Richard A. Vaccari - Vice President of Investor Relations Debra L. Reed - Chairman, Chief Executive Officer and Chairman of Executive Committee Joseph A. Householder - Chief Financial Officer and Executive Vice President Mark Alan Snell - President Dennis V.

Arriola - Chief Executive Officer of Southern California Gas Company and President of Southern California Gas Company.

Greg Gordon - Evercore ISI, Research Division Steven I. Fleishman - Wolfe Research, LLC Christopher Turnure - JP Morgan Chase & Co, Research Division Michael Weinstein - UBS Investment Bank, Research Division Matthew P.

Tucker - KeyBanc Capital Markets Inc., Research Division Faisel Khan - Citigroup Inc, Research Division Mark Barnett - Morningstar Inc., Research Division Winfried Fruehauf Paul Patterson - Glenrock Associates LLC.

Good day, everyone, and welcome to the Sempra Energy fourth quarter earnings results conference call. Today's call is being recorded. And at this time, I'd like to turn the conference over to Rick Vaccari. Please go ahead, sir..

Debbie Reed, Chairman and Chief Executive Officer; Mark Snell, President; Joe Householder, Executive Vice President and Chief Financial Officer; Martha Wyrsch, Executive Vice President and General Counsel; and Trevor Mihalik, Senior Vice President, Controller and Chief Accounting Officer.

We also have the heads of our 2 California utilities, Dennis Arriola, Chief Executive of Southern California Gas; and Jeff Martin, Chief Executive Officer of San Diego Gas & Electric.

Before starting, I would 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 will be discussing certain non-GAAP financial measures.

Please refer to the presentation slides that accompany this call and to Table A in our fourth quarter and full year 2014 earnings press 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, 2015, 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 3 and let me hand the call over to Debbie..

Thanks, Rick, and thanks to all of you who are joining us. 2014 lays a strong foundation for our future growth. We have solid financial performance, achieved double-digit annual EPS growth and posted earnings exceeding our guidance.

We also achieved important milestones on development projects and delivered strong operating results across all of our businesses. With the great progress made over the year, we are on track to be at the upper end of our expected 9% to 11% earnings per share growth rate for 2014 to 2019.

As a reminder, we have our upcoming Analyst Conference on March 26, and we hope to see all of you in New York. At that time, we will update our 5-year earnings projections and discuss our plans to continue to deliver strong returns for our shareholders.

For today's call, I am going to focus on a summary of our 2014 financial results and recent operational accomplishments that will help us to achieve our long-term growth plan. I will then hand the call over to Joe to explain the fourth quarter earnings, our 2015 adjusted earnings guidance range and our 2015 dividend increase. Please turn to Slide 4.

This morning, we reported 2014 earnings of $4.63 per share. On an adjusted basis, 2014 earnings were $4.71 per share, representing 13% annual growth over 2013. We had strong operating performance across the company that contributed to this result.

Several fourth quarter factors also drove earnings above our expectation from the last call where we stated that we expected to be near the upper end of our 2014 guidance range. The major factor was tax reform in Peru that was implemented on December 31.

Peru lowered its corporate income tax rate, which reduced our deferred income tax liability and resulted in an $18 million benefit recorded in the fourth quarter. Additionally, the CPUC approved our energy efficiency awards for both utilities earlier than we had anticipated.

Looking to 2015, we expect Sempra's adjusted earnings to be within the range of $4.60 per share to $5 per share, excluding 2 items Joe will discuss later. We also received Sempra Board approval to increase our annualized dividend to $2.80 per share, a 6% increase.

If you look back over the last few years, our dividend has increased nearly 80% since 2010, and we continue to be committed to returning capital to our shareholders. Now let's turn to Slide 5 for an overview of key accomplishments at SoCalGas and SDG&E. Our California utilities are spending capital consistent with approved programs.

The utilities have also received important regulatory decisions in 2014 that established the framework to guide investments in programs like the Pipeline Safety Enhancement Plan, or PSEP. In November, the CPUC approved the SONGS multiparty settlement agreement that resolves the cost recovery issues on the plant closure.

Also, both SDG&E and SoCalGas filed their 2016 General Rate Case applications with a proposed decision expected by the end of this year. In December, the CPUC approved a 1 year extension of the utilities cost of capital rates. The extension keeps the authorized returns on equity of 10.1% for SoCalGas and 10.3% for SDG&E intact through 2016.

It also keeps in place an automatic adjustment mechanism should interest rates move beyond a predetermined band. Operationally, SoCalGas installed nearly 1.8 million advanced meters last year and is ahead of schedule on their program to install nearly 6 million advanced meters by the end of 2017.

Both utilities are ahead of schedule in implementing their pipeline safety enhancement plans as well, having already tested or replaced over 30 miles of pipeline last year. Now let's move to U.S. Gas & Power on Slide 6.

Key milestones reached last year on the Cameron Liquefaction project include reaching the final investment decision, or FID; forming the joint venture; and getting the project fully into construction. With permits, financing and the lump sum turnkey contract in place, we remain on track to complete all 3 trains in 2018.

In December, the JV also filed with the Department of Energy for FTA authorization to export an additional 2.95 million tons of LNG per annum on trains 1 through 3. We expect to file for the non-FTA export permit this quarter.

These higher volumes match the maximum design capacity of the plant approved by FERC, and permits would allow us to export additional LNG during periods when production levels exceed the 12 million tons per annum already approved.

