Richard A. Vaccari - Vice President-Investor Relations Debra L. Reed - Chairman and Chief Executive Officer Joseph A. Householder - Executive Vice President and Chief Financial Officer Mark Alan Snell - President Dennis V. Arriola - President, Chief Executive Officer & Director, Southern California Gas Co.

Jeffrey Walker Martin - Chief Executive Officer & Director, San Diego Gas & Electric Co. Trevor I. Mihalik - Chief Accounting Officer, SVP & Controller.

Julien Dumoulin-Smith - UBS Securities LLC Greg Gordon - Evercore ISI Andrew Levi - Avon Capital Matt Tucker - KeyBanc Capital Markets, Inc. Mark Barnett - Morningstar Research Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc. Paul Patterson - Glenrock Associates LLC Faisel H. Khan - Citigroup Global Markets, Inc.

(Broker) Michael Dandurand - Goldman Sachs & Co. Steven Isaac Fleishman - Wolfe Research LLC.

Good day and welcome to the Sempra Energy First Quarter Earnings Results 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..

Debbie Reed, Chief Executive Officer; Mark Snell, President; Joe Householder, Chief Financial Officer; Martha Wyrsch, General Counsel; Trevor Mihalik, Controller and Chief Accounting Officer; Dennis Arriola, Chief Executive Officer of Southern California Gas Company; and Jeff Martin, Chief Executive Officer of San Diego Gas & Electric Company.

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 first quarter 2015 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, May 5, 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 four, and let me hand the call over to Debbie..

we have a five-year base plan that is built on conservative assumptions and provides a high degree of visibility to our earnings projections.

Our base plan is expected to yield approximately 11% compound annual earnings growth from 2015 to 2019, and we have already identified $7 billion to $8 billion worth of growth opportunities that could provide upside to our base plan.

In addition to those opportunities, we are working to advance our three potential LNG development projects that could provide earnings post-2019. For those unable to attend the event, you can find all of this information in the Analyst Conference Presentation on our website.

And for today, you will see that we are already making progress executing on our strategy. Moving to our financial performance. Earlier this morning, we reported first quarter adjusted earnings of $428 million or $1.71 per share.

When comparing earnings on a quarterly basis, please keep in mind the impact from applying seasonality to SoCalGas earnings beginning in 2015. Dennis discussed this item at the Analyst Conference and showed that substantially all of SoCalGas' annual earnings will now be reported in the first and fourth quarters of the year.

Though seasonality will not affect full-year 2015 earnings, it resulted in $113 million of increased earnings in the first quarter, relative to the same period last year. Absent this impact, we still had a very strong start to the year. And our financial results kept us on track to achieve our 2015 adjusted earnings guidance.

Our California Utilities provided outstanding operating performance and across the company, we have made progress on our base plan projects and development opportunities. For today's call, I will begin with a brief regulatory and operational update before I hand the call over to Joe to discuss our first quarter earnings in more detail.

Joe will also take a moment to clarify elements of the TRV discussion we had at the Analyst Conference. Hopefully, this will help further address some of your questions. Please turn to slide five. A key priority for our California Utilities this year, is to achieve a successful regulatory outcome for the general rate case.

Since our last earnings call, the GRC was reassigned to President Picker, and the schedule for public hearings was established. The schedule calls for the issuance of a draft decision by year-end. On April 2, the Office of Ratepayer Advocates, ORA, submitted their report on our GRC requests.

ORA recommended that our requested 2016 revenue requirement, be reduced by approximately 9% for SDG&E and 7.5% for SoCalGas. ORA also recommended that both utilities receive inflation increases for 2017 and 2018 of at least 3.5%. As we explained at our Analyst Conference, our GRC requests were pretty modest and take into account good cost management.

ORA's report is focused on issues they have raised in the past, and their suggested reductions are not as large as prior recommendations for California investor-owned utilities, likely due to the prudent requests we made. After evaluating ORA's report, we will file rebuttal testimony and commence settlement discussions. Now, please turn to slide six.

In April, we also received a proposed decision or PD on long-term rate reform. The PD entails comprehensive reforms to residential rates intended to make them more fair, transparent and reflective of actual cost-of-service. The PD includes a reduction in the number of tiers from four to three this year and down to two tiers next year.

Rate differentials between the tiers would gradually be reduced from 2015 through 2019. To ensure all customers contribute some amount to cover utility fixed infrastructure costs, the PD includes a $10 monthly minimum bill provision.

It also allows for consideration of a customer fixed charge as part of a 2018 utility filing on proposed time-of-use rates. The PD calls for implementation to begin in July of this year with more significant changes beginning in 2016. While we see the direction of the PD as favorable, we will file comments encouraging the CPUC to go further, faster.

