Sempra Energy (SRE) Q3 2017 Earnings Conference Call Transcript

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Sempra Energy (NYSE: SRE)
Q3 2017 Earnings Conference Call
Oct. 30, 2017, 12:00 p.m. EDT

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Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Sempra Energy Third Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rick Vaccari. Please go ahead.

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Richard A. Vaccari -- Vice President of Investor Relations

Good morning, and welcome to Sempra Energy's Third Quarter 2017 Financial Presentation. A live webcast of this teleconference and slide presentation is available on our website under the Investors section. With me in San Diego are Debby Reed, Chairman, President, and CEO; Jeff Martin, Chief Financial Officer; Steve Davis, Corporate Group President of Utilities; Joe Householder, Corporate Group President of Infrastructure; Dennis Arriola, Executive Vice President; Martha Wyrsch, General Counsel; and Trevor Mihalik, Chief Accounting Officer and Controller.

Before starting, I would like to remind everyone that we will 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. 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 third quarter 2017 earnings press release for a reconciliation to GAAP measures. I would also like to mention that the forward-looking statements contained in this presentation speak only as of today, October 30, 2017, 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 Debby.

Debra L. Reed -- Chairman, President, and CEO

Thanks, Rick. This morning, we reported third-quarter earnings per share of $0.22, or $1.04 on an adjusted basis. We reported year-to-date earnings per share of $2.99, or $3.87 on an adjusted basis. Based on these strong year-to-date results, we expect to be at the upper end of our 2017 adjusted earnings guidance range of $5.00 to $5.30 per share. On a GAAP basis, our updated 2017 earnings guidance range is $4.13 to $4.43 per share. Excluded from adjusted earnings this quarter was the impairment of SDG&E's wildfire regulatory asset, which I will discuss later. On this call, I want to update you on actions we have taken to implement our growth strategy, including plans to create value from the Oncor transaction. I will also review our general rate case followings at our California utilities, and the requested rate base to continue to run safe and reliable systems.

Before I review each of these, please turn to the next slide, where Jeff will walk you through our quarterly results. Jeff?

Jeffrey Walker Martin -- Chief Financial Officer

Thanks, Debby. Earlier this morning, we reported third-quarter earnings of $57 million, or $0.22 per share. This compares to third quarter 2016 earnings of $622 million, or $2.46 per share. On an adjusted basis, we reported earnings of $265 million, or $1.04 per share. This is in line with third quarter-adjusted earnings in 2016 of $259 million, or $1.02 per share. Please turn to the next slide.

As Debby mentioned our year-to-date adjusted earnings have been strong and are 11% higher than last year. The quarterly variances are explained in the business unit summary section. The key takeaway from our results is that we're on track to deliver strong full-year earnings. And with that, let's move to slide seven, and I'll turn it back over to Debby.

Debra L. Reed -- Chairman, President, and CEO

Thanks, Jeff. From time to time, it's important for us to take a step back and talk about how our projects and acquisitions fit within our strategy. At our analyst conference, we discussed two important strategic goals for Sempra through 2021. First, we expect to deliver roughly double the long-term earnings growth rate of our utility peers. And second, we plan superior dividend growth at 8% to 9%. These were set before consideration of the significant opportunities we've been executing on this year. I'd like to highlight our success in growing our business in the six months since our analyst conference. We have captured or filed for approximately $1.9 billion in incremental opportunities that were not part of our plan.

We also announced the Oncor transaction, which we expect to be accretive to EPS during our plan period. It also adds a new strategic growth platform in the U.S., while helping us maintain the approximately 75-25 U.S. international earnings mix in our portfolio. And our California utilities submitted their general rate case filings, which state significant increases in revenue requirements for 2019 needed to continue providing safe and reliable service to customers. Please turn to the next slide.

Collectively, the new projects add approximately $1.9 billion of additional investment. I would like to highlight our most recent project addition. We announced the pending acquisition of Pemex's 25% equity interest in the Los Ramones Norte pipeline for approximately $520 million, bringing IEnova's total ownership to 50%. We expect the transaction to close by the end of this year. Most of these projects come online later in 2018 and beyond, and we expect that they will improve our growth in the latter years of our plan. We have also seen improved operating performance and cash flows from our core businesses. This improved performance, coupled with the additional projects, should allow us to offset some of the 2019 impact of the previously announced Cameron delay. And just to confirm, there's no change at Cameron, as we continue to expect trains one through three to be producing LNG in 2019 As you can see, since the analyst conference, we have developed growth projects across our businesses. And we believe our portfolio mix will allow us to continue to grow earnings at rates roughly double that of traditional utilities while maintaining a utility-like risk profile. Please turn to the next slide.

