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

Good morning and welcome to Sempra Energy's second quarter 2016 earnings call. The live webcast of this teleconference and slide presentation is available on our website under the Investors section. Here in San Diego are several members of our management team: Debbie Reed, Chairman and Chief Executive Officer; Mark Snell, President; Joe Householder, Chief Financial Officer; Martha Wyrsch, General Counsel; Trevor Mihalik, Chief Accounting Officer; Dennis Arriola, Chief Executive Officer of SoCalGas, and Jeff Martin, Chief Executive Officer of San Diego Gas & Electric. 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'll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call and to Table A in our second quarter 2016 earnings press release for a reconciliation to GAAP measures. I'd also like to note that the forward-looking statements contained in this presentation speak only as of today, August 4, 2016, and the company does not assume any obligation to update or revise any of these forward-looking statements in the future. We'll keep our prepared remarks shorter than usual today with a focus on the quarterly earnings as we just held our Analyst Conference. With that, please turn to slide 4. Let me hand the call over to Debbie.

Thanks, Rick, and thanks to all of you who were able to make it to our Analyst Conference a few weeks ago. We couldn't have asked for better attendance and enjoy being able to talk to you in person and listen to your feedback. Based on our year-to-date results, I will start by reaffirming our 2016 adjusted EPS guidance range of $4.60 per share to $5 per share. Joe will review the details of this quarter's results. But first let me take some time to address the strategic goals we have for the Natural Gas business. We previously disclosed the sale of our interest in REX which negatively impacted our quarterly results. We also expect losses in this segment in 2016 and 2017, which are incorporated into our adjusted guidance. Our decision to sell REX reflects an implementation of our strategy for the Natural Gas business to focus our investments around our anchor LNG assets where we have competitive advantages. Octávio discussed this at our Analyst Conference. We also decided to sell our Southeast utilities and TdM and redeploy the capital on assets that better align with our strategy and provide stronger long-term growth. I'd like to spend a minute reiterating the value proposition that we believe is top tier among our utility industry peers and that is a result of Sempra's long-term strategy. First, our strategy continues to provide the building blocks for high total shareholder return. Our base plan projections resulted in an approximate 12% adjusted earnings per share compound growth rate through 2020. Second, we plan to grow the dividend 8% to 9% annually. Third, we have a healthy balance sheet with significant projected credit capacity in the latter years of the plan, which gives us several options to return value to our shareholders. Four, our businesses have great development platforms with a long runway of opportunities. Finally, with those development opportunities, we are committed to our strategy of long-term contracted infrastructure and utility earnings, which moderates risk and provides less volatility in varying market environments. Now, I will turn it over to Joe to review the quarterly financial results. Please turn to slide 5.

Thanks, Debbie. Earlier this morning, we reported second quarter earnings of $16 million or $0.06 per share. We also reported second quarter adjusted earnings of $200 million or $0.79 per share compared to second quarter adjusted earnings in 2015 of $259 million or $1.03 per share. Quarter-over-quarter, adjusted earnings were impacted by the following items, at U.S. Gas & Power, we had losses of $19 million in the second quarter of 2016 compared with gains of $5 million in the second quarter of 2015, both related to movements of natural gas prices on inventory that we sold forward. We expect the majority of this quarter's losses to reverse by year end, as we sell the natural gas held in inventory. Our goal is to operate this part of the business to lower our economic exposure to commodity price swings. Also at U.S. Gas & Power, we had $8 million of lower equity earnings due to the sale of our interest in REX. At SoCalGas, we had a $13 million impairment as a result of the CPUC decision related to the North-South pipeline. We are now working on ways to recover all or a portion of these expenses, and more importantly, develop alternative solutions for the reliability needs in Southern California that this pipeline was designed to address. Last year, SoCalGas had a $13 million retroactive earnings benefit from higher CPUC rate base approved in the second quarter of 2015. You can find the individual financial results for our businesses in the Business Unit Earnings section. Please turn to the next slide. As Debbie mentioned, we took actions in the first half of this year to continue to align our assets with our long-term strategy. And at our California utilities, we received the final general rate case decision. As a result,…

Thank you. Our first question will come from Julien Dumoulin-Smith with UBS. Please go ahead.