However, just to be clear, while this can provide upside, we do not expect the plant to produce at the maximum capacity on a routine basis and additional production is unlikely during startup and the first few years of operation.

If higher volumes can be produced that Cameron's customers use for export, we could see earnings upside in the future of approximately $30 million for each 1 million tons produced. Work on our 3 major LNG development projects also continues to move forward.

This week, the JV partner submitted the FERC prefiling and DOE FTA export application for Cameron trains 4 and 5. The filing would add a combined LNG capacity of approximately 9 million to 10 million tons per annum.

We expect to submit the full FERC filing later this year, which will initiate the detailed environmental review process that should take approximately 12 to 18 months to complete. At Port Arthur and ECA, design, regulatory and commercial activities are ongoing. For Port Arthur, we are working to prepare our FERC prefiling.

For ECA, we announced the signing of an MOU with PEMEX last week. The agreement signifies our intention to cooperate on the development of the export project and explore the possibility for PEMEX to participate as a customer, supplier and/or investor.

For all 3 development projects, we have been meeting with a large number of potential customers and continue to see demand for LNG supplies in the 2020 to 2023 timeframe. We have also been on the road, speaking with many of you, about our competitive advantages in providing low-cost reliable LNG to the market. Our U.S.

and Mexican LNG projects are very compelling, even in today's lower oil price environment. And Sempra is one of the few developers who have successfully contracted, permitted and financed a liquefaction facility in North America.

We plan to provide an in-depth discussion on our development projects at our March Analyst Conference, and we'll have the President of our LNG business, Octávio Simões, there to answer your questions. Let's now go to Slide 7. For our Natural Gas segment, converting REX into a bidirectional pipeline was a positive long-term development last year.

As you know, 1.8 Bcf per day of east-to-west capacity on REX is now under long-term contract. 1/3 of this capacity is in service, and the remaining capacity should be online mid-2015. In addition, the REX joint venture has made progress on finalizing precedent agreements with interested shippers for expansion of east to west capacity.

The expansion would likely occur through additional compression and would be subject to regulatory approval. We are expecting any day to receive our FERC approval of the 1.2 Bcf per day of east-to-west capacity that is already contracted. Once that approval is received, we hope to provide additional details on the expansion project.

Shifting to our renewables business. In the fourth quarter, we added our 75-megawatt Broken Bow 2 Wind Project to a joint venture with ConEd. With this transaction, we have successfully partnered with ConEd on over 700 megawatts of renewable power projects, including 7 different solar plants and the Broken Bow 2 Wind Farm. Please turn to Slide 8.

In Mexico, IEnova has progressed on construction and is now generating earnings on sections of both the Sonora and Los Ramones pipelines placed in service in 2014. Together, these 2 pipelines will provide nearly 3 Bcf per day of import capacity to Mexico.

IEnova was also awarded the first natural gas pipeline tendered by CFE as part of Mexico's 5-year national infrastructure plan. The associated CapEx is $300 million and the pipeline should be in service in the first half of 2017 under a 25-year, dollar-denominated take-or-pay contract.

Since our last call, the CFE has put out tenders for an additional 4 pipelines in Mexico, representing an estimated $1.8 billion in investment. One of the bids is due next month and the other 3 bids are due in May. For your reference, we provide updated information on CFE bids in the appendix to this presentation.

With that, let's move to a discussion of the quarterly earnings in more detail. Before I hand the call over to Joe, however, I want to comment on the status of our total return vehicle, or TRV, analysis. We have indicated that we expect to complete our analysis on a preferred TRV structure by the end of first quarter.

We are continuing several different work streams in this respect. As you know, nearly all of our midstream and renewable assets are owned in partnerships and there are numerous accounting and legal aspects we must deal with for those assets. We will provide you with more information on our TRV preferred structure at the analyst conference.

Joe?.

Thanks, Debbie. Turning to Slide 9, our fourth quarter and full year 2014 results were very strong. This morning, we reported fourth quarter earnings of $297 million or $1.18 per share.

We recorded an additional $12 million after-tax loss in the fourth quarter for the early closure of SONGS, making the total SONGS-related loss in 2014 equal to $21 million. Excluding this loss, fourth quarter adjusted earnings were $309 million or $1.23 per share. Full year 2014 earnings totaled $1,161,000,000 or $4.63 per share.

This compares to 2013 earnings of $1,001,000,000 or $4.01 per share. On an adjusted basis, 2014 earnings per share were $4.71. Year-over-year, adjusted earnings per share grew 13%. Similar to last quarter's call, we provide individual financial results for each of our businesses in the section of our presentation entitled Business Unit Earnings.

Today, I'm going to focus on the key drivers of our consolidated fourth quarter earnings, beginning on Slide 10. Fourth quarter adjusted earnings increased over the same period last year, due in part to $33 million of benefits in 2014, coming largely from 3 items.

First, in December, the Peruvian Congress approved gradually lowering the corporate income tax rate from 30% in 2014 to 26% in 2019, and that was signed by the President on December 31. We recorded an $18 million income tax benefit in the fourth quarter as a result of the remeasurement of our deferred tax liabilities. Second, U.S.

Gas & Power recorded an $8 million after-tax gain from the sale of a 50% equity interest in the Broken Bow 2 Wind Project. Third, SDG&E had $7 million of increased earnings from higher CPUC-based margin and FERC regulatory operations. Partially offsetting these items were $7 million of net benefits in 2013.

