Sempra

VSE:SREN

Earnings Call Transcript 2018-Q4

[Faisel Khan, Vice President, Investor Relations]

Good morning, and welcome to Sempra Energy’s Fourth Quarter 2018 Earnings Call. A live webcast of this teleconference and slide presentation is available on our website under the Investors section. Here in San Diego are several members of our management team, including Jeff Martin, Chief Executive Officer; Joe Householder, President and Chief Operating Officer; Trevor Mihalik, Executive Vice President and Chief Financial Officer; Dennis Arriola, Executive Vice President and Group President; Martha Wyrsch, Executive Vice President and General Counsel; and Peter Wall, Chief Accounting Officer and Controller.

Before starting, I’d like to remind everyone that we’ll be discussing forward-looking statements 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 filed with the SEC.

It’s important to note that all of the earnings per share amounts in our presentation are shown on a diluted basis, and that we’ll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call for reconciliation to GAAP measures. I’d also like to mention that the forward-looking statements contained in this presentation speak only as of today, February 26, 2019, and the company does not assume any obligation to update or revise any of these forward-looking statements in the future.

With that, please turn to Slide 4, and let me hand the call over to Jeff.

[Jeff Martin, Chairman and Chief Executive Officer]

Thanks a lot, Faisel. And thank you all for joining us today. 2018 was an exceptional year for Sempra both operationally and financially. It was also a transformative year marking our company's 20th anniversary and the continuation of our strategic mission to become North America's premier energy infrastructure company. As I mentioned at our Analyst Day last June, since our formation, we’ve proactively managed our business portfolio. Over the years this has greatly improved our earnings and cash flow visibility while bolstering a lower risk profile.

Importantly, our recent accomplishments have laid a solid foundation for us to build on and include completing the Oncor transaction, closing the sale of our US solar business, closing the sale of our natural gas storage assets, announcing the sale of our US wind business, announcing Oncor’s InfraREIT acquisition, announcing the sale of the South American businesses and making very important progress on our LNG projects, among other successes.

Over the last 12 months, we've accomplished a tremendous amount. The amounts of activity we've had is uncommon and even more uncommon are the results. I cannot be more proud of our team and what we've done to improve our portfolio. Notably, we expect our renewables and midstream divestitures to yield approximately $2.5 billion in proceeds. This is an excellent result and provides a valuable opportunity to pay down debt and redeploy capital to support our growth

I also want to highlight that this past year SDG&E received the prestigious Edison award from EEI for its efforts to enhance wildfire preparedness and grid resiliency. This award is presented to only one US investor-owned utility each year. At Cameron LNG we have entered the critical commissioning phase of construction and also have an excellent safety record with over 67 million hours worked without a lost time incident.

Additionally, we were recently added to the Dow Jones Utility Index, a strong testament to the continued focus on execution and commitment to delivering shareholder value.

Now, turning to our financial results, earlier this morning we reported full year 2018 adjusted earnings of $5.57 per share, one of the strongest years in our company's history. This puts us above the midpoint of our full year 2018 adjusted earnings guidance.

In addition, our Board approved a dividend increase of 8% for 2019. This marks the ninth consecutive year we've raised our dividend and represents 47% growth over the last five years. This is important for a number of reasons because it clearly demonstrates our commitment to a healthy dividend policy.

I'm also pleased to say that we’re affirming our full year 2019 adjusted earnings guidance of $5.70 to $6.30 per share. Trevor will review the key drivers influencing guidance later on the call.

I’d also like to spend a few minutes on California.

Earlier this month, we filed our Wildfire Mitigation Plan related to Senate Bill 901. This file is a continuation of our ongoing focus on safety, reliability and wildfire prevention that we’ve been implementing for over a decade. And during this time, we've invested about $1.5 billion in these efforts.

Regarding the State's efforts to reduce wildfire threats and their potential impacts, we are very encouraged by recent statements by the governor and as well as the formation of the Blue Ribbon Commission and the Governor Strike Team. There is widespread recognition among the Governor, Legislature, Utility Commission that the current liability rules for California utilities need to be fixed to support a long-term solution for the state and to allow it to meet the State’s energy policy goals.

To be clear, these goals cannot be that without strong financially healthy utilities that support the infrastructure investments needed to deliver cleaner and lower cost energy solutions. We anticipate solutions being brought forward will fall into three key categories.

First, help reduce the threat of wildfires across our State. Second protect the interests of our State’s rate payers. And third, provide a clear legislative pathway for timely and adequate cost recovery for prudent system operators. These potential outcomes will help create a longer-term sustainable framework for the State and its energy future.

Finally, I would be remiss if I didn’t take a moment to recognize Martha Wyrsch. Martha will be retiring at the beginning of the March. On behalf of everyone here at Sempra I wanted to thank Martha for her tremendous contributions to the company. We wish Martha and her family all the best in retirement.

Now, please turn to Slide 5, and I'll hand it over to Trevor.

[Trevor Mihalik]

Thanks, Jeff. As Jeff mentioned, we accomplished a lot in 2018 making great progress to refocus our efforts on the strategic mission to become North America's premier energy infrastructure company.

Additionally, with two months of 2019 behind us, we’ve already announced the completion of the evaluation of the South American businesses. Bank of America and Lazard will act as our financial advisors and will begin the sales process in March. We’ve also started implementing the next round of continuous cost improvement initiatives, which I'll touch on in a few minutes.

All of these developments demonstrate this management's theme to focus on execution and commitment to creating shareholder value. Please turn to the next slide.

The decision to sell the South American businesses was not something we, nor our Board, took lightly. The six-month evaluation process was comprehensive. The primary criteria we looked at are laid out in the slide. Both businesses screened well in many areas but we concluded that they no longer remain a strategic fit for us.

As part of this evaluation we assessed the benefits and rationale for holding and growing or partnering and growing. However, we determined the sale of these businesses and redeployment of the proceeds into North American infrastructure should maximize value for our shareholders while giving us the opportunity to strengthen our balance sheet while paying down parent debt.

There is no doubt that the South American businesses are considered some of the most desirable companies in the region with strong company-specific and macro fundamentals. We certainly have received robust inquiry from global financial and strategic buyers ahead of our formal sales process commencing.

Although, we expect this transaction to be EPS dilutive, it could be value accretive, as we deploy the proceeds into North American T&D infrastructure and strengthen our balance sheet.

