Operator:

Good day, and welcome to Sempra's Second Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn it over to Glen Donovan. Please go ahead.

Jeff Martin:

Thank you, Glen, and thank you all for joining us today. As we close out the first half of the year, we continue our focus on safety and operational excellence and we're pleased with the strength of our financial performance. This actually sets us up well in the second half of the year while also supporting our confidence in a projected long-term EPS growth rate of 6% to 8%. And more importantly, we think there's a lot to be excited about. At Sempra California, we continue to play a critical role in helping the state achieve its safety, reliability and decarbonization goals. That's why we continue to make important investments to improve safety, modernize the grid, and better support the delivery of cleaner forms of energy. We also look forward to advancing our general rate cases here in the state and anticipate a proposed decision later this summer with a final decision expected before the end of the year. The outcome of the GRC is expected to help our utilities better meet the state's public policy goals, advance reliability and community safety, and improve visibility to our plan of execution through 2027. At Sempra Texas, Oncor continues to see remarkable growth, and it's coming from a wide range of industries, including manufacturing, technology, and digital infrastructure. Annual premise growth, as one example, continues to trend around 2%, which is almost double the national average. Allen will walk through how electricity demand is impacting the Texas grid and also driving the need for new capital investments all across Oncor service territory. Against that backdrop, you recall that Oncor is currently executing on a record five-year capital plan of roughly $24 billion, with a pending regulatory filing to improve system resiliency by investing incremental capital of up to $3 billion from 2025 through 2027. With the remarkable growth in Oncor service territory, we continue to expect to see higher levels of capital spending in the future, and this will be a key consideration in our financial planning process this fall. Finally, Sempra Infrastructure remains focused on advancing critical infrastructure investments that support the energy transition and enhanced energy security, and we continue to see progress across several key development initiatives. Moving to our financial results for the quarter, earlier this morning, we reported adjusted EPS of $0.89 and year-to-date adjusted EPS of $2.24. As a reminder, these results do not reflect the impact of a final California GRC decision, which we expect before year-end with rates retroactively applied to January 1. From my perspective, we've had a great start to the first half of the year. As a result, we're affirming both our full year 2024 adjusted EPS guidance range and our 2025 EPS guidance range. Please turn to the next slide. As a reminder, we view our corporate strategy as an opportunity to assert a competitive advantage in energy markets, and there are three key elements to our plan of execution. First, we've positioned our portfolio in some of the most attractive economic markets in North America. California and Texas, for example, give our utilities great exposure to increasing demand for new infrastructure investments, while Sempra Infrastructure benefits from strong tailwinds around the restoring of industry to North America and global demand for improved energy security associated with the export of liquefied natural gas from the United States. Second, we focused our investment strategy in a more narrow part of the energy value chain, namely transmission and distribution investments. By doing so, we aim to improve the quality and recurring nature of our earnings and cash flows while reducing exposure to risk and price volatility. We believe this provides an improved risk reward profile for our owners. And finally, we aggressively compete capital inside our company across all three growth platforms to help ensure we're delivering the best overall returns to our owners. At the end of the day, being good stewards of capital is a top priority and has allowed us to continue delivering attractive risk adjusted returns. As an example, we've been successful in delivering a 10% adjusted EPS compound annual growth rate since 2018. Next, I'll turn the call over to Allen to walk through the improving growth story that continues to unfold in Texas. Please turn to the next slide.

Karen Sedgwick:

Thank you, Allen. Sempra California is strategically positioned the largest economy in the U.S. and benefits from constructive regulation that supports investment opportunities to decarbonize and improve the safety and resiliency of the grid, forward-looking rate cases, cost of capital adjustment mechanism and an established wildfire fund that backstops the financial strength of the state's utilities. At SoCalGas, we're participating in several decarbonization initiatives that support California's statewide goals. Recently ARCHES of which SoCalGas is a partner became the country's first hydrogen hub to sign with the DOE to secure its funding. ARCHES forecasts California will need 17 million tonnes per year of hydrogen to help meet the state's 2045 climate goals. These cleaner molecules are expected to play a pivotal role in helping Los Angeles, one of the nation's largest manufacturing hubs lower its emissions and heavy-duty transportation and other hard-to-electrify sectors. That's why SoCalGas has proposed Angeles Link will form a key component in California's regional hydrogen hub. Turning to SDG&E. Community safety continues to be our number one priority. Over the last two decades, we've made significant investments in wildfire mitigation and hardened 100% of the transmission lines in our Tier 3 high fire-threat districts. We've proactively taken steps to further strengthen our predictive tools, training and resources by making significant upgrades to SDG&E's wildfire and climate resiliency center. I recently had a chance to visit the state-of-the-art facility, and it's impressive. I invite you to come and see the facility if you can. Substantial innovative features of the facility include AI-enabled solutions, high-resolution cameras, enhanced drone data and line conductor fault detection. This facility is one of the most technologically advanced of its kind anywhere in America, and played a central role in helping to ensure SDG&E is prepared for and actively mitigating risks related to its operating environment. This is all part of a larger effort at SDG&E to meet the state's public policy goals while building out a climate-resilient energy grid. Now moving to our regulatory updates of California Utilities. In June, SDG&E delivered a notice of termination to FERC of its fifth transmission owner formula rate mechanism or TO5 and is preparing its TO6 filing. We expect SDG&E to make a submission in the fourth quarter with an effective date in 2025. In our filing, we anticipate updating our formulaic rate and making a constructive case for competitive ROE, reflecting today's market conditions. Lastly, on the California GRC, we expect to propose decision later this summer and a final decision by year-end. As a reminder, the final decision will be retroactive to the beginning of this year. Please turn to the next slide. Sempra Infrastructure's long-term strategy is focused on capitalizing on the growing demand for cleaner and more secure energy. Wood Mackenzie estimates that global LNG demand will grow nearly 70% and reach more than 700 million tonnes per year by 2050. Our development pipeline is making significant strides to help meet those needs. At ECA LNG Phase 1, we are roughly 85% complete. However, our contractor has experienced labor retention and productivity issues in recent months. As a result, our commercial operations date will be delayed until the spring of 2026. We are actively engaged with our contractor to advance the project, and we'll see increased capital expenditures for the project in the form of additional carrying costs and lower estimated commissioning revenues, which are based on forward price curves. Despite the delay of potential changes in capital, we still expect to maintain strong integrated financial returns, consistent with our original forecast at the time that we took FID in 2020. This is the result of a combination of factors, including optimization opportunities, stronger LNG demand over the long-term and inflation protection within the SPAs. Moving to Port Arthur LNG, we're making steady progress on Phase I. And we remain on budget and schedule. We recently received FERC authorization for 24/7 construction, which is expected to improve the overall efficiency of the construction activities. At Cameron Phase 2, we continue to work with our partners to enhance cost efficiency through value engineering. Finally, we've begun construction on Cimarron Wind, the 320-megawatt project and expect to reach commercial operations in the first half of 2026. Our experience in Mexico demonstrates our ability to work well with both regulators and legislators, and we look forward to supporting their increasing energy needs as industrial reshoring continues to drive economic expansion. Please turn to the next slide for an update on progress at Port Arthur Phase 2. We're very excited about some of the recent developments at Port Arthur LNG Phase 2. Earlier this summer, we executed an HoA with Aramco for 5 million tonnes per annum of off-take capacity and 25% interest in the project level equity. Last month, we also executed a fixed price contract with Bechtel. This contract provides an opportunity to continue our partnership with a world-class EPC firm while also benefiting from continuous construction. In combination with the common facilities that are being constructed as part of Phase I, we expect to generate robust investment returns on the overall Port Arthur Energy Hub. We are working with all stakeholders to advance this project, which has received all material permits with the exception of the DOE non-FTA export permit that is pending approval. However, we do not anticipate the DOE pause will impact our development time line. As a reminder, Phase 2 at Port Arthur and all other projects that have not reached FID represent upside to our existing capital plan. Please turn to the next slide where I'll walk through Sempra's financials. Earlier this morning, Sempra reported second quarter 2024 GAAP earnings of $713 million or $1.12 per share. This compares to second quarter 2023 GAAP earnings of $603 million or $0.95 per share. On an adjusted basis, second quarter 2024 earnings were $567 million or $0.89 per share. This compares to our second quarter 2023 earnings of $594 million or $0.94 per share. The key takeaway is that we're pleased with our financial results. For the first six months of the year, we're trending above our financial forecasts and are well-positioned to deliver another strong year of financial performance. Please turn to the next slide. Variances in the second quarter 2024 adjusted earnings compared to the same period last year can be summarized as follows

Jeff Martin:

Good morning, Shar.

Jeff Martin:

I'm doing great. Thank you.

Jeff Martin:

Yes. Thank you, Shar, for asking that question. I'll start by talking about the change in schedule and I'll move to the 2025 guidance. I would start by saying that we're disappointed in the change of schedule at ECA as has been our practice. When we work with our contractors, we expect our projects to be built on time and on budget. That is the standard at Sempra. And in this case, that standard has not been met, but I'm confident that Justin and his team will get it corrected. Here's what's important going to the heart of your question. We target mid-teen equity returns across the portfolio at Sempra Infrastructure. And as we've updated our forecast, we continue to believe that ECA remains in line with those original targets. We've made financial commitments, as you know, to our owners in the form of published EPS guidance ranges for both 2024 and 2025, and we've been confident in reconfirming those ranges this morning. I would note that we have plenty of opportunities to both grow and reduce costs where it makes sense, and we'll continue to work hard to exceed people's expectations regarding the performance of our business. I'd also like to turn this over to Karen to talk a little bit about 2025, if you could, Karen.

Shar Pourreza:

Okay. Perfect. And then just on the GRC outcome, I mean, CPUC has been a bit slower kind of acting on things recently with various kind of proceedings, I guess, how are you thinking about a timely outcome in 2024 on the GRC? And if kind of like a final vote is delayed, let's say, into the latter part of the year or even 2025. How do we sort of think about the cadence of that financial update you just brought up for 2025. So do you need to wait for an order in the PD? Or is the PD sufficient enough to firm up 2025? Thanks.

Shar Pourreza:

Okay. That's actually perfect. Jeff. Thank you so much. Appreciate the additional color. See you soon.

Operator:

Thank you. Our next question will come from Durgesh Chopra from Evercore ISI. Your line is open.

Durgesh Chopra:

Hey, good morning, Jeff. Thanks for taking my question. Hey just picking up on the ECA discussion. I think the initial estimates of costs were around $2.5 billion and you mentioned some construction delays, obviously. Just how does that number sort of the overall project cost tracking versus $2.5 billion, if you could share any color there?

Durgesh Chopra:

That's great helpful. Thank you.

Justin Bird:

Hi Durgesh, first, let me say, like, Jeff, I'm disappointed with the schedule change at ECA. I will also say, given our ongoing efforts, I am confident that, one, will reach commercial operations in the spring of 2026; and two, will meet our return expectations at ECA. Let me give you just a little bit of color on where we are. The project is roughly 85% complete. Steel construction has been completed; piping is in full swing, 65% complete. We pulled roughly 87 miles of cable and 95% of the main equipment has been received on site and nearly 80% of that equipment has been delivered. The critical issue has been that during our peak in the work cycle, given some of the craft labor constraints in Baja, our contractor was unable to retain and secure the necessary labor resources to meet the schedule, and this loss of labor has created a change in schedule. Big picture, I still view this as an opportunity to showcase our ability to work constructively with our partners and contractors to safely deliver a quality project in the spring of 2026 with strong returns over the long-term.

Durgesh Chopra:

Thank you, both. That is very clear. Just shifting gears over to Texas. Good to see that you have a settlement in the system resiliency plan. I'm just wondering, if there is any backlash, whether it's from the PUC or other stakeholders given sort of just what we've seen in media in response to the hurricane. Just any thoughts there? Just thinking about risks to your potential settlement here.

Durgesh Chopra:

Perfect. Thank you for taking my questions.

Operator:

Thank you. And our next question will come from Julien Dumoulin-Smith from Jefferies. Your line is open.

Julien Dumoulin-Smith:

Hey, thank you so much, Jeff team, it's a pleasure to chat with you guys. So you guys continue to make great progress across the Board, including here in Texas. So to that end, right, with this SRP, let me, if I can ask to sort of elaborate a little bit, how do you think about the SRP in light of what's happened with Beryl and perhaps any expansion plans around mobile gen or otherwise, right? So it an ever-evolving landscape here, the needs are evolving. Obviously, this was contemplated in the last legislative session. Any comments about how to move from here on expanding the SRP and/or expectations on the legislative session next year ahead that could come ahead.

Allen Nye:

Yes, sure. Thanks, Jeff, and good morning, Julien. As Jeff said, we're really, really excited about announcing the settlement in principle of our SRP this morning. And I do want to thank the parties; in particular PUC staff for the willingness to work with us on getting to this outcome that we think is really going to provide some meaningful benefits to our customers. But with regards to the next steps, now that we've announced that we filed with the PUC and informed the judge of our preliminary settlement. We're in the process of drafting a definitive settlement agreement plus supporting testimony. We're going to file that by August 16. And at that time, the details will be public, and we can talk more about it. Next step would be to have the case remanded from State Office of Administrative Hearings back to the PUC and to try and get that scheduled for PUC consideration as soon as reasonably possible. And as Jeff said, I never like to get in front of the commission or assume anything. But assuming that we get approval, we think we'll be in a position to begin making the SRP-related investments and expenditures late in this year in 2024. I think importantly, we believe that this settlement will allow us to accomplish all of the benefits that we identified in our original filing. And given some of the challenges that our state has faced over the last few months, we think this is a really very positive development for both us and our customers.

Julien Dumoulin-Smith:

Excellent. Thank you guys so much for the details. And just quickly, on the SIP front, obviously, you saw the ECA developments here. Just to confirm here, that doesn't have any reads here or concerns for PA with respect to the on-time, on-budget conversation. And then subsequently to your prospects for PA Phase 2, as you think about like that continuous construction mantra that I think you've previously articulated here and expectation for cost.

Justin Bird:

Absolutely. Hi Julien, as Karen mentioned in her prepared remarks, we've had a number of exciting announcements recently. As you referenced, we executed a fixed price EPC agreement with Bechtel. Bechtel is doing incremental pre-FID work, and we're excited to move this project forward while targeting cost and construction efficiencies by have them roll uninterrupted from Phase 1 to Phase 2. Secondly, we announced the execution of an HoA with Saudi Aramco for 25% of the project equity and 5 million tonnes per annum of off-take. This demonstrates the global demand for LNG out of Port Arthur and more broadly, the value of low-cost and secure U.S. LNG. I might add that commercial discussions are progressing very well and there is a reasonable likelihood that the remainder of our volume is under similar HoA-type agreements in the coming months. And I hope we will have -- be in a position to provide continued positive progress on our third quarter call. From a permitting perspective, we've already received our FERC permit and FTA export, and we're now awaiting the non-FTA export permit which, again, we do not expect to impact our FID decision timing. And as a reminder, with Sempra's planning convention, since Port Arthur 2 is not -- has not reached a positive FID, it is not included in our plan and represents significant new growth opportunities. Julien, we can't be more excited about what we're seeing at Port Arthur Phase 2.

Jeff Martin:

Thank you, Julien.

Carly Davenport:

Hey, thanks so much for taking the questions. I wanted to ask just on a couple of points on Texas. So I appreciate the updates on the growth outlook there. Wanted to ask on the $13 billion to $15 billion of transmission CapEx that you referenced that was proposed by ERCOT in the Permian. Could you help us think about how large of a share of that spend Oncor could help execute on as we think about that timeframe?

Allen Nye:

Yes, you bet. Thanks, Jeff, and thanks, Carly. So the Permian plan is presently being discussed in Austin, plan was issued, the PUC's published questions. The answer is due, I believe, on Friday. There may be more rounds of questions. I anticipate there'll be a workshop. And then the goal is to get something issued in the next couple of months, maybe September. The only thing I can really tell you right now about what we would potentially be building out of that plant until the plan is finalized is when you look at the scope of our operations, and I often talk about, when I'm talking about overall growth on our system, what's happening in West Texas and our Stanton Loop and our Culberson Loop. Given the scope of our operations in those areas, the amount of substations or end points that we own that could be utilized under a 1938 analysis that we would anticipate on really any plan coming out of this process that we would be a heavy participant in that $13 billion to $15 billion depending on where it comes out. That's probably the best I can do on specifics on the Permian today. Jeff, you want to talk about growth overall. Just going back, and I know some of this is already out there is in our earnings release. And -- but I generally report on kind of the same categories every quarter, and I'm going to try and break it down into four categories this time. And Jeff has already mentioned, we've talked about our very strong premise growth that continues 20,000 new in the second quarter, still seeing about 2% annually about twice national average. The second category of transmission points of interconnection, new requests for the quarter, we had 80 -- I'm sorry, 98 new. That's up about 7% over the same quarter last year. Total requests are up 13%, and then we always break those down into generation and LC&I, generation is up 7.5%. The retail or the LC&I is up 22%. And as I mentioned last time, and I've got a little update here, about 25% of that total, which is 341 requests right now, our large load customers that -- for us, that's over 100 megawatts individually. That group presently represents approximately 80 gigawatts of potential load, of which about 74% or 59 gigawatts would come from potential data centers, but the rest of it is fairly diverse from the type of customers. So incredibly strong growth transmission POI on the LC&I or large customer perspective. I mentioned West Texas earlier strong growth continues there, Far West, Texas, weather zone. Peak is up 9.3% over the 2023 peak already this year. Culberson and Stanton, our two loops, transmission loops that we serve, the Permian and Delaware Basins. Culberson is up 15.5% over the 2023 peak. Stanton is up 1.3% over the 2023 peak so far this year. And then the fourth category, I mentioned in my opening remarks, but I think they're significant when you consider what we're facing and the opportunities that we're seeing on our system, the new ERCOT study, the load forecast coming out of HB 5066, indicating a peak demand of approximately 152 gigawatts by 2030, up from the 2011 gigawatts that they predicted through 2029. And as I've said before, we believe we anticipate, based on our analysis that around 40% of that load could be in our service territory. And then the Permian Basin study that we started with, as I said, $13 billion to $15 billion by 2038 given where our facilities are and how that analysis should work, we would expect to build a significant portion of whatever projects come out of that plan. So obviously, all that comes with CapEx. Jeff's already indicated how we're going to approach that, probably giving an update in Q4. But I think the significant part of our CapEx, if you look at our $24.2 billion plan, over the next five, which, as I've said before, approximately 70% is growth and 97% or so is recoverable through our trackers. That's all before the SRP, which we've announced for settlement and principal on today, which is approximately $3 billion, again, details to come in August 16 approximately. That's also before much of the investment that we would need to do in order to serve these large load customers that I just mentioned. That is before what we would get out of any Permian plan. And that is mostly before what we would need to spend to meet the revised ERCOT load forecast of 157 gigawatts by 2030. So we'll continue to analyze that. We're going to work with our shareholders and our Board like we always do and provide that update on the Q4 call. But we are very, very excited about what we're seeing on our system. We think there's tremendous opportunities to invest throughout our system, and we're looking forward to trying to meet those needs.

Carly Davenport:

That's great. Thank you so much for all that context. Maybe just sticking in Texas for one follow-up. I guess how are you thinking about timing for going back in for another rate case. Just as you think about recent rate cases in Texas CapEx updates, moving pieces on insurance, a lot of things going on. So I'd just love to get your updated thoughts there.

Allen Nye:

Yes. You bet, Jeff. Just briefly, we do -- we evaluate with our Board annually things like the topics you mentioned that might put pressures on us. But we are not required to come back in until the summer of 2027. We'll continue going through this process with our Board. And if things change, we'll make a decision. But right now, we don't have to -- we are not required to come back in until the summer of 2027.

Jeff Martin:

Thanks a lot, Carly for joining the call.

Jeff Martin:

Yes, I'd like to conclude, if I could, by recapping several highlights from today's call. Number one, I think it's important for our listing audience to know and understand that we're seeing increased opportunity for investment in Texas. I think Allen did a good job of outlining some of the growth drivers there. I also want to state, I think it's the leading growth story in our sector and we continue to be very bullish on our opportunities in Texas. Number two, we're very pleased with our strong financial performance for the first half of the year. Karen mentioned this earlier, but we're trending ahead of our internal planning forecast. And number three, with Trevor's leadership and Scott Drury and Caroline Winn, we continue to feel quite positive about the opportunity we have in front of us with the general rate cases here in California because we're continuing to make investments, I think, that are strongly aligned with the public policy mandates of the state. In combination, we have great confidence in our financial commitments and are reconfirming our guidance ranges for both 2024 and 2025 as well as our long-term growth rate of 6% to 8%. It continues to be an exciting time for our company. And if you have any questions or follow-ups from this call today, please reach out to our IR team. I would also note that we look forward to seeing many of you at the upcoming Citi and UBS conferences in the next few weeks. And for those of you who are interested, we also invite you to reach out and schedule time to come visit SDG&E's new wildfire and climate resiliency facility. I think you'll find it to be time well spent and come away with a very strong sense of our company's commitment to safety and operational excellence. This concludes our call.

Operator:

Good day, and welcome to Sempra's First Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn it over to Glen Donovan. Please go ahead.

Against the backdrop of strong industry fundamentals, Sempra offers several competitive advantages:

First, in California, we're at the forefront of the energy transition, serving 25 million consumers in the country's largest economy and one of the largest manufacturing bases in the U.S. And through our general rate cases, we're expecting to make new investments that support electrification and decarbonization while also improving affordability, safety, and reliability.

Karen Sedgwick:

Thanks, Allen. Earlier today, Sempra reported first quarter 2024 GAAP earnings of $801 million or $1.26 per share. This compares to first quarter 2023 GAAP earnings of $969 million or $1.53 per share. On an adjusted basis, first quarter 2024 earnings were $854 million or $1.34 per share. This compares to our first quarter 2023 earnings of $922 million or $1.46 per share.

Shahriar Pourreza:

Maybe just starting off on the kind of the incremental upsides that's starting to build versus the 4Q plan, including at SIP and the SRP in Texas. I guess, does the existing financing plan have room to support the spend in '25 through '27? And would you look to maybe utilize some SIP balance sheet capacity to offset potential equity needs from incremental CapEx that we could see coming?

Jeffery Martin:

Yes, we are.

Jeffery Martin:

Yes. I think there's going to be an opportunity as we get through our rate case. You'll recall that we're expecting to have our proposed decision later this quarter and a final decision at the end of the year. And those are the type of issues that we would reconcile on the then next earnings call, which could be as early as Q3 to make sure we provide real clear visibility to the impact of the rate case on our forward earnings.

Jeremy Tonet:

Turning to Texas, I was just wondering if you could frame this latest ERCOT load growth outlook against the last capital plan raised by Oncor. Is that level of system investment contemplated consistent with this load growth? Or is there even more, I guess, upside down the pipe here? And if so, what time frame do you think that could make it into the plan?

Jeremy Tonet:

Got it. That's very helpful there. And then digging again on the SRP a little bit more, I was just wondering if you could kind of bracket what this work will accomplish over the next 3 years relative to overall resiliency needs you see in the system.

E. Nye:

Well, sure, Jeff, and I think you said it very well. And I've said on prior calls, I view this and I think we view this as a historic opportunity to really directly take action on our system to the benefit of our customers in the ERCOT market. And I think each one of these categories would provide very specific benefits from resiliency to avoidance and prevention of wildfires to better reliability, all things that will benefit our customers very directly.

Operator:

Our next question will come from Durgesh Chopra from Evercore ISI.

Jeffery Martin:

Yes. Thank you for asking me that question, Durgesh. I think I would start by saying that 2 things come to mind. First is, we believe the permitting pause is temporary and that permits will be issued in the future. I mean, many of you followed the comments that were made at the CERAWeek. I think Secretary Granholm has repeatedly now said that she anticipates this issue will be in the rearview mirror at some point early next year.