SoCalGas had $20 million of lower income tax expense in 2013, primarily related to resolution of prior year's income tax items and higher flow-through deductions recorded in that year. Netted against this amount is $13 million of deferred income tax expense for Sempra Mexico in the fourth quarter of 2013 that related to Mexican tax reform.

With regard to foreign currency-related effects, we did see a $16 million reduction in South American earnings over the course of 2014 due to the depreciation of local currencies against the dollar.

However, this impact was almost entirely offset by foreign currency-related effects and inflation in Mexico, where depreciation of the local currency decreased our deferred tax-related balances and increased our earnings. Now please go to Slide 11.

Turning to our guidance for 2015, we are setting our adjusted earnings guidance range at $4.60 per share to $5 per share.

This range reflects a number of factors, including higher utility earnings, new revenue on the REX pipeline, a year end forecast for South American currencies and the fall of natural gas futures prices that may reduce our gas storage and marketing revenues. Our adjusted guidance range excludes 2 items.

First, as we indicated last quarter, we are not including the expected gain on the sale of the second block of our Mesquite Power Plant. The estimated earnings impact for this sale ranges from $0.12 per diluted share to $0.15 per diluted share.

Second, we expect to incur some development costs related to our 3 LNG projects, Cameron trains 4 and 5, ECA and Port Arthur. Advancing development projects to the full FERC filing could cost up to $25 million per project.

However, at this point, we do not know the timing or the amount we will spend, the total cost we will share with our partners or the breakdown between the amount we may capitalize and the amount we may expense.

We believe that excluding the development costs for these 3 projects gives better clarity into the ongoing results of our business since earnings from these efforts will likely only be realized in 2020 and beyond. We will be disciplined in our approach regarding development spending, and we'll periodically update you on our progress.

Amounts expensed will be reflected in our GAAP numbers. We expect to have more updates on LNG projects at our Analyst Conference in New York on March 26. At that time, we will also provide updated 2015 guidance on a business unit level, as well as our long-term projected growth rate.

With regard to the dividend, the Sempra board voted to increase our annualized dividend by 6% to $2.80 per share. Given our target payout ratio of 45% to 50%, this increase allows for a smoother path towards payout in 2019 when a full year of Cameron Liquefaction earnings is expected to begin.

The increase in the dividend reflects the confidence we have in our long-term growth, and it's consistent with our commitment to grow the dividend. To reiterate Debbie's message at the beginning of this call, our underlying businesses are performing well.

We are executing on our development projects, and we are on track to achieve results in the upper end of our expected 9% to 11% earnings per share growth rate for the period 2014 to 2019. With that, we will conclude our prepared remarks and stop to take any questions you may have..

[Operator Instructions] And we will take the first question today from Greg Gordon with Evercore ISI..

A couple of questions.

First one is when you look at the impact of FX for fiscal year '15 versus fiscal year '14 using the assumptions that you're making, year-over-year how much of a headwind is that?.

I'm going to have Joe address the FX issue. As you know, we have FX going one way in South America and FX going the opposite way in Mexico, because the Mexico FX is related to Mexican tax code. And since we have dollar-denominated contracts in Mexico, but we pay the tax in the peso, it kind of creates a natural hedge.

But I'll have Joe talk about the 2014 to 2015..

Greg, thanks. It creates some modest reduction in our South America utility earnings because we're using the year-end forward curve for the year, and that creates some downward pressure. But we've seen in the last several years that the Mexican tax pretty much offsets it. But we don't -- we're not providing any details at that level.

[indiscernible] it's 1 million -- it was $1 million this year..

Okay.

So all things equal, you're not building in a big headwind from FX net-net?.

No..

No..

Okay. I just wanted to be sure..

And let me just be clear that when we do that, we look at the forward curves and we look at what is -- what the market curves are and that's what we put in our plan. So we don't do numbers that are not consistent with what the market curves are..

And the natural hedge from this, as I said before, works really well when all 3 currencies kind of move in tandem at the same time, and that doesn't always happen, but that's what we've witnessed the last several years..

We'll now go to Steven Fleishman with Wolfe Research..

Just a question with regard to the growth rate and going to kind of the upper end of the 9% to 11%.

Is that on the basis that you gave at the Analyst Day last year, where you're only including Cameron for 2019? Or is that on kind of a more normal basis where you're including all the businesses for 2019?.

Okay. When we gave you the 9% to 11% last year, it was looking at the composite growth rate for Sempra as a whole, and it includes Cameron trains 1 through 3. And we're going to go through this in detail with an update at the Analyst Meeting.

But as I said in my prepared remarks, with where we are now and some of the additional project opportunities we've already contracted, like pipelines in Mexico, the REX uplift and all, we feel that in the 2014 through 2019 period, we would be towards the upper end of that range. And we will go through how we get there.

And I think you'll see at the Analyst Meeting that we have quite high visibility to the achievability of the upper end of that range. And then we also have quite high visibility of some additional upside that could either make that range higher or could extend that beyond 2019. And we'll talk about all of that in detail at the Analyst Meeting..

Okay.

And then my other question is just, I'm sure at the Analyst Day, you'll talk more about the LNG export environment for new contracts, but maybe if you can give us a little sense of the likelihood that -- when should we expect that you might have some kind of commitment to MOU for additional LNG export growth for Cameron 4 and 5 or others?.