Portfolio optimization is not something new to our company, and we've talked about this many times over the years. We have a long and successful track record of actively managing our portfolio, including exiting businesses that are either no longer consistent with our strategy, or provide greater long-term value through selling rather than holding. A great example of this is the sale of our US solar assets late last year.

The decision to sell the South American businesses is a continuation of this philosophy and demonstrates our commitment to maximizing value for our shareholders. We're targeting a transaction announcement in mid-2019 and closing the transaction by the end of this year.

Please turn to Slide 7, where I'll review our efforts around cost improvement initiatives. At our Analyst Day in June last year, you'll recall that Jeff walked through the evolution of our business portfolio, illustrating how our management team is continuously reassessing our strategy and business platforms, and how they fit with changing market environments.

In direct alignment with this portfolio of review process, we're always refining and reevaluating our cost structure, in order to optimize the organization to effectively accomplish our strategic goals.

Sempra has a history of being a prudent cost manager. We make thoughtful and deliberate efforts to reduce costs in ways that make our organization efficient, but also very effective. Our continuous cost improvement process is designed to yield long-term savings and instill a cost conscious culture across the organization. A great example of this is the $65 million of annual savings identified a few years ago at our California utilities that was incorporated into the 2019 GRC filings. These savings should benefit our customers, by allowing us to allocate these dollars to continued infrastructure investments in safety and reliability.

Recently, we've initiated further efforts around continuous cost improvements, designed to right size our organization with our evolving business portfolio. The announced sale of our assets and other efficiencies will allow us to reduce our corporate costs. We expect these cost savings to ramp up to approximately $15 million annually on a pre-tax basis, over the next few years. Our management team is committed to reviewing our cost on a regular basis to ensure we run an organization as effectively and as efficiently as possible.

Now please turn to Slide 8, where I'll hand the call off to Joe.

[Joe Householder, President and Chief Operating Officer]

Thanks, Trevor. First, I'd like to briefly touch on the IEnova in Mexico. Mexico is the world's 15th largest economy at over $1 trillion in GDP, with nearly 130 million people. The infrastructure needs of the country are expected to remain significant. For example, only 7% of the households have access to natural gas. And residential electricity demand is expected to double by 2040.

For more than two decades IEnova has remained focused on developing energy infrastructure that promotes economic development in a sustainable and socially responsible way. IEnova is working with the private sector on additional opportunities that should benefit the country, such as, refined product terminals that should enhance Mexico's energy security and the reliability of transportation fuel supplies; renewable projects that should increase Mexico's clean energy supply and be a source of efficient, low-cost electricity, and the conversion of Energia Costa Azul project to an LNG export project that should bring additional regional investment, economic development and jobs.

As IEnova mentioned on their call late last week, they’re proactively engaged in discussions with the current administration, related to natural gas transportation contracts that were awarded through public and international tender processes. IEnova has always had a very constructive relationship with the Mexican Government and its institutions. The company that is committed to being a responsible partner, IEnova looks forward to working collaboratively to advance the country's energy goals and build out the infrastructure needed to provide clean, safe, reliable and low cost energy.

Please turn to the next slide. Moving onto Cameron. The onsite teams are relentlessly focused on moving through commissioning towards completion of Train 1. The contractor has made significant progress recently with the completion of the gas turbine testing, commissioning of the boil-off gas compressors, introduction of fuel gas into the system and completion of all three flares ignition testing. In the near term, the contractor expects to introduce speed gas sometime this quarter and it also expects to produce LNG stabilized production and complete performance testing in the second quarter.

With that said, we expect to start receiving earnings by mid 2019. This first phase of construction, which includes Train 1 and the associated support systems, as well as the common infrastructure that will be used by all three Trains represents approximately 60% of the entire project. After many years of development and construction, all the employees involved, as well as the community are excited, that the facility will soon be up and running, further boosting the local economy, while also helping to meet global energy demand.

As you may have heard on McDermott's call yesterday, the same teams are working hard toward completion of Trains 2 and 3. McDermott reported that Train 2 is targeted to be completed by the end of Q4 and Train 3 is targeted to be completed by the end of Q1 2020. This schedule is consistent with what was disclosed on their Q3 2018 call.

Please turn to the next slide, where Trevor will review our financial results.

[Trevor Mihalik]

Thanks, Joe. Earlier this morning we reported fourth quarter GAAP earnings of $864 million or $3.03 per share. On an adjusted basis, fourth quarter earnings were $431 million or $1.56 per share. Full year 2018 GAAP earnings were $924 million or $3.42 per share. This compares to 2017 GAAP earnings of $256 million or $1.01 per share. On an adjusted basis, full year 2018 earnings were $1,503 million or $5.57 per share. This compares favorably to our 2017 adjusted earnings of $1,368 million or $5.42 per share.

Please turn to Slide 11, where I'll discuss the key drivers impacting our full year 2018 results. The year-over-year increase in full year adjusted earnings was driven primarily by higher operational earnings in 2018, including $371 million of earnings at the Sempra Texas Utility segment, resulting from the acquisition of our interest in Oncor in March of 2018. $65 million of higher earnings at SDG&E, primarily due to electric transmission operations, $25 million of higher earnings at Sempra Mexico, mainly driven by higher pipeline operational earnings, and $16 million of higher earnings at SoCalGas, due to higher PSEP earnings. This was partially offset by $310 million of higher costs related to increased interest expense and preferred stock dividends at the parent, which includes the impact of our Oncor acquisition financing. And $21 million unfavorable impact from the foreign currency and inflation effects, net of foreign currency hedges in Mexico.

Please turn to the next slide. Several significant business developments since our last Analyst conference, we thought it would be helpful to provide a brief walk through of the key items related to our affirmation of our 2019 adjusted EPS guidance. First, we removed the earnings associated with the US renewables and nonutility natural gas storage assets, subsequent to their respective sale close dates. Second, we added partial year earnings from Oncor's planned acquisition of InfraREIT and our planned acquisition of a 50% equity interest in Sharyland. And third, we added the positive impacts from using the expected $2.5 billion of proceeds from the sale of solar, wind and natural gas storage.

When taking these items into account, we are affirming our 2019 adjusted EPS guidance range of $5.70 to $6.30 that was presented at the Analyst Conference last year. This is a strong outcome, given the significant activity within our business portfolio.