Durgesh Chopra:

Jeff, I appreciate all that color. And I think you did answer my question I was just going to ask you. If there is a time line that we should follow as you think about FID, whether it's Port Arthur Phase 2 or the Cameron expansion.

Durgesh Chopra:

Excellent quarter, guys.

Operator:

Our next question will come from Carly Davenport from Goldman Sachs.

Jeffery Martin:

Yes. Let me start with the procedural point and then I'll pass it on to Allen to talk about how he expects that capital to go forward. Obviously, they've made the filing yesterday, which was contemplated in the legislative bill that passed last year. The commission has a statutory 180 days to review and approve the filing. So I think for now, we're expecting that to be in hand in the fourth quarter.

E. Nye:

Yes, you bet, Jeff. Pretty simply, it's basically 2025 through 2027 for those outlays and it's slightly backloaded.

Jeffery Martin:

Yes. I said something about this in my prepared remarks. We continue to see some supply chain constraints in some areas, but in general, we're seeing obviously load growth across all of our markets and there's been some relaxation of the supply chain issue. I think Oncor in particular, and both Justin and I serve on their Board of Directors, have done a really good job of going into the marketplace to secure the appropriate contractors and hard goods. But Allen, perhaps you could talk about the work that the team has done. And over what period of time do you feel like you've got what you need locked in?

Operator:

Our next question will come from Steve Fleishman from Wolfe.

Jeffery Martin:

Yes, I'll make a couple of comments here. One is, Steve, Conoco is a very important strategic partner for us at Port Arthur. I would note that we've got a lot of respect for their management team and certainly have great relationships across both companies and I think a strong alignment of interest, and this is the key point around both Phase 1 and Phase 2.

Operator:

And our next question will come from Anthony Crowdell from Mizuho.

Jeffery Martin:

Yes. What might be helpful here, Anthony, is Justin, if you just take us through maybe a little bit of a construction update as well as what you're doing to secure some long lead time items on some of the projects to your near-term focused, and that might be helpful for his question.

Jeffery Martin:

Anthony, I'd also mention to the heart of your question, the Bechtel relationship is a strategic relationship for us. They're very, very helpful, kind of the best in the business in the [ Gulf ]. And that's why Justin commented on the importance of not demobilizing Phase 1 and going right into a continuous build into Phase 2 at Port Arthur. I would also note that his team has master purchase agreements with all the key vendors in place. And there's a lot of focus on making sure we're sourcing the key equipment and particularly planning in advance to long lead time items. So that all goes into the box of how we manage risk to make sure that we're delivering projects that create the right risk reward for our owners.

Jeffery Martin:

Yes, let me provide a little bit of context for that because we're excited about that project. Let me start, Anthony, with the fact that we rolled out our new corporate strategy back in 2018. And really, at the heart of that strategy was a more narrow focus on 2 things, the first of which was building leadership and scale advantages in large economic markets; and number two, more narrowly invested in the energy value chain around T&D type of infrastructure investments like Cimarrón where we can produce highly recurring cash flows.

Craig Shere:

I'd like to dovetail a little on Anthony's first question about labor and the LNG markets and kind of feed that into a broader question for Justin. In the last 2, 3 months, we've seen some peer projects announce potential delays, unskilled labor issues. For the same reasons, you've announced increasing demand in your domestic utility networks and T&D networks from data centers to AI, but also coal-to-gas fuel switching and other.

Justin Bird:

Yes, thanks for the question, Craig. I think you talked a little bit about supply chain, about labor, but let me go to the heart of your question at the end there. So I think the LNG pause, I would say, I think there was some time to react to that in the marketplace. You saw some people step back maybe with a little less desperation than they maybe had as part of the war in Ukraine. But I will say, and I think we've said it multiple times on this call, we are still seeing a robust commercial interest in our projects, our projects, our expansion opportunities. We've been a strong partner. So we're seeing robust interest. And I'd say currently, we have teams around the world actively engaged in commercial discussions for long-term contracted volumes.

Operator:

And that concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Jeff Martin for any additional closing remarks.

Operator:

Good day, and welcome to Sempra's Fourth Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn it over to Glen Donovan. Please go ahead.

Jeff Martin:

Thank you, Glen, and thank you all for joining us today. Over the last several months, we've spent time with investors and the research community, soliciting feedback on ways to make today's call more informative. In response to your feedback, we'll be providing more information today from more executives. I'll start off by summarizing our recent business accomplishments and our corporate strategy and will be followed by the leaders of each platforms, who will likewise summarize their accomplishments, business model and expected capital deployment. Karen will close out today's presentation with a review of our Q4 and full year financial results and outline our new 2024 to 2028 capital plan. We'll also be sure to save time at the end to take your questions. Now turning to 2023, it was a strong year of operating and financial performance for our Company, and in large measure is a credit to our corporate strategy and our success in simplifying our business model. At Sempra, we're focused on making disciplined investments in large and growing economic markets that are looking to modernize their energy networks and connect communities to safer, more reliable and cleaner energy. Over the last five years, this strategy has allowed us to build significant scale into our business for the benefit of customers and shareholders. As we previewed on our third quarter call in November, I'm excited to announce that our capital plan has increased by 20% to a new company record of $48 billion with more than 90% allocated to regulated transmission and distribution investments. Trevor, Allen and Justin will go into more detail later in today's presentation, but the overall scope and size of our capital plan really speaks to the robust markets we operate in and the magnitude of the growth opportunities that are in front of our company. Turning to our 2023 financial results, we delivered adjusted EPS of $4.61 exceeding the high-end of our guidance and providing support to narrow our full year 2024 EPS guidance range to $4.60 to $4.90. This morning, we're also announcing full year 2025 EPS guidance range of $4.90 to $5.25, which represents approximately 7% growth from the midpoint of the prior guidance range. Based upon the continued growth we're seeing across our three T&D growth platforms, we're affirming our projected long-term EPS growth rate of 6% to 8%. Finally, we're also pleased to announce the Board of Directors approved increase in our dividend for the 14th consecutive year to $2.48 per share. Please turn to the next slide. For the past several years, the United States has experienced significant economic uncertainty due to higher inflation, supply chain disruptions and higher interest rates. Against this backdrop, Sempra delivered strong financial performance in 2023 with record adjusted earnings and record adjusted earnings per share. Also over the last several years, our investment strategy has consistently prioritized making investments in energy networks in California and Texas, and this has allowed us to grow our rate base in those markets at the end of 2023 to just over $50 billion. Looking forward, one of the primary benefits of rolling out an expanded capital plan is that it provides unique visibility to the strength of our long-term earnings growth. Also, it's important to note that our equity offering last November was successful in mitigating future equity needs associated with our new plan. On the regulatory front, we've made several advances highlighting the constructive nature of the jurisdictions where we operate and our ability to work effectively with key stakeholders. In California, the cost of capital mechanism triggered as a result, SDG&E and SoCalGas increased their authorized ROEs last month. We also reached a proposed settlement with certain interveners for a portion of our pending rate cases, which we view constructively. Turning to Texas, Oncor successfully completed its base rate review last spring. Also several important pieces of legislation were passed that support new investments in transmission and distribution that benefit customers and the continued growth of the state's economy. Also at Sempra Infrastructure, we declared positive FID on Port Arthur LNG Phase 1, secured financing and began construction. We continue to make steady progress on our development projects. While the pause on non-FTE export permits has impacted the sector, we're confident in the commercial value of our projects and we'll continue to develop these critical infrastructure assets on a reasonable timeline. Justin will address this topic further in his section. Please turn to the next slide. Sempra is building critical new infrastructure designed to support economic and population growth while providing attractive financial returns to our owners. Through 2050, global GDP is expected to more than double, much of which will come from emerging economies, driving the need for incremental energy resources. Going forward, we strongly believe renewables, natural gas and cleaner molecules will be critical in meeting rising energy demand as we transition to an energy future with lower carbon intensity. As an example, United States natural gas production set a record during 2023 for the third consecutive year, fueled by strong domestic demand and record LNG exports, all while still achieving lower carbon emissions over the past several decades as renewables and cleaner burning natural gas replace coal as a fuel source in power generation. Please turn to the next slide. As we modernize our energy grids, the IEA estimates that $11 trillion are expected to be spent in the North American energy sector through 2050, with over $5 trillion focused on T&D investments. Please turn to the next slide. As we've outlined in the past, we've been disciplined and maintaining our focus on what we believe is the higher value, lower risk portion of the energy value chain. In the T&D segment, we make disciplined investments with the view toward producing high quality recurring cash flows from regulated utilities and long-term contracted assets that generally grow with inflation. Please turn to the next slide. As you can see here, our strategy combined with disciplined capital allocation has allowed us to successfully meet or exceed our EPS guidance range for the last 6 years. Over the same time period, our adjusted EPS has compounded annually at approximately 10% since 2018, which is top decile amongst our peers. Please turn to the next slide. Improving our corporate strategy has allowed us to build significant scale into our business for the benefit of our customers and shareholders. And that's been demonstrated by the consistency of our financial performance. It's also noteworthy that we've accomplished this across different market cycles that have included a global pandemic, supply chain shortages, high inflation, rising interest rates and geopolitical unrest. In short, our disciplined execution has consistently delivered total shareholder returns at levels that are well above our peer group. Please turn to the next slide. Before I hand the call to Trevor, I'd like to reiterate our key investment highlights. We own high quality T&D growth platforms located in California and Texas and some of North America's most attractive economic markets that also benefit from constructive regulation. We exercise a disciplined approach to capital allocation and are excited to launch our new 5-year capital plan of $48 billion. We believe this sets out a clear roadmap for our future growth and supports our expected long-term EPS growth rate of 6% to 8%. In conclusion, we're proud of our recent accomplishments and the growing strength of our business franchise. Across our management team, there's a lot of excitement about the opportunities that are ahead of us. Now please turn to the next slide where Trevor who will walk you through the business updates at Sempra California.

Allen Nye :

Thank you, Trevor. Oncor delivered strong financial performance in 2023, deploying $3.8 billion of capital and growing rate base by 12% over the prior year. We were pleased to complete our base rate review at the PUCT and emerged with a constructive outcome where all prior T&D investments by Oncor were deemed prudent and approved. 2023 also marked one of the most successful Texas legislative sessions for our industry in recent history. Several bills that were passed during the 88th Texas legislative session demonstrate the state's commitment to supporting a safer, smarter, more resilient and more reliable electric grid to power continued growth across the state. Oncor has historically worked closely with the Texas Legislature and its many stakeholders to achieve productive outcomes, but this session in particular was incredibly constructive. First, the legislature increased our allowed distribution cost recovery tracker filings to twice a year reducing Oncor's regulatory lag on critical investments. Additionally, the legislature passed HB 2555 which encourages utilities to make their systems more resilient and provides expedited recovery for approved capital and O&M expenditures. The PUCT finalized rules to implement HB 2555 last month. We expect to file our first system resiliency plan or SRP within the next several months. The PUCT is allowed six months to review the SRP, and if approved, we would expect to begin implementation by year end. Distribution capital approved in the SRP will be recovered through our DCRF tracker filings. Regulatory lag that normally accrues between the time of in service and the implementation of rates will be offset by a regulatory asset that will be recovered in our next DCRF. Similarly, O&M expense approved as part of the SRP will be offset by a regulatory asset that will be included for recovery in a subsequent DCRF. Use of this new mechanism should reduce the regulatory lag normally associated with these types of expenditures. We look forward to using the capital in O&M that gets approved under our SRP plan to improve the resiliency of our system, harden the system against storms, extreme weather and wildfire risk, and generally improve our customers' experience, while at the same time improving recovery of the expenditures. From an operational perspective, Oncor continued to execute at a high level. In 2023, we built, rebuilt or upgraded approximately 3,200 miles of T&D lines, while also increasing the number of premises we serve by 73,000. In West Texas alone, we built, rebuilt or upgraded over 650 miles of T&D lines and eight new switching and substations. The Texas grid performed very well through record demand peaks over the last 12 months. Oncor's reliability performance as measured by our non-storm SAIDI score improved by approximately 7% in 2023 compared to the previous year. Finally, in 2023, we set company records for active transmission interconnection requests and new transmission interconnection requests in the queue. Active generation and retail interconnection requests increased 25% year-over-year. New interconnection requests increased 19% year-over-year. Please turn to the next slide. These interconnection requests are driven by the dynamic economic growth that we continue to see in Texas. The Texas Miracle continues and is demonstrated by the continued strong growth both in population and diverse commercial and industrial businesses moving to the state. Oncor serves some of the country's fastest growing metro areas, including 4 of the 15 fastest growing cities. From a sheer scale perspective, Texas GDP is second only to California and continues to grow at a robust pace, growing at approximately 8% during the third quarter, faster than the nation as a whole for the fifth quarter in a row. Texas continues to see electric vehicle penetration as well. Over a recent 12 month period, the DFW Metroplex had the largest increase in EV registrations out of any major metro area in Texas with 63% growth. Please turn to the next slide. Oncor has also seen significant growth in commercial and industrial customers, representing electric loads that are larger than traditional commercial projects. Data center development continues to be robust across our service territory, including new sites that have the potential to support hyperscale computing and generative artificial intelligence services. These projects represent the potential for thousands of megawatts of new electric load, often hundreds of megawatts for just one project. Similarly, electrification of the oil and gas industry in West Texas continues at an impressive pace. Our Permian Basin reliability plan reliability plan update published by ERCOT earlier this month projects that within 15 years, the total demand in West Texas could increase fourfold from its current 6.5 gigawatts to 26 gigawatts. This growth is expected to support oil and gas production as well as general electrification. Oncor will be at the forefront and expanding its system to meet the requirements of these customers. Finally, as the population continues to expand both organically and from relocations, we still expect total premise growth to continue at approximately 2% annually. Each of these developments creates new opportunities to expand the Oncor Energy System. We are positioning ourselves to meet these demands through hiring, supply chain procurement and system planning, and looking forward to continuing to serve our customers in the ERCOT market. Please turn to the next slide. On Sempra's Q3 call, we discussed this growth and announced our intention to increase our capital plan. We are pleased to announce that Oncor's 5-year capital plan for 2024 through 2028 is projected to be $24.2 billion, which is a 26% increase over our previous 5-year capital plan of $19.2 billion. The vast majority of this capital plan is to serve customer growth, although the maintenance needs of our system continue to grow steadily as well. This plan does not include the amount of capital expenditures that we expect to request in the upcoming SRP filing that I mentioned earlier. We expect to file that plan in the first half of this year and the proposed spend will be subject to PUCT review and approval. With today's updated plan, we anticipate Oncor's rate base to grow at an annual average rate of 11% from 2023 to 2028. While historically, our earnings growth rate fell below our rate base growth due to regulatory lag. The addition of enhanced recovery mechanisms arising from the legislative session should move our long-term earnings growth rate closer to our rate base growth rate. Please turn to the next slide, where I'll turn the call to Justin to update you on Sempra Infrastructure.

Karen Sedgwick :

Thank you, Justin. I'm excited to share our year end results and give you more details on our financial plan. Earlier today, Sempra reported Q4 2023 GAAP earnings of $737 million or $1.16 per share. This compares to fourth quarter 2022 GAAP earnings of $438 million or $0.69 per share. On an adjusted basis, fourth quarter 2023 earnings were $719 million or $1.13 per share. This compares to our fourth quarter 2022 earnings of $743 million or $1.17 per share. Full year 2023 GAAP earnings were $3.030 billion or $4.79 per share. This compares to 2022 GAAP earnings of $2.94 billion to or $3.31 per share. On an adjusted basis, full year 2023 earnings were $2,920 million or $4.61 per share. This compares to our previous full year 2022 adjusted earnings of $2,915 million or $4.61 per share. This year's results demonstrate the combined strength of our three growth platforms and sets us up for improved growth in 2024. Please turn to the next slide. Now I will summarize the variance of full year 2023 adjusted earnings compared to the same period for last year. At Sempra California, we had $69 million of higher net interest expense, partially offset by net tax benefits, offset by $51 million of higher electric transmission and CPUC based operating margin and $52 million of higher regulatory interest income and regulatory awards. At Sempra Texas, we had $2 million of higher equity earnings attributable to increased invested capital, partially offset by higher interest and operating expenses. I'd note that earnings in 2022 and 2023 were impacted by the lack of capital trackers that can't be filed during a rate case. At Sempra Infrastructure, we had $85 million of higher earnings attributable to non-controlling interests, $10 million of higher taxes, partially offset by lower interest expense given increased capitalized interest, offset by $49 million of higher transportation tariffs, higher asset supply optimization, partially offset by lower equity earnings from Cameron LNG. For Port Arthur, while our ownership stake is approximately 20%, we consolidate the project for accounting purposes, thus capitalizing interest based on the projects in progress construction. As construction advances, you're seeing the impact of higher capitalized interest versus previous years. Ultimately, these capitalized costs will be amortized back as higher depreciation after the plant moves into commercial operations. At Sempra Parent, there were $15 million of higher investment gains, partially offset by higher net interest expense and lower income tax benefits. Please turn to the next slide. Turning to new investments, as Jeff noted earlier, we're announcing a company record $48 billion capital plan with over 90% of the planned investment allocated to our regulated utilities. This represents an impressive 20% increase over the previous plan and will ultimately serve as a foundation for our company's growth over the coming years. About $24.1 billion or roughly half of the capital plan is marked for investment at Sempra California's 2 utilities, which together have a weighted average ROE of approximately 10.5%. At Sempra Texas, $19.5 billion includes our proportionate share of Oncor's planned CapEx, where recent legislative development should help Oncor reduce regulatory lag and improve its ability to help lessen the gap between the authorized and actual rates of return. The remaining $4.4 billion are primarily associated with Sempra Infrastructure's LNG projects under construction and their associated infrastructure. Please turn to the next slide. With this record capital plan, I would like to illustrate some of the key sources and uses. As you know, Sempra raised equity in November 2023 to support our future investment needs and mitigate the financing risks associated with the capital plan. As a result, we are in a strong financial position and anticipate a reliable internal operating cash flows and regulatory authorized debt will provide the vast majority of our financing needs. We are a growing business while maintaining balance sheet strength, all with the goal of delivering attractive total shareholder returns over the long-term. Along those lines, Sempra will continue to target a 50% to 60% dividend payout ratio, providing plenty of reinvestment flexibility. Please turn to the next slide. Moving to the utilities, our strong earnings trajectory is underpinned by long-term rate base growth. California and Texas rate base is expected to grow with 7% and 11% respectively from 2023 to 2028. Our rate base is split approximately evenly between California and Texas, where we benefit from constructive regulatory jurisdictions and strong macroeconomic growth. On a combined basis, we anticipate just over 9% annual growth through 2028. And this gives us added confidence in achieving our projected 6% to 8% long-term EPS growth rate. Please turn to the next slide. Given the strength of our 2023 results, we've narrowed our 2024 earnings guidance estimates and are now projecting EPS guidance for the year ranging from $4.60 to $4.90. Also, we're announcing 2025 earnings per share guidance with a range of $4.90 to $5.25. This equates to a projected EPS midpoint that's about 7% higher than 2024 guidance. Now, let's break down a few of the assumptions embedded in these figures. At Sempra, California, this already includes the cost of capital trigger. As for the GRC, we're assuming outcomes that are in the range of historical rate case decisions and continue to work constructively with the CPUC and interveners through the proceeding to achieve an outcome that allows us to continue to deliver safe, reliable and sustainable energy for our customers. Turning to Texas, we said in the prior call, the guidance took into effect Oncor's second DCRF. Subject to PUCT approval, the system resiliency plan will apply to 2025 through 2027. And due to timing differences between filing and construction of projects, we'd expect minimal financial impact in 2025. At Sempra Infrastructure, there are a few things to highlight. 2022 and 2023 benefited from an attractive commodity price environment and in 2023 received the cumulative benefit of new tariffs on select Mexico pipelines. Due to the conservative nature of our project development process, we secured rights on the gas pipeline connecting ICA well in advance of COD. This allowed us to better optimize results during this period, but we would expect this impact to moderate as we go forward, particularly with a lower forward curve for natural gas. And now with the magnitude of large projects currently under construction, we have better visibility to certain non-capitalized costs that have now been added to our 2024 plan. And we have ECA LNG Phase 1 expected to come online in the summer of 2025, with full year operations expected in 2026. And finally, regarding the share count, the main driver of the increase is our recent equity offering. As we've discussed, the green shoe of just over 2 million shares settled immediately in November of 2023. Over the course of this year, we're assuming weighted average diluted shares will increase by 4 million which reflects the dividend reinvestment program, equity based plans and the drawdown of our forward settlement, which we now assume will occur in the second half of 2024. Thus 2025 reflects those shares outstanding for the entire year, increasing our share count to approximately 654 million shares. Please turn to the next slide. In addition to our new 5-year plan, we've added this slide in an effort to be more responsive to input from our many investors. Here, it shows the various categories of investments that we're tracking or developing that fall outside of our current plan. It totals over $10 billion and many of these opportunities could form part of our future capital campaign. Please turn to the next slide. You've heard this from our other executives today, but it is important to note that we're excited by the investment opportunities in front of us. We are owners and operators of top tier T&D utility platforms located in North America's largest economies. Moreover, our utilities benefit from constructive regulation that supports significant investment and help ensure safe, reliable, resilient and increasingly sustainable energy for our customers. Over time, our key priorities remain largely the same. We will invest in our high quality T&D infrastructure to improve customer service, maintain a prudent balance sheet and provide compelling returns to shareholders. A record $48 billion capital plan focused on our regulated utilities will be the primary foundation for increasing rate base, growth in earnings power and gives us confidence in achieving our projected long term EPS growth rate of 6% to 8%. We thank you for joining us as we continue to build North America's premier energy infrastructure company and we're as enthusiastic as ever about our opportunity to continue delivering attractive risk adjusted returns. I've had the opportunity to meet with many of you over the last month, and I'll be out on the road with the IR team in March and hope to connect with those of you I haven't had a chance to meet yet. With that, I'd now like to open the call for some of your questions.

Constantine Lednev:

The first one would be on the 2025 earnings growth in California that's pointing to around 5%. How are you currently framing the GRC process into the 2024, 2025 planning assumptions, especially there's some visibility around partial settlement issues in the process?

Constantine Lednev:

And does that imply that you're taking into account any of the settlement into your planning parameters or is that still outbound?

Constantine Lednev:

And then maybe shifting to your thoughts on cost of capital process at the CPUC, especially with Phase 2 reply comments posted yesterday and benchmark years or yields are clearly pointing to a sustained increase, but how do you just bookend the assumptions on the 5-year total plan?

Trevor Mihalik:

Yes, Jeff. No, I think you largely covered it. I would just add that I think we are really in good shape here on this. And I think the Energy Division's disposition letter was pretty clear on this. So again, we feel we're in good shape.

Jeff Martin:

Help me understand your question again, please.

Jeff Martin:

The way I would think about it is when we put our plan together which was all part of the current rate case, so the 2024 plan would be impacted by how the outcome of the rate case is. And when we think about '24 and '25, we had to take a reasonable set of assumptions based upon prior cases and that's embedded in our forecast.

Nick Campanella:

So I guess just you're going to file this SRP. It sounds like CapEx is biased yet again higher on the other side of that, probably a second half event, but just how are you kind of describing your capital needs and how you would fund increased CapEx, equity debt, etcetera?

Nick Campanella:

And then I'm sorry, but just on top of as you raise CapEx, I think again, if this SRP filing is not included in the current CapEx plan, is there an incremental funding need on top of that and just how to think about that? Is there capacity, I guess, to raise additional CapEx without equity here? Should we just kind of be doing some equity going forward? Sorry about that, Craig.