Let's now go to slide seven for a business update. Regarding our base plan activities, I am pleased to announce that the binding open season for expansion on the REX pipeline has concluded, and we now have a 0.7 Bcf per day of capacity contracted for 15 years.

The expansion will be achieved primarily through compression, with an estimated total cost of about $530 million at the partnership level. We expect the project to be in service by year-end 2016 and to provide us with about $10 million of annual earnings that are already included in our base plan.

Shifting to our Renewables business, Copper Mountain Solar 2 and 3 are now both fully in service, bringing our total renewable operating portfolio to about 970 megawatts. Regarding development opportunities not in our base plan, we recently acquired the 78-megawatt Black Oak Getty wind project in Minnesota.

The wind farm has a 20-year power purchase agreement with the Minnesota Municipal Power Agency and we expect the project to be in operation by year-end 2016. In Mexico, we will participate in the next round of CFE pipeline bids.

Currently, the CFE has three pipelines, with bids due in May through July that represent total estimated CapEx of around $1.3 billion. The CFE has announced two other projects with bids expected this year that represent another $1 billion of investment.

We discussed at the Analyst Conference our continued interest in these opportunities, our competitive advantages and the potential for adding capacity commitments from industrial buyers. For your reference, we provide updated information on CFE bids in the appendix to this presentation.

As a final note, I am pleased to announce that we completed the sale of the remaining block of the Mesquite Power Plant in April. In the second quarter, we will record an approximate $34 million after-tax gain on the sale, subject to working capital adjustments.

As we have discussed previously, this gain was not included in our 2015 adjusted earnings guidance. Sempra will receive approximately $350 million in proceeds, which we will use to pay down short-term debt. With that, please turn to slide eight for a discussion of the quarterly earnings.

Joe?.

Thanks, Debbie. Earlier this morning, we reported first quarter earnings of $437 million or $1.74 per share. First quarter adjusted earnings were $428 million or $1.71 per share. Adjusted earnings exclude two items. First, we recorded a benefit of $13 million after-tax from a reduction to the loss on the SONGS plant closure.

The reduction reflects the CPUC's approval in March 2015 of SDG&E's revenue requirement associated with the SONGS settlement. Second, as we have previously noted, we will be adjusting earnings for expenses related to the development of our three proposed LNG liquefaction projects.

In the first quarter of 2015, we recorded $4 million of after-tax expense. Debbie mentioned at the start of this call that compared with 2014, first quarter earnings now reflect the impact of seasonality in SoCalGas' revenues. This change alone increased earnings by $113 million relative to the first quarter of last year.

The application of seasonality in revenues for SoCalGas will result in substantially all of their earnings being recorded in the first and fourth quarters. But it will not affect the full-year earnings result.

We discussed this change at the Analyst Conference, and provide an updated illustration in the appendix that shows how seasonality would have impacted quarterly earnings in 2014, using our effective tax rate. Excluding this impact, operating earnings at SoCalGas still increased relative to the first quarter of last year.

Combined with strong operating performance at SDG&E and solid results in our other businesses, we had a very strong first quarter and they're on track to achieve our 2015 adjusted earnings guidance. Please turn to slide nine.

Individual financial results for each of our businesses can be found in the section of our presentation entitled, Business Unit Earnings. I'll address here the key drivers for our consolidated earnings this quarter.

In addition to the seasonality impact, first quarter adjusted earnings increased over the same period last year due in large part to $30 million of higher earnings at the California Utilities that reflect higher CPUC and FERC margins, net of operating expenses.

In addition, Sempra International recorded $11 million of higher earnings, primarily from growth in sales in Peru and earnings from the Los Ramones I pipeline and a section of the Sonora pipeline that were placed into service in Mexico.

In the first quarter of 2014, our Renewables business included $16 million of earnings from the sale of a 50% equity interest in the Copper Mountain Solar 3 project. Now, before we go to questions, I would like to take a moment to revisit the preferred structure for a possible TRV that we discussed at our Analyst Conference.

A couple of questions were raised after the conference and I want to ensure there is clarity regarding the structure we discussed. For your reference, we list these points in the appendix. Our preferred TRV structure would be a publicly-traded partnership with a corporate subsidiary.

The partnership would directly house assets with MLP qualifying income, while the corporate subsidiary would house assets with non-MLP qualifying income and pay dividends to the partnership. Dividends are qualifying income for the partnership under the tax rules.

This structure has been used by other MLPs and provides a tax shield for both the MLP qualifying and non-qualifying income due to the step-up in tax basis. Creating a long-term tax yield at the corporate subsidiary, would likely not require use of any renewable tax credits.

And if we were to establish a TRV, Sempra's share of any partnership income, would be taxed at Sempra's marginal tax rate. The partnership could be eligible for inclusion in an MLP index and investors would receive a K-1 versus a 1099.