Well, I think you should maybe use the process of 1 through 3 as an example of how it's most likely to roll out for 4 and 5. And you have to basically come up with a conceptual design of the facility to be able to kind of price out the facility.

That's kind of what where we are right now with our FERC prefiling that we just made on trains 4 and 5 at Cameron and our DOE FTA filing. And then that's when you can really start your commercial activity because you have a project you can talk about that has some conceptual framework around it.

So the active marketing really begins right around now, and we have had numerous contacts with customers. And on -- about all 3 of our projects, there remains a lot of interest, as I said in my remarks.

And we'll talk about the groups of customers and their interest in each of the projects and what drives their interest in each of the projects in more detail at the Analyst Conference.

Mark, did you want to add anything to that?.

Yes, the only thing I would say is that we are talking actively with customers, but we need to do some of this preliminary work and engineering so that we can get a better ballpark on what the pricing and cost will be. It's very hard for them, obviously, to commit to something if they don't know what it's going to cost.

We're highly confident that, especially with trains 4 and 5, that we'll be a low-cost provider and we think that will position us well for additional volumes. And then with -- at ECA too, as well, we believe we can be a relatively low-cost provider given both the existing facility and the transportation advantages that being on the West Coast has.

So I think we're coming into the market with 2 projects at least that are -- that should be at the low-end of the cost scale of what people are looking at. And then we have a big opportunity at Port Arthur to build a kind of a big facility, and it could even be a multiuse facility.

So I think we're pretty excited about the opportunities that we have in front of us, and we think as we progress during this year with the studies and the engineering work, the things that we need to do to get permitted, that we'll be in a good position to sign up people..

We'll now go to Chris Turnure with JPMorgan..

Just a follow-up on the last question.

If we look back to the 2012 process for trains 1 through 3, could you just walk us through kind of the ultimate offtake agreements there? I know there were just commercial development agreements at that time, but my understanding was the 3 counterparties were each signed up for 1/3 of the ultimate capacity and that they did not, at that time, know what they would do to sell that gas in any kind of firm way.

So does that differ at all from this time around and where you are in the process now.

No. I think the process would be quite similar. I mean, we filed our FERC prefiling and our FTA at DOE, and then that helped define the project. And then a few months after that, we had the MOU, I think it was actually about 6 months after that, 5 months after that, we had the MOU with those parties.

And we had the structure that's framed up for Cameron's trains 4 and 5, because it's very much like the structure of Cameron's trains 1 through 3.

So Mark, do you want to just go in more detail?.

Yes, to give a little -- to shed a little more light on that. So when we did the first 3 trains, we've started the FERC process and went through this, and we had agreements with partners that, subject to certain conditions, they would sign up for firm capacity.

And so we're moving -- as we move through that process and as we got various permits, including our non-FTA, we got our fixed price construction contract and we got a handle on ultimate delivery, those we met some of the conditions precedent and then those commitments to take that capacity became legally binding at a point in time.

It'll be similar to that here. The difference here is that we already have all of the operating agreements in place. We know how the facility is going to operate. We know how we're going to share costs. We have all of those kinds of agreements done.

So a lot of the heavy lifting has been done, and it's really a matter of our partners marketing the extra capacity that they -- the extra LNG that they would produce, and ourselves, because on the expansion, we have the right to take 50% of the capacity subject to the same operating and arrangements that are in trains 1 through 3.

And so our plan is to do that and for us to sell that capacity or LNG in the market, and we're working to commercialize that option. So it will -- it's very similar to the first one, but it is slightly different..

The other thing that I would say different this time, is the first one it was Sempra doing this, and now it's the joint venture that is doing this. And so the decision that was just made to make these filings was the joint venture partners in addition to Sempra making the decision to move forward..

Okay, great. That's very helpful.

And then just to be clear, that point of kind of legal no return for the counterparties to commit after the different kind of domestic logistical hurdles were reached was the MOU, not the commercial development agreement?.

Yes. Actually, the point of no return is typically the -- what we call FID, the Firm Investment Decision. So when we sign a contract to extend the construction to trains 4 and 5, when we commit the contracting dollars, at that time we'll be making a firm investment decision and we'll have all those commitments in place.

That's usually quickly after that MOU kind of opportunity..

Okay. And then just to transition back to the expansion of trains 1 through 3, I guess you mentioned that with the FERC process you had known how potentially big it could be in terms of capacity. But then when you filed the DOE applications, you did not know that or you filed for a smaller amount.

Was there kind of a political ramification to that where you wanted to be more conservative and not raise a red flag? Or did something change on the kind of engineering and design or end market side that made you want to expand it?.

No. This something that you're seeing with most of LNG facilities. When most of us filed at DOE, we filed based upon what you thought the actual average annual production was going to be. So at that point, we filed at 12 Mtpa. And then at FERC, they really wanted the nameplate capacity of the facility, which for us, for those 3 trains, was 14.95.

And so we got the approval at FERC for the 14.95. We went back, and now, are reconciling the DOE permit to that. And you've seen that from several other of the parties that have already gotten their permit. In fact, I think Freeport just got there the other day for a reconciliation of the 2. So it's fully expected. Others have gotten it.

It's not anything other than how the numbers were calculated..

Michael Weinstein with UBS is next..