Nick Campanella:

And then, I guess just turning to the Sempra Infrastructure earnings guidance. Absolutely appreciate there's a step up 2024 versus '25 because of ECA. Are you assuming just kind of like a midyear COD there? And just I'm just trying to get a sense of what the normalized run rate for ECA is when that kind of comes online, if you could isolate that. And are there any other kind of drivers to point to in terms of the strength for '25 versus '24?

Karen Sedgwick:

Yes. And I would just add that, as you would expect, financial projections include the incremental revenues associated with the SPA contracts, the commissioning volumes recognized after substantial completion of the facility and the contributions from the GRO pipeline. So bringing on the first phase of the Pacific Coast LNG facility is really an exciting opportunity and differentiates Sempra Infrastructure with a dual coast business model that will serve global energy demand.

David Arcaro:

Wondering if you could maybe elaborate a little bit on the value engineering timeframe on Cameron. I'm curious if there's any way you could bracket how long you've extended that process for?

Justin Bird:

We're excited to share that on ECA Phase 1 and Port Arthur Phase 1, we're seeing both projects remain on track for construction. ECA Phase 1 for COD in the summer of 2025 and for Port Arthur Train 1, 2027 and Train 2 in 2028. Moving along to the development projects, you recall that as part of our commitment to deliver superior risk adjusted returns, I always talk about the reverse Field of Dreams model, which is when they come, I'll build it. Along those same lines, I always say that we'll only move forward with our projects when we have the right cost and risk structure and long-term contracted cash flows that support a strong return for our shareholders. So going to the heart of your question David, on Phase 2, we're seeing significant commercial demand for low cost brownfield LNG assets, particularly those that have permits in hand. And we believe that Cameron will be one of the most technologically advanced LNG facilities in the world and have one of the lowest emission profiles. As we've shifted to electric drives, we're working on a green power tariff and we'll have carbon sequestration. As you recall, it's fully permitted and we're working toward an FID. The four work streams that always talk about continue to make progress, but we still have some work to be done. So our current efforts with respect to the Cameron Partners are focused on optimizing costs and ensuring maximum value for the project. And for example, we're exploring procurement or reservation of long lead and critical path equipment. We are anticipating taking an FID on Cameron 2 as early as the first half of next year. So that's the first half of 2025. Shifting to Port Arthur, we received our FERC permit last September and are now awaiting the DOE non-FTA export permit. We're continuing to work with Bechtel on an EPC agreement that can optimize efficiencies with the Phase 1 construction schedule. And we're continuing our marketing efforts for offtake and equity and having financing discussions with potential lenders. We also have our other Pacific Coast LNG opportunities Phase 2 at ECA and Vista Pacifico. Both of these are in the early stages of development, but we see clear opportunities and excitement around these projects. So just as a reminder, per our planning convention, none of these projects have yet received positive FID. They're not included in our plan and represent upside to the plan and future earnings.

Operator:

Our next question will come from Carly Davenport from Goldman Sachs.

Jeff Martin:

Well, it's interesting you asked that. The rate base growth across both of our utilities will be approximately 10%, which is a little bit stronger than we forecasted a year ago. At the end of the planning period, those two platforms will have $78 billion of rate base and we really view that really as the focus of the capital plan. As we indicated, it captures over 90% of that $48 billion. What is of note is that there's an $8 billion increase over the prior plan and over half of that, Carly, comes from the growth that we're seeing in Texas, which is really the strongest part of our story. But we continue to think that the most important thing is we have been messaged at around a 6% to 8% growth rate for several years now. I think this type of visibility causes us to have additional confidence in that number. And one of the things I think that you and I have discussed before, if you look at Slide 10, at the last 5 or 6 years or go back over 10 years or 15 or 20, Sempra is one of those few companies that's been able to perform earnings per share growth in that 7% to 10% range over long periods of time. Now we're certainly forecasting the 6% to 8% on a go forward basis. But the key takeaway from this plan is we have a lot of confidence in our ability to deliver that. I think as you've noted in your prior research, I've often indicated that I would be disappointed if we don't outperform the high end of that range.

Jeff Martin:

Yes. I mentioned that over half of our planning increase came from Texas and I wouldn't mind having Allen walk us through where the system, where the growth is showing up. The story in Texas, I think, which is quite unique, is not just, it's the diversity of the growth in Texas, not just on the premise side, and it's also the amount of it Carly that's allocated to transmission. I don't think there's another growth story in the United States that is majority of CapEx is related to transmission. And the reason that's important is Allen's team has the lowest transmission distribution bills in the state and transmission projects because it benefits all ratepayers in the state, gets socialized across all the different jurisdictions. But Allen, to Carly's point, maybe you could talk about premise growth more broadly, the growth that showed up on the system.

Operator:

We now have time for one more question, and it will be from Ryan Levine from Citi.

Jeff Martin:

Thank you for that question, Ryan. I'll let Trevor respond.

Ryan Levine:

Okay. And then on LNG, appreciate the clarification around the non FDA permanent extension with new applications. In terms of non FDA permanent extensions, is there a historic timeline around how long that typically takes? And does the pause for new applications potentially accelerate the timeline for extensions as there's allocation of resource issues?

Operator:

Thank you. That concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Jeff Martin for any additional closing remarks.

Operator:

Thank you for your participation. You may now disconnect.

Operator:

Good day, and welcome to Sempra's Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn it over to Glen Donovan. Please go ahead.

Jeff Martin:

Thank you all for joining us today. We're pleased with the strength of our third quarter results, which sets the stage for our Company's continued growth. Given current geopolitical tensions, countries around the world are looking to ensure they are not dependent on supply chains that are subject to disruption and uncertainty. Increasingly, they want to source essential goods, whether food, liquefied natural gas, or microchips closer to home or from dependable allies. With this trend toward deglobalization, we see North America as one of the principal beneficiaries. We also believe these trends support important new growth in Mexico, where in the first half of 2023, foreign direct investment has risen sharply by approximately 40% over the prior year comparable period. Just this year, Mexico has also surpassed China as America's largest trading partner. As these trends continue, new higher levels of investment in North America's energy grid will be critical to supporting continued economic expansion. That's why at Sempra, we're really excited about our mission to build this continent's premier energy infrastructure company. As part of that mission, we focus significant time and effort on building a high-performing culture where we invest for the long-term in our business and our employees. And in combination, this has helped us achieve strong financial and operating results. Our strategy focuses on what we believe are the most attractive markets in North America with strong economic growth and constructive regulation. Combined with capital discipline, this positions Sempra to deliver competitive long-term returns for our owners. Also, our business is expected to benefit from secular tailwinds that support our five-year capital plan of approximately $40 billion. You will recall I've spoken before about the opportunities that lie ahead for Oncor and the possibility of doubling their rate base over the next five to six years. While we're still early in our fall planning process, we expect to increase our $40 billion capital plan by 10% to 20% when we update our five-year plan on our fourth quarter call. This increase is expected to be anchored by regulated utility investments and primarily driven by Oncor. Overall, we continue to see significant growth in multiple areas of Oncor service territory. And with Allen here today, he will speak to some of those opportunities later on today's call. Turning to the quarter, we believe our results demonstrate the strength of our business and our ability to continue producing strong earnings growth. Earlier today, we reported third quarter 2023 adjusted earnings per share of $1.08 and year-to-date 2023 adjusted earnings per share of $3.48. Given our year-to-date success, we're expecting to be at or above the high end of our 2023 adjusted EPS guidance range and we're affirming our 2024 EPS guidance range and projected long-term EPS growth rate of 6% to 8%. Finally, let me take a moment to speak about Kevin Sagara, who will be retiring next month after nearly 30 years of service at Sempra and its predecessor companies. Kevin was instrumental in the 1998 transaction that originally formed Sempra when the parent companies of SDG&E and SoCalGas merged. He has held many leadership positions across our companies, including CEO of Sempra Renewables, CEO of San Diego Gas & Electric, as well as his recent role as Group President over our California Utilities. He's had a really amazing career here and made significant contributions to our success and will be greatly missed. Now let me turn the call over to Allen Nye, who will take us through business developments in Texas.

Trevor Mihalik:

Thanks, Allen. Starting in California, it's worth reminding everyone that during the third quarter, Southern California experienced a rare tropical storm and I’m pleased to say that both SDG&E and SoCalGas Systems remained resilient and operational. We believe delivering energy under these circumstances validates the important work our teams have accomplished in continuing to improve system safety and reliability. Over the past several decades, PA Consulting has published reliability rankings for American Utilities, and SDG&E was recently awarded the number one ranking of best in the West for the 18th year in a row. They also received the National Grid Sustainability Award. This award is presented to a leading American utility, demonstrating excellence and reliable service to its customers, including the application of clean energy technology and investment in the grid. In combination, these awards are a great credit to Caroline Winn and the entire SDG&E team. One key consideration in supporting the energy transition is the ability to store and discharge excess power. With more renewable energy, storage and dispatchable resources are critical for maintaining the stability of the grid even during extreme weather events. That's why, in the third quarter, SDG&E requested approval for another 160 megawatts of utility-owned energy storage assets. This is in addition to the 171 megawatts of recently commissioned assets that we discussed on our second quarter call. If approved, this would bring SDG&E's energy storage portfolio to over 500 megawatts in support of their ability to deliver safer, cleaner and more reliable energy to its customers. Importantly, as SDG&E integrates innovative technologies, such as utility-owned storage to help meet its good reliability and clean energy goals, we're also pursuing federal investment tax credits, which could result in an estimated $215 million in savings. The potential savings would be passed on to customers and included in the calculation to establish rates beginning in January 2025 as part of the company's continued efforts to drive a series of cost savings initiatives to improve the affordability of its services. Last quarter, we updated you on the approval of Cal ISO's transmission plan and the recent assignment to us of $500 million of new projects in our service territory. Also, SDG&E submitted bid materials for Cal ISO's FERC 1000 solicitation, and we expect to be quite competitive as part of that process. As you know, transmission assets deliver benefits integrating increasing amounts of clean energy to the broader state of California, and as such, these costs are spread across the state. Recently, the CPUC approved an increase in the authorized working gas storage capacity at Aliso Canyon. The CPUC recognized the importance of the facility to help improve grid reliability and customer affordability. The additional gas storage capacity is also expected to help mitigate potential price volatility. Additionally, in the third quarter, Governor Newsom directed the formation of California's hydrogen market development strategy, which will employ an all of government approach to lay out pathways for building a robust hydrogen market in the state. We're excited to see the innovative ways that hydrogen may be used to help decarbonize California's economy. On the federal side, the U.S. Department of Energy awarded up to $1.2 billion of funding for our regional clean hydrogen hub in California. SoCalGas is proud to be a partner in ARCHES, the statewide public private partnership sponsoring this application. The DOE’s Award demonstrates support for the valuable role hydrogen could play in decarbonization while striving to ensure safety, affordability and resiliency. California recently passed into law SB 410, supporting investments for further decarbonization and electrification of the energy system. As electrification continues to become a larger part of the state’s strategy to achieve its climate goals, demand on the electric grid will also increase, meaning utilities will need to proactively plan and build distribution grid upgrades to meet customer needs. Similar to some of the Texas legislative updates that Allen described, SB 410 is California’s recognition of the need to utilize existing regulatory mechanisms, such as balancing accounts to support customer needs in between GRC cycles and help California’s utility make critical new investments to keep pace with the state’s expanding economy and decarbonization goals. I’d like to provide a brief update on the GRC process. Our applications are centered around safety, reliability, and the delivery of increasingly clean forms of energy. We recently filed a few settlement agreements with various interveners, including Cal Advocates, small business utility advocates, TURN and UCAN. While there remains input from other interveners and ultimately approval by the CPUC as part of the final decision in the GRC, we believe this is a constructive step in the process. We continue to expect a proposed decision in the second quarter of 2024 with rates retroactive to the beginning of that year. As a final note, most of you already are aware that the cost of capital mechanism triggered, and both SDG&E and SoCalGas filed advice letters, which are pending commission approval. These applications are expected to increase ROEs by approximately 70 basis points beginning January 1, 2024. We believe this adjustment should be approved by the commission as part of the established mechanism and is one of the key components that supports California’s constructive regulatory environment. We believe California’s regulatory framework is quite constructive relative to other jurisdictions given its forward-looking rates, attractive ROEs, cost of capital adjustment mechanism, and advanced framework for handling climate related event risks. With California’s continued economic growth and constructive regulatory framework, we believe our utilities are well-positioned to continue improving their service to customers while supporting overall system growth and resiliency. Please turn to the next slide. Turning to Sempra Infrastructure. We’ve reached several key milestones in the quarter. At Port Arthur LNG Phase 1, we completed the previously announced sale of a 42% indirect non-controlling interest in the project KKR and recently, Port Arthur LNG Phase 2 received a permit from FERC, a critical milestone in the project’s development. Now that FERC has issued its approval, the DOE is able to consider the environmental review associated with our non-FDA application. Marketing of Phase 2’s off-take continues to build momentum as we see volumes coalesce in the market around projects that have the highest potential of commercial development. Phase 2 is also expected to add two additional liquefaction trains capable of producing an incremental 13 Mtpa, which would effectively double the total capacity of Port Arthur. In its entirety, the Port Arthur energy hub showcases the expertise and value that Sempra Infrastructure’s integrated capabilities bring to project development. Earlier this year, in March, Cameron LNG Phase 2 received approval for its FERC order. Sempra Infrastructure and its partners at Cameron LNG continue to develop a fourth liquefaction train. We have now begun working with Bechtel to perform value engineering to reduce construction risks and project costs. We expect this process will continue through the end of the year. Sempra Infrastructure’s mission is to provide energy for a better world through its high growth, low carbon platform. We’re excited about collaborating with Mitsubishi Corporation and a consortium of Japanese natural gas utility companies to explore the development and export of e-natural gas, which is synthesized from captured CO2 by combining it with green hydrogen. Together, the stakeholders intend to evaluate a Gulf Coast project with a view towards producing approximately 130,000 tons of e-natural gas annually that would be liquefied and exported from the Cameron LNG terminal. Wrapping up on Sempra Infrastructure. The overall scale of our portfolio positions us to capture additional growth opportunities, create new synergies, and support the growth of top tier projects, as demonstrated by the Port Arthur Energy Hub, currently under construction and development. As Jeff mentioned earlier, we believe North America's energy markets will continue to be driven by the trends of decarbonization, energy security and reshoring of manufacturing back to North America. Sempra Infrastructure remains well positioned to contribute to and capitalize on such opportunities. Please turn to the next slide. Turning to our financial results, earlier this morning, we reported third quarter 2023 GAAP earnings of $721 million or $1.14 per share. This compares to third quarter 2022 GAAP earnings of $485 million or $0.77 per share. On an adjusted basis, third quarter 2023 earnings were $685 million, or $1.08 per share. This compares to our third quarter 2022 earnings of $622 million, or $0.98 per share. Please turn to the next slide. The variance in the third quarter 2023 adjusted earnings compared to the same period last year can be summarized by the following. At Sempra California, $27 million of lower income tax benefits and higher net interest expense offset by $27 million of higher electric transmission and CPUC base operating margin at SDG&E, net of lower authorized cost of capital and higher regulatory interest income at SDG&E and SoCalGas. At Sempra Texas, $49 million of higher equity earnings from weather driven consumption, new base rates and customer growth. At Sempra Infrastructure, $21 million of lower net interest expense due to higher capitalization of interest on projects under construction, $16 million, primarily driven from higher transportation tariffs. At Sempra Parent, there were $23 million of higher costs, primarily driven by increased interest expense, partially offset by a net income tax benefit. Given the geographic and regulatory overlays between the two companies, we are currently considering resegmentation in which our SDG&E and SoCalGas segments would be combined into one reportable segment, Sempra California. We intend to complete our analysis in the fourth quarter of 2023 and assuming a positive determination is made, we would implement the resegmentation in our annual 10-K for the period ending December 31, 2023. Please turn to the next slide. We are pleased with the strength of our third quarter results and the positive message it conveys about Sempra's business quality and the robust growth we are seeing across all three platforms. Before I close, let me briefly touch base on the balance sheet. Debt is a core component of our capital structure, and over the past three years, we've taken important steps to transition to lower rate, longer duration, fixed rate debt. We have been prudent with our balance sheet management by using proceeds from the non-controlling interest sales to KKR in 2021 and ADIA in 2022 to repay short-term debt and limit near-term parent debt maturities. In fact, at the parent level, if interest rates increase by another 50 basis points, we would project a negligible impact to EPS between now and 2027. Please refer to Slide 14 in the appendix for additional information. Looking forward, we remain focused on identifying and executing on sound capital investment opportunities. We are continuing to optimize our financing plan to support the growth we highlighted today and will evaluate all of our financing options, including the use of common equity to support accretive growth. Throughout our history, Sempra has demonstrated operational excellence, strong financial stewardship, meaningful earnings growth, and a commitment to return capital to our shareholders. We would now like to open the line up and take some of your questions.

Shar Pourreza:

Hey guys.

Shar Pourreza:

Good morning, Jeff. I know Trevor just kind of answered the question a little bit here. But on the 10% to 20% CapEx, I mean, that’s obviously significant financing needs that will come with that. And you guys have different levers, right? You’ve been able to kind of minimize that external equity. You’ve recapitalized at SIP. You’ve had obviously some unlocking of debt capacity. I guess, I’m just kind of curious on, can you just elaborate on just Trevor’s comments a little bit around the source of funding this 10% to 20%? Does it need to come from straight equity or can you utilize what you’ve utilized in the past? Thanks.

Trevor Mihalik:

Yes. Sure, Shar. Again – how you doing, Shar? We’re pretty excited about the investment opportunities and that’s really kind of what we had mentioned on this call. And that’s really kind of coming from the regulated utilities and that’s really around continuing to deliver safe and reliable service to our customers. So that 10% to 20% increase over the five year capital plan, we will discuss in more detail on the year end call. But we do understand just how important the financing is on this. So we’re continuing to analyze the expected capital needs and we are currently looking at efficient ways to finance this growth. And as we always have, as Jeff said, we will look at all of the options, but we will include common equity as part of that consideration.

Jeff Martin:

Thank you, Shar. The way I would think about it is, we just had – Trevor and I just had our Oncor Board meeting just two weeks ago. They’re going through their planning process. And what’s different this year relative to prior years is we’ve aligned our financial planning process here at Sempra with the work that Allen and Don do in Dallas. And as we’ve been going through that process, we’ll make some final decisions with the Oncor Board later this year and look to kind of report kind of a comprehensive view on our capital in February. The good news is we’ve seen enough direction about where the capital plan is going to provide that 10% to 20% guidance. So, look, I was thinking about this before. If you go all the way back to the early 2018 time frame, we had roughly a $14 billion five year capital plan. And right now we’re executing on one that’s close to $40 billion. And we’re expecting that to go up quite significantly between now and February. So we’ve been on a pretty big growth campaign over the last three to five years, and we’re pleased that it’s continued. What we can guide you to is it will be anchored to utility investments and specifically led by Texas.

Jeff Martin:

Sure.

Jeff Martin:

Yes. I’ll make a couple of comments and I’ll pass it to Justin. I would start by saying that we’re at this point in the planning process where we’re not going to go into details about what’s in the plan or outside the plan. What’s more important to us is our LNG strategy, which you’re referring to is moving forward briskly, primarily because as compared to our peers, we have the opportunity to both dispatch LNG directly into the Pacific and out of the Gulf. I would update you, Shar, that Cameron Phase 1 is producing in excess of 100% of its expected volumes. Both ECA Phase 1 and Port Arthur Phase 1 are in construction and moving forward on schedule with a great safety record. And I think what might be helpful to your question is for Justin. Maybe do two things, Justin, if you would, talk about the development status of Cameron LNG Phase 2, Port Arthur Phase 2, and then speak directly, if you don’t mind, both to the Louisiana connector as well as the storage facility.

Shar Pourreza:

Thank you, Justin.

Shar Pourreza:

A couple days. Bye.

Jeff Martin:

Hi, Carly.

Jeff Martin:

I think, one of the most important things we’re tracking right now, Carly, is making sure that we have a successful execution of our general rate case here in California that continues to go well. We’ve got a track record of working well with all stakeholders to get to good outcomes for our rate payers. So that’s one that we’re following. We’ve obviously got several things that Justin just went over in terms of development opportunities related to Port Arthur Phase 2 and Cameron Phase 2, both of those are significant opportunities for our company. And I think Justin and his team have a fair amount of momentum on both of those projects. And what might be helpful to you is to give a little bit color about some of the drivers, specifically in Texas, having spent more time out there. It is really quite remarkable. I’ve been in the business for almost three decades, and it’s quite remarkable the type of growth and how diversified the growth is in Texas. And maybe if we could, Allen, if you could provide a little bit more color about where some of the growth is coming from and why it’s impacting your capital plan so strongly.

Jeff Martin:

Thank you, Allen.

Jeff Martin:

Thank you for the question, Carly. I know that PG&E spoke to this on their call last week and Edison spoke to it earlier this week. And the way we think about it is the cost of capital mechanism was put in place for situations in our view, when the capital markets move outside the deadband. And with the rising rates that we've all seen, that's what we've seen over the last year. Based on the methodology that's used in California, the cost of capital mechanism has triggered. And accordingly, Carly, we have filed our advice letters last month with the resulting change to rates. You may have seen yesterday, interveners filed their joint filing and we'll make our reply next week. But from our perspective, at the end of the day, we fully anticipate the commission will support the existing adjustment mechanism that's in place. And in terms of 2024 guidance, we reaffirmed that today. We've taken this question before and we've said that whether it goes forward or doesn't go forward, it's within the range that we published.

Jeff Martin:

Thank you, Carly.

Jeff Martin:

Hi, Steve.

Allen Nye:

Thank you.

Jeff Martin:

Steve, it's something we have under evaluation right now. And as you know, when you think about financial segments, you think about how Trevor and I view the business. And from an accounting perspective, we think this is something that might make sense in terms of how we manage the business across three growth platforms. But, Trevor, perhaps you can provide some additional color from Steve on where you're at with your analysis.

Steve Fleishman:

Okay, great. My other questions were answered, so thank you.

Operator:

Thank you. Our next question will come from Julien Dumoulin-Smith from Bank of America. Your line is open.

Kevin Sagara:

Thank you, Julian.

Jeff Martin:

Yeah.

Jeff Martin:

Sure. No, we're not selling down any portions of the utilities. No, most importantly, when you see this type of growth that's in front of our company, it goes back to kind of first principles at Sempra which is being a disciplined allocator of capital, and it's just as important to match that discipline with efficiently sourcing. And we've answered this a couple of different times, Trevor, but maybe you just provide some color on how you're thinking about again.

Julien Dumoulin-Smith:

Got it. All right. Indeed, I wish you the best of luck as you plan, and I anticipate we'll hear on fourth quarter on that front. If you may just to pivot in a slightly different direction; as you think about the quantum of CapEx and the potential step up here, how do you frame that against the regulatory lag expectations? Again, I get that you haven't settled on ten versus 20%, et cetera, but how would you think about lag prospectively, understanding some of the legislative impacts, amongst others, that could also play into the math about keeping up earned returns?

Julien Dumoulin-Smith:

Got it. So, more consistent level, or actually, could you see improvement on earned returns?

Julien Dumoulin-Smith:

Excellent. Thank you. Best of luck here, and I'll see you soon.

Operator:

Thank you. We have time for one more question, and our last question will come from Nicholas Campanella from Barclays. Your line is open.

Nicholas Campanella:

Hey. Thanks to squeeze me in. How's everyone doing? Hey, I just wanted to follow up on the segmentation for California. Just what's the ultimate goal? Is it just to simplify the structure from a reporting standpoint, or is there benefits that could be realized for customers and shareholders if you were to kind of pursue something from a regulatory standpoint? I just acknowledge that SoCalGas and SDG&E are pretty close on the filing paths and just wanted to take your temperature there.