In the event that we decide to proceed, we anticipate issuing a press release, that would generally disclose the assets we intend to put into the TRV, the purpose and timing of the offering, and the basic terms of the securities.

As you have seen with other entities that have issued a similar press release, SEC rules would prohibit us from speaking further about the matter beyond what would be in that press release. Now, let's conclude with slide 10.

Overall, our financial and operating results for the quarter were very strong and support our 2015 adjusted earnings guidance of $4.60 per share to $5 per share.

Excluding the impact of seasonality and SoCalGas' revenues, our first quarter adjusted earnings increased significantly compared to the same period last year, driven largely by increased operating earnings at the California Utilities.

Across the company, we made progress in executing on projects within our base plan and furthered efforts to capture additional development opportunities. With that, we'll conclude our prepared comments and stop to take any questions that you may have..

Thank you. We'll take our first question from Julien Dumoulin-Smith with UBS..

Hi. Good afternoon..

Hi, Julien..

Hey. So quick clarifying question on the TRV, if you will. And we're probably in store for a few more after this.

But at the publicly-traded level, this isn't an MLP, and it is more of a comp in the context of a YieldCo than it is an MLP, correct? And vis-à-vis the taxation – the tax benefit is more in the step-up akin to a YieldCo than it is an MLP, if I could be very clear about that..

Okay. I'm going to ask Joe to kind of walk through this to the extent we can and how we've done some modeling of how this might all work, so..

Hey, Julien. How are you doing? Thanks for the question. Actually, this is more akin to an MLP than it is to a YieldCo. So in the appendix, I've republished the slide that we had at the Analyst Conference, and on that slide 23 in the new deck, that publicly-traded partnership in the medium blue color, that is akin to an MLP.

So we would be the GP and have LP units, and the public partners would be like MLP partners in a publicly-traded partnership. That publicly-traded partnership would hold our midstream assets, our LNG assets, other assets that would qualify under those rules.

And then it would also own this corporate subsidiary and the corporate subsidiary would hold assets such as our renewable assets. And then those would be shielded by tax benefits and would produce dividends that would be qualifying for the MLP.

So the characterization of the tax benefits will be more akin to an MLP and the public partners, each time they buy in, would get a step-up to their price..

Julien, is that clear?.

Yes. Well, if I can follow-up just for a quick second..

Sure..

The parent here, the actually publicly-traded element, that would be more of a – it would be more of an MLP but it wouldn't benefit from the MLP tax benefits coming up from the qualifying income?.

No. Yes, it would. It absolutely....

It would. Okay. Great. Thank you..

It will be essentially an MLP, Julien..

Okay. And is there any limitations then on the qualifying dividends from the corporate subsidiary? Just to be clear..

No..

Okay..

No. Those dividends are qualifying dividends and then the MLP qualifying income, the LNG income or other midstream income is just like any other MLP..

Great.

Moving on, just in terms of California and looking at the SONGS situation, your peers to the north discussed or released several e-mails of late, et cetera, do you have any intentions or plans to file anything comparable related to the settlement process on your side or any other comment you might want to add vis-à-vis the latest development?.

Julien, no. And we have not had any data requests. We've had no subpoenas, nothing of that nature that we've looked at all the documents that our fellow utilities to the north have filed and we don't see anything in those documents that concern us at all. So as far as we're concerned, that issue is not relevant to SDG&E at this time..

Great. Thanks for being so clear..

We'll go next to Greg Gordon with Evercore ISI..

Hi. Thanks.

Looking at the first quarter numbers, if we were to just try to adjust for the seasonality issue, would it be fair to sort of, if we took the $113 million out of the quarter, assuming that you were earning it over the course of the rest of the year, and just looked at that earnings number, that would be a good – would that be a reasonable comp to last year? Because it looks, you would have been sort of $1.41 without the seasonality, which was still sort of a few pennies above the consensus.

Is that a fair way to look at it or not?.

That's a fair way to look at it. And if you look at it, year-over-year, doing it that way and then adjusting for SONGS and LNG, which we say we take out of our adjusted earnings target, and adjusting for those in both years, certainly SONGS in both years. You end with a more than 17% year-over-year growth rate in earnings.

So we feel it looks like a really strong quarter, and it was driven by outstanding performance by our two California Utilities and our international operations. And so we just felt – if I look at our history, in fact I had them pulled the numbers today, it was the strongest first quarter we've ever had.

And one of the strongest quarters Sempra has ever had in its entire history. So we just are feeling really good about the results that came out first quarter..

Great. Follow-up question. Is there anything you can tell us with regard to commercial milestones that we can look for, and then in the coming months, the several different LNG export projects that you're working on, whether it's Costa Azul, the Greenfield at Port Arthur or the incremental two trains at Cameron..

