Sempra Energy Earnings Call Insights: Foreign Tax Rate, Chile & Peru Details

Sempra Energy (NYSE:SRE) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Foreign Tax Rate

Faisel Khan – Citigroup: Just a couple of questions. There’s been recent sort of news about the potential to change the foreign tax rate for repatriation of overseas earnings. I just wondered, if you can remind us, if it were to move to more of a quasi-territorial system as what might be outlined in some of these tax paid publications? What will be the earnings impact or benefit to you guys? I have a follow-up.

Debra L. Reed – Chairman and CEO: Let me first remind you of what we have committed to do under the current tax situation and then I will have Joe kind of talk about what’s happening in Washington right now and what the impacts might be with that. What we committed to do under our current – under the current tax situation is that we are repatriating about $200 million this year and then about $300 million over the next five years back and that we’re doing that by using the net operating losses that we have as a result of some of the bonus depreciation we have at the utilities. So that is the plan that we are working currently. As you know, under the tax files that have looked at changes that may change the overall corporate tax rate and we are doing that, then we would get a benefit and I think the number was something around $30 million. But Joe, let me ask you to go into more details.

Joseph A. Householder – EVP and CFO: Faisel, it sort of depends on where they land here. As Debbie mentioned if they were to drop the rate to like 28% something that the President suggested the other day, Debbie’s right instead of about $60 million a year of expense we would have roughly $30 million. But if they were to go to a more territorial system which we have been advocating, perhaps they might do something that would have no tax although they might actually impose some kind of a one-time tax to bring back some of this money that’s sitting offshore in many companies. So they might impose sort of a 5% tax or something like they have done previously and in that case certainly it would lower the earnings impact that we have in our plan today. So, it would be very beneficial to us.

Faisel Khan – Citigroup: Then just you guys ended the quarter with about a $1 billion in cash on the books, but it looks like a number of asset sales including the IPO of IEnova. What’s the plan with the $1 billion in cash? Is it to pay down debt or is it – how you are going to reinvest that cash by giving back to shareholders?

Joseph A. Householder – EVP and CFO: Yes. Faisel, let me talk about that. Most of that cash, that’s sitting on the balance sheet right now, is either in Mexico or in Chile. As we’ve talked about before we are not repatriating any of the funds from Chile because we would have an incremental Chilean tax and we are looking for investment opportunities, for that sum which is around $300 million. The other $500 million about is sitting in Mexico and next money that was raised in the IPO and is going to fund the Sonora Pipeline Project.

Chile & Peru Details

Naaz Khumawala – Wolfe Research: Just had a couple of quick questions for your guys, first of all, if you exclude Argentina from South America, can you discuss how Chile and Peru are doing year-over-year?

Debra L. Reed – Chairman and CEO: Yes. If you take Argentina out, Chile and Peru are right on track to what we would be anticipating and kind of what we laid out for you at May at the Analyst meeting. We are having good performance from both of those companies. The growth rates are very positive in the ranges that we’ve talked about before. We are seeing customer growth of 2% to 3.5% and loan growth of 5% to 6% in both of those utilities…

Naaz Khumawala – Wolfe Research: Then for SONGS, what’s the ongoing impact to earnings from pulling SONGS out of rate base?

Debra L. Reed – Chairman and CEO: The ongoing impact – well, I can say is – well, historically we’ve had about $15 million to $20 million a year of net income from SONGS, and as I mentioned in my comments, certainly for this year through looking at cost efficiencies and some of the improvements in our operations due to the advancements of technology that we’re deploying, so that we can offset that for this year, and so we were able to include that in our updated earnings guidance that we would still be in the $4.30 to $4.60 range including covering off that loss in SONGS income for this year.

Naaz Khumawala – Wolfe Research: Right now, I mean, I appreciate that but just sort of thinking about next year and forever, are the cost efficiencies that you guys can keep or…

Debra L. Reed – Chairman and CEO: Well, we will look at – we will update our guidance as we always do in February and we will certainly look at continuing to look for ways that we can improve the operations of our business as we always do and look at some opportunities to offset that. One of the things that hasn’t been factored in and we’ll be factoring in really to our guidance is what is needed to replace SONGS and what that would mean in terms of additional investment. And so all of those things, we’ll be looking at before we give updated 2014 guidance in February.