Nicholas Campanella:

Okay, great. And then maybe I could just kind of come back to some of the questions on the growth rate. Quick, like I understand that cost of capital is, reflected in the range of outcomes here but you have a lot of positives that you just talked about in Texas – obviously, financing is a moving target, but should investors still just be expecting you to do the six to eight no matter what the scenario? Or do you see upward pressure to the growth rate?

Nicholas Campanella:

Hey, I appreciate it. And happy Friday. Thank you.

Operator:

Thank you. That concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Jeff Martin for any additional closing remarks.

Operator:

Thank you for your participation. You may now disconnect.

Operator:

Good day, and welcome to Sempra's Second Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn it over to Glen Donovan. Please go ahead.

Jeffrey Martin:

Thank you all for joining us today. Earlier this summer, Sempra celebrated its 25th anniversary. While the company was founded in 1998, our operational routes at San Diego Gas & Electric and SoCalGas date back to the late 1800s. Over that time, we've embraced a strong commitment to serving others, delivering energy with purpose and bettering our communities. Today, we have 3 premium growth platforms located in what we believe are the most attractive markets in North America. And looking forward to the next 25 years, we're really excited about the opportunities in front of us to modernize and expand our energy network so that we can deliver increasingly clean, affordable and reliable energy to our customers. This year, we also published our 15th corporate sustainability report, emphasizing how our sustainable business practices help mitigate risk and unlock new opportunities as we continue executing on our record $40 billion 5-year capital plan, which, you'll recall, only includes Sempra's proportionate share of the capital. Today, Sempra has multiple tailwinds supporting our growth and income equity story, and we're confident in our ability to continue delivering high-quality earnings and dividend growth to our shareholders. That brings me back to the quarter. Earlier this morning, we reported second quarter 2023 adjusted earnings per share of $1.88 and year-to-date 2023 adjusted earnings per share of $4.80. As you'll recall, we discussed the company's 2023 and 2024 guidance on our first quarter call in May. And based on the strength of our results across the first half of the year, we're pleased to affirm both our 2023 and 2024 guidance ranges and our projected long-term EPS growth rate of 6% to 8%. Also, just yesterday, Sempra's Board approved a 2-for-1 stock split with the distribution date on August 21. The split does not impact our reported results for the second quarter, but it's important to note that in the third quarter, our historical and future financial results will reflect the post-split share count. For the last several years, we've had one of the highest stock prices in the S&P 500 Utility Index. So with the planned split, we believe it will increase our trading volume and provide more accessibility for a broader group of investors to join us on our mission to be North America's premier energy infrastructure company. Please turn to the next slide. When Sempra began its journey in 1998, we had a relatively modest rate base of roughly $5 billion. And across the last 2.5 decades, we've been successful in transforming the size and scale of Sempra's overall portfolio while also simplifying our business model. Today, we own $45 billion of rate base and over $80 billion of assets with an investment focus on what we believe is the higher-value, lower-risk portion of the energy value chain or transmission and distribution assets. I'd also note that Sempra's businesses are located in contiguous markets in the southwestern tier of North America and really benefit from strong economic growth across the region. Our strategy focuses on investing in regulated utilities that are decoupled from direct commodity exposure and long-term contracted energy infrastructure while avoiding the volatility associated with commodities and the uncertainties facing legacy generation facilities. In other words, our core value proposition focuses on investing in the transmission and distribution backbone of North America and helping to efficiently move energy from producers to customers. Finally, our T&D utility investments benefit from constructive regulatory mechanisms with competitive returns on equity and the timely return of capital. Sempra Infrastructure's business is underpinned by long-term contracts with world-class counterparties that are expected to provide steady recurring cash flows. Taken together, our 3 platforms provide great visibility to high-quality, long-term earnings growth which is aligned with our overall mission to continue building out the premier energy infrastructure company in North America. Please turn to the next slide, where Trevor will walk you through both our business and financial results.

Justin Bird:

Thank you, Trevor. Sempra Infrastructure was formed 2 years ago to streamline our business and bring together decades of energy infrastructure development and operating expertise under a single platform. Our increased scale positions us to capture new opportunities, create portfolio synergies and support the growth of North American energy markets. There are 3 key trends that support these opportunities

Operator:

[Operator Instructions]. And our first question will come from Shahriar Pourreza with Guggenheim Partners.

Jeffrey Martin:

Yes. Thank you for the question. And I certainly agree with you. This has been a very constructive legislative cycle in Texas, and I would start at the very beginning by really expressing our appreciation to Allen and his team. They deserve a lot of credit. They had been doing an exceptional job on the ground there. They're clearly seeing a lot more growth on the system, Shar, and I'll have Allen speak to some of that growth in a second. But we would look forward to refreshing the Oncor plan this fall and providing future updates from Sempra's perspective in February. I do think you may find it helpful though, and I want to mention, as a rule of thumb, the DCRF legislation is expected to improve Oncor earnings in our estimation, around $70 million to $90 million on a full year basis, which falls within our current guidance. But as I mentioned, we'll be updating for 2025 on our February call. Also, it may be helpful that as a ballpark reference, every incremental $100 million of capital added to the plant in Texas is expected to add approximately $0.01 of accretion to Sempra on a pre-split basis. But Allen, it might be helpful to Shar, if you just provide a little bit of visibility into the growth that you're seeing on the system and your future expectations.

Jeffrey Martin:

So Shar, I'll just make the kind of concluding comment here that we've guided to $70 million to $90 million of incremental earnings associated with the DCF legislation. We talked about the accretion associated with the $100 million of capital in Texas. And to highlight, I think, a couple of key things from Allen's comments. We've effectively doubled the rate base from 2017 to 2022. And I think Allen highlighted this, but there's more work to be done this fall with our planning team, but we have a real opportunity to more than double their rate base a second time in the next 5 to 6 years. So we've got some more planning work to be done. But we look forward to working with the Oncor Board and finalizing his roll-forward 5-year capital plan and certainly coming back and updating how we think about that from Sempra's perspective in February.

Jeffrey Martin:

Yes. Thank you, Shar. I'll kind of address both of those questions. I think the thought process behind the stock split is that we currently have the highest stock price in the S&P 500 Utility Index as we celebrate our 25th anniversary, this is the first time that we've announced a stock split for the company. We certainly, to your point, think it will improve trading volumes and make the stock more accessible to a broader group of investors. So we view it just generally as a positive. And I think it really reflects management's bullish view on our future business prospects. Turning to your issue of strategy, and I'll come back to Mexico. Our Board reviews our strategy at every Board meeting. It's been a top focus of our management team for the last 5 years. And it's allowed us to simplify our business model, improve our visibility to future growth. When you think about the updates that Allen just provided and some of the things from our prepared remarks, we feel great about our growth and income story. And we have more work to do, as I indicated, with Allen's team to continue to think about the growth prospects in his business. Turning to Mexico. This kind of goes to the issue of what our prioritization is. And Justin mentioned this in his prepared remarks, but by combining Mexico with LNG, we created a business of larger scale with what are effectively midstream assets, with approximately 17 to 18 years' tenure in that overall contract portfolio. So it's a really high-quality portfolio of cash flows. But as we look to finance our future, there's no question that we're going to continue to prioritize the growth in our utilities. We've demonstrated a willingness to sell down in the capital structure to SI. And I think we've done that quite efficiently in the past 2 years. And opportunities like you identified and continue to capital recycle, that's right in our wheelhouse. So we'll continue to look for assets. They are less core to our future strategy. And that will always be something that we'll take a hard look at with Trevor and his team. So we feel good about our strategy going forward, and we appreciate the question.

Durgesh Chopra:

Just maybe just looking at your year-to-date performance, just wanted to get your thoughts of that's tracking versus your expectations? I mean the EPS guidance range is still pretty wide. But clearly, you've exceeded my expectations, and I believe, Street estimates. So just how is the year shaping up versus your guidance range?

Durgesh Chopra:

Got it. Very strongly positioned, it sounds like. Okay. Then maybe just turning to California, and you mentioned the rate cases. But the CAISO opportunity, $500 million, is that incremental? Or is that embedded in the current CapEx plan? And then you also highlighted $2 billion worth of projects, which are going to be competitively bid on. Maybe just talk to us as to how we see that embedded into your CapEx plans, just the time line and next steps there.

Kevin Sagara:

Thanks, Durgesh. Stepping back for a second, as Jeff's talking about it, clearly, the grids all across the country need significant upgrades as we move towards more electrification. In California, we've estimated that electric demand will more than double by 2045, with commensurate investments in grids. And as you mentioned, we're seeing that kind of load growth in San Diego already with a lot of adoption around electric vehicles. So we're really excited about this recent announcement for the CAISO to add $7 billion. This is just like an incremental $7 billion of transmission opportunities. And as Trevor mentioned, $0.5 billion has already been directly awarded to SDG&E, and we're going to bid on those $2 billion to $3 billion of other projects. And I'd note that across the Sempra family of companies, we're one of the largest owners and operators of high-voltage electric transmission in the country and really well positioned to be successful here in California as California continues this path of aggressive, aggressive investments to enhance and facilitate electrification.

Kevin Sagara:

Well, it's going to be -- I think there's going to be a short list close to winter in December and then with something awarded early next year. So I think more to follow here, but there's a process that CAISO is going to follow. And like I said, I'm pretty optimistic, and we're going to be very competitive.

Julien Dumoulin-Smith:

All right. If I can focus first on the LNG side, if you don't mind. I just wanted to understand a little bit of the push out in the time line on the Cameron side. Clearly, this has been, in some senses, articulated previously. But as you think about getting clarity on time line today on when to move forward, are you kind of waiting for inflation to moderate? Are you waiting for certain milestones to be achieved here with your new partner, with Bechtel? Or are there other considerations? Just to kind of understand the shift to '24 now, but also the input parameters to narrow that in a little bit more precise.

Justin Bird:

Great. Well, thank you, Julien. Let me take a step back, as Jeff mentioned, again, our core strategy is to build an LNG infrastructure business. And that would be a business that offers customers LNG volumes from both the Pacific and Gulf Coast. And as you think about where we are to date, Cameron Phase 1 is producing in excess of 100% of its expected volumes. ECA Phase 1 and Port Arthur Phase 1 are under construction, and both are proceeding safely and on schedule. And as you look at our LNG development projects, look, we're very excited about the opportunity set in front of us. At Cameron Phase 2, as Jeff mentioned, the selection of Bechtel is a major milestone. And what we're doing with Bechtel is similar to what we did at Port Arthur. We, and our Cameron partners, will continue to conduct value engineering work through the fall as we finalize the EPC arrangements. And again, you have to remember that the goal is to optimize the design so we can optimize the overall cost structure and timing of COD. These efforts should position us for an FID next year, subject to definitive commercial arrangements and any needed regulatory extensions. So as you think about that timing, we're going to press forward on the EPC arrangements. And we -- I guess I would echo what Jeff said, we were in this position last year on Port Arthur 1, and we'll try to do the same thing. Looking at Port Arthur Phase 2, very optimistic. We continue to advance commercial discussions with potential customers. Importantly, many of whom are also interested in project equity. And at the same time, we're advancing engineering construction with Bechtel, regulatory and financing. Julien, as I kind of think about the business and where we are today, I think the key takeaway is we have made significant progress on our LNG strategy and are very bullish on both Port Arthur Phase 2 and Cameron Phase 2 moving forward next year.

Julien Dumoulin-Smith:

Got it. And just in light of those last comments, if you don't mind elaborating, Jeff, you used the term leapfrogging. I heard you the last time talking about it. I'm hearing you this time talking about it. So you feel pretty good about getting -- just the time line here, you're closer than not on announcing incremental commercial terms here, if you will, as just on PA2. And then also the inflationary dynamics. Do you feel confident about the terms there to derisk that project, the second phase as well?

Julien Dumoulin-Smith:

Right. And you said still anticipated to sell down the equity potentially in future expansion. Just considering the backdrop of LNG transactions of late, I figured you just clarify that last comment, too.

Operator:

Our next question comes from Jeremy Tonet from JPMorgan Securities.

Jeffrey Martin:

No, we don't. We do think it's important for that FERC certificate to be issued. We certainly think that will be issued in the next month or 2. So we remain optimistic about that.

Jeffrey Martin:

Look, I think at Cove Point, what you saw take place was the transaction from minority interest. It was not a transaction related to a controlling interest. I think the thing I would fall back on, Jeremy, is when you look at what's taking place in the LNG marketplace today, in the world, has a global capacity of just below 400 million tonnes per annum. That marketplace will grow by more than 50% by the end of the decade and likely double by the middle of the century. So the way we think about it is there is a need today for more LNG. That need will grow as countries around the world look for natural gas to balance out their commitment to cleaner fuels like renewables. We think the United States continues to have a competitive advantage, and we'll take market share. We are the world leader today in 2023. And when you think about the competitive price of natural gas in the United States, you think about the depth of our capital markets and the constructive regulation. This is less about Cove Point or NextDecade or Sempra. This is about the United States taking a leadership position in the world. We think this business will continue to get much bigger. It's grown at about an 8% CAGR from '17 to 2021, and we continue to expect to see strong growth in LNG marketplace. And I think Sempra is well positioned as any company in North America to be a big part of it.

Jeffrey Martin:

We're having commercial negotiations on Port Arthur Phase 2 as well as on some of the offtake arrangements around Cameron expansion. Many of the same type of customers you would expect in Europe and in Asia are part of those conversations. It is a very vibrant market today, and there's lots of conversations taking place by our marketing team. So we remain optimistic about future announcements in that area.

Jeffrey Martin:

Yes. I would say that we've named this project Titan. It's some recent port space that we've been able to acquire. It is a very competitive process in Louisiana and Texas to have these types of facilities. And Titan has been dedicated to serve the needs of Port Arthur Phase 1 and future phases at Port Arthur. We also expect that it will serve other third-party interest in the region.

Carly Davenport:

Just wanted to go back to Texas very quickly. You had mentioned the Resiliency Bill. Could you just give us some details from a timing perspective in terms of when you're able to file for that? And kind of how long the approval process is expected to take until you can begin to recover investments under it?

Allen Nye:

Yes. You bet, Jeff. Let me -- I'll just run you through kind of the time line that we're seeing for HB 2555, the Resiliency Bill. The bill became effective June 13 of this year. It required a rulemaking to be completed within 180 days. So the statutory deadline for the rule is December 10 of this year, subject to whatever comes out of that rulemaking. Presumably, utilities like us would be free to file thereafter. The plans that are filed with the Commission by law are required to be approved, modified or rejected within 180 days. So with respect to us, we're hoping to file a plan in Q1 of 2024 and seek to have that plan approved in the second half of '24. That's what we know for now.

Jeffrey Martin:

Sure. I'll make a couple of comments, and I'll pass it to Kevin if he wants to add anything. But the GRC hearings concluded in July and opening briefs will be filed in the middle of this month, with the proposed decisions I indicated in the second quarter of 2024. I think the most important thing, Carly, is the state is very focused on safety, reliability and decarbonization, and that's exactly how we lined up our rate cases. So remember, we had the first ramp rate case back in 2019. This is also a ramp format that we're following, and it's really closely aligned with what we think are the public policy positions of the state. So I think we're in good shape. Kevin, would you like to add anything else about how this unfolds?

Operator:

Our next question will come from Nicholas Campanella from Barclays.

Jeffrey Martin:

Sure. I would just say that we had originally targeted between 20% and 30% ownership. Obviously, our goal is to own as much of the project as we can. So we are very pleased to guide up to the 28% range. Previously, on calls, we had talked about notionally just giving out information at the 25% level. But our goal all along was to make sure that we could land as high in the range as possible. I think we're well set on financing. I'll pass it over to Faisel Khan, who's the CFO of Sempra Infrastructure, and maybe you can just update us on how he expects the Denali capital process to go forward and your funding for Port Arthur Phase 1.

Nicholas Campanella:

Got it. And then I know everyone is very focused on Train 4 for Cameron. But can you just give us a sense of how debottlenecking for 1 through 3 is progressing? And whether you remain on track to increase that capacity before Train 4?

Justin Bird:

Yes. Yes, Nick, we're still doing some of that engineering work. I'd say it's very positive. And as -- just as you recall, the debottlenecking won't be binary. So what we'll likely do, as we continue to take trains down for routine maintenance, we will do the debottlenecking activities during those trains, and we'll expect to see additional volumes. So again, debottlenecking is moving forward very positively.

Steven Fleishman:

I just wanted to circle back to the -- back to Oncor and some of the things you mentioned, that $70 million, $90 million on DCRF and the kind of sensitivity on investment. So when would you see this benefit of DCRF? Would that be pretty much in place for 2024? Or -- yes.

Steven Fleishman:

Okay. But you said it falls within your guidance because your guidance range is pretty wide, I guess.

Steven Fleishman:

Okay. And tied in with that, just on the capital at Oncor, which you said you'll update in the fall. The -- I mean will that include -- are you going to just update kind of normal course there? Or will that include this reliability aspect as well, which won't have been fully finalized by them? Or would that maybe come later on?

Allen Nye:

No, Jeff. I think that's exactly right.

Jeffrey Martin:

Look, as we close out today's call, I wanted to note that we're pleased with our financial results, both for the quarter and for the first half of the year. I certainly believe we continue to make great progress on our LNG story, and we're making progress at Phase 2 at both Cameron and Port Arthur and are also pleased to guide to the higher ownership percentage of 28% at Port Arthur Phase 1. And as you can tell from today's call, Texas continues to be one of the leading growth stories in the country. And the improved regulatory compact there is a very strong signal, in my opinion, for continued investment. And finally, as we celebrate our 25th anniversary, we're pleased to announce our 2-for-1 stock split. We appreciate everyone making time to join us this morning. We have several IR events this month in Wisconsin and Las Vegas and hope to see many of you there. This concludes our call, and feel free to follow up with our IR team. Thank you.

Operator:

Good day, and welcome to Sempra's First Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn it over to Glen Donovan. Please go ahead.

Jeffrey Martin:

Thank you all for joining us today. We're excited to report that through the first 4 months of this year, we've accomplished several significant objectives that advance our business strategy and position the company for future success. We're off to a great start for this year. So what I'd like to do is provide you updates on several key business developments, growth opportunities over the next half decade and our EPS guidance for 2023 and 2024. After that Trevor and Justin will walk us through the business and financial achievements for our three growth platforms. And at the end of today's call, we'll reserve time for your questions. Turning now to business developments. Oncor completed its base rate review last month with an updated ROE of 9.7% and a continuation of its existing equity layer of 42.5%. This constructive outcome provides strong support for Oncor's credit ratings and the expanded capital spending that's needed to meet the strong growth that's continuing to occur across its service territory. Just last week, Oncor's Board met and reviewed the company's updated 5-year capital plan, which increased from roughly $15 billion to $19 billion. Oncor continues to see strong demand growth on its system and the need to make additional capital investments in transmission, distribution and new technology to continue improving safety and reliability. It's also important to note that we expect Oncor management will again refresh their long-term capital plan in the future with a view toward increasing it for the roll-forward 5-year period ending in 2028. Next, I'd like to mention that I'm pleased with the recent positive final investment decision at Port Arthur LNG. It's an important milestone that highlights the growing franchise value of Sempra Infrastructure and how well positioned that platform is for continued growth through the end of the decade. We also have a lot of respect for ConocoPhillips and their management team. Their participation in the capital structure and offtake creates strong alignment with us for successful execution of the project. I would note as well that we're bullish about future LNG opportunities and expect the U.S. LNG capacity will grow annually at a double-digit clip through the end of the decade and that Sempra Infrastructure is well positioned to help the U.S. extend its leadership position in this area. With these developments and a newly updated view of our planned capital spending across all three growth platforms, we're announcing Sempra's new 2023 to 2027 capital plan of $40 billion. Note, too, that this number only includes Sempra's proportionate ownership share of the capital being allocated to Oncor and Sempra Infrastructure, including Port Arthur LNG. This year, we're celebrating Sempra's 25th anniversary. Our 20,000 employees are on a mission to build North America's leading energy infrastructure company. And it's our commitment to innovation, sustainability and leadership that guides our disciplined investment strategy. We aim to provide a growing and competitive dividend while also increasing the company's earnings per share over the long term at rates of growth that continue to trend above the industry average. With that backdrop, we're affirming our full year 2023 adjusted EPS guidance range of $8.60 to $9.20 and issuing our full year 2024 EPS guidance range of $9.10 to $9.80. Together, this updated guidance and our new capital plan provide a solid foundation for our long-term projected 6% to 8% compounded annual EPS growth rate, which we're also affirming today. Now I'll turn the call over to Trevor to discuss our 5-year capital plan in more detail and provide a summary of our business and financial results.

Justin Bird:

Thanks, Trevor. Sempra Infrastructure had a strong first quarter of strategic accomplishments, particularly across its LNG and net-zero business lines, where continued demand for cleaner, more secure energy has strengthened the need for future development. On the Gulf Coast, we've had several positive developments I want to highlight. I'll speak to Port Arthur in a moment. But first, in March, FERC approved Cameron LNG Phase 2's amendment to transition from gas turbines to electric drives. The completion of this work stream is critical to the development of the project. Given its competitive position to deliver LNG to customers in Europe and Asia, we remain confident in the attractive upside opportunity offered by this proposed expansion. As a reminder, we expect that Cameron partners will take their share of offtake and SI will sell its share of volumes under back-to-back contracts. We continue to advance the competitive feed process. We've been targeting the completion of this process later this summer. Consistent with our disciplined approach to project development, we and the Cameron partners may extend this process beyond the targeted time frame to reduce construction risk, project cost and optimize the construction schedule through COD. We would expect to take FID after completing the FEED process as well as the project financing. At Port Arthur LNG Phase 1, we reached a positive final investment decision in March. We closed on $6.8 billion of nonrecourse project debt and executed definitive equity financing agreements, which paves the way to advance the project. We continue to target closing our transaction with KKR this summer, pending regulatory approvals. The momentum on Phase 1 sets us up well for a potential Phase 2 expansion at the facility. And it's important to note that SI has retained rights over the associated development and common facilities. We're continuing development work on the proposed expansion. And last month, we were pleased to receive the environmental assessment from FERC, citing no adverse impact, another positive step in our development. Port Arthur LNG Phase 1 was a great example of our strategic approach of collaborating with world-class partners to identify and execute investments with long-term contracted cash flows, all with a view of creating incremental value to our owners. We're continuing to execute this strategy, capturing new opportunities to support energy security and the global energy transition. In Sempra Infrastructure's new capital plan, we have included Sempra's targeted proportionate share of the $13 billion projected capital expenditures at Port Arthur LNG Phase 1. Sempra Infrastructure Partners is targeting a 20% to 30% ownership interest in the project. Based on Sempra's 70% ownership of Sempra Infrastructure Partners and assuming its 25% target ownership in the project, we're including approximately $2 billion in our capital plan. As a reminder, our planning convention is to only include projects that have reached FID. And therefore, our plan does not currently include Cameron LNG Phase 2, Port Arthur LNG Phase 2 or other development opportunities where we haven't taken FID yet. As you look to the robust growth opportunities that we've outlined in the appendix, I also would highlight we're now including the Port Arthur Louisiana Connector Pipeline. The pipeline would support 2 Bcf per day of feed gas supply for Port Arthur from the strategically located Gillis hub. Please turn to the next slide. With FID at Port Arthur now behind us, I'm excited to provide you the first update on construction progress and how quickly teams, led by Bechtel, have mobilized to start construction. There are already approximately 450 people on site, including both the Bechtel and SI teams. As a result, the site is changing daily. Clearing of the areas for the two LNG trains and two storage tanks is almost complete. And we've already started soil stabilization. We're doing this all with a firm eye on maintaining both a strong safety culture and deep community support for the project. Please turn to the next slide, where I'll turn it back over to Trevor to discuss Sempra's financial results.

