Good day and welcome to the Sempra Energy First Quarter Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Faisel Khan. Please go ahead.

Good morning. And welcome to Sempra Energy’s first quarter 2020 earnings call. A live webcast of this teleconference and slide presentation is available on our website under the Investor section. Several members of our management team are on the line with us today, including Jeff Martin, Chairman and Chief Executive Officer; Dennis Arriola, Executive Vice President and Group President; Justin Bird, Chief Executive Officer of Sempra LNG; Trevor Mihalik, Executive Vice President and Chief Financial Officer; Allen Nye, Chief Executive Officer of Oncor; Kevin Sagara, Chairman and Chief Executive Officer of San Diego Gas & Electric; and Peter Wall, Senior Vice President, Controller and Chief Accounting Officer. Before starting, I would like to remind everyone that we will be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. As we continue to monitor the potential impact from the ongoing pandemic, it is important to keep in mind that actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in the company’s most recent 10-K and 10-Q filed with the SEC. All the earnings per share amounts in our presentation are shown on a diluted basis, and we will be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call 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, May 4, 2020, 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.

Thanks a lot, Faisel. And thank you all for joining us today. We hope everyone is staying safe and well during this public health crisis. Our hearts certainly go out to all those who have been impacted by this pandemic. In the midst of all this, we're reminded that our employees face health risks in their daily lives and unique challenges in performing their jobs. That's why our first principle here at Sempra has been, and continues to be, keeping them safe. On this slide, we provide a few examples of some of the health and safety initiatives that we've implemented, all while providing critical services to our customers and supporting our communities. Specifically, we've issued additional personal protective equipment for our field employees and implemented revised protocols for customer engagement. We've hired an infectious disease expert to assist us in implementing safety procedures for all employees. We've instituted travel bans and limited building access. Employees that can work from home continue to do so. We've rolled out enhanced resources for employees, such as technology reimbursements, revised sick and emergency leave policies, and expanded mental health services. Additionally, we've invested in our communities by committing over $8 million across the Sempra family of companies to help those providing critical services to those in need. I cannot be more proud of the commitment and dedication of all of our employees during this period. It is one of those times of great challenge where, notwithstanding the fact that many of us are working remotely, our values and mission continue to unite us. We're actively monitoring the situation and will revise our protocols as necessary to continue providing safe and reliable service to over 35 million consumers each day. Please turn to the next slide. Before discussing the quarter, I would like to take a moment and thank everyone who joined us for our virtual Investor Day just over a month ago. We certainly appreciated having the opportunity to provide you with important business updates and highlight our overarching strategy. You'll recall that at the core of that strategy is our mission, where we've made a commitment to build North America's premier energy infrastructure company. One of the important takeaways from this call is that we believe we are continuing to make great progress on that mission. Most recently, we've completed the sale of our Peruvian businesses and expect to close the sale of our Chilean businesses later this month. We also achieved mechanical completion and began the startup of the third and final train at Cameron LNG Phase 1 and at ECA Phase 1. We recently finalized two sale and purchase agreements totaling 2.5 million tons per annum. These 20-year agreements with highly creditworthy counterparties highlight the strategic advantage of being able to offer liquefaction capacity to our customers from facilities on both the West Coast and Gulf Coast. Again, the execution of these two new agreements speaks to the market need, particularly right here in North America, for critical new export infrastructure. We'll be discussing these developments in more detail later in today's presentation. In combination, our strategy, capital rotation program, improved capital discipline, and effective execution have improved the earnings power of our company. Given these positive developments, I'm pleased to say that we're reaffirming and more importantly guiding to the upper end of our 2020 adjusted earnings per share guidance range. We are also reaffirming our 2021 EPS guidance range. Please turn to Slide 6. Two years ago, we laid out a strategic plan to reposition our business and improve our financial performance with three key objectives in mind. First, to focus our portfolio on the most attractive markets in North America; second, to utilize our skills and strong operating history to create a Tier 1 leadership position in those markets; and finally, to position our business in that portion of the energy value chain where we believe we can produce the most attractive risk-adjusted returns. Looking at our portfolio today, we've made great progress. Focusing our geographic footprint on leading energy markets in North America while further improving the quality and strength of our earnings. This approach has helped create a higher growth and more resilient infrastructure platform that is well-positioned to compete through different market cycles and deliver long-term value to our stakeholders. Please now turn to Slide 7, where I'll provide an overview of our South American business sale. As many of you saw, we recently completed the sale of our equity interest in our Peruvian businesses to an affiliate of China Yangtze Power International for total cash consideration of approximately $3.6 billion. Additionally, we continue to advance the announced sale of our equity interest in our Chilean businesses to China State Grid International Development for an anticipated sales price of approximately $2.2 billion. I would like to emphasize that all parties remain quite motivated to complete the Chilean transaction, and we're targeted to close later this month. It's also important to mention that closing the Peru transaction is yet another example of our ability to execute our strategy even in a challenging business environment. Please turn to the next slide. Our management team continues to strive to be prudent stewards of your capital. Our recent efforts over the last couple of years have resulted in approximately $8.3 billion of announced proceeds from completed and pending asset sales. This capital recycling has provided us with the level of capital efficiency as we expanded our utility footprint in Texas with Oncor and continued to grow that platform with the subsequent acquisition of InfraREIT. Now I'd like to turn the call over to Trevor to review our current liquidity position and credit profile as well as to discuss operational and financial results. Please turn to the next slide.