When you look at our existing platform, it's easy to see how Oncor is a great strategic fit. This business has a strong management team and is focused on achieving above-average growth through transmission and distribution investments that create value for customers and shareholders. Oncor manages a large rate base, similar to our California utilities. And adding it to our portfolio increases Sempra's U.S.-based utility earnings mix. Further, Texas is a constructive business environment with above average customer and energy use growth. This acquisition provides meaningful expected accretion and also strengthens our expected credit profile in future years, giving us further balance sheet flexibility to continue to invest in growth.

I would like to highlight the last point. From the strengthening credit profile provided by Oncor and the ongoing earnings accretion from the transaction, we expect to have $1 billion to $1.5 billion of credit capacity in the outer years of our plan, which should provide us with approximately the same credit profile as we communicated at our April analyst conference. The credit capacity could be used to return value to our shareholders through funding of additional growth opportunities, increases in planned annual dividend growth, share repurchases, or a combination.

Before moving on, I'd like to give an update on where we're at in the regulatory process. We filed our change in control request with the PUC of Texas on October 5th. And on October 12th, the ALJ and the staff deemed the application sufficient. On October 16th, the commission approved a schedule of 180 days to resolve the case by early April. Now, we are responding to data requests, and we're optimistic that once we address questions and issues identified in the data requests, we can work toward constructive settlements with the key intervening parties.

Many of you have asked about our financing. And while we can't answer specific questions, I will say that as we execute our financing plan, we will consider our process on the regulatory front. We will also consider a wide range of financing alternatives so we can make the best decisions based on market conditions at the time of our capital raises. Please turn to the next slide.

Sempra has a strong presence in the Gulf Coast with our LNG project, natural gas storage, and IEnova. The addition of Oncor will further strengthen our footprint and serves as a new growth platform to expand our opportunity set. We have a great history of leveraging our platforms and understanding of energy markets to find new opportunities. Examples include development of our current renewables business to meet state RPS standards, and planting the roots for IEnova, which started out with a cross-border pipeline in northern Baja and three small LBCs. Our strategic vision for the Texas Gulf Coast region is to be a major player in these growing energy markets. We expect the addition of Oncor, coupled with our existing presence in the natural gas market, to position us well to be a leading player in the Gulf Coast and cross-border energy markets. Please turn to the next slide, where I'll review Oncor's opportunities in more detail.

Oncor recently had its rate case approved, which authorized a new ROE and capital structure. And Oncor made the commitment to spend a minimum of $7.5 billion over five years. Their current capital plan forecast is for $8.4 billion and is designed to improve service and reduce cost to customers. Some of the things we like about this business are Oncor is investing in only transmission and distribution projects, so there's no exposure to generation assets, which we believe is the right profile for electric utilities going forward. They are making large investments while maintaining the lowest rates in Texas, and they are authorized the recover costs associated with additional projects that are in the customer's best interest through a tracker mechanism without additional approval between rate cases. We believe this is a prudent regulatory mechanism, which allows for timely investments to enhance customer safety, operational efficiency, and grid integrity.

Not many companies have visibility to both a minimum five-year capital plan and an approved authorized return on that capital. Therefore, the addition of Oncor will provide Sempra even greater visibility to utility earnings growth over the next five years. In addition to the existing five-year capital plan, Oncor management has identified additional areas of potential investment, which would benefit customers, including expansion of the transmission grid and increasing the capacity of existing transmission facilities to accommodate low growth and reduce congestion; expansion into new growth regions in the Dallas Fort Worth; expedited deployment at Smart Grid, and other technologies; and hardening of critical infrastructure to mitigate storm and other damage, and the costs of restoration. Please turn to the next slide.

As we were contemplating this transaction, the market opportunities we saw led us to believe we could make both companies better in the future. As you can see on the slide, Texas is a leader in energy and holds the number one spot in many areas. By expanding our business portfolio in the region with the Oncor transaction, we believe we are well-positioned to source additional opportunities in the Gulf Coast and Mexican energy market through the strong relationships, market intelligence, and experience we have in one of the fastest growing markets in North America. Please turn to the next slide, where I will discuss our California utilities recent rate case planning.

I briefly mentioned some developments at our California utilities earlier and would like to take a minute to provide some additional details. With regard to the 2019 general rate case filings, we requested a 19% and 11% revenue requirement increase over estimated authorized 2018 levels for SoCalGas and SDG&E respectively; 6% to 7% annual average attrition mechanisms through 2022, which would result in a four-year rate case cycle; and projected investments related to our risk assessment mitigation filings, which should help ensure continued safety and reliability of our gas and electric systems, and increase our rate base over time. We will work constructively to achieve a fair and timely decision to be implemented in 2019. Please turn to the next slide.