Given the recent outcome in the CFE awards and considering that, along with the growing solar portfolio, just wondering how those 2 things impact your decision on TRV versus MLP? And how it might be coloring the decision one way or another?.

We're going to talk about our structural decision at our Analyst Conference, and we're going to go into all of those details at that time. I would just say that we're very much aware of our assets. We're very much aware of how those assets might fit into the structure.

And what we're looking for, as we're looking at structures and the possibility of whether we go forward with this or not, is to -- what adds the greatest value to the Sempra shareholder and what structures would align best with our strategy? And so, we'll go through that at the analyst meeting so that you can have an understanding of how we're thinking about it, and I'd prefer not to say anything further today..

And we'll now go to Matt Tucker with KeyBanc Capital Markets..

Just to follow up on the expansion in the capacity of Cameron trains 1 to 3, just wanted to clarify that you had not included that capacity in the earnings guidance you've given previously? And then secondly, how does that capacity work with respect to your existing contracts? Would that be -- does that fall under those contracts? Or would these be like spot cargoes? If you could just comment on that..

Yes.

First, let me say that, as I mentioned in my remarks, that these trains 1 through 3, the incremental capacity from those trains happens after the facility is up and operational and producing where you don't have as much shutdown, you don't have as much opportunity, I mean, for maintenance and things like that, and that you have greater production.

And that would go beyond the 5 years in our plan. And so the numbers that we've given you, where we gave you $300 million to $350 million a year on average, that's what we would still anticipating in the early years of our plan.

And then over time, we would be able to have some uplift potential, providing that we can manufacture from the plant more than the 12 Mtpa and that our customers are willing to take that and export that. And the terms of that have all been part of our original contract, how that gets calculated.

And as I said that we just gave you a rough number of, if you added 1 Mtpa per year of export, that, that would be about $30 million upside to us when it would occur. It's not in our planned numbers, it's not part of the $300 million to $350 million, it's upside to that, but it would not be in our 5 year-plan period.

So that's why I try to make it clear because we made these filings, they're public. We wanted to be fully transparent and ensure you understood exactly what we were doing..

Understood. And then could you comment on how your discussions with potential customers for your LNG expansion plans as well as your confidence in the viability of these projects has changed in light of this recent drop in oil prices versus the discussions you were having when oil was in the 90s..

Yes. The thing that I would say is first off, the buyers of these facilities are looking at 20- to 25-year contracts. So spot oil prices are not a determining factor for them in terms of looking at a long-term investment in these facilities. If that was the case, gas prices have gone down a lot, too.

But how our customers look at this is they look at having a portfolio of LNG assets to meet some of their needs. The world demand in LNG is expected to increase considerably over the next 10 years. And they're looking at having LNG that can provide that need that gives them some optionality. And the things that have been really good about the U.S.

projects are that they allow freedom of destination for export, which has not been true with some of the other contracts. And probably even more importantly than that, they have a liquid hub with upstream development that's already been there, with a robust pipeline infrastructure, with -- E&P work that someone else is paying for.

And then they have a Henry Hub tradable point. So from the standpoint of our customers, they're very interested in having the opportunity to acquire LNG that has that kind of flexibility to it, and that's what we hear back.

And then what we also hear back is that some of the customers like Port Arthur, because they could take equity there and that they could do a multipurpose facility.

Some of the customers like Cameron trains 4 and 5 because they feel that it would be -- it's one of the lowest-cost projects that's been done and that for Cameron trains 1 through 3, 4 and 5 should be somewhere similar and that they see this optionality that I talk about.

And some of them like ECA because they like the idea of a West Coast facility that could be built and access markets without going through the Panama Canal. So you have customers with different interests and different needs for the facility. And there's been a great deal of customer interest in the facilities.

And LNG and oil are not fungible fully, so that Tokyo Gas is going to need gas. They can't use oil. So it doesn't really matter what the cost of oil is in that regard. And so I think there's too much connection to that because of the way pricing was done.

The other thing I would say is that many facilities, if you looked at the price of oil today and you looked at tariffing on that basis, they could never get built because their just cost to build that facility would not be justified on an oil-linked price today.

So if anything, we think it improves the competitiveness of some of the projects that are in the U.S.

Mark, do you want to add anything to that?.

I would just summarize by just saying on the -- you've got 2 parts to this, the consumption side and on the consumption side, natural gas, once you've made the commitment to natural gas as a fuel for generation or industrial usage, you're not switching back and forth between oil and natural gas.

So the price of oil, other than the old crude-linked formulas, is really the only connection. It doesn't have that. And then on the supply side, there is a big advantage to the U.S. LNG because the biggest advantages -- the commitment that you need to make to buy LNG from the U.S.

is less than it is than in most other places because all of the upstream development's already in place and you don't have to commit to pay for that over 20 years, it's already there. So you're really only committing to the facility, and that's a big advantage for customers on the supply side.

So I think if you just think of it that way, you'll see that the U.S. LNG will remain competitive for a long time..

I just wanted to ask one more on the Mexico pipeline opportunities. You talked about the roughly $1.8 billion in CapEx on these upcoming 4 bids this year. I know you've said in the past you're not baking any of that into your long-term earnings guidance. So from that perspective, anything you get would be upside.

But I suspect you'd be fairly disappointed if you don't win anything.

And if that's fair, what would you be happy with? What -- how can we kind of gauge success on those bids?.