Thanks, Jeff. Many of you saw a similar slide at our recent Investor Day, but here we've revised it to reflect our updated liquidity position. I want to call out the largest change which is the incorporation of the proceeds received from the sale of our Peruvian businesses. As of Friday, Sempra Parent's liquidity is over $6 billion, up significantly from the $3.3 billion at the Investor Day. Combined, Sempra Parent's SDG&E and SoCalGas have $6.7 billion of revolving credit capacity. Those facilities are currently undrawn other than support for the approximate $600 million of commercial paper that's outstanding at Parent. As this slide illustrates, the combined Sempra family of companies have a very strong liquidity position. We currently have nearly $10 billion of liquidity including cash on hand and undrawn committed credit facilities. This is before the sale of our Chilean asset, which we expect to conclude later this month. It also excludes Oncor, which has a strong liquidity position with roughly $2.5 billion. When we talk about the resilience of our business, liquidity is an important part of that because it helps us ensure that we can safely operate our businesses, fund our capital plan, and support the growing dividend. Please turn to Slide 10. Now, I would like to discuss the steps we're taking to improve our credit profile. Our Board of Directors and management team have taken a series of disciplined steps to allocate capital more efficiently while improving our credit metrics. Specifically, we've diversified our U.S. utility rate base into the pure play T&D assets in the Texas market, divested U.S. renewables generation and non-utility natural gas storage assets; issued $6.5 billion of common equity and mandatory convertible preferred stock as part of the $9.45 billion acquisition of Oncor; and moved two of the three trains of Cameron LNG Phase 1 into operation. With the third only months away, we've optimized project economics and cash flows through refinancing nearly half of its project debt. When in full operation, this will provide a valuable and recurring stream of cash flows. In combination, the result has been a continuous decrease in the ratio of our holding company debt to total debt while improving the quality of our earnings mix and business risk profile. With this in mind, we also continue to target approximately 16% FFO to debt and 50% debt to total capitalization by year-end. We do not plan to issue any common equity to fund our current capital plan. Please turn to Slide 11. This quarter, we had several positive developments at our U.S. utility infrastructure businesses. First, at SDG&E, we had our FERC cost of capital all-party settlement approved. Notably, our FERC authorized ROE will now be 10.6%, including the continuation of the 50 basis point CAISO adder. This is an increase of 55 basis points over our previously authorized ROE of 10.05%. As a reminder, SDG&E's FERC rate base is approximately 40% of its total rate base. We're pleased with this decision and believe it benefits all stakeholders. Second, at both SDG&E and SoCalGas, we recently filed a joint petition for modification related to the 2019 general rate case. Further CPUC's direction, we requested attrition rates for our fourth and fifth years. At SDG&E, we requested 4.77% and 4.64% for 2022 and 2023, respectively. At SoCalGas, we requested 4.95% and 4.16% for 2022 and 2023, respectively. In support of a five-year rate case outcome, we believe these attrition rates are reasonable and should enable us to continue investing in critical infrastructure designed to deliver safe and reliable energy to our customers and the communities we serve. We requested a final decision on this matter by year-end. Shifting to Texas, Oncor continues to execute on its capital plan, about 90% of the projects in Oncor's transmission budget through 2021 do not need further approvals before commencing construction. On the distribution side, Oncor connected approximately 18,000 new customers in the first quarter. Moreover, overall demand in ERCOT actually increased in the first quarter of 2020 over the first quarter of last year. The increase was roughly 1%, but it's still notable given the market backdrop. In addition, Governor Abbott has announced a phased reopening of businesses to help restart the Texas economy. Please turn to Slide 12, where I'll discuss developments at Sempra LNG and Sempra Mexico. Starting at Cameron LNG Phase 1, we've achieved mechanical completion, introduced feed gas, and initiated the startup process for Train 3. Importantly, this keeps us on track to produce LNG in the second quarter and to place Train 3 into service early in the third quarter. At this point, construction is essentially complete and we look forward to bringing the entire facility into operation soon. As a reminder, we expect this project to generate full run-rate earnings of $400 million to $450 million annually and nearly $12 billion of after-debt service cash flows back to us during the 20-year contract period. Shifting to the LNG market and our development project, we've maintained a long-held belief that new LNG infrastructure will be needed by the middle part of this decade to support increasing demand. However, fewer projects are expected to take FID as a result of reduced capital spending in the oil and gas sector and some LNG developers being financially constrained. We believe there will be an even greater need for our projects. Our financial strength and advantageous locations on the West Coast and Gulf Coast help provide us with a competitive advantage to continue