I would like to discuss the impairment that we recorded this quarter related to the costs from the 2007 wildfires. In August, two ALJs issued a proposed decision denying SDG&E's request to recover costs previously incurred related to these wildfires. We vehemently disagree with the PD. While this is not a final decision, under applicable accounting guidance, we concluded the wildfire regulatory asset should be impaired. However, based upon the evidence and law, we believe the commission should rule in our favor. Since this proposed decision, we have had properly noticed ex-party and all party meetings with the CPUC to reiterate our position that the wildfires fall under the construct of inverse condemnation and that as such, these costs should be fully recovered through insurance and rates.

California courts have allowed plaintiffs to claim inverse condemnation against SDG&E for the 2007 wildfires. Today, courts have applied inverse condemnation to utilities, in part on the notion that utilities can pass through the cost to rate pairs. To further support our position, FERC previously approved in full SDG&E's wildfire recovery, considering the inverse condemnation precedent. We will vigorously pursue available avenues to favorably resolve the issue with the CPUC, and if needed, will exhaust all available administrative and court appeals. Also in light of the recent wildfires in Northern California, I want to highlight the proactive steps we've taken over the years to implement a comprehensive fire risk mitigation program to help protect our customers and stakeholders. I'll go through a few of many examples.

We installed 13,000 new steel distribution transmission poles with higher strength conductors and increased line spacing beyond the CPUC's requirement. We developed the largest utility weather network in the nation, with 170 weather stations, each of which provides real-time weather data, delivering enhanced situational awareness to our utility operations and field personnel. We also provide this data to firefighting agencies. We contracted for supplemental firefighting resources, including one of the largest helitankers in the world. And like our weather data, we make this resource available to our region. And we developed and implemented an aggressive vegetation management program, where we have a database of 460,000 trees that are in close proximity of our lines. We systematically assess, remove, and trim vegetation away from our lines and facilities to reduce fire risk. Now, please turn to the last slide.

To recap, we've been working diligently to deliver on our value proposition. First, we expect to be at the upper end of our 2017 adjusted EPS guidance range. Second, we're leveraging our growth drivers to execute additional projects at both our utility and infrastructure businesses to add to future earnings growth. And third, we're advancing the Oncor transaction by making substantial regulatory progress, and we're looking forward to adding the strategic growth platform to our business. With that, we'll conclude our prepared comments and stop to take your questions.

Questions and Answers:

Operator

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one to ask a question. And we'll go first to Greg Gordon with Evercore.

Greg Gordon -- Evercore ISI -- Analyst

Thanks. Good morning.

Debra L. Reed -- Chairman, President, and CEO

Morning, Greg.

Greg Gordon -- Evercore ISI -- Analyst

A couple questions. I apologize if I'm a little fuzzy on it. Can you take us through the initial Los Ramonas Norte investment and what the economics were that you articulated on that project, and what you expect the incremental economics to be on this additional $520 million investment?

Debra L. Reed -- Chairman, President, and CEO

Sure. We have been a part owner of this project -- as you know, we own 25% of it. And what we did is we acquired Pemex's 25% share, bringing our total investment up to 50% of the project. I'll have Joe talk a little bit more about Ramonas Norte. And we're hoping to close this in the end of this year, 2017. Joe, you want to?

Joseph A. Householder -- Corporate Group President of Infrastructure

Sure. Thanks, Debby. Hi, Greg. Hey, you might recall that when we -- IEnova actually acquired our 50/50 interest -- Pemex's interest in our joint venture, we excluded this particular pipeline because this pipeline was the one that was actually in construction at the time. And as the parties negotiated for the acquisition of Pemex's interest in the joint venture, they were hopeful of getting a price that recognized that the pipe was fully operational, and all the construction risk and everything was behind them, but that wasn't the case. So, we actually pulled this piece of the operation out of that and continued the joint venture while the pipeline was being built. And now that it's fully operational, it's already in service and has much lower risk, we went back to them. And they were so interested in selling that interest, and so, we've struck a deal with them, which is a really good value, but probably closer to the lower end of our normal expectations of high single digit, low double digit unlevered returns. And that's simply because it has a lower risk. It's complete, it's in service and operating, and it's a great pipeline. It's one of the biggest pipelines taking gas to Mexico from the U.S.

Greg Gordon -- Evercore ISI -- Analyst

Fantastic. Joe, while I have you, can you give us an update on what the -- now that we've gotten through -- hopefully gotten through hurricane season, whether you are still comfortable with the productivity level you're seeing at the Cameron site, and when it is that we'll get another big sort of update from you on how you're doing on milestones?