What I would be happy with is to get them all for the kind of returns that we would like to have. So I mean, that's -- it's not how many we get, it's how profitable they are. And we run our business to provide shareholder value.

And when we lose a bid, we look at it and we say, would we have wanted to have it for that? And most times I will tell you, we say no, that's not something we would have done because we have other ways we can invest our capital that will give us higher return.

And so for us, it's about the discipline and the biddings and about -- we would be, obviously, disappointed if we don't get some of these. But as you've correctly stated, we don't have these in our plan, so it would be upside..

And we'll now go to Faisel Khan with Citi..

On the -- just a couple of questions on the operating results and then some broader questions. First question, on SoCal, SoCalGas, I understand the sort of movements around taxes there and the tax benefits last year versus this year.

But if I go above the line to sort of operating income or EBIT, or even for that matter, operating margin, it looks like year-over-year in the quarter, it looks like, basically, operating profit was flat year-over-year.

So I mean, I'm just trying to see how the growth is coming through at SoCal with all the capital you guys are spending in the business?.

Yes. I'm going to have Joe talk about that. But I will say that 2014 was kind of a transition year. We were waiting for the PSEP decision to come out and starting up on a lot of the CapEx that you're going to start seeing flowing through the plan. So let me have Joe talk in particular about the year-over-year.

And then Dennis is here, and he can talk about kind of what he's looking at and some of the changes in 2015 over 2014..

Faisel, yes, when you look at the tables -- I guess that's what you were looking at, is the tables..

Yes, the supplementary tables..

And one thing that these tables -- yes, one thing that they don't show is that last year, we had still some of the retro income from the rate case delay, and so these throw you off. When you look at that, it looks like $124 million, $124 million. But last year, there was income in the numbers from the retroactive piece.

And so they actually do have nice growth from year-to-year and the taxes -- between the 2 utilities, we had like $20 million of tax benefits last year and $21 million this year. It just happen to be between the 2 utilities. If you look at the 2 utilities in total, there's nice growth. But I'll let Dennis respond if there's anything else in there.

But you had at least $25 million in revenue impact last year from the retro and some depreciation impact. So actually, their numbers look better than they do on the sheet.

Dennis?.

Faisel, what I'd say is with the capital that we're spending and as Debbie mentioned, in '14, we're really well-positioned for the growth that we're going to see in '15. With PSEP now fully charging forward, you're going to see a full year of earnings related to that. And with the acceleration in advanced meter, that's continuing to go well.

The other thing is by accelerating the Advanced Metering program in 2014, we did incur some additional operating expenses there that we won't necessarily have in years -- in 2015 as well.

So when we look at those 2 programs plus the continuing growth in AFUDC related to projects like our Aliso storage replacement, we're really confident that the range that we gave out in 2015 [ph] at the analyst conference, we're on track for that for earnings..

Faisel, this is Joe. It just occurred -- dawned on me. I was actually really thinking about the annual numbers, because the retro piece was in the first quarter. It wasn't in the fourth. But I think the points that Dennis just made addressed the fourth quarter.

If you look at the annual piece, I still think if you back out the retro, it looks okay, it looks good..

Okay. Okay, got you. And then if I look at the EPS guidance you guys laid out today for '15, what's the assumed sort of tax rate in that number? I think you may have mentioned it and I may have missed it in your prepared remarks..

This is Joe. The tax rate for 2015 is about 29%..

Okay. And then going back to the, Debbie, your comments on the extra 2.9 million tons of potential LNG capacity at the plant. So the 12 million tons is what you have contracted.

So I just want to make sure I understood this, so you'd have to actually contract for the extra 3 million tons to your existing customers, is that what you were saying in your remarks?.

I'll have Mark go through kind of how that works..

Okay. So if we're talking -- you're talking about the extra tonnage because of the sort of the de-bottlenecking the extra nameplate capacity? Okay. Yes, we actually -- that extra tonnage was contemplated when we did the agreement. So we get paid for making that available. If we make it available and it's used, we get paid a specific fee for that.

And that's the calculation that we gave you that said it's about $30 million per ton per annum. And so we won't get that all the time. It will be intermittent.

It -- because you do have to maintain these facilities, so there will be some times we'll be taking the facility down and it will earn less in its nameplate capacity, but we will have opportunities to really exceed it. And when we do that, we have a formula for getting paid..

Okay. Understood.

And then last question for me, just as you guys are thinking about sort of the performance in the stock, which has been great over the last 12 to 18 months, and sort of the -- everything you guys have lined up for the next several years, how are you guys thinking about acquisitions at this point? I mean you've seen some volatility at least in the midstream sector.

I mean, what's your philosophy right now on acquisitions? Is the table sort of set and you don't need to -- you're not interested in anything? Or does it make sense to go out and look for things?.

Well, we always look for things.

And I think that with the markets having a little bit of instability right now and watching what's happening with some companies who really need to raise capital and are looking at getting rid of certain assets, that this is a good time for us to be shopping if there are some good assets on the market, and we look all the time.

But what we look at is assets that will add value to the shareholder or give us a strategic advantage where 1 plus 1 equals more than 2, and that we really are very particular. As you said, we have a great growth rate that is just based from the organic growth that we have in our business.

We are in a wonderful position where we don't have to make acquisitions in order to grow.