to grow our LNG infrastructure platform. Along these lines, as Jeff mentioned earlier, we recently signed 20-year sale and purchase agreements with Total and Mitsui for a total of 2.5 million tons per annum at ECA LNG Phase 1. We continue to work closely with the Mexican government to secure the final SENER permit and to reach FID. We continue to target FID this quarter and we're optimistic the permit can be issued in a timely manner to support that. Shifting to Port Arthur LNG Phase 1, this past quarter, we announced a fixed-price turnkey EPC agreement with Bechtel. However, given the current market environment, we've updated the FID timing for the project to 2021. We continue to work with our current and potential customers on the optimal timing of the project and will continue to be disciplined on how we allocate capital to the project. Turning to Sempra Mexico, we're continuing to develop projects that provide cleaner, more reliable energy as well as energy accessibility for the people of Mexico. We're continuing to monitor the situation, but as a result of the current pandemic, it's reasonable to expect that some of the construction capital will be deferred from 2020 to 2021. Nevertheless, we believe demand for our existing network of pipelines and power assets remains strong and is critical to the people of Mexico. Please turn to Slide 13. Looking at our financial results, this was a really excellent quarter. Earlier this morning, we reported strong first quarter 2020 GAAP earnings of $760 million or $2.53 per share. This compares to first quarter 2019 GAAP earnings of $441 million or $1.59 per share. In our ongoing effort to build resiliency and continue to resolve legacy matters, we reported two charges in the first quarter. First, we recorded a charge of $100 million related to our previous ownership of the RBS Sempra Commodities trading business. This charge represents an estimate to settle certain tax-related legal matters associated with activities from over a decade ago. Second, we recorded a $72 million after-tax charge related to the 2015 Aliso Canyon incident. We have recently engaged in settlement discussions with private plaintiffs related to the civil litigation. As you may recall, we settled with the government plaintiffs in 2019 for $120 million. For more information regarding Aliso Canyon, please refer to our 10-Q. Shifting back to the consolidated earnings, on an adjusted basis, first quarter 2020 earnings were $932 million or $3.08 per share. This compares favorably to our first quarter 2019 adjusted earnings of $534 million or $1.92 per share. Please turn to Slide 14. The variance in first quarter 2020 adjusted earnings when compared to last year was affected by the following key items: $66 million of income tax benefit in 2019 at the California Utilities resulting from the January 2019 regulatory decision that provided direction on how to allocate certain excess deferred income tax balances. This was offset by a $174 million of higher earnings at the California Utilities from higher CPUC-based operating margins, net of operating expenses, including $120 million of lower CPUC base operating margin in 2019 due to the delay in the issuance of the 2019 GRC final decision. There was a $136 million variance at Sempra Mexico due to the impacts from foreign currency and inflation effects, net of foreign currency hedges. There was an $85 million of higher earnings at Sempra LNG from higher equity earnings from Cameron, primarily due to Train 1 and Train 2 commencing commercial operations under their tolling agreements in August 2019 and February 2020, respectively, as well as higher earnings from Sempra LNG marketing operations primarily driven by changes in natural gas prices. Additionally, there was a $38 million of higher earnings from higher electric transmission margins at SDG&E, including impacts from the March 2020 FERC-approved TO5 settlement, and $11 million of higher equity earnings at Sempra Texas Utilities driven primarily by the impact of Oncor's acquisition of InfraREIT in May of 2019 and higher revenues due to rates being updated to reflect increases in invested transmission capital. This was partially offset by higher operating costs and lower consumption due to weather. Please turn to the final slide. Our management team is very pleased with the progress we've made so far this year. The accomplishments discussed are a direct result of the successful execution of our strategic mission to be North America's premier energy infrastructure company. We feel well-positioned for success going forward. The key for us is to stay focused on executing our capital plan, which is primarily focused on our California and Texas utility. We are also committed to ensuring the delivery of safe and reliable energy to our customers and the communities we serve, enabling energy security and diversification locally and globally and expanding energy accessibility. In combination, our strategy, well-executed capital rotation, and disciplined execution of our CapEx program are all designed to improve our business resiliency and overall financial performance. Finally, I'd like to thank all of our employees, particularly those on the frontlines, who have continued to work diligently in pursuing our mission and safely serving our customers and community. We're fortunate to have such a talented and dedicated workforce, one that has maintained a culture of high performance during this challenging period that has impacted us all in various ways. With that, we will conclude our prepared remarks and start to take your questions.