Okay. Hey, good morning, good afternoon. Hey. So, first question, a little bit more strategic, again, going a little bit back to the Analyst Day commentary. But what's the latest thinking, perhaps, if – could you elaborate on IEnova and the decision to participate or not to participate both in the sort of an immediate sense and over time, in the equity offerings and maintain your ownership level. Just – can you elaborate a little bit more on that?

Sure. Let me talk a little bit about, first, the investment opportunities that are there. And we have a lot of things that are coming together now. First of which, we won the Marine pipeline bid in conjunction with TransCanada. And our investment there is about $840 million for that project. And then it appears that the transaction with PEMEX is going to move forward, as we had indicated, and hopefully close by the end of the third quarter, and that's about $1.1 billion. In addition to that, we're looking at some M&A activity, there are some renewables, the second auction is coming up for bid and we have some projects that we're looking at bidding into that second auction. And so, if you kind of look at all of those, that we have several billion dollars' worth of new projects that we're going to be working on over the next few years that we've already secured and several other billion dollars' worth of other projects between the renewables and then the transmission bids that are going to be coming up that are additional opportunities for us. And further than that, we're starting to do some things with the assets we have, like we just built a lateral or got an agreement to build a lateral. We have some others under negotiation off the existing pipelines, so we're looking at how we keep taking the assets that we have and growing those assets. So, it's a great opportunity. I was just with Joe and Mark in Mexico City last week. We spent time down there with the Secretary of Energy, the Secretary of Treasury, the Head of PEMEX, the Head of CFE, Cenagas, and everyone is very enthusiastic about the Mexico infrastructure opportunities. And I will tell you, their view…

Got it. But is there kind of a point at which, let's say, Cameron IV does or does not move forward that that would potentially evolve as you think about capital allocation, or do you kind of think about it separately and distinctly as what is the return proposition in Mexico not necessarily what happens with the Cameron?

Yeah. We're not looking at – because we think any of these – all these projects are really good and they're financeable. So, that I wouldn't say that's the consideration but we have some things going on in Peru right now that are very exciting. Potentially, we have the projects in Mexico and then we have the Cameron IV. And so, from a capital allocation standpoint, as we've kind of looked at it that we set up IEnova so that we could issue equity through IEnova. We have the opportunity through our Peruvian company to issue equity. It already has – it's in the market, and we own like 83% of it. So, if we needed capital for that, we could issue equity in Luz del Sur. And then for Cameron IV, we can issue equity at Sempra for that. So, we have different ways that we can finance these things. And, honestly, if we have great projects that earn significantly above the cost of capital, we have not had an issue in being able to finance them. Further, we showed you at the Analyst meeting, our balance sheet strengthens over the five-year period of time. And so, we put a plug in of $1.5 billion of stock buyback. We would hope to invest that money in good projects, and I think we're going to be able to do that.

Got it. And one more clarification on the thought process for IEnova, anything around the FIBRA-E structure in Mexico to think about here? Obviously, that's kind of maturing. And what does that mean for you guys, one way or another? I mean, from your tax position in the country, probably, it doesn't mean much, does it?

Well I'm going to have Joe answer that. We talked a lot about that when we were in Mexico City last week. A lot of the agencies or PEMEX and all have been looking at FIBRA-E for some of their assets. I mean, I think it offers some opportunity for financing. Again, for us, a lot of it is as it was with the MLP, what's the best cost to capital? So, Joe, do you want to...