Please turn to Slide 13. As we turn our attention to the rest of 2019, we'll continue to focus on the positive momentum we've developed over the past year. We've identified several goals to progress on our strategic mission to become North America's premier energy infrastructure company. They include among others, continuing to focus every day on public and employee safety as a cultural imperative, optimizing and completing the remaining asset divestitures, optimizing cost structures, improving the franchise value of our LNG business by progressing on our five development projects, completing Oncor's InfraREIT acquisition and executing on their growth initiatives in Texas, and advancing our 2019 General Rate Case and cost of capital filings at the California utilities among others.

Please turn to the next slide. As I stated at the beginning of my comments, we are very proud of the great strides we've made in the many accomplishments in 2018. We delivered strong financial results and our company is aligned for the future. We look forward to continuing this progress and feel prepared to meet the challenges and capture strategic opportunities that lie ahead.

Looking to next month, we are excited to host many of you in San Diego for our analyst conference. We will cover several topics including detailed segment guidance for 2019 and 2020, the five year capital plan and rate base growth for our three US utilities, our growth outlook in Mexico and an update on the progress of our approximately 45 Mtpa of LNG development opportunities.

We'll also be hosting a tour of our industry leading weather center at SDG&E and highlighting some of the innovative technologies around safety, reliability and resiliency that we've deployed on our systems.

With that, we'll conclude the prepared comments and start to take your questions.

[Operator]

Thank you. [Operator Instructions]. We will take our question from Greg Gordon. Please go ahead. Your line is open.

[Greg Gordon, Evercore ISI]

A couple of questions. Great year. I'm just wondering if you can go into a little bit more detail on how you were able to exceed the high end of the guidance range of the utilities for fiscal year '18? And how do we think about how that sets the stage for going forward?

[Jeff Martin, Chairman and Chief Executive Officer]

Greg. Thank you for the question and thanks for joining the call. I think for those of you have followed our company for a long period of time, certainly SoCalGas and the SDG&E are kind of the clear drivers underpinning our financial performance. I think you can see that year-over-year there was a lot of growth, particularly at SDG&E, and one of the slides kind of points out some of that oversize growth particularly around the FERC business, which is really a function of increased capital investments in and around our high voltage system and our substations, as well as a periodic for true-up which occurs, which was also helped to last year's results. I'd just like to ask, Trevor, if you like to add any other content around SoCalGas or SDG&E?

[Trevor Mihalik]

Yes. No, thanks, Jeff. I think also one of the things that the utilities are focused on are cost savings and certainly driving cost efficiencies in their businesses. But again, I think it's really just great operational results that have driven these earnings.

[Greg Gordon, Evercore ISI]

Great. And I know there's been -- there has been and will probably continue to be a lot of volatility around the peso, and I think the assumption you are using is your baseline is a bit higher than where the peso is today. So how should we think about how that sort of friction inside the guidance range?

[Trevor Mihalik]

Yes. I think what I would do is refer you to the rule of thumb that we have in the appendix of the deck, and it shows kind of where we are assuming the peso will go by the end of the year and then it has that plus or minus 5%. I think if you look at that, given where the peso was last year and how we absorbed the peso strengthening in our earnings and we're still well within our guidance, I would just kind of direct you to that and I think there's enough other things that we're working on that could offset a strengthening peso.

[Greg Gordon, Evercore ISI]

Okay. I mean just to keep it high levels, if I start at the midpoint, that should and then flex from their I'd be -- as we go through the year looking at a reasonable approximation of how the peso is affecting your outcomes?

[Jeff Martin, Chairman and Chief Executive Officer]

I would just say I think that's the right approach. But I think as we've seen in the past Greg, the peso will continue to demonstrate some volatility. I think our goal is to make sure that when we put earnings out there and guidance that we can deliver that. I think the point Trevor was making is we've got enough levers in our portfolio that we will adequately follow the pace up. I think that we feel good -- very good about our 2019 range.

[Greg Gordon, Evercore ISI]

Okay. Final question from me. Despite the progress that you've demonstrated at Cameron, there is still this lingering fear out there in the Ether that that somehow this project is either still going to come on late, even though we're toward the back-end of the construction process, or that there is some way that there is incremental financial remuneration that you may have to give to the joint venture constructing the project to get this thing done. When do we pass the point of no return where those lingering fears that sort of definitively behind us from your perspective?

[Jeff Martin, Chairman and Chief Executive Officer]

Greg, I think it's a great question. I can assure you that we remain concerned. I think that's how you manage because projects has be on top of these types of things. I would comment that Joe has done a remarkable job with his team, and worked with our partners on the Cameron build out. Also I think if you listen McDermott's call yesterday, they have been quite clear. But what they believe they can deliver and we will remain active with our partners and managing that relationship against the commissioning timeline. Joe could you provide some additional color on your conversations with David and how you're approaching it?

[Joe Householder, President and Chief Operating Officer]

Thanks, Jeff. I think you'd handled that well. But Greg, look together at Sempra and our partners and our customers we're very excited about the impending start-up at Cameron. And we're all focused on finishing the commissioning of Train 1 and continuing to work on Train 2 and 3. And I talked to David quite often and Jeff just mentioned, he was very strong about his desire to complete this world-class facility and their stocks doing very well today. And we're working hard toward continuing to push forward.

[Operator]

Thank you. We will now take our next question from Steve Fleishman of Wolfe.

[Steve Fleishman, Wolfe Research]

Great. So just Jeff question on California. So obviously, you've done a good job making -- avoiding fires, invested a lot for your system, but there's still, I think a lot of outside concerned of just as California done enough to limit risk for the companies and credit agencies putting pressure on you too. So I'm just kind of curious what you -- from your standpoint as someone who is not had a fire recently, just what you really want the state to do to help address this concern? What are you advocating for?

[Jeff Martin, Chairman and Chief Executive Officer]

Okay. Well, I appreciate you making the comment that we haven't had a fire for a while, it's been since 2007, and I think if there has been anything that's allowed us to create kind of a competitive advantage to protect our rate payers it's experience we went through in 2007, and how hard we've worked to basically build a system. I think that provides a lot of leadership on behalf of our customers, but I talked about this a little bit Steve in my prepared remarks.