[Operator Instructions] Our first question will come from Stephen Byrd with Morgan Stanley.

Families are doing okay in this challenging time. I wanted to first just touch on ECA and the process from here in terms of the export permit. Could you just talk in a little more detail in terms of just what the steps are to get through that process? The review by SENER and sort of just where we stand just so we can try to follow that a little more closely.

Thanks, Stephen, for that question. I'll provide a little bit of context regarding where we're at from the LNG standpoint and then I'll pass it to Dennis, who's been following that closely on both the U.S. government side as well as the Mexican side. One of the things we just like to call out for purposes of this call is we've long discussed the competitive advantages of our company, Stephen, around scale and financial strength in the LNG space. Our long history in the natural gas sector, dating back to the middle part of the 1800s. The geographically advantaged nature of our project and the fact that four out of five of them are brownfield projects, which we believe gives us a cost advantage. So signing three contracts in the last three weeks speaks to the importance of these advantages, as we've discussed in our prepared remarks. We've been very clear and consistent about our view of there being a deficit and needed export infrastructure globally in the middle part of the decade. As you think about the market dislocation occurring in the oil and gas market, this is the time where we believe the need in the middle part of the decade will only become more acute because the low prices of today are allowing for greater market penetration for LNG both in new markets in Europe and particularly East Asia. I think that this same market is challenging many of the other less well-capitalized developers. So getting two new contracts essentially to sell out the capacity of ECA is a big positive. I would also mention this is the first time ever in the history of our company we've had all of our customers at Cameron sign up for Phase 2. It's a nice step forward as we continue to develop there, but the next significant step in terms of FID is at the heart of your question, which is the SENER permit, and I'll pass that to Dennis for additional commentary.

Thanks, Jeff, and hi, Stephen. Yes, look, there's no doubt that what's going on in Mexico with the pandemic has the government focused on that, and it is impacting the timing of the SENER approval. But one of the other things we've taken into consideration is that this is the first time SENER has had to approve an LNG export facility in Mexico, so it's a different animal for them. Having said that, the discussions our teams have had with various members of the administration in Mexico, including the President himself, give us great confidence that the SENER permit will be approved. It's just a matter of timing. When you look at what's going on in Mexico and specifically in Baja California, this project is extremely important to that region, given the number of jobs it's going to bring, as well as the economic stimulus and impact it's going to have on the municipality. We've been having conversations with the governor of the state, and he's extremely supportive of this project and has spoken out on that. Moreover, when you look at this project, it's not only good for the U.S. and our natural gas producers, but it brings badly-needed foreign direct investments to Mexico. It delivers natural gas to customers and businesses in the region, and it also provides offtake customers in Asia with a highly competitive and strategic access point on the West Coast. So this is a winner; it's just a matter of time.

Understood. So if I'm sort of hearing that correctly, certainly COVID can cause delays, but it's not as if there's some sort of change politically or policy-wise just that would drive a different outcome or more challenges than we've seen before.

No, we don't believe so. Again, I think everyone understands the economic impact and what this does not just to export gas through Mexico, but it actually brings natural gas to that region, which badly needs it.

I'd also add to Dennis's point, Steve, too, the level of support we've had from the Secretary of Energy, Secretary of State, and the entire administration here in the United States has also been quite helpful. Our forecast remains that we'll get the SENER permit in the second quarter. We've got the right team in place to do it. I think we have to be sensitive to the fact that everyone, not just the United States, but in Mexico is taking the COVID challenge very seriously, and that's certainly impacting the delay as the agencies are currently shut down.

That's really helpful color. If I could just follow up separately on Oncor, we've always liked the growth outlook in Texas. I wondered if you could just refresh us in terms of just potential areas for additional spending, other policy objectives in the state, or just any other areas of upside as you look at your Texas business.

Sure. I'll tackle that at a high level. We've got the benefit of having Allen online, and I'll pass it to Allen. If you go back and look, we've really been trying to strategically reposition the company more around utility investments in the United States, and specifically in T&D investments. California really is an infrastructure opportunity because we're decoupled here. This is all about deploying capital for safety and reliability in the state of California. Very similar in Texas; Oncor is not commodity-exposed, and they don't own generation. So we're very attracted to that T&D business model. Allen laid down at our Investor Day a $11.9 billion record five-year capital program for his business, and you may recall he had a separate slide on additional capital opportunities. Even though they’re seeing some impacts from the pandemic in Texas, like a lot of other places, first, Governor Abbott is reopening the state, and second, we have interesting feedback on the demand. Even in ERCOT, year-over-year demand in Q1 was up, not down, which is interesting. Overall, Allen, if you can provide more commentary about the diversity of your load and the diversity of your growth, that might be helpful.