Sure. What I'm going to do is I'm going to ask Mark to answer this. But, I would tell you that, Mark and I've even been at meetings with potential partners or counterparties on this. So there is a lot of activity going on and there is a lot of interest in the marketplace still.

And so Mark, why don't you talk about it and especially in light of our competitive position..

Look.

I think there is a lot of little milestones that you're going to see regulatory filings and the like that are going to be proceeding as we go forward, but I think the most important things to take away are – is that in the environment that we're operating in now, I think people lose sight of the fact that we still have an increasing demand for LNG worldwide, and we have continued interest in these facilities.

And I think the biggest, the most important thing is, is that especially, the facilities in the Gulf, both our Cameron facility and the potential Port Arthur facility are, as we showed you at the Analyst Conference, should be the lowest cost providers of LNG around the world. And so I think there is still strong interest in that.

We've met with several interested counterparties and potential customers and we're working on those. We're working on agreements to move these projects forward, and we don't have anything to announce yet, but we feel pretty good about our prospects..

I would like to add to that....

Thank you very much..

Yeah. I would just add to that. As a reminder, none of that is in our five-year base plan. So all of that would be any of the expansions at Cameron or the Port Arthur opportunities or ECA opportunities have not been factored into the base plan we showed you at the Analyst Meeting and would give us upside beyond that timeframe of the plant..

Got you. Thanks again..

Thank you..

We'll go next to Andy Levi with Avon Capital Advisors..

Hi. Good afternoon or good morning to you, guys. Just two very quick questions. Just on the – on Greg's question just when he was going over the quarter and how that was kind of comparing to your plan and then using the $1.41 as you state.

Would it be fair to say just kind of looking at what we have for the second, third and fourth quarters that you're at this point because of the stronger first quarter, again I understand it's early in the year, but trending towards the high end of your guidance range?.

Well, we never give guidance within our ranges. So I would say that clearly the first quarter was very strong and that it was driven by operating performance. So it was not driven by a lot of one-time issues. There were a few one-time things, but it was really just very strong operating performance by our businesses.

So I'll let you determine where you think we would be within the range. We're keeping our range constant for now. We'll look at it at the end of second quarter. And if we decide to make adjustments, that would be kind of the timeframe when we would typically do that..

Great. Thank you.

And then just again on the TRV, I don't know if this is a question you could ask, but when we kind of look at what that marginal rate could potentially be, is there any type of a range you can give on that, whether it's a 35% statutory rate or whether it could end up being different by the time you get out and get this transaction done..

Andy, I'm going to have Joe respond to that the best we can..

Thanks, Debbie. Hi, Andy. So let me talk to that in two ways because I think there has been some question about what that meant. And what I wrote on the slide was that our share of partnership income would be taxed at the marginal rate.

And income, I don't want it to be confused with distributions, because often sometimes investors think of the distributions and they compare a tax rate to what other MLPs, existing MLPs might be paying on their distribution, so please divorce those two. Whatever our share of cash flow is from the business is different from what our taxable income is.

Just like today, in our Renewable business, for example, we have a lots of great cash flow from those businesses, but not much taxable income, so we don't pay much tax because it's shielded by depreciation. So all of these assets will have depreciation.

I can't obviously forecast it at this point because we don't have all that information out there yet. And so you'll have information at the right time if we move forward and give you a prospectus, so – but I want you to be sure that you're clear that distributions are different from income..

Great. Thank you very much..

You're welcome..

Thank you, Andy..

We'll go next to Matt Tucker with KeyBanc Capital Markets..

Hi. How are you doing? Just wanted to ask....

Hi. We're good..

It's only been about five weeks since the Analyst Conference, but you talked about having to work through a lot of complications with different partnerships on assets that you could potentially contribute to the TRV.

So curious if you can provide an update on how that work is going, and if you're any more or less optimistic that those things can be worked through?.

Yeah. I'm going to have Joe talk about that. I would say one of the key issues we talked about at the Analyst Conference that we are still waiting for is the IRS Private Letter Ruling. And we have had discussions with IRS, and it looks like it will be forthcoming at some time in the reasonable future.

And that was one of the issues that we talked about at the conference. But I'm going to have Joe talk about how we're working through all of the other issues we presented..

the Cameron, the Renewables. And we laid out very clearly for you what we were working on. And as Debbie just mentioned, on the U.S. LNG marketing, we're awaiting for the Private Letter Ruling. We've been talking with the IRS. I would say at this point, it's a little bit of wordsmithing going on and I still feel very confident about that.

We've actually finished doing our structuring around the ECO liquefaction opportunity there. And we've made really good progress with some of our counterparties on the Renewables. So we're just in the process of papering some of that stuff up.