Sure. Thanks, Debbie. Hey, Julien. Yeah. We looked at this over a year ago when it first came out, and there were some issues with it, and we worked with the regulators around those. And so, now it's – I think that's sorted out. But I think it goes back to what Debbie said. What's going to be the best source of capital for us to grow the business? And as she said, we were just down there. It makes us even more excited to own a large part of this business. So, how we decide to fund it with debt and equity, we will take that all into account because these are really great projects, and we really like the growth opportunity there. As to the FIBRA-E, specifically, we just look at that as one of the options we have to grow the business. PEMEX would love to try to do something, but they'd like to see the market kind of open up, and it just hasn't evolved yet. But we stay very close to it.

Great. Thank you.

Thank you, Julien.

Our next question will come from Greg Gordon with Evercore ISI. Please go ahead.

Hi, Greg.

Hey. How are you? So, looking at where you are for the first half of the year and then understanding that certain things are coming out of the numbers like we won't have REX in the second half, we expect the gas costs to reverse and other puts and takes. Given the line of sight you have right now, do you feel like you're right at the midpoint of the guidance range, a little bit behind, a little bit ahead. Can you give us a sense of how you think you're trending?

We're not going to pinpoint within the guidance range. That's why we use a range. The things that I think that you mentioned are the things that will take effect over the rest of the year. A few things to consider: usually SDG&E has its best quarter in third quarter, but SoCalGas has its worst quarter because of the way that the revenues are and then has a good quarter in the fourth quarter. So, the earnings are not even throughout the year for the utilities; that the hedged inventory that we talked about should reverse in the second half of the year. We had a North-South impairment at SoCalGas in the quarter of $13 million that hit SoCalGas. That's not something that is repeated again throughout the course of the year. And then the income tax tracking issue at SoCalGas, that was really going retroactive to the beginning of the year. So, that's not a quarterly issue, that's like...

Double.

...double, yeah, what it would be. And then last year to this year, we were looking at putting renewables in service last year, where we had a higher ITC. And now, the ITC levels that we're showing are more normalized. So I mean, we look at the earnings that we have are like half of the earnings that we have in our guidance range, and we would anticipate being in the range. And I'm not going to tell you high or low. We're in the range – that there's a lot of moving parts. But we feel really good about our business and what we're in this for is truly the long-term. And when we start looking at the great opportunities that we have for the growth in addition to what we've laid out in our five-year plan, we feel really good about our business, and that's what we're really focused on delivering.

No, that's fair. Okay. Can't hurt – can't harm me for trying. The second question is a little bit off the beaten path. As you are looking to work on the emissions offset and carbon reduction programs that you're putting in place both in the normal course of business and as a result of the Aliso Canyon incident. how significant are some of these programs for methane emission reductions? What are the big buckets of methane-emission reductions that you're going after? And do any of them actually require capital investment where you might look to put those types of programs into the rate base?

Sure. And some of them certainly do. So, let me – I'm going to refer this to Dennis because he can address both the Aliso but more specifically the methane reductions. SoCalGas has been actively involved working with DOE on this whole methane-emission issue. And I would say that the one thing that SoCalGas has very, very low relative emission levels to other kinds of pipeline systems or upstream systems. But it's something that we've looked at, and we've looked at what investment would be required to really get it down significantly. So, Dennis?

Sure. Good morning, Greg. Yeah. Let me start with what we're doing regarding Aliso, and I touched on this at our Analyst Conference. We've already signed some letters of intent with various dairy owners. And our strategy here is it's consistent with what the Air Resources Board, the plan they put out. But our strategy basically is to look at the destruction of methane, and the biggest opportunities in California are with dairies and/or landfills. So, we're working with some of those owners. We're actually in the process of due diligence on a handful of dairies to see how we can most cost effectively mitigate what resulted from Aliso. From a systems standpoint, as Debbie said – and we've obviously worked with the American Gas Association and the other trade groups, SoCalGas's emissions from our system itself are some of the lowest in the country. So, we don't see a huge amount of opportunities to be able to make improvements in rate base. But we're looking at new technologies from a monitoring standpoint, for example, that that could be associated that could help us, that those types of things could be added into a rate base in the future. I think that what we see is – there's just technologies continuing to evolve, and we're on the leading edge of working with those technology manufacturers and the gas industry. So we're going to look at what we can do to try to grow rate base in a smart way that helps improve our system.