You bet. Yes. And thanks, Stephen, for the question. I think Jeff covered most of it, but just to reiterate, our $11.9 billion over five years, we still feel good about the $3.5 billion based on what we know right now for this year. We actually have a little upward pressure. As you may have seen, we've spent a little more in Q1 than we had anticipated. We have, for example, an increase in generation interconnection requests. I think the last time we talked, we had about 10 at the analyst conference. We're up to 13 now for this year's plan. We are continuing to see some pressure in West Texas with our transmission projects out there, both on the construction clearances and on the right-of-way side. So we're seeing some increased CapEx there, and while West Texas is certainly going to see some offset with the customers delaying projects and such, just as a data point, as of last week, we received 22 additional requests for new oil and gas load in West Texas. We have our transmission projects that we're working on, a three-year project in West Texas. To Jeff's point, that 40% of the load in that region is self-generating right now. We're continuing to build for those operators and we're also investing in reliability projects and congestion relief in the area. We feel good about our $3.5 billion this year. As Jeff also mentioned during the Analyst conference, we had about a $1 billion identified as additional incremental, and we'll see how that goes depending on the needs; some of that is deferred maintenance based on the significant growth we've had over the last few years. Overall right now, we feel confident based on what we know about the $2.5 billion, plus we have the incremental capital available, if necessary.

Our next question will come from Shahriar Pourreza with Guggenheim Partners.

Hey, guys. How are you doing? Good morning. Just a couple of questions here on the credit metrics. There's obviously a review that's outstanding, but you obviously have a very good capital recycling story with the South America asset and delevering. How patient are the rating agencies on seeing the sell-through and the plan that you highlighted today, including a noticeable reduction in the Holdco debt? It's a 90-day review period, so how are their conversations going and how do we think about taking the downgrade? The potential downgrade versus incremental equity that could satisfy their balance sheet concerns? You're obviously full speed ahead in LNG and regulated CapEx opportunities.

Shar, I appreciate the question. I'll start back in 2017 in the summer. We were looking at making the investment in EFH. We spent a lot of time with the agencies around how we would finance the transaction. You may recall we even increased the amount of equity we used in that transaction to accommodate our goals. At that time, we set out a goal that would support an investment-grade plus rating to acquire that business. One of the things you recall we did was we actually laid out a broader strategic repositioning of the business about how we were moving from being South America invested to being North America-focused and not just in North America, but around a different quality of asset around T&D, which I think lowered our business risk profile. At that point in time, we laid out some goals with the agencies through 2030. I mean through 2020, I'm sorry. Part of the discussion we had during Investor Day and this call is really the progress we're making toward those goals. I think our business today, with Cameron coming online and with us more invested in North America, has seen significant progress. Trevor, perhaps you can update us on the metrics that we're tracking and how you think we're doing for the rest of the year with the agency.

Sure, Jeff. Thanks for the question, Shar. We are continuing to target our FFO to debt metric at 16% by the end of the year, along with targeting our debt-to-cap ratio of around 50%. We brought our Parent debt down to about 26% by the end of this year. We are continuing to work with the agencies around our plan, helping them understand how we've significantly de-risked this business. As I said at the Analyst Conference and reiterated today, we don't have to issue equity to reach these metrics. Our high BBB+ rating is important to us, but we also need to balance that with what's also important to our shareholders. The last point is that we've pushed Port Arthur into 2021, and this has caused some concern among rating agencies, suggesting if you get into LNG in a big way, they would scrutinize this. However, we believe this is a very strong credit profile.

Got it. Thank you for that. And then just on slide 8 where you talk about capital allocation, there's some language referencing further expanding your utility footprint in Texas. Is this organic? Is it inorganic? Are you referring to the remaining ownership stake that you don't own with Oncor, with TTI? Or do you see other opportunities there? Just trying to get a sense.

Shar, I appreciate giving us the opportunity to clarify that. If you go back and look at the prepared remarks, what we're really talking about was the level of capital efficiency that we could generate from a relatively ambitious capital rotation program we announced in the first half of 2018. As you see on that slide, it discusses announcement pending proceeds of about $8.3 billion, and we bought Oncor for $9.45 billion, meaning the EFH portion of Oncor, as well as spending about another $1 billion on InfraREIT, effectively capturing non-core assets or assets in South America. In doing so, we've effectively rotated them into Oncor and InfraREIT. This really goes to the heart of your credit question, as you're getting higher quality earnings and a lower risk profile, which you can see reflected in the original commitments made to the agencies back in 2017. I would also just add that we're opening a center of excellence in the second half of this year in Houston at the Galleria to support the growth in Justin's business in LNG, as we look to continue supporting both Cameron Phase 2 and Port Arthur from that Houston office. It is a market of strategic significance to us. The purpose of that slide, Shar, really highlights the capital efficiency of rotating from those businesses into a new market for us.