Debra L. Reed -- Chairman, President, and CEO

Well, before Joe says anything, I just want to remind everyone that we believe, and we firmly believe, from everything that we see now, that Cameron will be liquefying natural gas in all three trains come 2019. And they've made a lot of progress on construction. Things seem to be going well, and not too much impact, it appears, from the hurricane. Joe, why don't you add a little --

Joseph A. Householder -- Corporate Group President of Infrastructure

Yeah, sure. Thanks, Debby. Greg, you pointed it out, and we're not completely through the labeled hurricane season, but I think we've made it through. And unfortunately for all of you in the Northeast, it seems like the weather's moving that way. But the good news is, and although we recognize that certainly a lot of people in the Gulf Coast and across Texas suffered as a result of this storm, and we contributed money to the efforts there, the storm had relatively little impact on the actual Cameron LNG site. And as far as the schedule goes, Debby just mentioned that we have no change in the schedule. We did get a claim from the contractor around Hurricane Harvey. It was a named storm, so they're allowed to make a claim, but it was rather immaterial -- less than a couple weeks delay, so that didn't really change the schedule and an immaterial amount of money related to it. They have told us they might have some additional claims, but we don't have information on that. But I think it's pretty well recognized that there wasn't much damage. So, we're still on track. Things are going well. They were back on the site working hard within a couple of weeks of the storm. And so, that's where we stand.

Greg Gordon -- Evercore ISI -- Analyst

Great. My last question may seem a little bit esoteric, but on the inverse condemnation case, first, is it on the docket? Is it on the calendar for a vote at any point soon? And two, if this were to go against you, don't you think it would have tangible enough consequences to people's expectations of risk in California that you would want to reassess what you believe your true cost of capital in the next review? Because if they're not going to honor the law here, then the true cost of capital for a California utility in the normal cost of business is, in my perspective, materially higher than what you settled on in the -- earlier this year.

Debra L. Reed -- Chairman, President, and CEO

Well, it's on the calendar for November 9th. And it's been on the calendar three times and been postponed, so we don't know what's going to happen on November 9th. Obviously, with the situation in Northern California and the Napa fires, that this has to be a focus area of the commission. And the laws in California have been pretty clearly determined by the courts to apply to the investor-owned utilities. And these laws rely on the fact that these utilities that provide services for the public interest and have facilities in the public domain would have the ability to recover costs, and that therefore, they have strict liability. And that it is something that we will put through the court system if the commission does not rule in our favor.

In terms of the cost of capital, I think that's speculative at this time as to how all of this comes out. We look at the risks that we can mitigate. And as I said earlier in my remarks, we have really focused on a lot of mitigation efforts to reduce our fire risk in Southern California in our service territory. Our insurance have told us that we have the absolute best fire mitigation plan that they've seen in the industry. So, our focus is on doing what we can control, and that we're hopeful that the commission decides, like they did earlier when they granted us the funds for FEMA recovery, which was our cost of restoration for the fire, and that FERC granted us full recovery in this, and that it would seem a little odd not to have the same type of recovery with the law in California. But at this point, we'll wait and see what happens when the commission decides.

Greg Gordon -- Evercore ISI -- Analyst

Much appreciated. Thank you.

Operator

And next, we'll go to Julien Dumoulin-Smith with Bank of America Merrill Lynch.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Good morning.

Debra L. Reed -- Chairman, President, and CEO

Good morning.

Jeffrey Walker Martin -- Chief Financial Officer

Good morning, Julien.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Hey. So, I wanted to follow up first on the Oncor side. Obviously, you've talked about some of the process here. Can you give us a little bit of an update on settlement negotiations? Just to the extent to which they continue to happen and expectations on even getting to a timeline there, first and foremost?

Debra L. Reed -- Chairman, President, and CEO

Sure. I would first say that we've been in settlement discussions for a few weeks and that our modifications to our financing actually came from hearing from the parties as to what their principal concerns were. And when we heard those principal concerns, we decided to simplify the financing and make our regulatory filing consistent with the 65/35 equity to debt that we talked about. And that really came from a lot of our discussions with the parties. Since that time, there have been some discussion with parties, but they're in the discovery process right now, and they, of course, have to do their due diligence. And then we would expect as soon as that discovery is complete, which should be very shortly, that we would enter into full settlement negotiations with the key parties in the case. Speculating timing on when a settlement could be reached is difficult, of course. But I think really by addressing the financing concerns, that addressed a lot of the issues that we had heard from the parties.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. All right, excellent. I'll leave that one be. And then moving back to Cameron real quickly, can you elaborate a little bit just in terms of your reaffirming the timeline -- is it the hurricanes this summer, did they ultimately just shift within the expected delivery time window, or was it sort of offset by productivity improvements at other points? And I just want to make sure we're sort of crystal clear about how -- the reaffirmation, for folks out there.

Debra L. Reed -- Chairman, President, and CEO

Yeah. I mean, we told you when we gave you the schedule the last time that it was not just a schedule, that we had looked at all -- and had hired consultants to do assessment of the schedule, and we'd gotten third-party input. When we looked at what we told you on the last call relative to the schedule, that what we saw was no change from those expectations coming through the hurricane season. There was some small delays, but we would not have any major impact of the hurricane. Joe sits on the Management Committee and is very close to this, so I'm gonna ask him to add anything he wants to that comment.