So we are actually making good progress on these things as we said we would, and we're working hard on it every day..

Great. Thank you. And then kind of in the same vein, I think, I wanted to ask about this wind project acquisition and I know you haven't baked any more acquisitions like this into your plan.

But should we expect you are continuing to look for more opportunities like this? And if so, are you seeing many attractive opportunities or is this just kind of a one-off?.

We are seeing a lot of opportunities and that was the reason we tried to present this to you in the Analyst Meeting with what's in the base plan so you kind of watch us and see us as we capture some of these.

And then we're trying to do our slides in a way so that you can really see when we capture some of the upside that could affect during the five-year period and then when we capture upside that could go beyond the five-year period. And so this is the first; a month after the conference we had one to announce.

We're working on a number of other things right now that can add growth to the plan. And we talked about at the Analyst Conference, we'd already identified over $7 billion to $8 billion of opportunities that could occur during the five years of the plan that we're working.

And every day we're working on those, so I think over time you will continue to see some positive announcements. We just had a leadership meeting and I will tell you, our team is committed to continuing to do development work and to get some projects concluded. And we have a lot of things in the pipe.

I was on a pharma company board for a while and they always talked about the pipeline as being critical to the long-term success of that business. And I will tell you, we have a really, really strong pipeline..

Great. Thanks. And just one last one on the upcoming bid in Mexico at the CFC.

Looks like the timing maybe moved out a month or two on some of those, is that just kind of a typical delays you see, or is there anything else there that we should be aware of?.

Yeah. It's a typical delay that we've seen that in pretty much all of the bids that they've come out with. And usually when they get to the point that they are now, where they've actually posted the date, then they generally hold pretty close to that.

But some of the early projections that we gave when they listed all of the, almost 20 pipelines on and told us when the bids were going to come out, some of those have slipped a few months. And that's just been typical..

Great. Thanks, again..

Thank you..

We'll go next to Mark Barnett with Morningstar Equity Research..

Hey. Good morning for you over there..

Hi.

How are you?.

Hi. Not badly. I just wanted to ask a quick question. Thanks for all the detail on the TRV. That's very, very helpful. I did want to ask another question though on the Mexican bids here. Obviously it's a lot of capital here. I'm wondering how you've won some bids on your own.

If you have still any interests in partnering with other larger multinationals, or how you see that kind of dynamics in the market for bids here, or whether you prefer to go it alone as with just Sempra?.

Yeah. Generally, we've looked at what we need to be competitive and we feel like we just have some natural competitive advantages ourselves. We always look at could a partner bring us more competitive advantages, and so we're open to that.

But for us to be able to do these and we look at where we are now in Mexico and the ability that we have to increase our leverage there and to really do a lot more big projects, we haven't felt the need to partner with anyone.

And we feel that, if you look at all the pipelines in Mexico and the percentage of them that we own and the work that we've done there, we've really felt like we do have some strong competitive advantages in getting rights of way, having the supplier base that we worked with time and time again and then having the employees that about 600 employees in Mexico that work on these things all the time.

So unless we saw someone bringing something to the table that we thought can make us more competitive, we think we're really well positioned..

Thanks for that. That's all I have today..

Thank you..

We'll go next to Neel Mitra with Tudor, Pickering..

Hi. Good afternoon.

Most of my questions were answered, but I wanted to ask a little bit more about this incentive award you won at SoCalGas and in particular if there is any other incentive revenues that you're eligible for and how that would work?.

Sure. That was from the gas cost incentive mechanism, which we've had in place for 30 years or something. But I'm going to have Dennis talk about at SoCalGas the incentive mechanisms we have. And there's really two categories, the energy efficiency and the gas cost incentive mechanism.

And then have Jeff give you the same information for SDG&E, which is really focused on the energy efficiency incentive.

Dennis?.

Sure. Thanks, Debbie. Yeah. Neel, the way that it works is, as Debbie mentioned, there are two main categories. The gas cost incentive mechanism is set up to basically encourage us to try to buy gas on behalf of our core customers as inexpensively as we can.

And if we can do better than a certain benchmark, then shareholders get to reap part of the benefits there. And in the prior year, which we just recorded here in the first quarter of 2015, it was a good year, given the volatility in the gas markets, and as a result, we were able to get approved $8 million of GCIM.

The other award that we're waiting for that that we've already applied for is energy efficiency. And ordinarily, that comes in the fourth quarter, and that's probably going to be somewhere in the $2 million range on an after-tax basis. But those are the two main incentive categories that we have at SoCalGas..

Jeff, for SDG&E, please..