But here some additional color. I think that we've been in close contact, as you would expect with all the key stakeholders. In fact, we are hosting a lot of key stakeholders from across the state, including members of the Governor staff, here in our building tomorrow, to continue to advance what we think the appropriate actions are. And I would also complement the Governor, I think he's walked into a tough situation with strikes in the LA Unified School District and obviously a lot of the legacy issues in and around the fire areas. And he has pushed forward the Blue Ribbon panel. He's pushed forward to strike force, there's a lot of conversation from the Governor’s Office about trying to deliver results from both of those organizations, earlier in the legislative process rather than later.

On the specifics of what needs to happen, I'm going to be very clear from Sempra's perspective, we do not think a strict liability standard is the appropriate standard for investor-owned utilities. But probably what's most important in our advocacy is to make sure that we always frame our discussions around what's best for ratepayers. I mean, that really is the fundamental issue in our service model and secondly that whatever the outcomes are, either from a regulatory path or a legislative path, there is a very clear and defined pathway for timely and adequate cost recovery for utilities that operates our system prudently.

We filed our wildfire mitigation plan earlier this year. It is really kind of a 4 point plan that really focuses, number one, on fire hardening. Number two on vegetation management. I think we have a world-class vegetation management program and our filing attempts to double the frequency, which we term our trees in our service territory. We're going to add to our aerial assets I think we've led the nation in terms of the type of helicopter support, we've had on station and if someone used to fly helicopters, the Utopian goal is to have a 24 hour capability and part of our filing gives us the ability to operate at night time, which will be another competitive advantage, as you try to fight buyers at one starts.

And then lastly, the fourth part of that plan is we are going to double down our weather stations. I think we unified over 60 different weather stations that we're trying to enhance, so that not only -- so we can really extend our fire science advantage in terms of how we predict whether. But bottom line is, I think there's a lot of different ways to come at this. I'm pleased with the leadership is being shown from the Governor’s Office. And I think that the whole goal here is to create a more sustainable and a more fair framework for everyone that's involved in the system.

[Steve Fleishman, Wolfe Research]

Okay. That's very helpful. One other question, just on the Mexico. The news from two weeks ago on what the government might want to do with the force majeure situation. Was there any better clarity just on that specific issue or is it still added more of a high-level right now?

[Jeff Martin, Chairman and Chief Executive Officer]

Yes, let me make a couple of comments here. I'll pass it to Joe for some details around the actions relative to that pipeline. I think it might be helpful too for Dennis to talk about what the United States government is doing to support the key nature of Mexico as a partner, particularly around natural gas. But what I'll try to do Steve is remind people that we've been invested in Mexico for over 20 years. We're not a company that began invested in projects a year ago or two years ago.

We have the leading Mexican energy company in the country. We're ranked in the top 50 on the Bolsa, obviously as you know it's headquartered in Mexico, we've got independent Mexican directors and its self-funded from local markets. And one of the things that we're trying to do is we have a long-term view about the opportunity around infrastructure in that country, and we believe that the infrastructure opportunity remains quite large Steve, and as the government continues to focus on expanding services to all the people of Mexico, their reliance on foreign direct investment will go up, it will not go down. And I think our value proposition, every time we are in front of stakeholders in Mexico is to really emphasize our role in bringing new and cleaner sources of energy to the country to help support the economy and give choice and lower cost energy to Mexican families. But on the specific issue of the pipeline, Joe in kind of steps that Carlos and Tania are taking. Do you want to provide additional color?

[Joe Householder, President and Chief Operating Officer]

Thanks, Jeff. Hi, Steve. You mentioned a lot of the things that I wanted to mention that we are very focused on providing low cost energy into Mexico, and one of the things that you know Steve is really helpful is the feedstock of natural gas into the electricity market. And so obvious pipeline infrastructure is being built around that. The situation with the seven pipelines that they referred to the other day, was they were, as you mentioned in force majeure for various reasons. We are involved in two of those.

In the Sonora pipeline, as you recall, we had that pipeline in operation, it was already earning revenues. So it's a little bit unlike all the other six which our pipelines haven't gone into service. In this case, it wasn't service and then there were sabotage and it was damaged, and we had to take it out of service, and we've been working with CFE. The administration is very focused on making sure that it's getting good value for money than spending. So it's actually an opportune time and Carlos and Tania have been in meeting with CFE, so a little bit unlike some other things that have been out in the press. We have been a first mover here to go in and meet with various members of various parts of the administration, have meetings with CFE and Tania is now -- she is the CEO. She is in charge of meeting with CFE to move this along, I think it gives us a great opportunity actually to get this pipeline fixed. If they could work with us, if the government can work with us to work with the local people that were involved in this, I think within weeks we could have that pipeline fixed and bringing cheap low cost gas into Mexico and I think that will resolve that problem.

The other one that we're involved in is the marine pipeline that TransCanada and we are building, and that one's ready to go into service soon. We're just working on tying in. The thing is substantially done, but the offshore pipeline needs to get tied into the onshore pipeline and they are working on that now. There is some weather challenges, which means wave action that's keeping them from having the vessels tie up these things, but we're working on that should be done pretty soon. So that will also solve that second one.

[Dennis Arriola, Executive Vice President and Group President]

Steve, this is Dennis. The other thing I'd add to Jeff and Steve's comments. First on the Sonora pipeline, I think it's important to remember that the auction process there was a competitive process that was run by CFE. The terms and conditions were dictated by CFE. And I think that was one of the things that our team in Mexico may refer to reiterate to the new CFE Director and to the President's administration that this was basically a very transparent and fair process.

The other thing that I had mentioned to you is what we're doing in order to collaborate and support our people in Mexico. We've obviously continued to maintain close contact with the State Department, the Department of Energy, the Embassy folks in Mexico City to remind them not only of Sempra's investment in IEnova, but the importance of what this means to the United States. Remember that Mexico is the largest natural gas trading partner for the United States, and we have a trade surplus from an energy standpoint with Mexico. So making sure that we maintain fair and transparent rules in Mexico for the investments that we have there which are badly needed in the future, not only is good for Mexico, but it serves the interest of the United States and I can tell you that folks in Washington DC are supported by watching this closely.

[Operator]

Thank you. We will now take our next question from Stephen Byrd of Morgan Stanley.