Thanks. So you're really going after the methane emissions from animal waste? That's really the biggest potential offset? That's interesting.

The biggest potential directly on methane is on dairies. That's correct. And we have quite a few dairies within our service territory especially in the Central Valley, and that's where we're starting to look.

And there's quite a...

Okay. Thank you.

I would say also a couple of things. We put the estimate of that in the $717 million for all the offset for the emissions from Aliso. The emissions have been measured now, and so we're going after making our commitment, fulfilling our commitment of making those offsets. And it's really quite cost effective. So, that is our focus, and we will fulfill that commitment.

Great. Thank you, guys.

Thank you.

Our next question will come from (23:45) Research Consulting. Please go ahead.

Thank you. I, too, have kind of an off-beat question. By 2020, the rate base of the utilities look like it's going to be about $17 billion, maybe $17.5 billion. Could you give me an estimate on what the non-utility investment total would look like in 2020?

Non-utility investment total.

So, investment base. Like a – similar to the rate base.

Similar to rate base. Okay. And I have the utility projected rate base – while Joe looks up the non-utility piece, I have the utility piece. And at SDG&E, we're looking at about $10.4 billion of rate base in 2020, and that's about 6 bps being (24:43) about 4.4 (24:44). And then for SoCalGas, the rate base that we're looking at for 2020 is about $7 billion, and then about $5.1 billion of that is CPUC, and about $1.9 billion of that is more special projects approved by the CPUC that's not part of the rate case. And then...

Yeah. (25:04), this is Joe. I think you're asking a question about something that we typically don't give out, but it's probably information that's here, and we can catch up with you on the call after because you're asking about what's the total invested capital outside the utilities, you're not asking what the investments for that year are, correct?

That is correct.

Yeah. We can do it offline. I don't have that information at our fingertips. We don't usually talk about our total invested capital outside. I mean, you can see it on the balance sheet pretty easily. But it's more complex than I think we would take time here with everybody, because we're not...

Agreed. Okay.

And – the utility assets are much bigger than their rate base. There's a whole bunch of things that are in there. You got nuclear decommissioning trust and all sorts of things. So, we need to parse it out for you, and it's in the segment tables. So, the information is there, but we could lead you to it.

Okay. And the other question is the non-utility businesses, so natural gas, LNG, pipeline. On a risk basis compared to utility – let's say, you – the risk in utility businesses is 100 units. What would you characterize as the risk for all of your other businesses combined?

Yeah. I mean, that's a really difficult comparison. What I will tell you is that our strategy is based upon having a portfolio that has similar risk profiles between our utility and our non-utility business, and we do that by doing long-term contracts. And if you look at our non-utility businesses, they're either – our international businesses are either foreign utilities that have been under a regulatory framework for 30 years, or they are long-term contracted assets like our pipelines. And so, we have 20-year to 25-year contracts on those. Most of those assets – honestly, when you look at it, once they go into service, they're more like a bond, because you have a steady stream of earnings coming from those. And the construction risk on those projects is not much different than the construction risk that was on building Sunrise. So, I would say they're very similar and that's our strategy, is to not go into extremely high-risk areas to create the growth but to have our risk profile be quite similar.

Debbie, I'll just add on to that. (27:46) the other thing you could look at is, if you look at the slides that we did at the conference just a few weeks ago and look at slide 7 in my deck, it talks about the investment grade credit ratings at all of our subsidiaries. And these are all highly-rated, mostly A rated, including Cameron and – while we don't have ratings on all the project financing at the renewables, as Debbie said, they're all contracted long-term with utilities. Kate and I just spent a good deal of time last summer with all the rating agencies explaining to them why our non-utility businesses were as strong or stronger than our utility businesses because we don't have three-year rate cases or four-year rate cases, we have long-term contracts. And so, they like that very much and they understand our business very well. I think it's very strong.