Thank you for the question, Neel. You'll recall that in 2014, SDG&E picked up roughly $7.5 million from energy efficiency awards. And a lot of this has to do with the timing of which calendar years get pulled through. But to Dennis' point, these are usually fourth quarter awards.

And for SDG&E, in 2015, there'll be roughly – our expectation is roughly in the $3 million..

Got it. And my second question, I just wanted to clarify. Last year, the gains from some of your asset sales were included in operational earnings. This year, the Mesquite sale and the gain associated with that in Q2, that won't be part of operations.

Is that correct?.

That's correct. In the first quarter of last year, we had a gain on CMS 4 of $16 million after-tax in Q1 of 2014. And in Q2, we will report a gain of roughly $34 million from Mesquite but that is not included in our guidance numbers. Yes..

I was just going to add on to that. Historically, for the last four years, five years, six years, we have included in our guidance as part of our ongoing Renewable business, gains from the renewable portfolio as we put them into partnerships, because that is part of our business.

We develop these projects, and then we've had a strategy of putting them into partnerships. And so that's been kind of part of the ongoing business. Whereas the sale of the Mesquite gas-fired plant is same as what we did when we sold the first half of it and we also excluded that I think in that year. So it's a different thing.

It's kind of a one-time sale versus ongoing part of our business..

Okay. Got it. Thank you..

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

Good morning..

Hey, Paul..

Just want to touch base with you on the LNG marketing. On the slide, it says there is $5 million decrease from that. And I was just wondering if you could just elaborate a little bit more what was going on there and what the outlook is..

Mark? Yeah..

This on the LNG development costs?.

No. On the LNG marketing..

The decline, yeah. That's almost entirely – it's entirely related to gas price declines..

Okay. And....

And the gas price went down to $3 versus $5 a year ago..

Yeah..

Okay.

And so going forward, how do we think about that moving around? Is it going to be sort of the same range?.

It will – yeah, Paul, it will move around a little bit with gas prices. But if gas prices go up, then we should recover some of that..

Okay. And then the Sundry items, it looked like there was an increase in the quarter by about $120 million.

And I was wondering what was driving that? And also if it had any EPS impact?.

Okay. I'm going to turn it to Joe and Trevor to....

Yeah. Paul, a large portion of that increase was greenhouse gas allowances. And there is an offset in other liabilities, things that SDG&E and SoCal collect through customers and owe it. And so it was mostly that. It wasn't the thing you were thinking about, which sometimes we have these gains in the Rabbi trust, and that drives it up.

And there was a little bit of – about there, $9 million, I think..

Yeah. We've separately broken out the Rabbi trust on the line above. So we've got that above it now. So Sundry doesn't have the Rabbi trust in it.

This is just solely those items associated with really fixed price contracts and other derivatives in greenhouse gas allowances and in some other items, but the biggest driver was a $91 million movement in greenhouse gas allowances..

So it wasn't an income item..

Okay. Thanks so much..

Thank you..

You're welcome..

We'll go next to Faisel Khan with Citigroup..

Good morning, Faisel..

Good morning. Good afternoon. On SoCalGas just so I understand the seasonality here.

Is the way to think about this is that the operating costs and D&A is going to be roughly straight-lined across the year, but that revenue and cost to goods is going to be sort of variable with the amount of gas being sold into the utility system?.

Yeah. I'm going to have Dennis kind of walk you through this again. And I think it would be helpful if you kind of looked at what really happens with the seasonality adjustment. The important thing is that at the end of the year, everything should even out from historical years.

It's just in between the periods of time and how this follows our cash flow and how it follows our balancing accounts and all of that. So I'll have Dennis kind of walk you through that to help everyone understand it a bit.

Dennis?.

at the end of the year, there is no impact to earnings; and at the end of the year, there is no impact to cash flow. But if you look at based on your question, what's happening is we are now starting from a GAAP perspective recording the core margin revenues so that they reflect more the actual activity in our business.

What's happened is, historically, if you looked at we've flatlined it 1/12 (40:09) every month across the – every month on an annual basis. Now we're – you can see that for the first quarter about 56% of our overall earnings are in the first quarter. And you'll see the vast majority of the earnings in the fourth quarter.

What does end up happening is relative to GAAP, whatever expenses we have every quarter, will continue to be recorded in those quarters. So you're not going to see a huge change in our expenses on a quarter-to-quarter basis versus what we've had historically.

But what you will see is the higher earnings in the first and fourth quarters which obviously – on the core margin which will lead to higher revenues. From a balancing account perspective, you will see some changes there but again, no changes to full-year earnings and no changes to cash flow..

And our expenses are recorded at actual for the quarter just to be clear..

That's right..

We've always recorded our expenses at actual for the quarter, so those were never normalized..

That's Right..

What was normalized was the revenue side of it. So this changes the revenue to really reflect how we're collecting it from customers..