Operator:

[Operator Instructions]. And our first question will come from Shar Pourreza from Guggenheim.

Jeffrey Martin:

Thank you, Shar. Our approach has been to basically put together a 2023 update as well as a 2024 plan. It contemplates a number of outcomes. And I would say, independent of those outcomes in Texas, we would stick to the same plan we have on The Street now.

Jeffrey Martin:

Our current expectation, and we're going to -- we don't want to front-run the legislature, is that we do get some constructive outcomes. And we expect that the DCRF benefit, if it were to pass, is within the range and currently in the plan.

Jeffrey Martin:

Yes, it's a great question. One of the things we've talked about internally is you would expect your earnings growth over time to pretty much track your capital growth over time. So that's one of the reasons we have a lot of confidence in that 6% to 8% range. But I would actually take the opportunity, Shar, to make two other comments here. First, one of the things we oftentimes tell our investors are that our past financial results should be a good indicator of our future performance. I think you and I have had this conversation before. But over the past 10- and 20-year periods, we've consistently been able to grow our earnings per share at rates and the rates of roughly 7% to 8%. And even more recently, in the 5-year period, you'll recall that we've been able to grow our earnings per share at an annual growth rate of just over 10%. So to your point, when you start looking forward, we have reaffirmed our 6% to 8% EPS growth rate. And I've always wanted to be very clear. It's not a quarter-by-quarter or year-over-year type of forecast. We're really truly focused, as you point out, on growing the business over the long term and particularly through the end of the decade. So from my perspective as the CEO, I think the takeaway from today's call is that our announcement of a $40 billion capital plan makes us even more confident in our long-term forecast. And I would tell you through the end of the decade, given all the opportunities that are in front of us, and you outlined many of them, I would be disappointed if we didn't exceed the high end of that range.

Jeffrey Martin:

Thanks, Shar. We appreciate it.

Steven Fleishman:

Yes, a couple of questions. So just could you talk to your funding plan for the higher CapEx? And I guess, specifically, it looks like in the appendix that there's some additional shares in the '24 guide. Could you just talk to what's driving that and the like?

Trevor Mihalik:

Yes, sure, Jeff. I'd be happy to. So Steve, if you take back and you look over the last 5 years, we really have taken steps to strengthen our balance sheet and our credit metrics. And we did include kind of a summary in the appendix of the slide deck of each of the businesses on their credit carrying a stable outlook. But as part of that process, we've also developed an efficient loading order when you look at seeing how we source the lowest cost of capital to fund these businesses. So first, we've taken concrete steps to simplify the business and then to sell non-core assets. And then we've recycled that into new investments. And that process really occurs on a routine basis. Secondly, we do evaluate debt and equity at the project level. And Steve, a good example of that would be what we recently did at Port Arthur with that announcement, where we just circled over about $10 billion of third-party debt and equity. And then third, we've also had success in efficiently raising capital at our operating companies. And there, you saw us do that with KKR and ADIA by bringing them into the capital structure of SI, which has allowed us to raise over $5 billion. And then finally, we can always raise debt and equity at the parent level if we determine that's in the best interest of our shareholders. And so bottom line is we're always focused on financing growth that is most beneficial to our shareholders. And we're pretty excited about this capital plan that's in front of us.

Trevor Mihalik:

No, I think that's just some of the shares that are -- we've got in the plan for employee benefit plans and other things like that, so...

Jeffrey Martin:

Yes, the way you thought about it, Steve, is train 1 comes online in 2027 with train 2 coming online in 2028. It would be -- it would not have a material impact on the 2027 number.

Jeffrey Martin:

That's correct. And the way to think about that would be -- you're absolutely correct. And the way to think about that would be the full run rate for Phase 1 of Port Arthur would be in 2029.

Operator:

Our next question will come from Julien Dumoulin-Smith from Bank of America.

Jeffrey Martin:

Yes, appreciate it. One of the comments I was making earlier was that we don't think about it in terms of quarters or years necessarily. The big issue that's needed to respond to you in 2025 is two things. It will be largely driven the outcome of our rate cases in California. And as you know, a lot of people don't put out guidance when they mailed a rate case or have a rate case pending. We've included a reasonable set of expectations for 2024. But that outcome, Julien, will have a big impact on 2025. And the second thing I'd call your attention to is we're still forecasting kind of a half year convention for ECA Phase 1 with ECA expected to COD in the summer of that year.

Jeffrey Martin:

Sure. Let me start with the policy shift, I think, that you're talking about. And I'll come back to the timing of some LNG projects and your inflationary question. So I'll take your second question first. You'll recall, Julien, that last year, the United States made a series of announcements with the EU and the United Kingdom about our country's support for their economic and energy security. We found that to be very constructive. And more recently, that was updated at the G7 meeting, where the U.S. came forward and affirmed the importance of global LNG for energy security and climate goals. So I think the DOE was constructive in putting out both of those statements on behalf of the United States. We're certainly continuing to track the statements they've made here more recently. But our initial assessment is it highlights the significant value of derisked projects that are under construction or actively moving forward, like ECA Phase 1 and Port Arthur. And it probably discourages projects that are not materially progressing. So based on our experience in the sector, the market and the regulators tend to coalesce around projects that have a higher likelihood of being successful. And we continue to have confidence that our projects, in particular, are well positioned relative to that standard. On the issue of timelines, there's no question that interest expense and inflation and supply chain issues are impacting the whole industry. You would likewise expect that to be happening on the LNG side. But right now, we don't see any movement in terms of how we're thinking about future COD dates in some of our projects. But I thought it might be helpful to Justin to do two things. Maybe provide just a short update for Julien's benefit on Cameron expansion but also talk about the excitement you're seeing around interest in Port Arthur Phase 2.

Jeffrey Martin:

I would add to it as well, I made this comment we were talking about the policy issues from Washington. When you see projects like Phase 1 going forward, Julien, it's really been helpful to coalesce interest for Phase 2. So I think the thing that's really interesting is we're really drawing a lot of market interest for Phase 2 at this time.

Durgesh Chopra:

Just I have one quick clarification, hopefully. Trevor, just on the equity front, the plan through 2026, the former plan, you were very clear that there's no equity through 2026. And I appreciate you went through the different sources of financing in responding to Steve's question. Is that still the case through 2027 that is no equity? Or could we see equity at the Sempra consolidated level as you sort of advance through your capital plan? If you could just clarify that for us.

Durgesh Chopra:

That makes a ton of sense. I appreciate that clarification.

Jeremy Tonet:

Just wanted to kind of pivot towards the zero solution -- net-zero solutions, as you talked about before, from SIP. And wondering what updated thoughts you have on that side post passage of the IRA, if Louisiana gets primacy in Class VI wells for CCS, just wondering if you could update us there as far as potential customer interest in these services.

Justin Bird:

Yes, will do. Jeremy, let me start by talking a little bit about Hackberry carbon storage. So as Jeff mentioned, we are actively pursuing solutions to enable net-zero GHG emission goals for energy and industrial facilities, including our own LNG facilities. The foundational initiative really is Hackberry. This is located in Hackberry, Louisiana. And it's in development. And it was intended to basically permanently sequester carbon dioxide from the Cameron LNG joint venture and potentially other industrial facilities in Southwest Louisiana and Southwest Texas. As you mentioned, we have filed an application with EPA for Class VI. Louisiana is working with EPA about primacy. And we have announced a participation agreement with our Cameron LNG partners. And look, IRA is important. The $50 per ton to $85 per ton will support this project. We're also looking at potentially developing carbon sequestration and capture around the Port Arthur facility. So we think there's opportunities to not just reduce carbon output of our own facilities but potentially expand that to some of those other industrial facilities in the region. On hydrogen hub, and I'll be brief, so we're looking at a lot of early-stage efforts. We are participating in three separate hubs that have been encouraged and have filed applications with the DOE. One is around the Port of Corpus Christi, another in the Gulf and others in Texas and Louisiana. So we are looking for opportunities to support hydrogen as one of the many clean molecules that we think will fuel the future.

Jeffrey Martin:

Go ahead.

Jeffrey Martin:

No, please go ahead to the next question.

Jeffrey Martin:

I don't think so. I mean, obviously, we currently have the lowest bills in the state relative to the other two investor-owned utilities. Part of that is we benefit from more moderate climate. But we've got kind of a three-part program that we're currently pursuing. And I would just -- I'm going to pass it to Kevin to address this in a second. He's our Group President for California. But one thing I would tell you that I think is important to remember, we're most successful when our customers are succeeding. And I will tell you that affordability is top of mind for our management team. This has been a tough 2- or 3-year period, where we've seen the cost of living increase. Inflation doesn't just impact the businesses, it impacts consumers. So part of our social compact with our local community is we need to demonstrate every day how hard we're working to maintain low cost and that we're going to bat for them and looking for new and better ways to improve the affordability of our services. I think we're pretty excited about some of the programs we have underway. There's a lot more work to be done. But Kevin, perhaps you could summarize kind of the three-pronged attack that we have on affordability.

Jeffrey Martin:

Yes, the only thing I would add, too, Jeremy, is I think this affordability issue, particularly around this fixed charge that you referenced, what the state really wants to get to is a transition toward higher levels of electrification, particularly in the transportation space. And by moving to a fixed charge, it has the benefit of lowering the rate for electricity. And it makes it more competitive against the fuels that you see in transportation. So I think you've got several things taking place there, where we have a variety of programs which are intended to limit cost to consumers but also make electricity more competitive. And Sempra here in California and in Texas is strongly supporting electrification.

Jeffrey Martin:

Sure. I'd just like to close by thanking everyone for joining today. I know we've got a lot of feedback through a lot of other competing calls this morning. So we appreciate everyone taking the time to join our call. Per custom, if there are any follow-up items, please take the time to reach out to our Investor Relations team with any additional questions. So this concludes our call.

Operator:

Good day and welcome to Sempra’s Fourth Quarter Earnings Call. Today’s conference is being recorded. At this time, I’d like to turn it over to Glen Donovan. Please go ahead.

Jeff Martin:

Thank you, Glen and thank you all for joining us today. We are pleased with our accomplishments in 2022 and in large measure it gives us added confidence in our future performance. In 2023, we will be celebrating our 25th anniversary and across our management team, we are pursuing future opportunities with a lot of optimism. For purposes of today’s call, I will provide summary comments on our performance recap our business strategy and frame our success in terms of our accomplishments over the last half decade. Then Trevor and Justin will review our business and financial accomplishments in greater detail and we will reserve time for your questions. Let me start with Sempra Infrastructure. In 2022, the United States reached an important milestone as an energy exporter. It was the first year that our country became the top exporter of liquefied natural gas, or LNG, while also leading the LNG industry and new offtake contracts that support future development. This supports our view that U.S. LNG exports will more than double by the end of the decade. At Sempra Infrastructure, we built an exciting backlog of LNG development projects that are expected to support that forecasted growth. As one example, Sempra Infrastructure signed more long-term SPAs and HOAs for LNG offtake in the fourth quarter of 2022 than any other market participant. In part, this has allowed us to stay on track in meeting our goal of taking a final investment decision on Port Arthur LNG Phase 1 before the end of the quarter. Outside of our LNG business, we see the continued need to expand and modernize North America’s energy networks, particularly in California and Texas. There is a common opportunity set in front of each of our business platforms focused on investments in modern energy infrastructure that accelerate electrification and the transition to cleaner fuels. We expect significant opportunities for investment across all three growth platforms and are affirming our full year 2023 and EPS guidance range of $8.60 to $9.20. Additionally, on the basis of this future opportunity set, we are reiterating our long-term forecast of a 6% to 8% compounded annual EPS growth rate. Consistent with our past practice, our long-term forecast uses the midpoint of current year guidance and is anchored by strong projected rate base growth at our California and Texas utilities. Given Encore’s ongoing rate case, I also want to note that we plan to share an updated 5-year capital plan as well as our EPS guidance range for 2024 on our first quarter earnings call. Please turn to the next slide. At Sempra, our high-performance culture, one that is centered around safety and operational excellence, is the foundation for delivering on our mission to build a premier North American energy infrastructure company. Our corporate strategy guides our business activities and continues to be validated by the strength of our overall financial performance. In recent years, we have grown the business, strengthened the balance sheet, delivered an attractive dividend and meaningfully increased our rate base, which continues to be a principal driver in our future growth. Looking ahead, our team is excited about the future in part is because we expect our culture and commitment to excellence will continue creating value through the end of the decade as we extend our position as a leader in the markets we serve and continue to invest in our employees. Please turn to the next slide. Since 2017, we’ve executed on our strategy to simplify our business model, build our leadership position in some of the largest economic markets in North America and improve our financial performance. We’ve streamlined our portfolio, exited non-core businesses and extended our regulated utility footprint into Texas by acquiring an ownership stake in Oncor and InfraREIT. Through this strategic repositioning, we’ve been successful in creating greater scale across our franchise and new growth opportunities. To add context around our financial accomplishments since 2017, we have doubled our adjusted earnings, significantly exceeded a compound annual EPS growth rate of 6% to 8%, increased our combined utility rate base in California and Texas by 300%, all while supporting our balance sheet and maintaining a balanced 50-50 capital structure. It’s also important to note that our commitment to this more simplified business strategy has resulted in a strengthened market position, improved business mix, enhanced quality of cash flows and perhaps, most importantly, improved visibility to future growth. Today, in many ways, it is pride in our past that gives us confidence in our future is from Sempra’s rich tradition of serving others that we understand our role in society and how we can best meet the expectations of a growing list of stakeholders. While much has changed over the last quarter century, our vision delivering energy with purpose has remained constant as we embrace each new challenge as an opportunity to create innovative forward-looking solutions. To be clear, this is an important time for our company. At Sempra, we understand that modern energy infrastructure is a great enabler of prosperity, health and well-being for billions of people around the world. That is why Sempra is pursuing the dual opportunities of advancing decarbonization and helping to deliver energy security globally, all while improving the resiliency of how we deliver energy in our core markets. With that, I will turn the call over to Trevor to discuss business and financial updates.

Justin Bird:

Thanks, Trevor. I’m excited about Sempra Infrastructure’s recent accomplishments and want to highlight some of our key achievements. Sempra Infrastructure has seen a solid year of commercial activity with robust LNG, cross-border renewables and pipeline infrastructure demand, creating a foundation for future growth. During the year, Sempra Infrastructure brought assets online within its Clean Power and Energy Networks businesses, while operations at its Cameron LNG Phase 1 terminal exceeded production targets. On the Pacific Coast, we continue to expect ECA LNG Phase 1 commercial operations to commence in the summer of 2025. Also, both ECA LNG Phase 2 and Vista Pacifico LNG received DOE approvals to re-export U.S.-sourced natural gas from Mexico in the form of LNG to non-free trade agreement countries. Please turn to the next slide. As you all know, we continue to advance our strategy of building out a dual market platform that allows us to efficiently deliver LNG to customers in the Atlantic and Pacific regions. To that end, I am excited to say we have completed the marketing phase for Port Arthur LNG Phase 1. We have carefully structured this development project to reduce risk by fully contracting the long-term offtake securing a fixed price EPC and identifying world-class development partners. In November 2022, we announced the execution of definitive agreements with ConocoPhillips, pursuant to which they would acquire a 30% ownership interest in Port Arthur LNG Phase 1 and take 5 MTPA of offtake from the project. In January, we announced that Port Arthur LNG Phase 1 was fully subscribed at 10.5 Mtpa of definitive long-term take-or-pay contracts with world-class counterparties. We also have a fixed price turnkey EPC contract with arguably the most experienced LNG EPC provider in the U.S., Bechtel. With the completion of marketing and execution of the EPC contract, we’re now focused on finalizing the project level debt and equity financing. On the basis of the current financing efforts that are underway, we aim to efficiently raise lower-cost capital and protect Sempra Infrastructure’s investment-grade balance sheet. We are targeting Sempra Infrastructure Partners’ ownership in the project of between 20% and 30% with ConocoPhillips owning 30% and the balance being sold in the form of a non-controlling interest to one or more investors. This is an exciting project. In this initial phase, we’re aiming to generate equity returns in the mid-teens while preserving Sempra Infrastructure’s investment grade rating and reducing our equity contributions to the project. As we approach FID, we continue to focus on striking the right balance of efficient financing, risk mitigation and retention of upside from future project cash flows and earnings. Over the past decade, we’ve successfully built LNG export and other large infrastructure facilities, demonstrating our deep development expertise and capabilities to build world-class infrastructure. I believe this experience serves us well as we aim to bring Port Arthur LNG Phase 1 to FID through construction and ultimately to commercial operations as we execute on our goal of delivering cleaner, more secure U.S. natural gas to global markets. Please turn to the next slide. Turning to Cameron LNG Phase 2. As a reminder, this project is also competitively positioned on the Gulf Coast to export LNG to Europe and Asia. And given that as a brownfield facility, it has a distinct advantage to produce competitively priced LNG. The expansion project remains on track as we advance our key work streams. We outlined last year that our activities are focused primarily on completing the FERC amendment, advancing marketing efforts with the goal of securing long-term offtake agreements and completing the competitive feed process. On the regulatory front, the FERC commitment process that supports the transition from gas turbines to electric drives is progressing well. We received the environmental assessment from FERC citing no adverse impact, which is a positive step toward securing the final authorizations. Turning to marketing. 100% of the expected offtake is subscribed under HOAs our existing partners will take their 50% of production and SI’s 50% of volumes is already subscribed under existing HOAs on a back-to-back basis. Next, on engineering, as we have talked about in the past, we’re running a competitive feed process between Bechtel and a JGC Zahra joint venture. This process is on track to be completed in the summer of this year, and we would expect to make a final investment decision shortly thereafter. Please turn to the next slide, where I’ll turn it back over to Trevor to discuss Sempra’s financial results.

Operator:

Thank you. [Operator Instructions] And our first question will come from Shar Pourreza from Guggenheim. Your line is open.

Jeff Martin:

Hi, good morning, Shar.

Jeff Martin:

Sure. Let me provide some context here. You did mention the step up from ‘22 to ‘23, which was about 9.25% growth. I’ll give you a couple of things that I think will help you on this. One is when you look back over the last 1, 5, 10, 20-year periods of financial performance, we’ve delivered EPS growth in the range of 6% to 8% or higher. In fact, over the last 5-year, Shar, we’ve delivered a compound annual growth rate of right at around 11%. So I would also note, over those same periods of time, we’ve outperformed our sector in total shareholder returns. Second, harking back to 2022, as you alluded to, our 5-year capital plan we launched last year was our largest ever at $36 billion. And you’ll recall that over 90% of those dollars were allocated toward meeting our expected rate base growth. And we certainly – we think that will continue to be a big driver across the balance of the decade. But one of the reasons we have so much confidence in our long-term growth rate is because now we really have improved visibility to a portfolio of growth opportunities at Sempra Infrastructure over the same period. So we feel very good about our 6% to 8% growth rate. I think that we’ve demonstrated over a long period of time we have the ability inside this organization to grow at a rate faster than that. And we’ve certainly done that in the last 12 months than we’ve done it over the last 5 years.

Jeff Martin:

Yes. I think it’s a combination of both. You’ll recall that when we set our 2023 guidance last February. We’ve come back 12 months later, we’ve affirmed that guidance. When you look at the 2022 results, obviously, it was record adjusted EPS for our company, really had strong safety results, strong operational results, executed a $7.8 billion capital plan, which we’re really very pleased with. But I would note to your point, as we look to 2023, we are going to manage some headwinds, right? Number one, you referenced one of them which is the ROEs and our California utilities were adjusted down by 25 basis points. We are operating in a higher interest rate environment. Number three, and Trevor mentioned this one, non-controlling interest at Sempra Infrastructure today is 10% higher than it was at this time last year. And we’re managing some different potential outcomes associated with the Oncor base review. That said, the reason we’re confident about our 2023 numbers, and we’re going to work hard to beat them is. We have a great plan of execution. It causes us to have a lot of confidence in our guidance. And I would also mention to your earlier question, we have a visibility to one of our largest portfolios of opportunities in the future, and that’s why we feel very good about the 6% to 8% growth rate.

Jeff Martin:

Well, thank you. We’re certainly excited about Port Arthur. I noted in Justin’s prepared remarks, I think he used the word exciting 4 or 5x. I think it reflects our excitement inside the company. As Sempra Infrastructure, you’ve followed us for a long time, Shar. We tend to be very disciplined in how we allocate capital between shareholder distributions and new projects like Port Arthur. Sempra Infrastructure typically targets high single-digit to low double-digit unlevered returns. And we mentioned in our prepared remarks that we do this with the goal of maintaining portfolio equity returns in the mid-teens. We’re very excited. I think one of the things Justin talked about is, we think we can give this project on time and on budget. But given the positive interest in the marketplace for the project, I would tell you the returns that I decided we think, are very reasonable. But 1 thing it’s worth our audience tracking, which is we also expect to retain certain preferences and economics and the sell-down of our equity and asset optimization initiatives like you’ve seen us do around debottlenecking, expansion projects and gas supply that could give us returns at levels well higher than our normal target.

Jeff Martin:

Yes. Thanks for joining the call.

Nicholas Campanella:

Hi, everyone. Thanks for taking my question.

Nicholas Campanella:

Good morning. Hey, I just wanted to round out the conversation on just how to think about growth past ‘23. When we think about the EPS CAGR off the ‘23 midpoint, does that already incorporate the 5-year CapEx view you’ll give us on the first quarter? Does it assume anything for LNG development on top of ECA such as funding for Port Arthur and Cameron 2. Can you just give us a sense of how the next update can affect growth considerations? Thank you.

Nicholas Campanella:

Okay. Thanks a lot for that. And then I just wanted to ask just capital allocation question. The dividend increase is 3.9%. We just noticed that maybe a little light compared to what you kind of executed on historically. Can you just give us a sense of what’s driving that? How you are thinking about capital allocation regarding the dividend? And then also the buyback that you outlined last year, just given you have all these new growth opportunities in front of you that would be great. Thank you.

Nicholas Campanella:

Okay. And then if I could just sneak one last one in. Just the NCI sale around Port Arthur, can you just kind of give us a sense of how we should think about that timeline? Do you have to take FID first and then pursue it? Just how should investors think about that?

Nicholas Campanella:

Thanks for all the color. Appreciate it.

Operator:

Thank you. And our next question will come from Anthony Crowdell from Mizuho. Your line is open.

Anthony Crowdell:

Hey. Good afternoon Jeff. Good afternoon Trevor.

Anthony Crowdell:

Good. Hopefully, two easy ones. And I guess – I don’t know if you mentioned it in Shar’s question, but Slide 14, you guys talk about maybe basis differential in the Western gas market. Is that an investment opportunity for either the regulated utilities or SIP?

Justin Bird:

Yes, sure. Thanks Jeff. I think – and I will hark into something that you said earlier, Jeff, that as a starting point, SI is really focused on long-term contracted cash flows from our infrastructure projects in Louisiana, Texas and Mexico. And I think there is two important points to remember there. One, we don’t own infrastructure in the Western U.S. and two we work to avoid commodity exposure. As you think about ECA LNG in Baja, as you recall, when we took FID decision in 2020, we essentially leased transportation capacity that would allow natural gas to be delivered from the producing basins both in Texas and New Mexico to the project when it comes online in 2025. And in the interim, we look to offset those costs by utilizing that capacity to deliver gas to customers. But given our infrastructure focus, we do this by conservatively hedging our position well in advance, which reduces our market exposure. And you will notice, as you look in the ‘22 earnings on a GAAP basis, as a result of those hedges, we have unrealized mark-to-market losses of over $300 million, which represents the difference between our conservative hedges and the market price. So again, as an infrastructure company, we prefer to optimize recurring infrastructure cash flows and minimize our exposure to changes in commodity prices, essentially exchanging price volatility to get recurring cash flows. And I think you will see that trend continue. We are focused on long-term recurring cash flows from credit where the offtakers and that will be our focus at SI.