So the way we look at it is, is this going to be a benefit to our shareholders? Is it going to add to our portfolio? Is it going to give us greater long-term growth? Or is it going to give us the opportunity to extend our growth beyond our 5-year period significantly above our peers? And that's the way we look at acquisitions.

So if we find some things, we're always interested if they fit that..

I guess, the one reason why I'm asking is that a lot of the growth that you have -- you've got set up right now for the company over the next few years or several years, for that matter, is -- are sort of acquisitions or sort of investments you made sort of many years ago that are sort of driving a lot of that growth.

So like how do you guys think about trying to set up for the next decade with the portfolio you have?.

That's a great question, and we actually have a team that's working on beyond 5 and what are the things that we should be doing to create the foundations for future growth. And that is part of our strategic review process that we're going through.

I mean, not -- I guess not too many companies are fortunate enough to have the visibility 5 years out to the growth [ph]. And what we want to do is set it up so that we have visibility not just 5 years, but 10 and 15 years out, and we are already working on that. It's a great question..

And we'll go to Mark Barnett with Morningstar..

So you've talked a lot about the Cameron project. I did want to flip it a little bit back to some of your comments about the opportunity in Mexico.

You've kind of addressed this a little bit, but when you're looking at the bid process, you've obviously been successful, you have a recent success, and you're looking back on some of the bids you didn't want and why you didn't get them, talking about the returns process.

But just wondering if how does it -- how final does this bidding process feel to you at this point? Feedback from the CFE, improvements that you'd like to see.

Is there anything, I guess, in the process itself that would make it, I don't know, would make it easier for you to evaluate these projects?.

I'm going to ask Mark to answer that. We've gone through the full analysis of the bids and I would say that the -- that the bidding process is a pretty solid process, from what we see. And it's pretty clear. And I would say the U.S. pipeline bids were not as clear at the beginning, but they became clearer towards the end.

The one thing that I think, and it was said on our IEnova call today, that we're all having to look at a little differently, is that when they bid these pipelines, they bid them to a certain capacity.

And what many of the bidders are doing is looking at beyond that capacity that's going to be contracted and what is the market potential to add compression or to broaden the opportunities on the pipeline.

And so I think that's one thing that we're seeing from bidders now is that they're looking not just at the first contract, but what could you do to grow that. Mark, do you want to....

Yes, I'll just elaborate a little bit on that. I would say one of the things that we're seeing from the bid process as a whole, it's actually quite good. It seems to be relatively -- it seems to be fair. They're looking at the right things and they kind of break it into 2 parts.

There's a capital part and then the net present value over the future payments that the customer would take, whether that's CFE or PEMEX. So they've done this in, I think, a logical way.

But to Debbie's point, one of the things that I think that will necessitate winning bidders to do in the future is to anticipate some additional revenue and capacity that would be used by the market, because all of these will be open access pipelines.

They will eventually attract other customers and you got to kind of figure that into your net present value of your cash flow stream. And so, I think that it's going to keep a competitive process for Mexico. I guess the thing that I would add to that -- so I think we're looking at that and I think we can make adjustments for that.

But I do think the thing that's most important is we've got these other group of bids that are coming out here shortly, but we have a whole list of other projects that are going to come out during the year.

And the most encouraging thing we've seen is, in spite and maybe because of the drop in oil prices, the need for outside investment in Mexican infrastructure continues to grow.

There seems to be no reluctance on the part of CFE or PEMEX to get moving on some of these projects because they're critically needed to deliver gas into the bowels [ph] of Mexico, and we really want to make sure that those projects that they're developing down there that are going to use this gas are all moving forward, and they are.

And so I think all of this speaks very well for the additional investment.

And we are, even though that we watch our returns and we want to make sure that we get a good return on our investment, we're still in one of the best competitive advantage -- in one of the best competitive places to be from having an advantage of just being the incumbent and the largest incumbent.

Our relationship with the contractors and the pipe producers and the things that we've been using in Mexico, really, I think, we can be very quite competitive, and I think we'll do well..

So one other thing that we didn't mention is that in addition to the 4 pipelines, they're also putting a bid out for gas supply at Baja Sur. And in that, they're allowing you to construct how you would get the gas there, whether it's by pipeline or it's by LNG.

And I think we're starting to see a little more breadth in the type of bids that are coming out, and that pays to our sweet spot -- plays to our sweet spot where we can be creative in how we use the assets that we already have in Mexico and we take those and work them together in a way that puts a really attractive package on the table.

So I think we feel very good about this, but we also are going to be very disciplined..

Great. Now that's some really nice commentary. I appreciate that.

And maybe to kind of pick up where you mentioned on the competitive advantage side and given how successful you've already been and seem to be so far, I mean, does that kind of change the appetite for maybe partnering with other large multinationals in pursuing some of the larger projects? Is that still an option that you are considering when you look at particular -- the larger bids perhaps?.

Yes, I mean, we always look at partners. But what we want to be sure is both partners bring something to the table. In terms of just bringing capital to the table, we feel that we have great opportunities in Mexico to raise capital for this.

But if there's something strategic that they bring to the table, that combined with us, would make us more competitive, we'd certainly look at that..

And we'll go to Winfried Fruehauf with W. Fruehauf Consulting..

Assuming the market price for LNG produced at Cameron is petroleum-based or petroleum-related, and assuming current petroleum prices would remain at or below current levels for 5 years, would this, in your opinion, affect the ability and willingness of the offtakers to proceed under the terms of the contract?.