Thank you. We'll take our next question from Michael Lapides with Goldman Sachs. Please go ahead, sir. Michael Lapides - Goldman Sachs & Co.: Hey, guys. Just a little bit of question. I want to make sure I understand trajectory of earnings within your 2016 guidance and even for 2017 just across the quarters. It strikes me that when you all have talked about this a little bit that there's going to be some significant movement around kind of what to expect versus a typical or historical year at both of the utilities in third versus fourth quarters going forward.

Yeah. I mean, what – last year was the first year for SoCalGas. We had the new way of accounting for revenue. So, that kind of gives you what percentage of the revenues come out each year. And they're just allocated on that kind of a percentage basis. And so, that should follow suit. And then SDG&E, we've historically reported earnings based upon the same methodology. And so, you can kind of look at what percentage of earnings usually fall within a quarter. So, if you look at last year, those are pretty regularized in terms of how the earnings get allocated by quarter and we can give you the precise percentages for SoCalGas if you want those. I mean, but this quarter, we obviously had a lot of unique things because we had the REX transaction, we had that capacity release, we had the change in the rate case, the rate case decision coming out, the impact of the taxes from the rate case decision. So, there were a lot of things that occurred this quarter. Next quarter, we're going to have a lot of things occurring as well. And we tried to foresee that and communicate that because we should have a close of Mobile and Wilmut happening some time at least by the end of this year. And then, that we will have, also by the end of this year, most likely the PEMEX transaction closed. And so, both of those will have gains that would be adjusted out of adjusted earnings. Hopefully, once we get through some of that. The other thing we have, we have TdM as an asset held for sale, and depending on the sales process on that. And earlier this year, we took a $26 million hit in terms of deferred taxes for holding that for sale. So, we've had a lot of things because we're really trying to go through and take our asset portfolio and cleanse it of things that we don't think are going to add to our growth in the long term and then reinvest our capital. Hopefully, you'll start seeing more normalized kinds of earnings going forward since we have now pretty much accomplished that plan with the exception of getting some of these things closed. And I don't know if that helps you at all. Michael Lapides - Goldman Sachs & Co.: No. That helps a ton.

Yeah. Michael Lapides - Goldman Sachs & Co.: Real quick. As you think about strategic positioning of existing assets, where does your Gulf Coast-related gas storage facilities fit into this?

Yeah. As we look at those, Michael, one of the things that we really have already started seeing as some of the LNG facilities have come online is that those storage assets, we think, will have more value over time. And that we think that really to run an LNG facility, it makes sense to have storage. There was a situation that just happened last week where Cheniere was cut back on their pipeline capacity, and that you cannot cut back an LNG facility like that. So, what we're looking at, we haven't put any money in terms of developing those yet. We think as the LNG facilities come online in the Gulf that the need for storage adjacent to facilities will become a lot more apparent, and that – and this is part of our strategy. We're hoping to develop some of the storage facilities and some adjacent pipelines to serve Cameron, other LNG facilities that are in the area, manufacturing that's in the area, and then that Port Arthur when that gets developed. So, we think that there's going to be a need for more robust infrastructure in that Gulf Region as the LNG comes on. Michael Lapides - Goldman Sachs & Co.: When do you expect to economically benefit from higher storage pricing?

Well, we actually – when we did our work this year, we looked a lot at that, and we used outside firms. And we actually cut some of their forecasts when we did our own projections this year because they're projecting that as the LNG facilities come online that – and as you get more of the coal-to-gas conversion that you're going to start seeing some storage rate increases occurring. But what we've seen in reality is it's been slower than what their projections have been. So we took at conservative view in our plan. But we are starting to see – year-to-year, we're starting to see some price movement upward from where we were last year. Not huge amounts, but we are starting to see some upward movement in pricing. So, I think as more load comes on that we'll start seeing better storage rates. Michael Lapides - Goldman Sachs & Co.: Got it. Thank you, Debbie. Thank you, Joe.