And it's consistent with what we've been doing for our non-core earnings and how we've actually been recording for SDG&E all along..

Okay. Got you..

Did that answer your question, Faisel? I just want to be sure because I....

Yeah..

(41:31)..

Yeah, totally. Yeah, yeah. Absolutely. Thanks.

And then next question on SDG&E, just with the introduction of the sort of battery technology or battery products from Tesla, yeah, how does this impact sort of the SDG&E utility? I mean, do you expect this to result to sort of more people wanting to get off the grid or just to kind of a broader sort of view on how you're looking at this technology and the impact to the utility?.

Yeah. Let me have Jeff address that because we have done so much work in this area. And in fact, SDG&E is kind of the leader in terms of having the most electric vehicles and all in the country. So I think it would be helpful to have Jeff address this..

Good morning, Faisel. Certainly, some of the announcements you've been seeing around batteries, and most recently in this last week, is there are interesting announcements.

I think the key thing that I always like people to remember is that, a little bit over a year ago the state approved a procurement process for the California Utilities where we would procure just over 1.3 gigawatts of energy storage. You have to recall that's all targeted for grid level storage.

That's in between the point of central station production through the transmission grid down to the substation in your respective service territories. That opportunity for SDG&E is about 165 megawatts. And when you think about energy storage, we think it will follow a similar path to other technologies like solar.

So you think about all of the purchases of solar in Europe at the central station level, as manufacturing capacity expanded around the world, you saw more of that start making a migration toward the residential side. So I think you'll see central applications will be the first mover for batteries.

But with respect to the residential, obviously there is a lot of hype around this, but I mean our perspective is a little bit different and it's because of the rate mechanism and how billing occurs in California.

So if you are a rooftop solar customer in SDG&E's territory, as you produce electricity, it goes to offset your bundled rate in the month that it occurs. And if you have excess production in that month, it rolls forward to the next month. So in essence, the way the rate mechanism worked in California, you're getting free battery service every month.

You're not paying for it, right? So at all times, whatever you produce is offsetting the bundled rate. And that's really the goal of any type of residential application, is to ensure that you can always use it for your bundled service rather than selling it back, at some type of marginal costs..

Okay..

So we think it's an exciting area. We think you'll see more on the residential side. But right now, the PUC's goal is to get to 1.3 gigawatts online by 2024. That gives you some timeline about how people are thinking about the central station side of it..

Okay. Understood. And then just on the Renewable side, the – I think I missed this, the Black Oak Getty wind project.

How much did you guys pay for that asset?.

We don't generally talk about how much we pay for assets but it was de minimis, because it's an early development project. We will have about, when it's fully built, approximately $145 million, $150 million of capital in it when it's fully built. But it's just in the early stage development. So we will be doing all the build-out and all..

Okay. And last question from me.

Do you guys have any outlook on the storage environment, gas storage environment? Are you seeing any sort of recovery in the business? Are we still looking at sort of $0.02 a month in sort of storage pricing?.

Yeah. I'll have Mark talk about that because there are some things that are looking up in that area.

And so Mark, do you want to -?.

Yeah. I would say that it's – I think we're seeing things that are slightly better than what you're talking about on a spot basis, and then on a term basis we're seeing much better rates. So that's all pretty positive.

It's still a very low-priced environment for storage compared to what it was a few years ago, but I would say it's definitely kind of improving, albeit that it's been slow and a little bit sporadic. But it does definitely seem to be on an uptrend..

Okay. Great. Thanks for the color. Appreciate it..

Thank you..

We'll go next to Michael Dandurand with Goldman Sachs..

Hi, guys. Congrats on a great quarter and thanks for the question. Most of them have actually been answered, but one, I just wanted to follow-up on the gas storage actually and more related to LNG opportunities.

So Mark, if you could just touch on what you're thinking about there as kind of the ramp-up in LNG facilities coming online in the Gulf Coast..

That's a great question. Obviously, we believe and others now are starting to see the opportunity for storage in the Gulf, but that is directly tied to LNG facilities.

And the difference between this type of storage and say others would be that these storage facilities that will service these facilities will have a lot more compression so that their injection rates are a lot higher than a typical storage facility.

And we are currently working with a couple customers right now on our Louisiana storage facility, and we hope to be able to talk about that more in the near-term. But it looks exciting; it looks like we may have something there to talk about later..

Okay. Great.

So that near-term being within the next year or something like that?.

Before year-end. Yeah, sometime in the fourth quarter..

Got it. Okay. That's all I have. Congrats, again..

Thank you..

Great. Thank you..

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

Hi. Just to clarify on the tax rate on the TRV, so we still don't know exactly what the tax rate would be on distributions to Sempra.