Justin Bird:

Yes. Thanks Anthony. So yes, as we have said, that contract is for $10.5 billion. It is a fixed price. There is some escalation components in that as we move towards issuing a final notice to proceed. I think importantly, let me emphasize again, we are very proud of our selection of Bechtel. They have a history of building projects, LNG projects in the Gulf that have all been on-time, on-budget and have importantly provided production numbers in excess of what was guaranteed. As we look at our specific EPC contract, there are some very small pieces of that, that would float. But again, we have a contingency in place as does Bechtel to handle those adjustments. So, I think again, looking to Bechtel’s history, they delivered on-time, on-budget, under fixed price EPC contract. So, we are very comfortable with the contract. And again, I will use my word again, I can’t tell you how excited we are as we move towards FID prior to the end of this quarter.

Jeff Martin:

Thanks Anthony.

Rich Sunderland:

Hi. Good morning. It’s actually Rich Sunderland on for Jeremy. Thank you for the time today.

Rich Sunderland:

Sticking with some of the LNG questions here, I know in the past on the growth rate you have had LNG in the plan. And obviously, the business has changed a lot since then. I believe Port Arthur was upside to the growth rate last year. Just curious if that’s still the case this year, or is Port Arthur now baked in as you approach FID.

Rich Sunderland:

Got it. Very clear. Thank you. And then looking across a range of future LNG projects, are you seeing more interest from Asian buyers versus European buyers for incremental offtake, curious where interest stands?

Rich Sunderland:

Great. Thanks for the time today.

Operator:

Thank you. And our last question will come from Craig Shere from Tuohy Brothers. Your line is open.

Craig Shere:

Hi. Thanks for taking the question. So, I am often accused of getting over my skis, especially on LNG. But looking past PA1 and Cameron 2, first, could you discuss the logical pecking order at this time between Port Arthur 2, Vista Pacifico and ECA2.

Justin Bird:

Yes. Thanks Jeff. And Craig, I am never going to assume you don’t have a lot of LNG experience. So, thanks for your question. I think as you look at the pecking order, again, it can always change. As you will note, about this time last year, the war in Ukraine changed, what we thought was, our pecking order at that time. But as I think about our opportunities going forward, let me start with Port Arthur Phase 2. I think there is a lot of excitement around a second phase at Port Arthur, would be brownfield, would clearly benefit from sharing of common facilities. And as I think about that development, there is a few key work streams, which again, is consistent with Craig, how we have always discussed about how we move forward our LNG projects. First, permitting, Port Arthur LNG Phase 2 has an application in the FERC and the FERC order is pending. Second is commercial. We have MOUs for volumes out of Phase 2 and are discussions with many parties to fill any outstanding volumes. Engineering and construction, we are in discussions with Bechtel about continuous construction and optimizing that process. And as we always do, we are engaged with the credit rating agencies to make sure as we think about financing these opportunities, we find them the most efficient way to finance taking into account credit and returns. So, that’s kind of Port Arthur. If you ask me the pecking order, I think the second phase at Port Arthur would be next. As we think about Vista Pacifico, I think you are seeing some exciting developments there as we continue to work with the Mexican government and with CFE about really optimizing supply there. There is a lot of interest, as you might expect, given it’s out of the Pacific Coast. And as we think about ECA LNG Phase 2, I think you have seen some also exciting developments. If you recall, we recently got our non-FTA permits for both Vista and ECA. The other thing that you may have noticed is we had an MOU that we announced with CFE and Carso, which would be an opportunity to bring additional gas volumes to the Baha area, which could expedite the development of ECA LNG Phase 2. So again, I hate to be the being accused of saying excited too much, but I think there are exciting opportunities in the rest of our LNG portfolio.

Jeff Martin:

Well, this is Jeff speaking. I will provide a couple of comments, and Justin, feel free to weigh in. We think our view across the decade is very similar with what’s been put out by the EIA, which is forecasting 130% growth for U.S. LNG across the decade. The 80 million tons per annum that you referenced sounds about right, actually. I think actually the DOE might be forecasting slightly more than that. But remember, it’s not just American LNG, we are competing against other markets, whether it’s Australia or Qatar. There is certainly opportunities potentially at Mozambique. And remember, there are still volumes coming out of Russia, particularly on the North Coast as well as from South. And so, I think one of the things we have noticed is there is a tremendous demand for energy security and affordable sources of energy and natural gas has a very big runway internationally. We may see a decline here in the United States in different regions of the country, but it is a really big opportunity. I think the United States is viewed as a market that has security of supply, and we have got good counterparties and we have got good credit, and we have got deep capital markets. So, we are going to see the lion’s share of LNG across the globe will be coming from the United States across this decade.

Jeff Martin:

Thank you for joining us.

Jeff Martin:

Sure. Just by way of a brief close, we know there are several investor conferences underway today. So, we very much appreciate everyone making time to join us. If there are any follow-up questions, per custom, always reach out to our IR team with any additional questions. This concludes our call.

Operator:

Good day, and welcome to Sempra's Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn it over to Glen Donovan. Please go ahead.

Jeff Martin :

Thank you, Glen, and thank you all for joining us today. At Sempra, we're on a mission to build one of the largest and most resilient energy networks in North America. Today, think about our company's role in the energy markets, particularly against the backdrop of what the international energy agency is called, the world's first global energy crisis. Overseas, the supply-demand balance for oil and natural gas continues to be disrupted. War in Ukraine, supply chain challenges and reduced investments in traditional forms of energy resources as compared to prior periods are contributing to the global challenge. Without adequate security of supplies, coal is unfortunately playing a much larger role in the global energy mix today. In fact, the combustion of coal is expected to match a record high reach nearly a decade ago and will likely move higher and set a new record next year. Here in North America, energy markets are continuing to expand and become increasingly integrated. That is why investing in a modern energy network to support cleaner forms of energy and future economic growth is central to our efforts here at Sempra. We're also developing new large-scale export facilities so that European and Asian buyers of natural gas can diversify and improve the security of their energy supplies while backing coal out of their supply chain and the production of electricity. We're focused on expanding and modernizing North America's energy grids, Sempra's 3 growth platforms, Sempra California, Sempra Texas and Sempra Infrastructure are strategically positioned to help serve the growing needs of consumers in North America and around the world, while staying at the forefront of innovation and integrating cleaner forms of energy. Sempra's value proposition comes to life through its commitment to growing a stronger and more valuable business, one that serves the long-term interest of our customers and owners. Trevor will take us through each segment in detail, but first, I'd like to highlight some strategic focus at each of our growth platforms. At Sempra California, we're continuing to innovate and invest in new technologies that are aligned with the state's clean energy goals and focus on safety, innovation and grid resiliency. At Sempra Texas, Oncor is advanced in its base rate review which supports the continued expansion and modernization of its grid in Texas with a focus on load growth, grid reliability and the integration of renewables. We expect these developments will lead to substantially higher capital spending in future periods. And at Sempra Infrastructure, we're making significant progress aimed at providing cleaner and more secure energy to our customers. Specifically, we're excited to announce that we're expecting to take a final investment decision on Port Arthur LNG Phase 1 in the first quarter of next year. Shifting to the results for the quarter. Earlier this morning, we reported third quarter 2022 adjusted earnings per share of $1.97 and year-to-date 2022 adjusted earnings per share of $6.87. Based on the strength of these results, we are raising our full year 2022 adjusted EPS guidance range to $8.70 to $9 per share. We're also affirming our existing full year 2023 EPS guidance range. Please turn to the next slide. In August, Congress passed the Inflation Reduction Act. This is largely viewed as one of the most significant clean energy bills in U.S. history and incentivizes substantial investments in key areas that are expected to reduce carbon in society. This legislation also builds on the Infrastructure Investment and Jobs Act that passed last summer with a focus on modernizing infrastructure across the country. While some of the details in the IRA are still being finalized, we believe that our growth platforms are well positioned to benefit from the positive tailwinds created by this legislation. For example, a common component of these bills is the focus on electrification. And our California and Texas platforms are located in high-growth markets where the integration of renewables and the electrification of transportation continue to be major drivers of transmission and distribution infrastructure needs. Additionally, SoCal Gas continues to advance its position as a leader in the clean fuel space. The federal bills, I mentioned, outlined key spending priorities such as carbon capture, hydrogen and biogas. This is important as you consider the different innovative pilots SoCalGas has underway that are focused on the commercialization of new and cleaner fuels. Further, SoCalGas is integrating renewable natural gas, or RNG, across its pipeline system today. As a reminder, earlier this year, the CPUC issued a decision establishing a statewide RNG procurement standard, which, together with the federal bills, supports investment and continued decarbonization of SoCalGas' T&D system. And finally, at Sempra Infrastructure, we have identified opportunities for further innovation in carbon capture and sequestration such as the Hackberry project and other investments to further decarbonize our facilities and support our goal of delivering cleaner energy to our customers. In summary, we believe our platforms are well positioned to advance the critical priorities detailed in the legislation. Please turn to the next slide where I'll turn the call over to Trevor to provide several business updates for the quarter.

Justin Bird :

Thanks, Trevor. Let me start at Cameron LNG, where operations for Phase 1 are going very well, with production levels exceeding expectations. In addition, both the proposed Phase 2 expansion project and related debottlenecking activities of the existing 3 trains are moving along as planned. At Train 4, FEMSA the U.S. pipeline regulator recently voiced support for our pending FERC permit. We continue to work through the competitive feed process, which we anticipate will be completed in the summer of 2023 and expect to take FID shortly thereafter. Also, we expect the full debottlenecking efforts to be complete before commercial operations commence at Train 4. Next, I want to provide you an update on progress at our ECA LNG Phase 1 project, where we recently began erecting the first structural steel on site. Overall, construction is slightly behind our original plan, but the project is on budget, and we continue to expect to commence commercial operations in the middle of 2025. At our Energy Networks business, we're pleased to announce that our Puebla fuels terminal outside of Mexico City has started commercial operations. This terminal is integrated with our Veracruz Port and ViadeMexico terminals and combined creates our refined fuels terminal network that we collectively refer to as Golfo Centro. This network provides for the end-to-end transportation of fuel by ship to the port of Veracruz and then into the Mexico City market by both rail and truck. The facilities are supported by a 20-year contract with Valero for the entire offtake. Finally, at our Clean Power business, we signed a 20-year power purchase agreement for Cimarron, a 300-megawatt wind development project with Silicon Valley Power, a AA-rated entity to deliver electricity into the California power market. The site is adjacent to our Inner ores Phase 1 and 2 wind facilities and directly ties into our power transmission lines at the California, Mexico border. We plan to proceed to FID pending receipt of final permits and completion of the engineering and design work. With that, let's move on to the Port Arthur LNG Phase 1 update. Please turn to the next slide. As Trevor mentioned, we've had an exciting quarter. Port Arthur LNG continues to draw strong market demand and as advanced permitting and development status makes it an increasingly attractive project. As I have mentioned, there are 3 key work streams associated with reaching FID, and we are optimistic that we can achieve each of these by the first quarter of next year. First, we completed the EPC refresh and signed a $10.5 billion contract that is dependent on reaching FID. This fixed price turnkey contract creates critical momentum for the project. Efforts to date for the project include preparing the site for an efficient construction process, moving a major state highway, building dock capacity for the construction materials and conducting robust soil test across the entire site. Second, as Trevor detailed above, the financing work streams are underway. Finally, on the marketing front, things continue to progress at a rapid pace and we are in advanced discussions with several potential customers for long-term offtake contracts and are confident in our ability to convert existing HOAs into SBAs. Based on these discussions, we have more than enough interest to be in a position to take FID in the first quarter of 2023. Please turn to the next slide. The interest in Port Arthur LNG exceeds the volume of Phase 1, and we are actively marketing an expansion that could include a combination of Trains 3 and/or 4. The takeaway here is that there are scenarios in which we are oversubscribed for the Port Arthur LNG Phase 1 development project and look forward to advancing ongoing offtake discussions for a potential expansion phase. We will provide a further update on Port Arthur on our fourth quarter earnings call. Please turn to the next slide where Trevor will review Sempra's financial results for the quarter.

Operator:

This concludes the prepared remarks. We will now open the line to take your questions. [Operator Instructions] And we'll take our first question from Shar Pourreza from Guggenheim Partners.

Jeff Martin:

Yes. Look, it's a great set of questions you have there. I would refer, again, the audience to Slide 8 of our presentations, and it kind of reflects what you're just describing, which is as you look forward to Phase 2, which is the opportunity to deliver both Train 3 and Train 4. It reflects the fact that we've got volumes currently committed at Cameron that could be moved over to support Phase 2, and it also reflects roughly 3 million tonnes per annum of capacity that's in advanced negotiations currently. But this goes back short of something we've talked about a lot in the past, which is we really think there's a strategic advantage at Port Arthur. So remember, we've got 3,000 acres of frontage on the waterway there, roughly 3 miles of access to water. Also, what's very attractive to customers is the potential scale of the development opportunity. You'll recall that this has the opportunity to be up to 8 trains. And if you ever got that far, and obviously, that's well into the future, it would be the largest export project in the Western Hemisphere. So it really has the ability to scale quite nicely. And to your point, Bechtel probably has the best reputation for delivering projects on time and on budget. They got great craft in the Gulf Coast region. They have spent a significant amount of time on this site, and that's been a real big linchpin and get us confident in our FID opportunity for Phase I, which we'll talk about, hopefully, in Q1, but it also is a real competitive advantage for Phase 2. So when you think about the considerations I just outlined, there's no question that we're receiving a lot of strong inbound interest on Phase 2. And I'll tell you something else as we make progress, Shar, toward getting to an SI decision on Phase I and it actually increases the interest and likelihood that Phase 2 will go forward. So we said this in our prepared remarks, but the time we get to our February call, we're hopeful to provide a lot more detail on our progress on Phase 2.

Jeff Martin:

Look, I will tell you that they're one of our finalists on the Cameron expansion project. Obviously, they've got opportunities to work on a variety of projects around the world. But from our perspective, we're really pleased to have been part of Phase 1, and there's no question that the most ideal situation for our company is to not allow your EPC contractor to demobilize the ability to go from project to the next could be a real competitive advantage for Port Arthur.

Jeff Martin:

Yes. Let me give you my perspective on this, and I would tell you this goes back to something that we as a management team have discussed, which is we're really, really happy with the progress we're making across all 3 of our growth platforms. I think the true competitive advantage for any company always comes down to the depth of your talent and leadership and how crisp your strategy is. And I think you're seeing both of those factors show up in our results. Let me give you a little bit of perspective before I turn to 2023. When you think back to where we were in 2021, we launched 2021 with an estimated guidance range of $7.50 to $8.10. And Shar, you may recall, that we actually delivered $8.43 last year, and we did not change our 2022 guidance. We kept our 2022 guidance at $8.10 to $8.70. And now we're in a great situation where we're updating that guidance to $8.70 to $9 or a midpoint of roughly $8.85. So now as you look forward into 2023, our guidance, which we published in February is unchanged at $8.60 to $8 -- to $9.20 or roughly a midpoint of $8.90. So very similar circumstance that we're walking into next year in terms of how we found ourselves earlier this year. But I think the key for us is we are very excited about the strength of all 3 growth platforms. Certainly, the progress we're making on Port Arthur Phase 1 and particularly Cameron expansion causes us to have a pretty bullish view of the future. And in our prepared remarks, we reaffirmed our guidance for next year. And once it's full visibility to our 2022 financial results, we'll be excited to take this up again on our February call.

Ross Fowler:

So maybe following up on Shar's question a little bit here. There's certainly some headwinds I can think about into '23 from '22. One, you've had good weather in Texas this year. there's some excess marketing revenue on Cameron from some excess volumes in the second quarter. And then obviously, there will be a full year at the minority stake. So are those some of the drivers that are sort of as you contextualize '23 against your 6 to 8 sort of long-term growth guidance that you've given previously that you're thinking about? And then as you think about '23, once you get to '22, I think you said in your answer, Jeff, you're going to work into that '23 number and you provide a little bit of an update on in February in the call.

Trevor Mihalik:

Yes, sure. Thanks, Jeff. Yes, Ross, as Jeff said, there were some puts or takes in the quarter. But underlying that, I think we really did have a strong operational performance across all 3 platforms. And so what I want to do is just maybe give you a little more color and clarity around what we presented on Page 10. First, at the Cal Utilities, there was a $36 million of higher CPUC base operating margin, and that was roughly split evenly between the utilities. And then in Sempra Texas, Oncor had significantly higher consumption, as you mentioned, this quarter as well as rate updates from the increase in capital deployed year-over-year, and that really was about $58 million of higher earnings. And then third, and this is a big point that we kind of brought out in the prepared remarks is at SI, the big driver here relates to the minority interest sale. And this really reduced the period-over-period earnings of about $83 million but these were partially offset by higher earnings in the business driven by higher gas prices and the outperformance in the power business as well as assets placed into service. So what I'm really pleased about is that we had a 9.5% year-over-year growth for adjusted EPS over the 9 months ended September 30. And as Jeff said, all in all, this really speaks to the strength and diversity of the T&D platform. And so we're pretty pleased about where we are in raising our guidance.

Jeff Martin:

It sure did.

Jeff Martin:

Yes. Thanks for asking about that, Ross. I'll make a couple of comments, and I'll pass the mic to Kevin to fill us in on some of the details. But it's really interesting, as we think about California and SoCalGas in particular, one of the things we talk a lot about internally as a management team is important to win in the business of today. And quite clearly, our customers are asking us to decarbonize the system and make sure it's safe. And that's one of the reasons we talked about this in our prepared remarks, we've set a self-imposed goal of delivering 20% renewable natural gas to our core customers by 2030. We're very pleased to see the state step forward and mandate to all load serving entities should be delivering at least 12% of that period of time. So we're going to make sure the system is safe today. We're going to continue to decarbonize it, but there's no question that hydrogen is the future, particularly for hard to decarbonize areas around heavy-duty trucking, some industrial applications and hopefully for power generation. The United States is behind in the hydrogen race. Europe is making great progress. Many of our customers on the LNG side, particularly in Japan are much further ahead. And there's a clarity and call across the policymakers in California that they want to see companies step up in innovation and new applications around hydrogen. That's one of the reasons we're really excited about the leadership that SoCalGas has shown. And Kevin -- maybe you could provide a little bit of visibility on to next steps on Angeles Link?

Operator:

Our next question will come from Nicholas Campanella from Credit Suisse.

Jeff Martin:

Yes, there's no question, it will be a goal to limit any external equity at the Sempra level, and you raised some great points. So let me kind of cap off. There's 2 work streams underway here. One is the equity process that's referenced in our slides. And after I've covered that, I'll pass it to Faisel to talk about the debt amortization and his approach to the financing, which they're looking to launch near term. As we've disclosed in the past, Nick, we've been taking a tremendous amount of inbound interest regarding participation in the capital structure at Port Arthur over the last 12 to 18 months. So we see this as an opportunity to really kick off a sales process to sell a noncontrolling stake that could result in Sempra Infrastructure's ownership settling to a level similar to ConocoPhillips, whether a little bit more or less. The key for us is we're really focused on 3 goals on the equity side. Number one, making sure that we highlight value for our owners. If we use this as an opportunity to pull forward the projects NPV to reduce our capital contribution. One of the things we talk about a lot inside the company is really replicating what we did at Cameron, which effectively allows us to take a carried interest and also make sure that as part of this process, it allows us to maintain Sempra and Sempra Infrastructure strong credit profile. So in general, this is a way for us to effectively take a carried interest in the project, create a really strong return on invested capital and deliver a great outcome for our shareholders. And I would say, just as importantly, and you'll hear us talk about this a lot more. What's most important about Phase I is also making sure it sets us up well for Phase 2 and 3. So this is the type of project given its scale, getting Phase 1 done really makes future phases a lot more exciting and a lot more probable. But maybe Faisal can stop there and maybe you can turn to the debt side and what the plans are for the financing.

Nicholas Campanella:

Really helpful. And just shifting to Texas and Oncor, just line of sight to getting this case done here. I know we're kind of coming towards the end of the the process, but is the settlement still in the cards, if at all? And are you willing to just kind of take the full distance on the final order at this point?

Allen Nye:

Yes, you bet. Thanks, Jeff. Just generally, where we are, as you said, we did have our hearing on the merits September 26 through October 4. Since then, we hold the parties have filed 2 rounds of post-hearing breeze, and we're anticipating a proposal for decision at the end of December. With the commission likely to take up a proposed our final order rather and a couple of open meetings, at least first quarter of next year, but final order before the end of the first quarter. Just a little color on the hearing. We believe it went very well. Our witnesses performed very well. Many of them were not even cross examined. From a settlement perspective, we have had extensive discussions. We will continue to have discussions. Thus far, they have not reached something that we believe is beneficial to the company, the stakeholders, especially the rate payers. So while those conversations will continue, we are very confident in our case. We think we put on a very strong case. And should we need to go to the commission, we're comfortable and confident in doing so. Thanks.

Michael Lapides:

One probably a follow-up for Allen, which is starting to see housing prices dip a bit Texas. It's happening in a lot of places, but some of the dips in not only outside your -- in and around the edges of your service territory, but also kind of south of you are starting to get pretty meaningful. Just curious how that impacts, if anything at all or how a slowdown in residential construction impacts kind of your views of what kind of resi load growth would be and what the need for new infrastructure? I know you're talking a lot about potentially raising your capital spend budget. My guess is a lot of that has to do with a lot of the new renewable and storage that's coming online. But can you kind of talk high level about those items?

Allen Nye:

Sure. Sure. Thanks, Jeff. Yes, Michael, I agree. We're seeing -- I think it was in some of the remarks earlier, we added 14, 000 new premises this quarter. And while we're a little below probably in the 1.7 range, whereas we've been 2% over the last few years, we're still anticipating and seeing long-term projections still in the 2% range. To Jeff's point, I may have mentioned this before, yes. We saw in June our largest request for new subdivisions ever in our company's history. So while there's a little dip in premise growth so far this year, -- and I'll tell you a little color on that is what we're hearing is that is primarily supply chain and labor issues associated with the builders in our areas. But the demand for lots, the demand for new subdivisions we're still seeing long term around 2%. And just overall on our system, I know you didn't ask about it, but -- it's been discussed a little bit previously. Yes. To your point, transmission points of interconnection, especially on the renewable side are extremely high. I think Jeff said earlier, we're entering historic year, and that's accurate. We're at 565 active request right now versus $370 million the same time last year, and West Texas just continues to grow at record pace. We're seeing 29% annual load growth on the Culberson Lube a new peak of 1,000 megawatts versus 900 megawatts last year. New peaks in the Far West Texas, Weather zone at $54.86 versus $51.63 last year. Stanton loop growing at 16% annual load growth. And similar back to your residential, just another day to point for you there. It's not just the DFW area. We're seeing, for example, Waco, load growth in Waco at 3x the ERCOT average. So we're continuing to see really strong growth across our system regardless of a little dip this year in premise growth, which we think is related to issues on the builder side, and we think it will bounce back, and we're continuing to see projected long-term growth of 2% on the printer side on our system.

Michael Lapides:

Got it. I had one follow-up, and it's probably a Justin, one. Costa Azul, I think you made the comment that Costa Azul may be a little bit behind schedule, but the cost hasn't really moved, and it's a matter of months, it's not years, the fund. If I remember correctly, you all have contracts already on one of the big pipelines that goes out of the Permian West towards the California border and then it would connect and head south to Costa Azul. Spreads between Waha, West Texas and California are really wide? I mean Waha gas went negative recently. Does that imply that in the short run, long term, that gas is going to be used to supply Costa Azul small scale. But short run, are you guys benefiting from that? And has that gotten more material and potentially a tailwind? I know you've talked a lot about some of the headwinds for next year.