[Stephen Byrd, Morgan Stanley]

I wondered if you could just talk a little bit more about your dialog with the rating agencies with respect to risk mitigation in California, as Steve actually mentioned, I mean you have a very strong operational track record, you're a clearly leader in fire risk mitigation. A lot more of your system is underground than other utilities. Is that being recognized, are there real tangible steps in progress that you need to make to avoid ratings downgrades? Could you just give a little more color on that dialog? Please.

[Jeff Martin, Chairman and Chief Executive Officer]

I appreciate the question, Steve, and I think the answer -- in the short-form is, yes. I think, if you think about all the strategic initiatives we have a company of undertaken in the last two years, we have had very, very close contact with the rating agencies, because we've made it a priority to make sure we maintain an investment grade plus balance sheet and your point of differentiation is important and it does resonate with all three agencies. We have the best safety program. I mean, number one in the country and deserves a higher, not a lower credit rating. We make that point consistently. We have been aggressive about de-risking our service territory and de-risking our overall business model at Sempra and that's one of the reasons, you've seen the agencies move down their target FFO to debt metrics based upon our continued focus on T&D type of investments.

Second, I think there is momentum, Stephen, in the state to correct the market. I made this comment earlier in my remarks and to insure ratepayers are protected, and if there are cost to be absorbed that there's timely recovery for those folks. I guess SDG&E, they are prudently managing their system. So I think the agencies are in a tough spot, right. I think this is largely been a rerating of the state, more so than individual companies, but it's our job to be in front of them, making sure that they understand that there is true differentiation and separate apart from how the rules change or how the laws change, the number one thing to do is to be a leader around how you run your system, when you cut your system off, how predictive you're about whether that impacts your system, and our goal and I think you can see this in our wildfire mitigation plans to take the current leadership we have an extend it based on the investments we're making.

But I would say with respect SDG&E, independent of what actions the agencies taken, I think we're are going be quite aggressive in terms of defending our franchise. We have also taken steps to make sure we have ample liquidity at SDG&E.

[Stephen Byrd, Morgan Stanley]

Well, that's super helpful color. That actually that last part Jeff does touch on -- and a question we get often from investors just in the event that for any number of reasons the rating agencies do choose to downgrade, not just you but potentially other utilities in the state further. Obviously that's not good for customers in the sense of the cost of capital obviously goes up, cost of financing in the long run. But in the short run I guess the perspective is you do have quite a bit of liquidity, you are not facing fire liabilities, you haven't had a fire in 12 years. Could you maybe give a little more color just on sort of the short-term protections you have, liquidity et cetera you have just to sort of lay those near-term concerns?

[Jeff Martin, Chairman and Chief Executive Officer]

Yes, I'll have Trevor go ahead and talk through where we're at with our credit lines with SoCalGas and SDG&E and our ability to flex those lines.

[Trevor Mihalik]

Yes, Steve. So we have a fairly large credit line at both utilities that we can draw down, and those are largely undrawn at the current time. And then we also have the ability to continue to issue secured bonds if needed, albeit at higher rates. But again, I think, our view on this is, we're continuing to defend the fact that we are differentiated in California. We had the rating agencies out, to come take a look at our fire mitigation plans and they recognize that we are differentiated. But again, from our perspective, the credit lines are $750 million at each of the utilities.

[Operator]

Thank you. We will now take our next question from Julien Dumoulin-Smith of Bank of America Merrill Lynch.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Good. Thank you very much. So I want to pick up where a couple of last questions are left off. First going back to the California policies, more broadly, I'd be curious if you could expand a little bit on the current state of legislative affairs and specifically comment a little bit around the funding or the prefunding potential here for the various IOUs. How do you guys think about that versus other solutions on the table. I know it's early days, we've got some draft legislation out there, but it seems to be going in a certain direction. I'm curious if you think that's really where it's going or if there's any other twist that we should be looking at more conceptually, not in terms of hard details here?

[Jeff Martin, Chairman and Chief Executive Officer]

I'll make some comments Julien and then I'll pass it to Dennis to fill in a couple more details. But now I think at a high level what I'm impressed by is that SB-901 call for this Blue Ribbon panel to be seeded. I think they've got a diverse group of folks that have their head down are working away on that initiative, that report out to the legislature is required by July 1, is my expectation based upon feedback that we've received. That they should be able to finish that work earlier, which I think would be helpful from the legislative process.

The strike team that Governor's put together was intentionally designed, to bring in independent financial advisors, law firms, people that specialize really in issues around credit. So one of the things that we want to be very proactive is that people really understand the power of the fixed income markets and the importance of the credit ratings across this industry.

The bottom line is, we believe, and I think the Governor shares our view based on conversations I've had, that the utilities this state deserve and need to have an A rated balance sheet. And that is the goal of the process that we're undertaking. So, there's a lot more work to be done. We're going to have a seat at the table. I think we're going to have an aggressive outreach. I've been personally involved to make sure that Sempra has a seat at the table to improve the overall risk-reward profile of both SoCalGas and SDG&E.

So the process that the state is undergoing should be an opportunity for Sempra to have a seat at the table and by the end of the year have improved the franchise value of both of our utilities. I'll stop and see if Dennis wants to add any color.

[Dennis Arriola, Executive Vice President and Group President]

No, I think, you hit on all the points, Jeff. The only thing I'd mention is, recall that the strike team that the governor is setup has various representatives whether it's chief or staff, people from the finance industry, the legal industry, folks from insurance. So I think it's multifaceted there are a lot of perspectives that are going to be presented in the roadmap and the recommendations to the Blue Ribbon commission, and then their job is going to be really to refine the plan to look at the recommendations of pros and cons of risks and how you can make sure that you can navigate through this process and make those recommendations to the governor and to the legislature by the end of June.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

Got it. Excellent. Then just quickly following up on some of the questions on '19 guidance specifically. First off, I know you guys talked about the $50 million pre-tax cost savings effort. Didn't see that specifically called out here. So just wanted to make sure, just from a timing perspective, how you see that ramping up, as you say over the next few years, but more specifically here? And then also with respect to the California GRC here, you mentioned the assumptions on attrition, certainly there is some early data points, shall we say, how does that figure into the plus-minus math that you show here on the right hand side of slide 12?