Joseph A. Householder -- Corporate Group President of Infrastructure

Thanks, Debby. Hey, Julien. Yeah, I think it's more like within the window. Yeah, they're making good progress at the site, and they were there right after. And so, we just didn't lose that many days. And then the hurricane season kind of came to a bit of a halt at that point. So, the weather has been good, and they've been working hard at the site and making a lot of progress. So, I think it's a combination of those things, but I'd say we're probably kind of within the window. But still, the good thing is, we're still going to report earnings of $300 to $350 in 2020.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Got it. All right, excellent. And then lastly --

Debra L. Reed -- Chairman, President, and CEO

From Cameron.

Joseph A. Householder -- Corporate Group President of Infrastructure

From Cameron. As Debby said, from Cameron. Yes, of course.

Debra L. Reed -- Chairman, President, and CEO

Yeah, I just wanted to clarify.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Yeah, exactly. Oh, absolutely. Absolutely. It wasn't lost on me. Just very quickly on the capex side, I wanted to make sure I'm hearing you guys right about obviously a lot of success year-to-date on adding things to the bucket. Where do you stand about reevaluating the open season in taxes, and then just in general about accelerating capex focused on Texas, be it Oncor or elsewhere?

Debra L. Reed -- Chairman, President, and CEO

Well, at this point, that the open season, we just got the results in, and we're contacting the parties who have expressed interest, and we don't have anything to announce at this time. But that we have a lot going on in the Gulf Coast region. People forget sometimes that we have the joint venture with TransCanada to build the marine pipeline across the Gulf region to Mexico. We already have -- that's under construction right now. We have some storage development opportunities tied to the LNG facility. We have the pipelines tied to the LNG facility. And then we have the three trains at Cameron under construction in Louisiana, and then are looking at moving forward with Port Arthur. So, we see a lot of opportunity, most of which has been on the gas side.

And we think that Oncor also has, in talking to their leadership, opportunities -- they've been a little capital constrained, as you might imagine -- and have opportunities to invest for the benefit of their customers in areas like technology and in relief of congestion that will actually reduce costs to customers, improve service. And we've asked them to start looking at if they were not in such a capital constrained situation, what more would they be able to do in terms of investments over time? And I think that they're really excited about the opportunities to look at spending time focused on how they grow their business versus dealing with five years in a bankruptcy court. So, I think there's some great opportunities, Julien.

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Excellent. I'll leave it there. Thank you all very much.

Operator

And next, we'll go to Christopher Turnure with JPMorgan.

Christopher Turnure -- JPMorgan Securities LLC -- Analyst

Good morning. Going back to the wildfires, I had two questions on that front. One was just kind of how you're perceiving, I guess, the exact legal definition of negligence there, and how that was interpreted in the proposed decision. And then secondly on that front, kind of knowing what you know today, and let's say hypothetically, the CPUC does come out and reject your request, would you have had the opportunity to act differently in the court process at all?

Debra L. Reed -- Chairman, President, and CEO

Well, I'm not sure if I fully understand your question, but I'll try to answer as I interpret it. That negligence is not the standard for inverse condemnation. And the law -- I mean, the court, in looking at the fire claims, never considered whether there was negligence or gross negligence. They only considered whether our facilities were involved in the fires. And so -- and if that is shown to be the case, that your facilities are involved in the fires, the standard in California is strict liability. And so -- and that standard of strict liability comes from the view that you can spread those costs across the ratepayers. And it was a law that was really started from municipalities, largely, so they have facilities in the public good. And that if they had something flooded or there was an issue, that they could recover those costs across all of the customers in a municipality. The courts in California then interpreted it to apply to the investor-owned utilities as well. So, you don't ever get into a negligence standard through the court system on this.

And that's the concern that we have with what the proposed decision -- it doesn't rely on how the courts determine how inverse condemnation is applied. It sets a different standard that is not the standard that's used by the courts to assess whether you have a liability. So, that's where we will be fighting that. And we do not believe that -- and clearly, FERC saw that, and FERC looked at the same set of facts and believed that we were a reasonable utility operator. The very same set of facts, and that we were a reasonable utility operator, and that -- so, these LAJ proposed decisions -- and I will stress, these are commission decisions at this point -- they are LAJ proposed decisions -- we just see as inconsistent with the law and inconsistent with how the other regulatory agencies looked at the same set of facts.

Christopher Turnure -- JPMorgan Securities LLC -- Analyst

Okay. Gotcha. But then let's say hypothetically, you could rewind the clock almost ten years now, and going into the original court processes, know that you would not ultimately get recovery from ratepayers. Would that have changed your legal options at all, I guess, negligence or no negligence?