Got it. So nothing inorganic for you within the state?

That's right.

Our next question will come from Steve Fleishman with Wolfe Research LLC.

Hey. Good morning. Mainly just follow-up here. So, on the Texas business, Oncor, do you have any data yet for the month of April? That's really when we had the...

That's interesting. We talked a little bit about that. Overall growth profiling in ERCOT was up year-over-year, and it seems likely Allen has some data for April 1. As you expect, it's going to differ by asset class. At least now, you can speak to this; I believe your overall distribution revenues are up in April compared to last year. But I'll let you speak to what you're seeing on the system. Allen, are you there?

Sorry, yes. I'm here. I hit the wrong button. Thanks for the question, Steve. Here's what we've got for April. Overall distribution-based revenues are up 1% versus April '19 that includes residential revenue increased by about 10% compared to April last year, and C&I is down 5.5% versus last April. Weather normalized about 1.7% lower, with distribution rate-based revenues about $4 million coming off a quarter of $150 million in revenue. So that's what we've got. We're continuing to expect weather to be the largest driver for the remainder of the year as we talked about before. Weather typically drives plus or minus 25 in revenues and plus or minus $20 million in net income. Sixteen of the last 21 years have been positive in this regard. So we'll see what's going to happen there. And as someone mentioned earlier in the call, I think it was Trevor, with the governor phasing the opening of Texas, we expect to see some positives there as well. But we'll just have to see how it goes as it opens. But those are the numbers we have for April so far. Thanks.

Okay, and just one follow-up on that. Given you're obviously seeing a continued shut-in of very meaningful nominal of Texas oil rigs in particular, how should we think about that?

Yes, Steve. Let me try to address it this way. Approximately 12% of our overall revenues come from West Texas; of that amount approximately 38% to 40% are on the industrial side. The rest are residential or commercial. So that's probably some guidance on what the exposure is there.

Oh, that's okay. I think that's very helpful. I wanted to point out, too, that Allen's team continues to update us. I think in the neighborhood of 30% to 40%, Allen, correct me if I'm wrong, is still self-generation at that 25% to 30% level. There's still a clamoring for people who are producing to move to the grid, but most of Allen's capital program is laid out for this year, and next year's pretty much locked in, not really on incremental new growth, but catching up to a growth that's already been registered on the system. But is that a fair way to characterize it, Allen?

That's correct, Jeff, in both CapEx over the next couple of years and the report that we started has 40% of oil and gas load basically in the region on self-gen. Thank you.

Great. One other general question, so just the - like to see you point to the high end of the 2020 range getting everything that's going on. So just some of the things that happened this quarter, like FX can move around. So just, when we think about what's driving you to the high end of that range, could you just kind of give a simple view of what the drivers are for that?

Sure, Steve. I’d be glad to provide a little context on how I'm thinking about it, and Trevor can speak to some of the drivers in the quarter. I think we feel fairly confident going forward. One of the things we've done as a team, Steve, is think back on what we tried to accomplish in 2019. You may recall having followed us that we had original guidance of $5.70 to $6.30. In the second half of the year, we raised last year's guidance to $6.00 to $6.50 and still exceeded that. You may recall in our Q4 call we reported a full-year adjusted earnings of $6.78. So to put that in perspective, in the first quarter of this year, we've produced and recorded roughly one half of the earnings from full-year 2019, right? So even though it's early in the year, we have a robust view of what we think we should accomplish. A lot of it, Steve, is driven by the fact that across our utilities we remain on track with our capital programs, which are fairly aggressive. I'll conclude before passing to Trevor that one of the things we've agreed to do is as we go into the summer, we'll do a full bottoms-up on our 2020 and 2021 guidance range to ensure that we can make the appropriate adjustments as we head toward our Q2 call. We're quite bullish on our forecasts for 2022, and we'll try to update that during our Q2 call, potentially reassess the guidance for 2021 as we are closer to our August call. But, Trevor, perhaps you can talk about some of the things you're seeing from the quarter that causes our confidence level to be high for the remainder of the year.