[Jeff Martin, Chairman and Chief Executive Officer]

Let me take a stab at that and if we see it needs more detail, I'll have Trevor jump on it. But I think we've circled to $50 million opportunity, around our corporate center. And we know exactly where those dollars are coming from. We expect to have full run rate of that $50 million, Julien, by the end of the year. This isn't a one-time event. I think you've heard us talk about this before good companies are always pursuing these type of cost savings, and that's why going back to some of Trevor's prepared remarks, we ran a program like this that our operating companies that in general, just over $65 million of savings at SDG&E and SoCalGas, and those dollars are currently in the rate case and this $50 million is incremental to that.

But from time-to-time, we'll take questions on our former ones and so forth, and I was looking at some data recently where, as an example, Julien since 2013 just over five years ago SDG&E electric O&M per customer has decreased by 40%. So we've been able to reduce cost on per customer basis by 12% CAGR for five straight years, and that includes drop in 500 positions in terms of headcount. So we probably in terms of the total O&M and SDG&E, there's probably about 20% that can be directly impacted outside of other required spending. They've done a remarkable job today and that's the type of cost efficiency that was put into our rate case.

The second thing I'll say is, what we've tried to do at the parent company is, as we sell our solar business and our wind business and our natural gas storage business, a lot of these cost savings are costs we can realign more efficiently, increasing span of control of officers and leaders, so that we can have a lower cost platform at the parent company, as we sell and become more focused in our strategy.

And then as to your issues around the 2019 guidance, always remind you that we basically took a $100 million out of earnings, right. So, at the Analyst Conference we forecasted 2019 without any -- without taking out solar and renewables out of that forecast, so, in July of last year we -- we forecasted $5.70 to $6.30 of EPS. And today, that's our exact same guidance after taking $100 billion of earnings out of it, for our renewable portfolio and the way you do that is to use the proceeds to pay down parent debt. You reinvest in capital programs. You go to the investment in Texas within InfraREIT and you continue to find cost savings. And I will tell you I expect a $50 million number to go up by the end of the year because we're going to keep going in terms of making our parent company more efficient.

[Julien Dumoulin-Smith, Bank of America Merrill Lynch]

And GRC assumptions, nothing to say -- right, nothing to add right now?

[Jeff Martin, Chairman and Chief Executive Officer]

Yes. I just say on the GRC assumptions, our convention over the last decade has been to always forecast the existing attrition of 3.5%. We've done that at both of our utilities and I think the filings that you can see from ORA and others, you can kind of draw your own conclusions in many cases, they are actually higher than that. But we're not going to guide or change that until we get to this rate case. We are focused on making sure we have a good cost of capital filing by April 1st, and we're pushing very aggressively to make sure that we can improve the timings of our rate case decision.

[Operator]

Thank you. We will now take our next question from Shah Pourreza of Guggenheim Partners.

[Constantine Lednev, Guggenheim Partners]

Hey. It's actually Constantine here for Shahriar. A lot of great questions were answered. And congrats on a strong quarter and a great year. One, kind of short little follow-up on the cost of capital filing. So, any thoughts around, kind of how you're thinking about it, at this point. There has been some kind of early remarks with kind of the FERC ROE is done and all that, but in light of kind of some of the more recent events, kind of, what are your thoughts around cost of capital in California?

[Jeff Martin, Chairman and Chief Executive Officer]

I'll give you some thoughts and pass it to Trevor. But I would just say this, as you know, at a high level, the cost of capital is always intended to be a proxy of the risk associated with our environment right in our regulatory environment. So, there is no question, given the recent developments, particularly the northern part of the state that you should expect to see PG&E and Edison and SDG&E and SoCalGas revisit how that happens. Right. So you're right, there are some numbers out there for the first standpoint, but we're going to make sure that we're very thoughtful of bringing some independent resources and we're going to put forward something that we think is better reflective of the risk in the marketplace. And if some of that risk is resolved that likewise would impact how we would file this. But Trevor, would you add any color.

[Trevor Mihalik]

No, I think, Jeff, you really covered it there again. As Jeff said it's supposed to be a proxy on risk and I think we feel pretty good about where we landed on FERC, but we certainly anticipate that cost capital filing should reflect the risk that we're seeing in the state.

[Jeff Martin, Chairman and Chief Executive Officer]

And I would add that Bruce Folkmann is our CFO at both of our utilities. He is a very talented person and he really led the last cost of capital discussion, I think on behalf of all three utilities. He has a team in place with outside consultants and they'll be putting together a very thoughtful plan about how they approach this. And I think that you're raising a great point. And this is something that we're very focused on. We're going to try to basically improve the regulatory model this year. We're going to get a great rate case and we are going to get a cost of capital that's appropriately sized for the type of risk that we expect to manage in the state.

[Constantine Lednev, Guggenheim Partners]

Perfect. Thanks. And one kind of just detailed question, housekeeping on the cost savings program that's being implemented. And you've kind of called out the $50 million in the run rate in the next few -- in the following few years. Is there any detail of how to think about the overall kind of costs at the parent and kind of where that $50 million is coming from and where kind of any incremental opportunities lie?

[Jeff Martin, Chairman and Chief Executive Officer]

Yes. I would just say that the best way to think about this is probably the most common misunderstanding Constantine. We have an ongoing cost management program every year in the history of the company. So SDG&E will have stretch goals, and one of the ways they reach their stretch goals like you saw the great performance last year and Trevor talked about it is, continuing to have best practices around technology and innovation and cost efficiency. So every single operating company at Sempra is very, very focused on leveraging technology and innovation to lower their per unit cost for customers. What was unique about what the exercise we went through under Martha Wyrsch and Dennis' leadership in the last six months was, we really revisited opportunities at the parent company, because as you sell and dispose some assets and turn your portfolio over, it gave us the opportunity to challenge, what is the proper role of External Affairs and Investor Relations and Financial Reporting. And you have people at corporate that were directly servicing the solar business or the wind business or natural gas storage.

So most of the cost opportunity has been around looking at costs associated with the businesses that we're selling and now as you know, last month we took the decision to sell our South American utilities. That represents another opportunity for us to become more cost efficient at the parent. So the long-term goal is you got to remember, we're going to grow this business at a rate faster than our peers. And as we grow this business, one of the things we're going to try to do is keep the cost at parent, the ones that we control. I'm not talking about interest expense and preferred dividends and so forth.I'm talking about the things that we can normally control. Our job is to keep it flat to declining at the same time that we're scaling the corporate center against a growing set of operating companies.

[Constantine Lednev, Guggenheim Partners]

Okay. So it's fair to kind of assume that as these transactions close, and as you go through the transformation process, and the savings programs are going to continue further into more than just the 2019 here?