Debra L. Reed -- Chairman, President, and CEO

No, because that's not the standard. We would have had no option on that. The courts determined that the 2007 fires fell under inverse condemnation, that our facilities were involved, and the fact that our facilities -- there's no negligence whatsoever that's a consideration in those cases. And if we had tried to fight that, that's not the standard that's applied with inverse condemnation, so it wouldn't have changed anything. And that's the thing that -- why we will go back to the court system if it's not ruled in our favor.

Christopher Turnure -- JPMorgan Securities LLC -- Analyst

Okay.

Jeffrey Walker Martin -- Chief Financial Officer

The other thing I'd mention, to your point -- this is Jeff Martin --, is the most important thing is we were prudent operators back in 2007, just like we are today. So, it doesn't really change this. Debby's really going to the fact that the law at that time relied on inverse condemnation, and that's the basis of why we think we should have recovery.

Debra L. Reed -- Chairman, President, and CEO

And I would say FERC determined we were prudent operators in their decision. So, it's just -- yeah.

Christopher Turnure -- JPMorgan Securities LLC -- Analyst

Yeah, no, you guys have been pretty clear, I think, on your position here and what your options were, so thank you for that clarification. My follow-up is just on Oncor, on maybe not necessarily your financing, but in regards to the memo that came from one commissioner last week on the process. Does that kind of fall outside your expectations as it relates to the ultimate outcome of the case or your options here? Does it surprise you, maybe given your discussions with interveners up until this point at all?

Debra L. Reed -- Chairman, President, and CEO

No, not at all. I mean, this is the discovery process that occurs. And if you look at the other cases that have been before the commission, that this commissioner has asked similar kinds of questions as part of their due diligence. And I would expect the commission and interveners to do due diligence. In the next ten days, we will be submitting supplemental testimony to address all those issues. We look forward to addressing those issues. We have nothing of concern and nothing to hide that -- we have great financial strength as a business, and we look forward to explaining all of that, explaining the kind of contracts we have on LNG, where we have really mitigated the risk in our types of contracts. So, we will submit our responses to the PUC of Texas, and we would expect them to consider all of that as part of the fact base on in the case.

Christopher Turnure -- JPMorgan Securities LLC -- Analyst

Okay, understood. Thank you, Debby.

Debra L. Reed -- Chairman, President, and CEO

Thank you.

Operator

And next, we'll go to Michael Lapides of Goldman Sachs.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Hey guys. A couple of easy questions for you, one on Southern California Gas. And there's something I'm not entirely sure I understand, and maybe I'm misstating how much growth there is there. At the analyst day back in the spring, you all highlighted that you thought -- I think it was in Steve Davis's slides -- that Southern California's rate base could get to about, I don't know, around $6 billion in 2021. And yet in today's slide deck, you're showing it at $9.7 billion in 2022. That's a pretty big change, right? I'm looking at slide 13 from today. And I just -- I want to make sure I'm following that just because I know you've announced a bunch of projects, but I didn't realize, looking at that chart on page 13, you announced something that could take SoCalGas's rate base all the way up close to $10 billion.

Debra L. Reed -- Chairman, President, and CEO

Well, let me take you back to the analyst conference and explain or remind you how we did the forecasting for the utilities at the analyst conference. And what we told you at that time when we looked at the out years of the plan in 2021, is the one that you're providing, all we did is we took the approved rate base that we had, and then we applied the attrition factor that had been approved for the utilities over the life of the plan. So, that's all we did. And that, it did not reflect our regulatory filings. It did not reflect this new process, this risk adjustment mechanism, the ramp that we had to look at risk, and then how do we mitigate those over time with a systematic replacement of key components of the system. And so, what you're seeing now is what we had filed for in the rate case that would be our 2022 with the amount of rate base we requested and the attrition mechanisms we requested in the rate case. That is not [inaudible] [00:40:39] that, but that is what we requested.

And in that rate case now, we have specific projects and specific activities to consume that capital. When we did it before, all we used was what had been approved with an attrition factor on it. So, this gives you greater visibility to what we're looking at in terms of capex requirements for the utility. Again, it's our filing. We may not recover all of that, but we think we have great justification for it because it all came out of the process that the commission has asked us to use, which is this risk adjustment process.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Got it. So, in other words, what you're saying today is that your expectation, both for capital spend and rate base growth at Southern California Gas is significantly higher than what you outlined back at the analyst day in the spring.

Debra L. Reed -- Chairman, President, and CEO

Yeah, it's higher for both utilities. It's about a billion higher -- the 2022 number is about a billion higher than the 2021 number we gave you for SDG&E, and about $2 billion higher for SoCalGas, which came out of our rate case filing and going through, detailing from this risk process that we were required to use, what are the expenditures that we need for our business, and then what is the normal replacement cycle for replacement capital? So, that's what we have in our regulatory filing.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Great. And then one Texas question, or an Oncor question. The Oncor rate case has already been resolved. The new rates go into effect soon. Are there any post-deal infusions you have to make into Oncor? I know they're getting a higher equity layer. Or is that all just kind of factored in as part of the transaction?

