December for the large-scale facility, and we do not see any problem with those despite whatever the election results are.
Got it. And then just maybe one question for Jeff. On the asset sales, the $1.6 billion, can you just maybe help narrow down what the asset and maybe the geographic footprint, or is it sort of – with sort of the tax reform advantage of repatriating, should we think about more of those asset sales will come from foreign investments?
Thank you. I think the key part of your question is that both – how we think about repatriation and capital rotation. These things will go together this spring in terms of the analysis we're going to do. But I think this is a process on capital rotation, you'll recall that we do periodically. If you think back to 2016, we decided to divest Rockies Express and Mobile Gas. We went through a very similar process then, and our strategy really, as Debbie has articulated in the past, is we look at asset by asset whether it's meeting our return expectations, number one. And number two, does it fit into our portfolio as we continue to try to high-grade our investments around things where we have a lot of transparency to really visible growth. So, I think that's the process we'll follow. It's something we've done before. And I think between now and the analyst conference, we'll be able to optimize both, both the repatriation piece as well as capital rotation. Trevor, you want to anything?
Yeah. I just want to say that the $1.6 billion that we have that we talked about really is not part of an asset sale. That's just the repatriation of cash that's offshore right now, and the ongoing earnings coming from those businesses. So, that $1.6 billion is not earmarked asset sale.
Terrific, guys. Thanks so much.
Thank you.
That concludes today's question-and-answer session. Ms. Debbie Reed, at this time, I would turn the conference back to you for any additional or closing remarks.
Well, thanks again for joining us today. And if you have any follow-up questions, please feel free to contact the IR team. Rick is still working today, so if you want to give him a call, I'm sure he'd be happy to answer some of the questions on his final day.
And thank you for joining us. Bye-bye.
And this concludes today's call. Thank you for your participation. You may now disconnect.