But in theory, it should be less than the marginal tax rate because it's got some kind of shield depreciation – shield?.

Yes, sir..

Okay..

So the short answer is, yes..

Great. And then secondly, Debbie, you mentioned after at some point soon, you'll commence settlement discussions in your rate case.

Does that – any indication of just you may be feeling better about, chances of settling this case and maybe the last one or is it just more normal process?.

Well, I think a couple of things, as we've talked before, our filings were pretty vanilla. And they really focused on safety issues and reliability issues and dollars needed for that at our utilities. And it wasn't about a lot of new programs or activities.

So I think and then looking at the ORA report that came out, the issues that they raised on their report are issues – I've been here 37 years now, I've seen those issues for 37 years.

So it's like nothing unusual in their report and so I think that that is a fertile ground for settlement when you have that type of – at least you're not talking about being having a lack of common interest. Clearly, the parties are interested in safety and investing in safety as a system.

So we're hopeful that we could try to reach some settlement with some of the parties. We have not yet seen the other intervener testimony. That will be coming in sometime the middle of May..

Great. Thank you..

Thank you..

We'll go next to Winfried Fruehauf with W. Fruehauf Consulting Limited (49:35)..

Yeah. Thank you. Good morning.

Other than the $113 million of seasonality adjustment, were there any other income items that relates to different periods, but were recorded in the first quarter of this year?.

Well, the $113 million is the seasonality. I wasn't clear if you said $113 million, but it's $113 million. And then the SONGS issue, which we took out in adjusted earnings, was really kind of a reconciliation of all of the settlement that was reached on SONGS and what the tax treatments and all ended up being on that.

So that when we took out it in our adjusted earnings that we gave you. And I would ask Trevor or Joe if there is anything else that they would see in there..

Yeah. The only other thing would be the item that Dennis had mentioned, was the GCIM, which was related to the prior year, but awarded in the current year..

Yeah. And that's a....

That's a rolling....

Yeah..

And that's a rolling thing..

We ordinarily get a GCIM award. Last year, we got it in the third quarter, and this year, we got in the first. But it's....

Right..

So we get it every year..

Yeah..

So it's not a....

It's not a one-time..

It's not a prior period..

And I did want to be clear on the $113 million. That is all this year's revenue. It has nothing to do with any other year. It just all happens to be coming in the first quarters and fourth quarters, for the most part..

Yeah. Thanks. I understand. I have one other little question. What was for the quarter the foreign exchange impact given the strength of the U.S.

dollar in that quarter versus foreign currencies?.

Joe?.

Yes. Thanks. Almost nothing. We had some impact in Chile and Peru, but it was essentially just reducing the growth in the earnings in the two businesses. And maybe it was around $4 million, but it was completely offset by FX gains in Mexico, about $5 million. So the net impact of the whole business is negligible..

Okay. Thanks very much..

Thank you..

We'll go next to Ashar Khan with Visium (51:46)..

My questions have been answered. Debbie, just on what you said that you expect the PLR in a reasonable period, I'm expecting it's – that would imply sometime during the summer..

I'm sorry. I couldn't hear your question..

The PLR.

Would we get it in the summer?.

It's – I'm sorry, the?.

The Private Letter Ruling..

Okay. The Private Letter Ruling. Yeah. It's all – can I tell you when IRS is going to do, something that's really hard. I would tell you that what I hear from our people is that there doesn't seem to be issues, and that it's not a matter that there is a problem.

It's just the matter of them getting their work done and issuing the ruling, and so that's the best I can tell you..

Yeah. We think it's in final stages..

Okay. Thank you..

We'll go to our final question from Andy Levi with Avon Capital Advisors..

Hi. Just a quick follow-up. So just once you get the PLR and you get the other housekeeping issues done, whether it's with your JV partners or whatever else may it be, at that point, whenever that may be, that, I guess, sort of we'll hear from you. It doesn't need to be on a quarterly basis, I guess. It's kind of when you're ready to go....

Yeah. Let me just....

...we'll hear from you..

Yeah. Let me just – I mean, we will have to make a decision about moving forward when all of this work is done. And then when our board makes a decision as to whether we move forward, then the next step would be filing a press release. And then after the press release, there would be a period of time and then the S-1 filing would be made.

And so that's what I think you can look for. It doesn't have to be an announcement on a quarter. It just needs to be when our board has made a decision as to whether or not we would move forward..

Got it. Thank you very much..

At this time, we have no further questions in our queue, so I'll turn the call back over to Debbie Reed for any additional or closing remarks..

Well, thank you all for joining us today. Actually, you had a lot of great questions. And if you have more, which I'm sure you will, please don't hesitate to call our Investor Relations team, and thank you for joining us today..

That does conclude our conference today. We thank you for your participation..