Debra L. Reed -- Chairman, President, and CEO

Yeah, the Oncor Board of Directors will determine how the -- they changed their equity in the rate case. They thickened their equity. And the Oncor Board of Directors will determine how that equity gets put into the business. So, it was approved in the rate case.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

But it's not incremental equity above the purchase price that Sempra has to put in.

Debra L. Reed -- Chairman, President, and CEO

Jeff, why don't you describe how that . . .

Jeffrey Walker Martin -- Chief Financial Officer

Thanks, Michael. The purchase price we've agreed to is $9.45 billion. As you've talked about, subsequent to our original purchase request, they have finalized the rate case, and that they need to move the equity layer up from roughly 40% equity to 42.5% equity. As you know, along the way, it depends on when our closing occurs and what time post-closing we actually have to fill up the rest of that equity infusion. But if there are additional equity requirements for Sempra, it's been fully factored into all of our financial analysis.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Got it. So, it's factored into all of the $0.10 to $0.20 accretion, dilution, all that kind of stuff that you've put out in the public domain.

Jeffrey Walker Martin -- Chief Financial Officer

Yes, it is.

Debra L. Reed -- Chairman, President, and CEO

Yes, it is.

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Great. Thank you, guys. Much appreciated.

Operator

And next, we'll hear from Paul Patterson with Glenrock Associates.

Paul Patterson-Glenrock Associates -- Analyst

Good morning. Can you hear me?

Debra L. Reed -- Chairman, President, and CEO

Good morning! Yup, we can hear you. Hi, Paul.

Paul Patterson-Glenrock Associates -- Analyst

Okay, great. Okay. So, just with the wildfire, just a sort of follow-up, I think, on the earlier question, just to make this crystal clear, this has nothing to do with negligence. Nothing associated with the ALJ's ruling, etc., correct?

Debra L. Reed -- Chairman, President, and CEO

The inverse condemnation law in the state has no negligence requirement. And that's the law that governs who has accountability for the claims under inverse condemnation. The ALJ had indicated that there are things that they thought that we should have done differently in hindsight review looking at things. But there's no court that has come out with any finding of negligence in this case.

Paul Patterson-Glenrock Associates -- Analyst

Okay. And I guess the question that comes up, of course, is that since we've had wildfires in other parts of the state, if there was to be found, hypothetically speaking, negligence associated with a utility, would a finding in your favor have any ramifications with respect to a situation in which negligence was the reason for the association with liability, if you follow me?

Debra L. Reed -- Chairman, President, and CEO

Yeah. I don't know how I can explain -- negligence is irrelevant. That if you have a fire that your facilities were involved in, the law of the state of California, if it shows that your facilities were involved in that fire, you have strict liability. You don't go to court -- no one claims negligence in court. They claim inverse condemnation. And if it's shown that your facilities were involved, there's a strict liability standard. All the claims that we paid out on our fire had to do with strict liability and inverse condemnation. And that law is created because you were supposed to be able to collect from your customers, or if you're a municipality, those in the municipality. So, that negligence is not an issue. No one claims in these cases negligence. They come in and they claim it's inverse condemnation, and that you have strict liability for it.

Paul Patterson-Glenrock Associates -- Analyst

Okay. No, I appreciate that, and I thank you for the clarification. I'm just wondering, though, in terms of the issue of recovery from ratepayers -- I guess I should have articulated this more clearly. In terms of recovery from ratepayers, would the issue of negligence be an issue that might come up? Do you follow what I'm saying? Because it sounds like you guys are saying that there were some things in the ALJ where they said that you might have done something better, etc., etc., etc. But I guess what I'm wondering is, and I guess why the reason the question's being asked, to a certain degree, because of the recent wildfires, is if it was found that a utility had been negligent in terms of how it was -- and I'm not suggesting you guys were involved in that. I'm just suggesting -- I'm just questioning if that was the case, would that have any impact, in your opinion, on the ability to recover from ratepayers?

Debra L. Reed -- Chairman, President, and CEO

It should not. It should have no basis. You know, if you just look at why you buy insurance -- and we get rates funded to buy insurance. Insurance, it doesn't matter. You pay out a claim, an insurance claim, and it doesn't matter whether there's negligence or not in an insurance claim. Insurance is to protect you. And this law basically is like a replacement of insurance. And so, it should have no basis. It should have no basis.

Paul Patterson-Glenrock Associates -- Analyst

Okay, great. I appreciate that. The second question I'd like to ask you is with respect to Oncor. And just in general, I mean, are you guys willing to keep the ring-fencing and other provisions long-term? Should we think about that as sort of a long-term setup, or how should we think of those?