If you're talking about the trains 1 through 3, no. I would not expect that. I mean, we have a very tight contract. The other thing, and the way we structure trains 1 through 3, is our customers are our partners.

And so we had envisioned that if there was upturns or downturns in the LNG market, the fact that they're paying theirselves is an advantage under this. And so what you have with this is you have some, as you're pointing out, some credit risk.

I certainly think GDF, Mitsui and Mitsubishi are very strong credits and that they look at this as a long-term investment for them. So I wouldn't see that, Winfried..

We'll now go to Paul Patterson with Glenrock Associates..

Just on the -- almost all my questions have been answered, and I apologize if I missed this, but the non-capitalized development costs for the additional LNG projects, what was the amount that you guys are seeing, that you guys are expecting, for that in 2015? And how should we think about what that might look like going forward in the future?.

Okay. I'll ask Joe to answer that one..

Paul, the reason that we are excluding it from guidance, as Debbie mentioned, are severalfold. But we actually are not able to estimate it right now, and that's why we didn't give a number and we didn't put a range for it, because we expect to be spending this money, but as Debbie said, we're going to be disciplined.

We also have partners in these projects, and so we are not sure at this point in time how much we're going to spend versus how much we're going to collect from partners. And then as we work through getting customers signed up for MOUs, at some point, we'll be able to capitalize the costs.

So we just -- we cannot, right now, estimate the amount that we may ultimately spend. Mark, I don't know if you have anything to add that you'd like to..

No. I think that's right. We really just can't estimate it now, and because of the difference in capitalization or expense, we just thought it would be best to exclude it..

Okay. So you're just calling it out....

One thing also, I just think from a transparency standpoint that you'll be able to see this because we'll be reporting earnings and you'll be able to see, as we're reporting, how much we're spending. And then -- so it makes it more transparent to you, and I think that's a positive way to handle it.

When you can't really estimate something and it's something that's really leading up to your FERC filing, and then you guys will be able to see..

Okay. I understand that, I don't want to make too much of it. I just was sort of wondering though, how long do you think this will be a separate issue that you guys will be calling out, just the....

No. I mean, what we're looking at is we're looking at getting the filings done this year on all of these. So this is the expenditures that would occur before the filing and a lot depends on, as was said, when you get partners, when you get MOUs and what the capitalization policy is versus the expense policy.

And the fact that we have 3 going at one time this year is quite unusual. So I wouldn't see this as being an ongoing thing and it's really expenditures for projects that really will be beyond our 5-year plan, so..

Paul, one thing is, if we develop these projects beyond this year, likely, all these costs will continue to get capitalized..

And next is Ashar Khan with Visium..

Debbie, one thing, as you go out -- and we look forward to the Analyst Day, but we had one in the beginning of the year for the company.

But I hope one thing which would come out is you're doing your strategy is on this Total Return Vehicle, me being a Sempra holder, is how does this enhance my valuation when you select whatever that is? And I'm hoping it is through a better growth rate in earnings or something like that which you can quantify that this vehicle would provide valuation uplift to the parent company, which has been somewhat missing in what we saw earlier this year.

I hope that comes out very clearly as you pursue this path that we, as Sempra shareholders, what are we going to get by having this TRV vehicle?.

Well, if we decide to do a TRV, then how we explain that -- we have heard this from a number of our investors and it is one of the most important things on our mind in consideration about this.

And if you go forward on it, is where is the value creation for the Sempra shareholders? Where does that come from? Obviously, that -- there are all sorts of rules regarding communication and what you can do and what you can do when. And if we decide to go forward with this, we have to comply with those rules. But we hear you.

And that if we decide to go forward, that I hear what you're saying, and that we will make every effort to address it..

And Michael Weinstein with UBS has a follow-up question..

Just a quick follow-up. I think you were alluding before to a possible decoupling of LNG pricing from oil pricing, given the drop in oil on the spot market.

I'm just wondering if that is indeed what you're trying to say and what you're seeing out there, that we might be seeing a natural decoupling?.

Yes, to some degree. I'll have Mark talk..

Yes, it's -- look, there are numerous LNG contracts around the world that are linked to oil prices and they call it the crude cocktail price or you've heard those terms.

But the change that's coming, that's happening is really not one of a decoupling, but it's diversification which is going to -- that's entering another mix into this, and that is a Henry Hub-based LNG price. So most of -- in fact, all of the LNG so far, I think that's been sold out of the United States, has had some kind of index back to Henry Hub.

So it's giving the purchasers a mix in their portfolio of a different pricing, and that was very popular, obviously, when crude was very, very high. But the popularity hasn't diminished because crude has gone down in price.

I think there is a big desire by the -- especially the Japanese and the Koreans, to diversify their pricing mix and to have some different points -- different pricing points. So I think that's purely what it is. And it's a very small percentage now of their overall mix. It's growing.

But we're not anywhere near where they are full up with Henry Hub-based price. I think there's still a lot of room to go..

And that will conclude our question-and-answer session for today. I'd like to turn it back to Debbie Reed for any additional or closing remarks..

Well, thanks, again, for joining us today. I hope to see you all at our Analyst Conference in New York on March 26. As you heard today, we have a lot of interesting things to be covering at that conference. And in the meantime, please feel free to contact our IR team and have a great day..

And that does conclude our conference for today. I'd like to thank everyone for your participation, and have a great day..