Michael Lapides:

Got it. The fact that Waha is pricing well below its total gas porter is above Henry Hub. Until Cost small scale comes online, you're actually capturing that spread?

Operator:

Our next question will come from Julien Dumoulin-Smith from Bank of America.

Jeff Martin:

Well, let me do this. Let me speak real briefly to Phase 2 and recap some of our prior comments. And maybe, Justin, I think there might be value to go from the Bechtel contract plus some of the things you're working on to make Q1 FID happen. But I would just go back -- just take you back, Julian, if you allow me to this macro view, you've got a big scalable project, right, which is unique relative to a lot of our competitors. It's well situated on the ship channel there with over 3,000 acres. And we've had Bechtel site for a very, very long period of time. So that enabling EPC contract that helps us launch Phase I is critical as we continue to build out and refine our price estimates for Phase 2. So in our prepared slides on Slide 8, you can see we've got pretty advanced interest at least for Train 3 thus far, and we've got conversations well beyond that. So our goal really is, is we make and crystallize the opportunity for Phase 1, there's no question that the market interest in Phase 2 will be increased, and we're hopeful to be back in front of our investors on our end of year call, Q4 call in February with a more detailed view about the Phase II opportunity. But there may be some benefit, Justin, just to walk through in a little bit more granular level what we're trying to accomplish over the next 90 days.

Jeff Martin:

I just mentioned 1 other contextual comment for you, Julien, that you might find interest in. As you may recall, over the last 12 months, you've seen various parties announced an SPA. And you've seen us take a lot of questions about HOAs. But what this really reflects is the key linchpin is getting that EPC contract done and not committing to the pricing of the offtake until you have that in hand. And now Justin's team is running quickly to go back and document those definitive SPAs on the basis of those economics, which is really positive. And finally, on our Q2 call, we got pressed a lot about the future opportunity for Port Arthur and I actually said there are scenarios where it could occur after the FID for Cameron, and there were some scenarios where it could occur in the first half. So it's a real credit to Justin's team and really a validation of the level of interest in Port Arthur that we've been able to accelerate it to a projected FID decision in Q1.

Justin Bird :

Yes. So as you look at Port Arthur Phase 1, I think, again, 3 work streams that you should watch. One is commercial interest, and we've talked a lot about that today. The second would be really the construction contract. And again, as Jeff mentioned earlier, the important thing there is the quality of Bechtel and really the ability to not force a demobilization and remobilization puts us at a competitive advantage. And then finally, here, we're waiting for our FERC order, where we have applied that has been before FERC and we're continuing to move that forward. So we do need a FERC order for subsequent phases at Port Arthur. But again, we think that process has been commenced a long time ago, and we're optimistic.

Jeff Martin:

Yes. We have a convention, as you know, of doing a roll forward of our 5-year plan. That process is underway by Peter Wall and Trevor currently. I think we'll be in a position on our February call to do a couple of things. We'll go back and relook at our 2023 guidance. We will expect to announce our 2024 guidance. And we hope at that time, have a definitive view on the roll forward of our capital program. Sometimes in the past, Joe, you may recall, we've saved that for an analyst conference later in the spring. We have not made a definitive decision with the IR team. It's whether it will be an analyst conference and my personal orientation is to come back on that February call and make sure it's fulsome and be in a position to talk about the roll forward of our 5-year capital program, which, to your point, should reflect the opportunities that we're discussing this morning.

David Arcaro:

Wondering if you might people to talk to just the hydrogen opportunities a bit more, the recent MOU with AVANGRID and then thoughts on the blue hydrogen potential opportunity down in the Gulf Coast. Just when might we see in terms of timing, some potential concrete project opportunities arise?

Justin Bird :

Yes. David, great question. Look, we at Sempra Infrastructure are very excited. As Jeff referenced earlier, we talked about succeeding in the business of today and really looking forward to being able to be successful in the future. In the middle of last month, you noted we signed our agreement with AVANGRID. And that really is about working together to identify, appraise and potentially develop large-scale green hydrogen projects to meet the needs of energy and decarbonization in both the U.S. and abroad. The LNG business, as Jeff mentioned, provides a strong foundation for our ability to work with all of those partners as they look to decarbonize and look toward future energy, whether it's green hydrogen, blue hydrogen or blue ammonia. So we're excited about the opportunities in front of us. I think the other thing you saw recently, the inflation Reduction Act really provides a springboard for not only the hydrogen business, but also for carbon sequestration. We're excited to continue developing Hackberry with our partners. We think it's a wonderful opportunity to really decarbonize our LNG facilities and really look at as a means to capture carbon in local industrial facilities as well. So we're very excited about the opportunities in the Net Zero side of our business.

Durgesh Chopra:

Maybe just given your sort of historical time line presence and considering shortages, supply chain issues, et cetera, et cetera. How should we think about assuming a Phase 1 FID green light here in the first quarter? How should we think about -- can you give us a time line on the COD of that project?

Durgesh Chopra:

Got it. Perfect. And just one quick follow-up. As we think about financing the project, are we going to -- basically, your question is, are we going to be -- are you going to be fully financed the $10. 5 billion by first quarter next year? Or is that expected in chunks?

Operator:

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

Jeff Martin:

Yes. Sure. No problem. I'll tell you, it's a great question. And one 1 the things that we spend the most time on our Board of Directors is strategy. So when you think back to 2017 timeframe, Steve, assuming we hit the midpoint of the new guidance range we put out today, we have been successful in growing the EPS of this business at an 11% CAGR. So I think we've got a really high-quality leadership team, and I don't mean just the folks in this room, but across our top 25 or 40 leadership group. We've got a really good, high-performing culture. And I think we've got a razor-sharp strategy. One of the things that you're really seeing come together in the first 3 quarters of this year is our ability to produce improved financial results. in all 3 of our growth platforms, and we try to integrate those activities from the Sempra level, I would say, are doing extremely well. And you're absolutely right. We've got growth in California. We've got growth in Texas. We continue to have a lot of growth opportunities in Mexico. And certainly, Justin's business really has a unique opportunity set. So I would say we're currently happy with the overall organization of our 3 platforms and particularly Sempra Infrastructure. Remember, too, Steve, that Sempra Infrastructure has been very critical in providing additional cash flows to support growth in our utilities. And I think going forward, part of what we need to do to be successful is to continue sourcing the lowest cost of capital to help SI grow. You've seen us be fairly creative through the KKR process and ADI and now the process that Faisal described earlier today. So we've demonstrated a willingness to transact at the Sempra Infrastructure level and at the project level, and we'll continue to forecast -- and we continue to forecast a portfolio of new opportunities to grow that business. So I think the most important takeaway relative to your question is our sole focus is on driving value to Sempra shareholders. And I think you've seen this, but we're willing to look at new and better ways to do that. And that -- and part of that is continuing to optimize all 3 growth platforms. So there's a fair amount of excitement inside of our company about the increased earning power of all 3 platforms. And we're looking forward to executing into 2023.

Anthony Crowdell:

Just hopefully quickly, 2 quick questions. One on Cameron. Is there ability to also go forward with the construction of Cameron at the same time if you go forward with Port Arthur? Is there enough craft labor and everything to do those coincide? And the second follow-up is on Port Arthur 2. Is there -- you talk about maybe selling down some of the equity ownership to finance it? Is there a desired level of ownership? And I'll leave it there.

Anthony Crowdell:

And just on Port Arthur, is there a desired level of ownership there?

Operator:

Thank you. And that concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Jeff Martin for any additional closing remarks.

Operator:

Thank you for your participation. You may now disconnect.

Operator:

Good day, and welcome to the Sempra Second Quarter Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Glen Donovan. Please go ahead.

Jeffrey Martin:

Thank you, Glenn, and thank you all for joining us today. Earlier this morning, we reported second quarter 2022 adjusted earnings per share of $1.98 and year-to-date 2022 adjusted earnings per share of $4.90. Based on the strength of these results, we're now guiding to the high end of our full-year 2022 adjusted EPS guidance range, and we're also affirming our full-year 2023 EPS guidance range. Next, let me offer some perspectives on how we think about the future. At Sempra we've worked hard to simplify our business model, to improve safety and operations then with the benefit of more disciplined capital allocation to also improve our financial performance. Today we have built three large scale growth platforms operating in some of the largest energy markets in North America. Within these platforms, we have an exciting opportunity set. Here is a quick summary. At Sempra California, we're making capital investments to continue improving safety, reliability and sustainability. Each are key components of our recent GRC filings. At Sempra Texas, we couldn't be more excited about the work Oncor is doing to support strong economic and demographic growth and the continued integration of cleaner renewable resources. At Sempra Infrastructure, there are significant growth drivers across all three business lines. LNG and Net Zero solutions, clean power and energy networks. In the first half of this year, the United States became the number one global exporter of LNG. And by the end of the decade we expect the United States will extend it significant leadership advantage in this area. In combination, these investment opportunities support our record $36 billion capital plan for 2022 through 2026, as well as our continued confidence in our projected 6% to 8% annual average long-term EPS growth rate, which we announced earlier this year. Please turn to the next slide, where I'll turn the call over to Trevor to provide several business updates.

Justin Bird:

Thanks, Trevor. Last year, we formed Sempra Infrastructure to be a leading North American infrastructure platform with a standalone investment grade balance sheet. This has enabled us to attract strategic investment partners like KKR and ADIA while also highlighting the growing equity value of the business. In June, we were pleased to close our 10% sale to ADIA for approximately $1.7 billion, with an implied equity value of close to $18 billion. We look forward to a strong partnership with ADIA and together with KKR we are working collaboratively to advance our strategy of providing cleaner and more secure energy to global customers. Jeff talked earlier about the growth that we're seeing in all three business lines at Sempra Infrastructure. But what I thought would be helpful is to focus my time on recent developments in U.S. LNG. Please turn to the next slide. Sempra Infrastructure's U.S. LNG development portfolio has made significant strides. As we outlined in our last quarterly earnings call, the key work streams that Cameron LNG Phase 2 include completion of our pending FERC amendment, the competitive FEED process and ongoing marketing. With regard to our recently announced commercial arrangements at Cameron, we have worked hard to align our economic and commercial interests with those of our customers. You will recall that we plan to take our 50% share of the trained for offtake and sell it back-to-back to global counterparties under long-term sale and purchase agreements. We are pleased to confirm that we have substantially achieved this marketing goal, as a result of the HOAs with the Polish Oil & Gas Company and INEOS, which includes the optionality to move volumes between Cameron LNG Phase 2 and Port Arthur LNG. Turning to engineering, we are running a competitive FEED process with Bechtel and JGC-Zachry joint venture. This is expected to be completed in the summer of 2023. At which time, we would expect to move to FID. Next, let me discuss Port Arthur LNG. Similar to Cameron, we have maintained a disciplined marketing approach with a focus on linking U.S. natural gas production with some of the leading European buyers of LNG. This strategy has served us well in the current environment, given supply disruptions in Europe. Just as a reminder, we have a FERC order and a DOE expert permit in hand and the permitting and design work are highly advanced for the initial phase of the project. The key remaining work streams involve finalizing of the EPC contract with Bechtel to include updated pricing and signing definitive offtake arrangements. Since our Q1 earnings call, we have entered into HOAs with RWE, the Polish Oil & Gas company and INEOS and announced a strategic partnership framework with ConocoPhillips, under which Conoco would receive roughly half of the offtake volumes or 5 MTPA under a 20-year tolling type arrangement and potentially make a 30% equity investment in Phase 1. Importantly, these announcements mark substantial progress in the marketing phase of this project. As it moves forward, we will continue to work with stakeholders, including customers, contractors, debt holders, equity investors and credit rating agencies. The positive takeaway from this, is we continue to see great interest from European buyers and volumes are coalescing around projects that have the greatest probability of advancing. We look forward to updating you on future progress in November on our third quarter call. As Jeff mentioned earlier, the U.S. has recently become the number one global exporter of LNG. Based on the quality of our development sites and their geographic positioning relative to Europe and Asia, we believe our business can help advance America's leadership position in this area, while also providing energy security to our allies and helping facilitate the global energy transition. Please turn to the next slide, where I'll turn the call back to Trevor to discuss Sempra's financial results.

Operator:

Thank you. [Operator Instructions] And we'll take our first question from Shar Pourreza with Guggenheim Partners. Please go ahead.

Jeffrey Martin:

Good morning, Shar.

Jeffrey Martin:

Well, we appreciate the questions, Shar. I would start by just reflecting on the fact that over the last decade, we've grown our earnings per share at roughly an 8% CAGR. I mentioned this in my prepared remarks that we continue to expect the average annual long-term adjusted EPS growth rate to be in the range of 6% to 8%. And I think, we're fairly excited about being ahead of plan for the year, I think that's the right characterization. And given the strength of our results in the first half plus some of the opportunities we itemized in our prepared remarks, we certainly think that sets us up for a continued very, very strong growth in income story. We're obviously guiding to the high end of the range for 2022. And I would note, Shar, this is the fifth time in six years that we've guided to the high end of the range or increased our guidance. So we feel like there will be some pull through in 2023. And as we head into our Q3 call, we should be in a better position to give you a more definitive update.

Jeffrey Martin:

Yes. I would tell you that one of the ways we're thinking about RFID decision, I know, Shar, you may have followed us, there is a lot of interest in our San Diego Padres over the last couple of days. And to use a sports metaphor, some people talk about playing smaller ball. Moving runners around the bases and that's exactly what Justin and Faisel and the team are doing in our LNG business. Let me just start by kind of characterize and where we're at with Cameron expansion or what we refer to as Phase 2, and I'll get right to Port Arthur to get at the heart of your question. First at Cameron, we're continuing to move forward on definitive commercial agreements with our partners, namely move into SPAs. We're continued to advanced permitting and we're making progress on the competitive FEED works. We expect to complete those work streams in the middle of next summer and assess an FID decision thereafter. At Port Arthur, we're not prepared to set an expected FID date yet, but I can confirm there are scenarios where FID could occur in 2023 and even in the first half of 2023. We've had some exciting developments, I think as you correctly noted using optically kind of subscribed at least Phase 1 through a series of HOAs. The next steps for us is make sure we convert those to SPAs. A lot of times buyers as you know, we want to secure their interest in the facility and move quickly to an HOA in fall with an SPA thereafter. Secondly, it's very important work we have underway with Bechtel. We've already started our partnership conversations with ConocoPhillips. We think they'll be very, very helpful with us, as we evaluate and optimize that FEED process. Then thirdly, we're advancing our financing another development activities. So there is no question from our perspective, Shar, that is an exciting project. Our goal at this point is to manage the work streams, I just described in a way that maximizes the projects value for our shareholders and it will be in a better position on the November call to give you a more definitive update.

Jeffrey Martin:

Yes. I will tell you that Faisel and Trevor and Sandeep and Justin, team have spent a lot of work around this. And I give them credit because we've made as you followed a series of strategic moves to not only form Sempra Infrastructure, with the standalone balance sheet and diversified capital structure. But this the steps we took in the last 18 months also gives us a lot of flexibility. So let me give you a couple of ideas that we've outlined previously about how we expect these projects. First, as you know, we can always use non-recourse financing. You've seen the team do this on Cameron 1 through 3 and on ECA. Second, as we've done in the past, we can sell down project level equity to our off takers. This is our current plan with ConocoPhillips, Justin made this comment earlier, but we're expecting to take a 30% equity interest in Port Arthur. And I would also mention, Shar, we may also look to bring in other equity partners at the project level in Port Arthur. Third, Sempra Infrastructure is rated as an investment grade credit, this was an important development for us with significant cash flows, and this gives us another great option to access the debt markets. And then I would say fourth with the inclusion of KKR and ADIA in the capital structure, it provides us with other third-party sources of capital and it probably doesn't surprise you to know that we're also routinely taking quite a lot of reverse inquiries from other third parties to participate in our projects. So our goal as we move forward in the development process for Cameron Phase 2 and Port Arthur Phase 1 is to make sure we're evaluating all these options through the lens of getting often really high quality project and also through the lens of making sure it creates the most value for our owners.

Jeffrey Martin:

Thank you, Shar.

Jeffrey Martin:

Good morning, David.

Jeffrey Martin:

Yes. If I understand your question correctly, I think we kind of summarize some of the recent developments with CFE, kind of our views on that marketplaces, some of these newly referenced projects. So I would start with saying, we have very constructive relationships in Mexico. Tania Ortiz does a wonderful job in Mexico. And I've had the benefit probably in the last 90 to 100 days meeting with the President of Mexico three different times about how we continue to grow that relationship and better serve that country. So I think big picture in the short term and long term, and we think they'll need additional investment, particularly in the energy infrastructure space. And David, because of the size of our existing energy network, we think it's well positioned as anybody to help meet some of the new investment needs of that country. There is a list of SI's development project summarized in the appendix at Slide 13, by way of references I go forward. But on a couple of projects you mentioned, we recently signed up the commercial terms for us to reroute the Sonora pipeline around the Yaqui territory. There is still some work to be done by the Mexican government to resolve issues with the indigenous people. So we think that's an important step. Vista Pacifico is a very interesting project is on around that 3 million ton per annum stage, is accessed by two existing pipelines. It's always a nice attribute, when you can work with the government to make sure you secure your land concession, your local, state and federal permits. And we're also having conversations with CFE to do a capacity release, so we have access to the type of volumes of natural gas we need to build that project. And that's something we think that the government of Mexico is constructive on and we're going to continue to work forward on a development basis. As to Salina Cruz, one of the things that's interesting as we think about the root causes of migration is that the estimates of Mexico, which is about a narrow waste at the Southern part of the country that's just over 200 kilometers to 250 kilometers in width. There's a lot of interest to create in an industrial quarter there. I think the President of Mexico is hoping to create 10 different industrial zones, and they're trying to find a way to bring natural gas down the Gulf Seaboard, so they could have a potential for an LNG opportunity on the Gulf side, as well as an LNG opportunity on the Pacific. Because we have such a strong position in U.S. Gulf Coast LNG today, we have been far more interested in the Salina Cruz facility, that facility would also very similar to Vista Pacifico, ECA Phase 1 provide a unique geographical access to the Asian markets with on sea transfers taking about 11 days to reach that marketplace. It's very early stage, David, but I think what it really goes to is our ability to work with various administrations in Mexico because our baseline approach is to make sure we put dollars down there in the country. Number one, we do it selectively. Number two, we tie it to raise in the standard of living for the Mexican people. And number three, we tend to try to do it in cooperation with the government, so we're also meeting their stated policy objectives.

Jeffrey Martin:

Thank you.

Jeffrey Martin:

Sure. I would say similar to our California utilities, I just start-off, let's say in the Oncor you recall, filed its base rate application in May with a view toward reaching a final regulatory outcome later this year. But we've got Allen with us on the call and Allen perhaps it would be helpful, if you just provide some additional color around the process as we move forward from today to get to a good outcome that benefits the rate payers of Texas.

Jeffrey Martin:

Thank you, Allen.

Jeffrey Martin:

Thank you.

Jeffrey Martin:

Good morning, Nick.

Jeffrey Martin:

Yes, it's a great question. I will frame it two different ways and pass it to you Allen. I think it might be helpful, if we just move to some of the growth drivers that you've been seeing in your marketplace, number one. And Nick, the reason that's important is, I think there is an expectation that the current $15 billion capital program when it gets revisited on the Board with Trevor and I, later in the fall, it has an opportunity just to meet growth for that budget to be increased. I don't want to get ahead of our Board decision on that. But secondly Allen, maybe talk about the work that your team is doing beyond just meeting capital growth and how that might play into the fall?

Nick Campanella:

Thanks a lot. That's great. I guess just more a capital allocation question to is, you've have this - you put a six to eight plan out there in the beginning of the year and realized a lot of momentum on this LNG business since then. And as you kind of think through all these financing considerations, should we still be thinking about the same level of buybacks here that was outlined on the fourth quarter '21?

Nick Campanella:

Alright. Appreciate that. Have a good day.

Operator:

We take our next question from Julien Dumoulin-Smith with Bank of America. Please go ahead.

Julien Dumoulin-Smith:

Good afternoon, Jeff. Pleasure, thank you. So, Jeff, let me clean up on a couple of things here, if there is at least another baseball metaphor here. Just with respect to taxes in IRA legislation here, any thought about AMT and how that breaks up across the businesses here? If you can just super brief here, I get as preliminary?

Trevor Mihalik:

Sure, Jeff. Hi, Julien. Hi look on the initial assessment of what we're looking at right now, we think the earnings impact will really be de minimis or non-existent on an earnings standpoint. And then from a cash tax impact, we think there may be a real slight cash tax impact but very manageable. So I think overall, we think the way it's drafted right now, it's very easy to work through the -

Julien Dumoulin-Smith:

Excellent. Thank you for being clear about that. And just going back to Port Arthur here, again we're just trying to sharpen our pencil a little bit. And I get that it's preliminary around your conversations with Bechtel and any number of other parties here. But how do you think about the cost of that project here again? We're looking at a backdrop inflationary in a holistic sense obviously greenfield site. Any updated sense at all, just to kind of frame the value proposition here?

Julien Dumoulin-Smith:

Got it. So leaning on your partners here for some of that. And if I could do that and just when you think about the SPAs and then just lining this up for even the first half of '23 as you alluded to a moment ago. When do we need to start to see that announcement, I mean, it seems like you also have some equity sell downs coming. Is that part of the update this fall here that you kind of alluded to when you think about putting everything together, Trevor, maybe?

Julien Dumoulin-Smith:

Got it. All right. Thank you guys. Just an LNG on the mind.

Operator:

And we'll take our next question from Alex Kania with Wolfe Research. Please go ahead.

Jeffrey Martin:

Yes. Thank you for those questions Alex. I will address the first part of your question and pass it to Justin, to talk about some of the carbon sequestration opportunities. But let me go back to some basics here. A little bit over 15 years ago, Sempra was a big energy company, right, a big commodity desk. And I think one of the things we've tried to focus on as part of our strategic work with our Board of Directors, particularly over the last five years - transition to an infrastructure company. And we have a decided view that infrastructure, namely continued investment in the grid and network will be a big part of how we support North America's continued economic expansion. And what we like about it, Alex is, is a lower risk profile as we continue to electrify the grid and move toward green molecules on the gas side, we think we're in a unique position to be a leader in the clean energy transition. So as you think about how we approach Europeans for the sale of LNG, for example, this is right in our sweet spot. So this is not something that's unique to our LNG business. Every one of our facilities in California and there may be a couple of limited examples around our compressor stations. Today, source renewables to power those facilities. And - renewable green tariff from the local utility. In Mexico, we're helping the government move away from oil fired generation to natural gas generation in world kind of top three or four renewable developer there. So going back to your specific question, at Cameron, we think there is an opportunity for the expansion to be built on the basis of electric drives. We actually delayed the project somewhat to make sure that we can be more competitive. And yes, it does help us with the Europeans. But it's actually intrinsically in line with how we think about our own business. So certainly the Europeans like the fact that we're looking at certificating over a longer period of time. Our upstream emissions including where we get our source our natural gas. And from an operating standpoint, if we can power those facilities with the electricity that over time is increasingly decarbonize, we think that's a plus. So over a long period of time, I actually think the United States will be a competitive leader and being able to source and deliver LNG on a more cost competitive basis, but also on the basis of reduce emissions profile. So the second part of your question is the opportunity to sequester carbon, again aligned with my prior comments. But maybe Justin, you could talk about our approach on the sequestration side.

Alex Kania:

Great. Thank you.

Operator:

And we'll take our next question from Jeremy Tonet with JPMorgan. Please go ahead.