Sure. Thanks, Jeff. Good afternoon, Steve. Jeff really did cover a lot of this, but again, I would direct you to slide 14 of the deck, where we've done the waterfall up from last year. Looking at the key drivers, we see that the California Utilities with the CPUC-based operating margin up $174 million, reflecting a very constructive rate case that we are now seeing the impact of as we're implementing the rate case. Additionally, we had a good result from the FERC around the T05, and that also adds to the transmission margin at SDG&E of $38 million as we implemented that. Furthermore, in Cameron, we experienced Train 2 coming on a little early, and we're hopeful that maybe Train 3 could come on a couple of weeks early, which would provide further assurance regarding our year-end outcomes. Oncor continues, as Allen mentioned, to implement their capital plan so we feel very, very good about the three utilities executing their robust capital program during the year. In addition, we have mechanisms set up at the three utilities to protect against any potential downside associated with the pandemic. That's why we felt confident guiding to the upper end of the range.

Okay, I apologize; I just wanted to ask one clarification with Jeff. Just the review of 2020-2021, as you go into the middle of the year. Are you kind of saying with a bias to the upside, given what you did last year? Same thing happened as opposed to managing pandemic-type risks? I just wanted to clarify that.

One thing to remember, Steve, was in our June Analyst Day, which was in New York in 2018, we discussed our '18 guidance and our '19 guidance, and actually published our 2020 guidance, right? The $6.70 to $7.50. We laid out that $0.80 range back in June of 2018, and that was as we were just starting the sales process for our solar and wind. At that point, we made a decision to sell South America. We executed across a relatively sweeping capital rotation program, at the same time as we were rotating capital back into California and Texas. I think what you're seeing now is we had strong momentum last year while executing our capital rotation program, which is why you are seeing that carry through into this year. We go through a thorough bottom-up process to maintain a continuous plan. But what you're hearing is we had a remarkable first quarter in 2020, and we’re guiding the higher end of the range. We typically don’t change our guidance this early in the year. We’re certainly going to be positively inclined as we review both 2020 and 2021 as we go into summer.

And our next question will come from Jonathan Arnold with Vertical Research Partners.

Hi, good afternoon. Oh, good morning to those of you guys. Hi, first on the Mexico and FX gain in the quarter, obviously on the 20% devaluation, your rule of thumb would have pointed to a bigger number. But you told us back then there were colors and other reasons, it wouldn't be linear. I'm just curious, is there anything embedded in Q1 where you, any hedging costs to be tried to lock some of this in perhaps, or are we still open going into the rest of the year?

Thanks a lot, Jonathan. I'll start with some context and pass it to Trevor; he'll review the rule of thumb and discuss the financial statement impacts. But I want to revisit first principles, which is our long history in Mexico and one thing I think has been critical for us is that our contract portfolio is U.S. dollar-denominated. That's a significant advantage in that market, with a contract tenor over 20 years. So we have a long-term contracted portfolio that is U.S. dollar-based, which comes with the obligation to remit your tax liability in pesos at year-end. Trevor and his team usually do a good job of having a hedging strategy that allows us to lock in and support our plans. Trevor, can you go through the rule of thumb and the impact on Q1’s financials? This discussion is important when we talk about Mexico.

Perfect. Thanks, Jeff. Yes, so, Jonathan, again, I would direct you to our rule of thumb, which basically indicates that for every 5% move in the peso, it has approximately a $45 million earnings impact, which is non-cash by nature, as you ultimately have to pay the taxes. As Jeff said, we're U.S. dollar-denominated in Mexico, paying taxes in pesos. When you review the detailed financials we've released, you'll see three significant line items impacted by FX. Firstly, other income that was a negative $283 million in this period, secondly, the income tax line item, which totals $307 million in our benefits and that's where all of the depreciating peso impacts our P&L. Lastly, there are the equity earnings, which is where the FX impact is offset in the other income and expense line. There are multiple components in play, but as Jeff said, we look to put a hedging strategy in place to protect ourselves from large movements on either side, and we’re currently bumping up against that.

So, can I - I mean, just as we say this, have you locked in any of the benefit at this point of the year?

Jonathan, our approach is routine—largely based on a costless collar mechanism. We generally do not lock it in and we apply a range we guide to. The whole point is to minimize the impact on the plan. We feel comfortable with our current plan and the recognized outcomes. Trevor is basically saying it's skewed to protect you more on the downside than upside, so you carry a little more openness to a positive movement rather than a negative one.

And then just on Chile, I think you've said you're expecting to get it done this month. You had referenced at Investor Day that you were waiting on making the NDRC filing in China, which was the last step. Can you give us color on whether that's been made? Is that statement about this month based on expectations of when we reopen to be able to get that last piece done?

Thank you, Jonathan. Fairly similar to what we experienced in Mexico; the healthcare crisis is impacting this process. However, we discussed this somewhat when speaking about our capital recycling program and current liquidity during the prepared remarks. We're feeling the momentum coming out of the approved deal. The conversations are now focused on closing mechanics. Dennis, perhaps you can provide additional color regarding our confidence level for May.