[Jeff Martin, Chairman and Chief Executive Officer]

That's well said, and part of that is because, we will have ongoing service obligations for short periods of time on the assets that we sold, and part of what you're looking at is those service obligations rolling off throughout the year.

[Operator]

Thank you. We will now take our next question from Michael Lapides of Goldman Sachs.

[Michael Lapides, Goldman Sachs]

Good morning, Jeff. Two questions, kind of unrelated to each other. First of all the California cost of capital docket. Given what's happened to your neighbor to the North and just how the California utilities have traded? It seems a little bit unusual to meet even half (ph) the stock, I mean how do you calculate the cost to equity for one of the three companies in the state? Just curious if there's potential to kind of push this out to come back and revisit this at -- in another year, at another time or whether the commissioners and the state as a whole is kind of driving to make sure this happens in 2019?

[Jeff Martin, Chairman and Chief Executive Officer]

Well, it's actually a very insightful question. If you think back to the California utilities track record around cost of capital, you have seen the cost of capital extended for one or two or three years at a time, and you've seen the utilities get engaged from time to time when you see large changes in the marketplace. What intrigues me a little bit Michael is that, there has been a strong voice coming from the credit rating agencies about rerating the state. Right? There's obviously been a very unfortunate bankruptcy in the casualties to the north, obviously this has implications to Edison as it does to SoCalGas and SDG&E.

And part of the process, I think is going on, as you have a change in the governor, you got to change in a lot of the members of his administration, even some of the energy principles or change in off of Governor Brown staff. So basically have a new guard in Sacramento, to have some strong voices coming from the credit markets and have the chance to come back in on a timely basis and really lay down some numbers that really point to the cost of not properly managing risk. These costs inadvertently get passed on to ratepayers. So there is really a hue and cry to fix the market, and I actually think this cost of capital process may be additive to that voice and constructive in long-term toward getting the action.

[Michael Lapides, Goldman Sachs]

Got it. And then unrelated question. Just curious, there have been a number of LNG projects in the US and in North America, including Canada. If their environmental impact statements are FERC certificates and just curious how the LNG contracting environment has changed over the last 6 to 12 months and how the economics for new LNG for projects like Port Arthur even ones like Costa Azul or the Cameron expansion look now relative to how they may have looked a year or two years ago?

[Jeff Martin, Chairman and Chief Executive Officer]

Great question. I think you recall that we were similar to our new management team last summer. We took the time Michael to do a bottoms-up view of what we thought was taken place in the global marketplace, and that we had a better feel for that. We looked at our own team, our own capabilities and you saw us raise our expectations for what we could accomplish Michael, as well as make some change in terms of how we were leading that organization.

I would tell you today that I'm probably more bullish than I was three or four months ago. I mean I think Joe and I are on the road starting this weekend, going overseas to meet with potential offtakers. But to your point, you recall that Cameron was originally constructed really as a tolling agreement, no different you think about as a power plant. Right? You're short gas on one side of the plant and your long LNG on the other, and we structured that really as a tolling situation where Sempra was not really involved in the downstream risk the upstream risk related to that facility.

One of the things is taking place in the marketplace is the number and type of counter parties has expanded to folks like the oil and gas company in Poland, is they now expect somewhat at the terminal to go upstream and source the gas, and frankly as long as we can do that some form of index, where we're not taking the commodity risk. We're certainly a business is quite comfortable with transportation. So you've seen the model change a little bit where you're moving probably from a pure Toll model toward being able to provide the service of bringing the gas to one side, whereas they take all responsibility for the gas on other. And look, a competitive market always puts pressure on the cost side of it, but one of the things I think that I would mention to you is, we have a competitive advantage, and our competitive advantage is, that two of our three sites are brownfield sites, number one. And number two, the fact that we have one on the West Coast of North America is a huge advantage. And you should be expecting us to push that aggressively in all of our marketing meetings, but I'll just stop there, Joe and see if you will add anything to the contract environment.

[Joe Householder, President and Chief Operating Officer]

The only thing I would say in addition, one thing I want to start with is we're going to spend a bunch of time on this at our analyst conference, which is coming up in a few weeks. So I won't go into too much detail but, we are very focused. The world has changed a little bit and you're right, we are starting to see a lot of action at FERC and our project at Port Arthur is moving through that queue, it's very close in the queue now. So it's moving right ahead.

And so the contracting is indeed important and we have seen a change. There was a law for a while, now we're starting to see that really come together. As Jeff said, we got airline tickets we're -- we're heading out, and so that shows a good sign. We will talk more about this at the conference, but we are absolutely right. We're starting to see quite a change and we're going to see more and more projects go to FID.

[Operator]

Thank you. We will now take our next question from Paul Patterson of Glenrock Associates.

[Paul Patterson, Glenrock Associates]

Just want to touch base with you on the wildfire, the prudency standard that you guys are looking for at the CPUC. And I was wondering in-light of sort of the recent activity, obviously the bankruptcy at PG&E and stuff. Are you sensing more traction with respect to having the prudency standard of -- you know to be substantially -- substantial compliance with the wildfire plan or how are you looking at that, it sounds like you and Edison sort of have been proposing that in this OIR?

[Jeff Martin, Chairman and Chief Executive Officer]

What I would say, Paul, is that one of the things that makes the overall conversation quite complex is that there is a basket of legacy fires, some of which were in '17 prelegislation and some of which were in '18 during a gap, because the legislation was effective until the first of the year. From a big picture standpoint I think Sempra has been very much in the position that PG&E has been in for a long period of time, which we don't think is a strict liability standards, the appropriate standard for investor-owned utilities. Right? It was intended for a different set of circumstances.

I think it's very unfortunate, that we moved decisions we got at the PUC. I think that really has been the catalyst for the possibility of there being uncovered or stranded cost actually borne by shareholders. And that's led to the situation we're in now. So, I think the challenge you have Paul is that the legislators put a lot of time in SB 901 last year, and they thought that they had put the appropriate band-aid on the issue, and like what we're really asking for is, I think the whole process as we looked at de novo with a fresh view. I'm really encouraged. I think the strike force specifically and the Blue Ribbon panel is not just taking the fact as they are today, Paul.