Jeffrey Martin:

Look, I think the good news is California has been a leader in the environmental space for three or four decades. And I think that one that the great things about the IRA bill is particularly it support for electric vehicles. So I think anything we're doing to help the United States continue to decarbonize is a positive. I think you'll find a lot of collaboration between California policymakers and a lot of the policy alignment that's embedded in that bill. But I would again step back and say, look it's in draft form today, a lot of different folks who have taken different views and perspectives on it. We think it has a number of positive attributes, but I think there will be some changes and revisions going forward. So we're going to continue to evaluate it in its current form.

Jeffrey Martin:

Look, we've been working with Bechtel for a number of years. From time to time, you'll get updated cost structure and processes from them. It's an open book process that we're working on with them right now. And all you're really talking about is a refresh or bring down to the cost based upon their earlier work, and that's something that is ongoing this fall.

Jeffrey Martin:

Thank you.

Jeffrey Martin:

Good afternoon, Michael.

Jeffrey Martin:

Well, what we try do is, we lay out our five-year plan, Michael, each fall we adjust that for expectation of costs and O&M and in capital. Today, what the good news is, as you think about other participants in the marketplace, they've had rate cases a year ago or two, three years ago. I have been following the Edison case. But what's most important for us is, we're actually filed all three of our rate cases in May of this year. And Allen outlined it earlier today, but Allen expects to get through his rate case proceeding this year with a good outcome we hope. And then SDG&E and SoCalGas, the most important part of this is SoCalGas just recently reached their labor agreement with their union. All of these current costs are going into the rate cases that were filed in May. And there will be a bring down to our cost structure here in California. And I think it's in October, November filing. So separate and apart from various mechanisms and account for this, I think one of the thing that really is a benefit to Sempra and is really a tailwind is to bring down on all of our cost, really in the next six to 12 months. The other thing which is related to your question, which I would mind touch on Michael, is the interest rate environment which obviously impacts all three of these businesses given how much their leverage to debt. But Trevor and his team have been actively managing our exposure to maturities and variable cost borrowings. So think about this as an example. Since 2017, we've been able to reduce our debt to cap from roughly 46% to 47% today, and we don't have any maturities between now and 2027. At our utilities, we have limited near term maturities, all of which are in the regulatory mechanisms in California and Texas. And at Sempra Infrastructure, you recall we've got a standalone balance sheet and done a lot of recent financings. They all are very limited near term maturities. So we even worked with KKR and ADIA and raised [$1 million] in the last 12 months from that business. So, as you think about our cost structure, it will be updated in our current pending rate cases. Things like interest rates which were following closely, we think we're in great shape on.

Michael Lapides:

Understood. And this one maybe for Trevor. Just curious how you're thinking about that coming, look on core CapEx may go up, just given the new connects in the demand trends which have been phenomenal in that part of Texas or those parts of Texas. And you've already got the CapEx lined up as part of the California rate cases. It doesn't seem like LNG CapEx would ramp dramatically next year and probably be more in 2024 and beyond, then a lot of that would be self-funded down at the operating subsidiary. You're sitting with $2 billion of cash on the books, you have almost no short-term debt or very limited amount of short-term are currently maturing debt on the books. At what point do you actually think you're getting under-levered?

Trevor Mihalik:

Yes. Sure, Jeff. And Michael, just with regards to the balance sheet, that's kind of just a flash in time, and so a lot of that those cash proceeds that we got from the sale of the 10% ADIA are sitting on the balance sheet there. And again, we have deployed that cash to paydown certain short-term debt since that period of time. But again, as Jeff said, we've got an opportunity to continue to deploy capital across the three businesses. But in particular we're seeing a lot of opportunity at Oncor and at the Cali utilities to continue to harden the systems and bring our growth to their various resources and their rate base areas. And so we feel good about deploying that capital into the CapEx plan. And as we continue to see CapEx most likely going up in the near term that will be a way to continue deploying that cash.

Trevor Mihalik:

No, Oncor will distribute certain amounts of cash back up under the LLC agreement that we have. And they do it both in dividends with excess cash, as well as tax payments back up to us, so that we can cover the tax, the cash tax payments on their earnings. Right now, they do have a lot of capital in front of them, and we continue to see us deploying cash into that business, but we are getting at a minimum cash tax payments on a quarterly basis back from Oncor.

Trevor Mihalik:

Absolutely. Yes, Oncor is self-funding.

Jeffrey Martin:

Thanks, Michael.

Operator:

We'll take our next question from Ryan Levine with Citi. Please go ahead.

Jeffrey Martin:

Hi, Ryan.

Jeffrey Martin:

Yes. Thank you for the question, Ryan, I'll pass it to a Citi alumnus and let Faisel respond to you.

Ryan Levine:

Give a sense on what that was during this quarter?

Ryan Levine:

Okay. And then it was briefly mentioned the Hackberry's CCUS opportunity, the extent the inflation reduction were to pass, is that enough to reach FID there? Would there be any mitigating hurdles to cross to move that project forward?

Ryan Levine:

Okay. Thank you for taking my questions.

Operator:

We'll take our next question from Paul Patterson with Glenrock Associates. Please go ahead.

Jeffrey Martin:

Hi, Paul.

Jeffrey Martin:

Yes, it's a very interesting questions, so thank you for raising that. I'll give you a couple of thoughts, which as you may have seen in our materials that since 2015, SoCalGas has really been on their horse, trying to reduce methane or fugitive emissions. They've got them down about 37%, well above the target that states that for 2025, and very close to the targets in some states for 2030. So this is going to be an issue of innovation, new technology, how you kind of improve your operational processes. And I think natural gas, Paul, has a long-term role in the economy here in the United States and globally. And I think they will not be an energy transition without energy security, is a base fuels like natural gas are imported. But if we don't get about the business about making sure that we don't have fugitive emissions, we're going to handicap the long-term viability of natural gas as being part of the energy mix. So there is no question that California has lead in this area. And the second part of your question is kind of interesting. I do think there'll be a very - there'll be a number of very large business built over the next decade and decade and a half around carbon trading. And companies that can assist others in reducing their carbon footprint, because remember at least today, the goal is net-zero by 2050. So the ability to basically lower your emissions, get credit for it, offset other emissions will be really important. And I think that's the business case that many people will be evaluating.

Jeffrey Martin:

Yes. I'll give you a couple of thoughts. One is, I made this comment earlier, but we're an infrastructure company right. And the beautiful thing about that is in California, we'll go out and purchase a fuel at a certain price whether be electricity and natural gas. We will run a really highly efficient system and we pass that cost onto the customers without markup. So whether we're selling more natural gas or less natural gas, isn't really a financial issue to us. What we do believe in, is decarbonizing California. So we've made a goal to be a leader in electrification. But we also believe, Paul, over time we as state will be agnostic as to whether it's a green electron or a green molecule. So in San Diego, similar to L.A. and other parts of the States, there established a precedent where they'd rather focus on electrification and look at SDG&E, we're in both, right. So if you reduce capital investment in natural gas and you have to increase capital investment in new projects and electrification. Again this is not a financial impact to us. What we worry about in the process or where the people are inadvertently driving up the cost without the benefit that they might think from that. But look we're supportive of where the city wants to go and I think one thing that's unique about our business, whether we're in Louisiana or Mexico or California, we're strongly aligned with supporting policy makers and making sure we're advancing services for consumers. So, we don't tend to be obstructionists on these types of issues, we tend to try to find a way to help them meet their goals.

Jeffrey Martin:

Thank you, Paul.

Craig Shere:

So, two LNG related questions. First, things you're focused more on mid-scale in Mexico, there is a variety of drivers for that. But we are hearing that nickel inflation is weighing more on the large-scale design versus mid-scale. And I was wondering if you have some thoughts about inflation, optimal design for the U.S., as we look past Cameron Phase 2 and Port Arthur Phase 1, and then I've just one more.

Craig Shere:

Right. And my last question and I preface this by saying, I'm not saying it's a probable scenario. But would you view it as crazy, I think we could have four LNG FIDs in 2023 totaling perhaps 25 to over 35 MTPA, combining Cameron's Phase 2, Port Arthur and some combination of a second and third Mexican liquefaction project.

Craig Shere:

Thank you.

Operator:

We'll take our next question from Anthony Crowdell with Mizuho. Please go ahead.

Jeffrey Martin:

Yes, well, let me just start by saying that, a lot of times people tend to focus on company A versus company B versus Sempra. And the way I try to think about it is the United States has a big role to play and you're out there, competing as a nation against Australia and the Qataris, North Russia, Mozambique and other locations. As you get down in the United States, you start thinking about competitive advantages. One of the things, it's a lot of people are focused on is the relative advantages of having a West Coast facility that can shorten the transit time on the high seas from roughly 25 or 26 days to go from the Gulf Coast through the Panama Canal to Asia. Whereas a West Coast export facility can do that in 10 or 11 days. In the Gulf Coast, it really is well positioned, obviously to serve, Europe. And as you talk to those parties, a couple of things that creates an advantage for us. Number one, we're a $50 billion equity value company, we've got a strong balance sheet, we've been in the gas business for over 100 years. We have a lot of established relationships. So, if you're talking with a utility in Europe, those are important to them, that we've got that utility background that strong balance sheet. Also, we've got a track record, right. We've been in the LNG business for close to 17 years now. We're not a new entrant, so I think scale, strength of balance sheet, track record is important. And obviously having Cameron is one of the flagship projects in America today. It's a really, really important part of our reputation and we take the operational excellence at that facility, it's one of our top obligation. So if you look - this is not about us talking down the competition. We've got a pretty unique footprint, and that's been recognized today when we market our projects. It has created a lot of excitement around our opportunity to bring some of these to the market.

Jeffrey Martin:

Thank you for joining us.

Jeffrey Martin:

Sure. I just like you conclude by thanking everyone for joining us. I know it's a busy day with a lot of other competing company calls. If there are any follow-up items please reach out to our IR team with any additional questions. Also want to mention, Trevor and Glen, look forward to seeing many of you who are attending the Citi Conference later this month. I think that's on the 16th and 17th in Las Vegas. This concludes our call.

Operator:

Good day, ladies and gentlemen. Welcome to the Sempra first quarter earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Donovan. Please go ahead.

Jeffrey Martin:

Thank you, Glen, and thank you all for joining us today. Against the backdrop of a challenging economic environment, our company remains focused on executing our T&D investment strategy in our core markets. Sempra California is preparing to submit GRC filings at both SDG&E and SoCalGas later this month, focused on providing safe, reliable and cleaner energy to its 26 million consumers. Turning to Texas, Oncor is executing on its record 5-year capital plan focused on critical T&D infrastructure investments across its service territory to support strong demographic growth and plans to file its rate case later this month. And at Sempra Infrastructure, they're developing a platform that's uniquely positioned to export LNG directly from the Gulf and Pacific Coast to customers in Europe and Asia. The recent tragic events unfolding in Ukraine have highlighted the need for secure access to reliable sources of cleaner energy and Sempra Infrastructure is well positioned to be part of the solution. Our strategy of investing in T&D infrastructure to expand and modernize North America's energy systems across each of our 3 growth platforms is continuing to drive our record $36 billion, 5-year capital plan and has helped us deliver another quarter of strong financial results. Also in April, we completed $250 million of share repurchases under our existing board authorization. In the last 6 months, we've returned $750 million of capital to our shareholders in the form of share repurchases, which taken together with our dividend program, demonstrates our commitment to returning value to our owners while remaining focused on investing in and growing our businesses as part of the disciplined capital allocation strategy. Shifting to our quarter results. Earlier this morning, we reported first quarter 2022 adjusted earnings per share of $2.91. We're also affirming our full year adjusted EPS guidance range for 2022 and our EPS guidance range for 2023. Please turn to the next slide. I'd now like to briefly highlight some of the key strategic advantages of our T&D portfolio. Sempra's 3 growth platforms are strategically positioned in highly attractive and contiguous markets in North America and serve one of the largest utility consumer bases in the United States. Our strong position helps create momentum for critical investments in advancing safety, reliability and cleaner energy as the global energy market continues to evolve. We also believe our platforms will play an important role in building the energy systems of the future. Please turn to the next slide where I'll turn the call over to Lisa to provide an update on our sustainable business practices.

Trevor Mihalik:

Thanks, Lisa. We made solid progress in the first quarter with a number of positive developments at each of our operating companies. Beginning with California, we're excited about SDG&E's completion of the Cleveland National Forest Fire Hardening and Safety Project, which is an example of SDG&E's commitment to making its electric system safer and more reliable. Next, I'd like to remind you of an important decision issued by the CPUC in February, establishing a statewide renewable natural gas procurement standard with procurement targets for California's investor-owned gas utilities in 2025 and 2030. This decision reaffirms the role of renewable natural gas in the state, and we view it as a significant step toward the future of cleaner fuels in California. Against that backdrop, SoCalGas continues to execute on its own goal of 20% renewable natural gas delivery to its core customers by 2030. In April, both SDG&E and SoCalGas filed their cost of capital applications to update each of their authorized rates of return, which would be effective for 2023 through 2025. We expect a decision by year-end. Regarding SDG&E's off-cycle cost of capital application for 2022, we expect a decision later this year. For more information on the cost of capital filings, please refer to the appendix. Additionally, both utilities plan to file their general rate cases with the CPUC in the coming weeks to update their authorized revenue requirements for 2024 through 2027. Among other considerations, our filings will focus on safety and reliability investments, while also looking to advance the state's clean energy goals. We look forward to working with the commission and all of our stakeholders on these important regulatory proceedings. Shifting to Texas. It's important to note that in 2021, it was a record year for Oncor in terms of the new and active requests for transmission interconnections, highlighting the rapid economic growth in its service territory. This growth has continued in the first quarter of 2022, with a 78% increase in new interconnection requests compared to the first quarter of 2021. Oncor's service territory continues to experience strong new commercial development and population increases as demonstrated by Oncor connecting approximately 16,000 new premises in the first quarter. Additionally, last month, Oncor's Board of Directors approved an update to its 2022 capital plan from $2.8 billion to $3 billion. While Oncor's Board typically approves the annual capital plan in October, this off-cycle approval is another example of the robust economic growth in Texas, driving investments to support transmission and distribution expansion. Also in March, Oncor received approval of its transmission cost of service filing for the recovery of its 2021 capital investments. Oncor also plans to file its rate case with the Public Utilities Commission of Texas later this month. Now let's shift to Sempra Infrastructure, which is focused on making critical new investments that support the energy transition. As part of this strategy, Sempra Infrastructure is working to export LNG directly from the Gulf and Pacific Coasts to customers in Europe and Asia. Furthermore, our U.S.-Mexico cross-border infrastructure business supports the growing integration of North American energy markets. As part of our effort to develop Cameron LNG Phase II, we've successfully reached a number of important commercial and permitting milestones and are now progressing towards the engineering stage of the project. As a reminder, in January, we filed our amendment with the FERC to transition from gas turbines to electric drives. If approved, this would result in a more capital-efficient single train with an estimated 44% reduction in greenhouse gas emissions compared to the previous design. Also, last month, we signed project development agreements and an HOA with Cameron LNG partners to advance Phase 2 of the project. These arrangements provide the commercial framework for the development of a fourth train as well as increased production capacity through debottlenecking activities from the existing 3 trains. Sempra Infrastructure contemplates taking its share of the offtake and selling it under long-term sale and purchase agreements to third parties. In summary, under the proposed arrangement, Cameron LNG Phase 2 would be fully contracted prior to reaching a final investment decision. In addition, we selected 2 FEED contractors to run a competitive process, which is intended to culminate in a fixed-price turnkey EPC contract. The FEED process is expected to conclude in the summer of 2023, which would allow us to evaluate taking FID thereafter. We believe we have a strong plan of execution, and this detailed and rigorous FEED process will result in better scope, definition, cost and schedule for the project. Next, as we continue to advance our dual market strategy, we broadened our alliance with TotalEnergies to advance the Vista Pacifico LNG project and to explore renewable opportunities in North America. The MOU to develop Vista Pacifico LNG contemplates that TotalEnergies would receive 1/3 of the project offtake and potentially participate in the project equity. Given the increasing demand for LNG projects, we're continuing to have active discussions with market participants around Port Arthur LNG. As a reminder, the proposed facility at Port Arthur has advanced permitting and design work and is targeted to have total capacity of approximately 13.5 Mtpa. Lastly, at Sempra Infrastructure, we continue to expect the sale of a 10% interest to ADIA for approximately $1.8 billion to close in the second quarter, subject to customary closing adjustments and conditions. Please turn to the next slide. Earlier this morning, we reported first quarter 2022 GAAP earnings of $612 million or $1.93 per share. This compares to first quarter 2021 GAAP earnings of $874 million or $2.87 per share. On an adjusted basis, first quarter 2022 earnings were $924 million or $2.91 per share. This compares to our first quarter 2021 adjusted earnings of $900 million or $2.95 per share. Please turn to the next slide. The variance in the first quarter 2022 adjusted earnings compared to the same period last year can be explained by the following key items

Shahriar Pourreza:

Just Jeff, starting off with the LNG updates today. Can you just maybe further elaborate on the Cameron 4 timing updates? Obviously, part of the limiting element was the engineering piece. Does the latest update potential eliminate some of the future time line risk? Is this kind of the last FID delay we should expect?

Shahriar Pourreza:

Sure.

Shahriar Pourreza:

Perfect. Perfect. And then just, Jeff, just lastly, can you maybe just address the project development pipeline? I mean, this optionality means -- I mean, in our viewpoint, more now than it ever has, given sort of the issues you highlighted happening overseas in your prepared remarks, right? Maybe starting off with sort of the ability to deliver more capacity, is there demand for Vista Pacifico and more importantly, for Port Arthur, the engineering and permitting in relatively advanced stages, given the history of the projects? I mean, would you be able to move faster to address the market demand in terms of setting future FIDs?

Justin Bird:

Thank you, Jeff. Thanks, Shar. First off, to echo Jeff's thoughts, we're very pleased with the significant progress we've made on our LNG projects over the last quarter. Cameron Phase 1 is in operations and we're proud to say is producing over 100% of the volumes that we expected at this time. ECA Phase 1, again, 3 million tonnes per annum brownfield located just south of San Diego, only project to take FID in 2020. That project is on time and on budget. Technip is doing a great job there. As Lisa mentioned in her prepared remarks, we have achieved over 1 million work hours without a recordable safety incident. We're very proud of our safety record. And we remain on track to begin producing LNG by the end of 2024. Turning next to Phase 2 at Cameron. Again, very exciting brownfield expansion project, real cost advantage in the market. We talk about an additional approximate 7 Mtpa, one of which comes from the debottlenecking and approximately 6 comes from the additional train. We have made progress on all 3 of the milestones that I mentioned in prior calls. On the permitting front, FERC has published a schedule that shows they expect to issue an environmental assessment in December, which would hopefully give us the permit in the first quarter of 2023. On the commercial side, we announced a project development agreement and an HOA with our partners. We are making progress on marketing those volumes that we will take, and we should expect progress in that in the next quarter. On the engineering side, as Jeff mentioned, we are running a competitive FEED process. And we do expect that to be completed in the summer. And as Jeff mentioned, we think that process will ensure that we have enough scope definition and engineering work to take FID. Moving next to Vista Pacifico. Here, we're targeting up to 4 million tonnes per annum. And we recently signed the MOU with CFE in support of the project and announced a broadening of our strategic alliance with Total, who is looking at 1/3 of the project's offtake and potentially a minority equity stake. Still an early-stage project but has a strong competitive advantage as a Pacific outlet to U.S. natural gas to Asia. Port Arthur, again, the largest project in our portfolio with 13.5 million tonnes per annum in Phase I. As you mentioned, because of its scale and advanced permitting status, we're seeing a significant renewed interest in Port Arthur, and we're advancing commercial discussions with a number of partners and key off-takers. Also on the list, which, again, is not included in the close to 30 million tonnes that Jeff talked about is ECA Phase 2. We think this is a project that will make sense. And we're working on looking at opportunities there to bring in gas and to optimize the design of that project. So again, I think it's been a tremendous quarter. We have made tremendous progress on LNG. I'm very proud of that business line and what they've achieved.

Durgesh Chopra:

Just obviously, a robust pipeline of LNG projects here. Maybe just -- maybe this is probably in Trevor's bucket. But as we think about financing of these projects, should we be thinking about project debt, minority equity interest and minimum equity at the Sempra level? That's part one of my question. And then part 2, would you consider further sell-down of the SIP stake in order to fund this kind of robust opportunity, which is clearly multiples of billions of dollars over the next few years?

Faisel Khan:

Yes, sure. Thanks, Jeff. So I think you'll recall in the past that we've talked about sort of all the potential sort of levers or sources of capital that we can pull in to finance these projects. So first and foremost, Project Finance is one of the key areas we look at as we're signing these 20-year contracts with high creditworthy counterparties. I mean, PF can basically supply 50% to 60% of the capital we need. Partner capital, we've talked about that. You've seen us execute on that with Cameron and at ECA. So if you think about 10% to 30% of an equity sell-down to some of these projects, that pulls in another slug of capital. And then when you think about what Jeff just talked about, our retained cash flows, we have strong cash flows off our existing assets. Those retained earnings definitely can be applied back into the equity needs for the project. We also have the ability to work with our partners in capital calls. So I think we have a lot of diverse sources of capital to pull into these projects. The other thing, just to give you an example of how we're looking at Cameron, so as we think about financing that project with our partners, if you remember, Cameron has this amortizing debt capacity at the project. And so that, in itself, is creating balance sheet capacity as we go through each year. So roughly, call it, almost $0.5 billion of debt is being amortized on a proportional basis to us, so that gives us the ability to go in and create debt capacity there and finance the expansion. So that just gives you an example, but suffice to say, we've got a lot of different areas we could pull capital of and still maintain Sempra at 70% ownership in Infrastructure.

Durgesh Chopra:

Just one quick follow-up. In your MOU with Total, you guys talked about pursuing like renewable opportunities, including offshore. Maybe just, can you talk to that a little bit? The reason why I ask that question, obviously, is one of your peers' utilities is kind in the market for sort of dropping their offshore projects. So just curious as to what you're targeting there? Is that international offshore, domestic offshore? And any other color you can provide?

Justin Bird:

Yes. Thank you, and thanks for the question, Durgesh. Yes, the MOU with Total and again, there were 2, one covered Vista Pacifico, the other covered looking at certain renewable opportunities in North America, really covers 2 aspects. One is Total's potential participation in some of our future renewable projects in Mexico that could service as Cal ISO well as Total asking us to look at their opportunity for offshore wind that would service California. So as part of our broad strategic alliance with Total, look, it's a great relationship. We hope to expand it beyond LNG in other areas. And really, these are the first opportunities we're looking at. So clearly, we would look to them to potentially partner in Mexico, and I think they see the value that we can bring in a renewable project into California.

Jeffrey Martin:

No, I was going to say thank you, but your summary of that's accurate. It's California, Mexico-focused.

Steven Fleishman:

I won't ask you to go through all the LNG projects again. But just a follow-up on Cameron. So in terms of realistic time lines for both the -- for first, the debottlenecking and then the full expansion, what are realistic kind of time lines for start-up?

Justin Bird:

Yes. So thanks, Steve. So on the debottlenecking, we are working through the engineering process with our partners. And remember, debottlenecking may be a series of changes that we make over time. So that engineering, we're working through that. We expect that to really continue kind of through late summer, fall, and then we'll figure out the time line for bringing those things on. Really, that is about, one, optimizing the existing production, not interfering with that, and then finding cost-effective ways to increase that capacity to that approximate one or perhaps more. In terms of Train 4, again, I think we gave a detailed outline as we move toward FID. And then when we get to the construction period, it's going to be the typical periods that you see, kind of that 4- to 5-year period. And then that's where we are for Cameron Phase 2. As Jeff mentioned, part of the work we're doing and why the FEED process, we're definitely going to let that run its course through the summer, is that we do think we will get increased certainty on execution plans, better sense of the scope of work, the timing of the work and, frankly, reduce costs.