Sure. Thanks, Jeff and hi, Jonathan. We are focused on getting this thing done. I think the fact that China was closed down in March and April has caused some delays in some of the approvals, but I'll point to one important fact here: The State Grid, which is the commission in China approving M&A investments outside the country, has already approved State Grid International’s investment in Chile. That’s significant. Everything we hear from the executives and their advisors at State Grid International indicates they want to close this as soon as possible. This is a strategic investment for their company going forward. As Jeff mentioned, we are now focused on the details of the logistics related to closing. As you recall with Peru, we were able to navigate this virtually and we aim to get it done even with limited travel to and from Chile. Given where we are and the commitment from State Grid for this to move forward, we’re expecting to complete this before the end of the month.

And our next question will come from Julien Dumoulin-Smith with Bank of America.

Hey, good morning, good afternoon. Thanks for taking the time with you all today. Just a couple of clarifications, probably coming back on this, but just with respect to credit, I want to clearly understand your expectations. What are the current minimums the rating agencies are looking for versus the numbers I think Trevor articulated? And related to that, how do you think about ECA going FID, some of these other IEnova spendings moving out? How does that all filter into what the rating agencies are looking for? I’m looking to understand this relative to the Moody's moves away.

As I've articulated earlier in today's call, we've spent a lot of time with all three agencies since summer 2017. We laid out metrics designed to improve our business risk profile while we made firm commitments around balanced capital structure and moving to a 16% FFO to debt, which has been our goal. Over the last three years, our targeted metrics have trended downward, and we feel comfortable with the commitments we’ve made. Trevor can share urgently how we are tracking to the commitments made back in 2017, and we’ll continue improving our credit profile.

As Jeff said, we are targeting an FFO to debt metric of 16% by the end of the year while also aiming for a ratio of 50% debt to capitalization. We're bringing our Parent debt down to about 26% at year-end, and we continue to engage agencies about our plan. We believe we’ve de-risked the business significantly. While the high BBB plus rating is critical to us, we have to balance it with what's also important to our shareholders. Also, we have pushed the Port Arthur project into 2021, and this issue raised some concerns; the rating agencies are focused on whether the LNG business has a different risk profile compared to others. However, we’re confident in the strength of our credit profile.

Got it. Thank you for that. On slide 8, you talk about capital allocation, and you reference further expanding your utility footprint in Texas. Is this organic, inorganic, referring to the remaining equity stake, or do you see other opportunities? Just trying to clarify.

Shar, I appreciate the chance to clarify that. The aim of the comments reflects the capital efficiency we seek to achieve through the capital rotation program that we outlined a couple of years ago. It discusses pending proceeds of about $8.3 billion from Oncor's purchase for $9.45 billion, alongside the buying of InfraREIT and market rotations. Importantly, this goes to your credit question, granting us higher earnings and lower risk profiles as demonstrated in our commitments to the agencies since 2017.

Got it. So nothing inorganic for you within the state?

That's right.

Our next question will come from Steve Fleishman with Wolfe Research LLC.

Hey. Good morning. Just a follow-up. Do you have any up-to-date details for Texas in April amid COVID-19, as this was the primary concern during the onset?

That's an interesting context. As noted before, demand in ERCOT was up year-over-year. Additionally, Allen can share specific data as he tracks this closely.

One quick follow-up also; I realize we have seen significant chilly developments with Bench, feedback, and ECA. Can you clarify the components driving your high-end guidance in your forecast?

I'd be glad to address this, Steve. One commonality across the sectors is momentum gained last year. We exceeded previous guidance while strong performance shaped our future forecasts in capital markets amongst utilities. Significant upside resonates through various earnings metrics and predictable developments.

And our next question will come from Jonathan Arnold with Vertical Research Partners.

Hi, good afternoon. I'm curious about the FX gains in the quarter amidst a notable devaluation; could you clarify how that translates into expectations about the rest of the year?

Contextually, our U.S.-dollar-contract sector shields us as we manage our liquidity strategy with flexible cash flows. Trevor will provide additional detail about our financial response.

Most definitely; our approach focuses on managing currency exposure while recognizing fluctuations can drive variations. We actively implement hedging mechanisms to minimize P&L impacts, aligning with our ongoing financial performance and forecasts.

Approaching the summer, we are evaluating our expected progress thoroughly, ensuring clarity in our revenue expectations aligns with our robust strategies moving forward.

Thank you, that does conclude the question-and-answer session. I'll now turn the conference back over to Jeff Martin for any closing or additional remarks.

Thanks a lot to everyone for your time today. I want to thank all of our employees that have joined us to receive an update on the company. Your input and engagement are essential. Thank you for your continued support. We look forward to connecting with you and ensure we maintain transparency in communications. Have a wonderful day.

Thank you. That does conclude today's conference. We do thank you for your participation. Have a wonderful day.