Debra L. Reed -- Chairman, President, and CEO

So, when we look at Oncor and the ring-fencing, and we look at the independent board of directors, at some point, it would be nice for us to have built the confidence of the regulators in the state of Texas by how we act as an owner that they would see that we should be treated like any other utility in the state of Texas. And other utilities don't have that kind of structure. But I think it's something that we have to earn over time with the way that we capitalize that business and ensure that we honor the provisions and that they see that Oncor management really makes the decisions for the best interests of Texas and its customers. And I hope we are able to earn that confidence from the regulators over time. When we looked at the ring fence and those provisions, we felt it was not significantly different than what we had or how we've operated with our California utilities under a first priority condition, where we have to put capital into those utilities to meet their needs.

And so, is it livable? Yes. Would we want to change it over time with us proving that we were strong owners, and with the commission feeling that we should have the same kind of regulatory structure that the other Texas utilities do? When we get to that point, we would look at maybe a way to transition.

Paul Patterson-Glenrock Associates -- Analyst

Okay, great. And then, sorry, just back to the wildfire and the write-off charge, what I'm a little bit unclear about is you just got an ALJ recommendation. And just based on that, it seems that you guys are taking the write-off, even though we don't have a final decision. And I'm just wondering -- I guess there must have been some sort of threshold question about whether or not you thought it was likely or not. I'm just wondering if you could address what led to the -- specifically what led to the write-off, and that assuming hypothetically if you did get a ruling in your favor if we'd just see that reversed? Is that correct, or is there anything else we should think about?

Debra L. Reed -- Chairman, President, and CEO

Yeah, let me just comment that the standard is very high. It's an 80% probability standard. And what we looked at is all of the facts. We looked at that we had an ALJ proposed decision. We don't have an alternate decision at this point, and that we had to meet this 80% probability standard. And under the accounting rules, we felt that the interpretation of the accounting rules would cause us to feel at this point that we would have to take this impairment. If the commission rules in our favor, then obviously, that whatever the ruling would grant us, then that would come back. And I would stress that this is a non-cash impairment. And so, but it was our interpretation of the accounting rules as applied to all of the information that we had.

Paul Patterson-Glenrock Associates -- Analyst

Awesome. Thank you.

Operator

And next, we'll go to Faisel Khan with Citi.

Debra L. Reed -- Chairman, President, and CEO

Hi, Faisel. Faisel?

Faisel Khan -- CitiGroup Global Markets, Inc. -- Analyst

Yeah, I'm here. Sorry, guys. Can you hear me?

Debra L. Reed -- Chairman, President, and CEO

Yup.

Faisel Khan -- CitiGroup Global Markets, Inc. -- Analyst

Okay. Thanks, Debby. I just had one follow-up question. Actually, not a follow-up question, a separate question. Just in terms of the Aliso Canyon investigation, is there any update on the timing of the study that's being done by Blade?

Debra L. Reed -- Chairman, President, and CEO

No, they're in the process right now of removing the casing onsite, but there's been no indication of when they're going to complete their work. So, as soon as we hear anything, of course, we would report that. But at this point, they're just in the process of removing the casing from the well.

Faisel Khan -- CitiGroup Global Markets, Inc. -- Analyst

Okay, so they're still onsite doing it, I guess doing more of the physical work. They're not even ready to put a report together, it sounds like.

Debra L. Reed -- Chairman, President, and CEO

No, they're not at all ready to put a report together. They haven't even completed the casing removal, so.

Faisel Khan -- CitiGroup Global Markets, Inc. -- Analyst

Okay. Okay, great. Thanks.

Debra L. Reed -- Chairman, President, and CEO

Thank you.

Operator

And that will conclude today's question and answer session. At this time, I'll turn things back over to Debby Reed for any additional or closing remarks.

Debra L. Reed -- Chairman, President, and CEO

Well, thanks again for all of you joining us today. And we hope to see many of you next week at EEI. If you have any follow-up questions, our IR team will be available. And have a great week. Thanks.

Operator

That will conclude today's conference call. Thank you, everyone, for your participation. You may now disconnect.

Duration: 53 minutes

Call participants:

Richard A. Vaccari -- Vice President of Investor Relations

Debra L. Reed -- Chairman, President, and CEO

Jeffrey Walker Martin -- Chief Financial Officer

Joseph A. Householder -- Corporate Group President of Infrastructure

Greg Gordon -- Evercore ISI -- Analyst

Julien Dumoulin-Smith -- Bank of America Merrill Lynch -- Analyst

Christopher Turnure -- JPMorgan Securities LLC -- Analyst

Michael Lapides -- Goldman Sachs & Co. -- Analyst

Paul Patterson-Glenrock Associates -- Analyst

Faisel Khan -- CitiGroup Global Markets, Inc. -- Analyst

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