I'm really looking at this thing holistically, around all the things that Dennis talked about, the insurance industry, what does this mean to tort claims. What does this mean to the legal industry and the impacts of the utility. So, I don't want to make this sound like this is a small change to legislation. We have a goal of making sure that we have the chance to operate our system prudently. Make prudent capital investments, and as fires occur from time to time, were substantially in compliance with the program as they approved by the commission, there should be automatic pass-through of costs. It's not a discretionary standard.

[Paul Patterson, Glenrock Associates]

Yes. I think that sounds great. It would seem to me that regardless of what happens with strict liability or what have you, if that standard is adopted, I mean, obviously there's a lot more that you want to accomplish for a lot of reasons, repair costs to be -- not the least of which but, that would be, I mean this one issue, if you could get that resolved. It would seem to me that would go a long way. Do you follow what I'm saying and that might be one way of sort of -- I mean, I know it's not silver bullet, but it would be something that would seem to go a long way in solving a lot of this without necessarily relying on the holistic thing to be completely sewn-up. Do you follow what I'm saying?

[Jeff Martin, Chairman and Chief Executive Officer]

I do Paul and I think first off, I think you're spot on. But the only caveat I'd offer to you is, where you start your focus has a direct impact of what you end up resolving. And I think that we need to be very clear that's a strict liability standard is the wrong standard. At the end of the day you may have the practical solution, it may be less relevant is where that standard goes away, or whether that standard is interpreted by rule making that allows for the automatic pass-through for people that operate your system prudently.

So I think you're on to something. What I am encouraged by is, the leadership the Governor is showing the way that he has staffed in saying and asked them to move more quickly and he's asked for them to look at it holistically, with a fresh view de novo. Right. So again I can't forecast the future, except to say that I think a lot of the right activities are under way and we are optimistic.

[Paul Patterson, Glenrock Associates]

Okay. And then just finally the McDermott call, the discussion of Chiyoda came up, and I'm just wondering, we couldn't really obviously and I'm not asking you to comment on the Chiyoda situation, but they themselves as you know, said -- raised ongoing -- as a ongoing concern question, could you just remind us what kind of contingencies we have, if in fact Chiyoda isn't able to meet its obligations?

[Jeff Martin, Chairman and Chief Executive Officer]

I will start and I'll see if Joe wants to add some color, but I think in our remarks, what you've heard is, that the partnership has been very engaged with the EPC contractors, and particularly McDermott has been very clear about what their expectations are for delivering the project. And obviously those two parties are jointly and separately liable

for their obligations under that contract, and it's a full EPC wrap contract, right. So those obligations reside with the EPC. But I got to tell you we have had great conversations with David Dixon. I think he has looked at this with clear eyes. He understands the challenges, and we have confidence and the ability to deliver it. But, Joe if you want to comment further on some of the details around those two parties.

[Joe Householder, President and Chief Operating Officer]

Thanks, Jeff. I think you really hit the main points. Great EPC contract, joint and separate liability, also, as we said a few times in the past, we do have letters of credit backstopping this, in typical amounts that you would see in a contract of this nature. And so those are the kinds of things. We always have to plan for any risk and so we have a lot of work around all of this with our partners, but we feel really confident, David's, very confident that is going to focus and get this project done. And I believe he is focused on it.

[Operator]

Thank you. We'll now take our last question from Winfried Fruehauf of Winfried Fruehauf Consulting.

[Winfried Fruehauf, Winfried Fruehauf Consulting]

I have a question about PG&E, and is a two part question. One is, what lessons has Sempra learned from the bankruptcy filing, or yes, that's the first question. The second question is, are there any opportunities for asset purchases from PG&E by Sempra?

[Jeff Martin, Chairman and Chief Executive Officer]

Well, thank you for that question. I'll start with the second part of the question first and I'll circle back the lessons learned. I think you recall you followed us for a long time, Winfried that, we don't typically comment on any type of M&A activity. As we've had discussions on our management team, our slate of organic spending in our core businesses here in North America over the next two years, is quite significant.

One of the things you should expect for our management team is to have our head down and make sure we execute well our financial plans for 2019 and 2020. On the larger issue of lessons learned, it's quite interesting, we learned a lot Winfried from our 2007 wildfire, we viewed it like an existential threat 10 years ago, and it really has informed our view that we have to get better and we have to provide leadership, we have to be innovative and everything we do is open source. I mean, all the progress we've made, we're more than willing to share with others.

But I will give you one discrete thing from the bankruptcy that we find interesting is, you'll see a lot of numbers out there about the potential costs that are contingent liabilities related to the renewable contracting. And you'll hear -- numbers above $30 billion being forecasted in large portions of that be an out of market cost. It goes back to over the last four or five years, the deep strategic process that our Board has led, we made the decision, number one, that we wanted to exit fossil fired generation. We've made the decision to exit renewable generation. We do not get involved in lifting natural gas or oil or field processing.

So we've moved further and further away from generation and commodity and procurement, and as early as 2014 myself and Steve and Davis at SDG&E decided to stop all of our renewable purchases at SDG&E because we're well ahead of the game at that time. So I think the lesson that points to here is, it's very important to make sure we're doing all the right things to advance the clean energy transition, but it's also important that we're doing that in a way which is thoughtful around price, diversity of supply in a balanced energy program.

And I think that what you see at PG&E continues to confirm Sempra's business model, number one of focus in on T&D and the prudency I think that we've shown around a balanced energy approach to the commodity side of the business.

[Winfried Fruehauf, Winfried Fruehauf Consulting]

That's very helpful. Thanks very much, Jeffrey.

[Jeff Martin, Chairman and Chief Executive Officer]

I appreciate it Winfried. We hope we see you at the Analyst Conference.

[Winfried Fruehauf, Winfried Fruehauf Consulting]

I'm not so sure because I'm physically still not in a position to do much traveling.

[Jeff Martin, Chairman and Chief Executive Officer]

Okay. We wish you the best and look forward to staying in touch with you.

[Operator]

Thank you. As there are no further questions, we'll hand the call back to Jeff Martin for closing remarks.

[Jeff Martin, Chairman and Chief Executive Officer]

Look, I just like to thank everyone for joining us today. I'll conclude by saying that I'm very pleased with our team, and I think we're excited about the progress we've made on our strategy. And we look forward to seeing all of you at our upcoming Analyst Conference here in San Diego later in March. If you have any follow-up questions, always feel free to contact the IR team. And have a great day.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.