Sure.

Our next question will come from Steve Fleishman with Wolfe Research. Please go ahead.

Yeah. Hi. Just...

Hi, Steve.

Hi, Debbie. A question on Aliso. Could you give us an update on your well testing? And what your latest thought is on when maybe some of the first wells could start coming back into operation?

Sure, Steve. I'm going to have Dennis address that because he's right in the middle of that now. So, Dennis?

Hey, Steve. Yeah. As of right now, we've completed the first series of tests on all 114 wells. And as of this morning, the Division of Gas, Geothermal Resources and Oil (sic) [Division of Oil, Gas, and Geothermal Resources] (34:47) has approved and reviewed 96 of those wells. So, they have all gone through the process. Out of the 96, we've had an additional 17 wells that have gone through the next series of tests and they've passed and they've been reviewed by DOGGR. So, out of the 114, 17 have been completely cleared by DOGGR. So once DOGGR and the Public Utilities Commission confirm that the entire field has met the requirements of the new law, SB 380, we believe that probably sometime in September, we'll be ready to start injection, subject to their approval, of somewhere between 20 wells and 25 wells. So, that's our best estimate right now. In September, we'll – later, maybe as early as perhaps later this month, we'll be going back to DOGGR asking for that approval, but they've got to go through a process with public hearings. So, September is our best estimate at this point in time.

Okay. Thank you.

Yep.

Our next question will come from Paul Patterson with Glenrock Associates. Please go ahead.

Good morning.

Hi, Paul.

Just really quickly, on the permanent release impairment is there any longer term impact to earnings associated with that? Any benefit from reduced cost or something like that?

Let me have Mark talk about the capacity release. Most of it was tied to the REX transaction.

Right. Paul, I think to understand your question, I don't think there's any significant reduction in expense going forward tied to that release. It's a pretty small team that was managing it. And also, with respect to the release, there won't be any ongoing P&L impact now that it's done. So, I think the answer to your question is no, there's no really ongoing effect.

Okay.

I would just add to that. The decision to do this was largely looking at what the value of that capacity was going to be over time, and it was devaluing in comparison to what we had assumed it was going to be valued at. And we wanted to get that behind us. We had some credit issues on REX that were there. There was some shaky credits in addition and that we just felt it was better to get, when we sold REX, to get all of that behind us and not have a tail risk associated with that pipeline, so.

Okay. And then, just to follow up on Aliso. So, you guys mentioned the $717 million update and the receivable what have you. But there were some things I guess that that cost estimate excludes. Do we have any sense as to what the neighborhood of those cost estimates that may be excluded are and what the insurance coverage of that is, do you follow me?

What I am going to say is that, we've included everything that's estimable. And that's the $717 million includes all of the well costs, it includes all the relocation costs, it includes the cost for Blade [Blade Energy Partners] to do the investigation. All of those kinds of costs that are estimable. What's not estimable is what happens on litigation. And we don't know what that would be. I would say, the good thing is that we've paid for relocation. We have offered people to be out of the area. We tried to do things to reduce damages and then further, the Department of Health Services has come out repeatedly and most recently after thorough investigation of the homes and testing and all and said that there were no long-term health effects from this. And so, how that all plays out in litigation, we can't estimate that. But what we tried to do is to put this in a box to the extent possible and ensure that we've managed the risk effectively. And so, we'll go forward with the litigation. But I think from the basis of the estimates that we have over $1 billion of insurance, and that we continue to believe that the – with what we see, that the insurance coverage is adequate for the damages.

Great. Thanks so much.

Yeah.

Since there are no further questions then, I thank you all for joining us, and I thank you all for being at the Analyst Conference. It was great seeing you in person. And if you have any follow-up questions, please contact our IR team. And have a really wonderful day. Thanks a lot.

That will conclude today's conference. Thank you all, once again, for your participation.