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The energy infrastructure company Sempra was formed by the 1998 merger of Pacific Enterprises, the parent company of Southern California Gas, and Enova, parent of San Diego Gas &amp; Electric. Sempra operates through three business lines: Sempra California provides energy to consumers in Southern and Central California through utilities SDG&amp;E and SoCalGas. Sempra Texas includes Oncor Electric Delivery, an electric transmission and distribution utility. And Sempra Infrastructure develops, builds, and operates energy infrastructure. The company was previously known as Sempra Energy and rebranded to Sempra in 2021.

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Sempra (SRE): Company Profile, Stock Price, News, Rankings

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Sempra

sempra

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 Louise Bick. Please go ahead.

Good morning, and welcome to Sempra's Second Quarter twenty twenty five Earnings Call. A live webcast of this teleconference and slide presentation are available on our website under the Events and Presentations section. Many of you may know me. I'm Louise Bick, Vice President of Investor Relations. Glenn has recently taken on other financial responsibilities at Sempra, and I'm excited to be leading our IR program now.

I look forward to seeing you more on the road in the coming weeks and months. We have several members of our management team with us today, including Jeff Martin, Chairman and Chief Executive Officer Karen Sedgwick, Executive Vice President and Chief Financial Officer Justin Bird, Executive Vice President of Sempra and Chief Executive Officer of Sempra Infrastructure Caroline Nguyen, who I'd like to note, is a new Executive Vice President of Sempra. With over thirty five years at our California Utilities, Caroline brings extensive safety and operational expertise to her role overseeing Sempra California's dual utility platform, both SDG and E and SoPal Gas. Alan Nye, Chief Executive Officer of Encore Don Clevinger, Chief Financial Officer of Encore Diane Wold, Vice President, Controller and Chief Accounting Officer of Sempra and other members of our senior management team. Before starting, I'd like to remind everyone that we'll be discussing forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those projected in any forward looking statements we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10 ks and 10 Q filed with the SEC. Earnings per common share amounts in our presentation are shown on a diluted basis, and we'll be discussing certain non GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We also encourage you to review our 10 Q for the quarter ended 06/30/2025.

I'd also like to mention that forward looking statements contained in this presentation speak only as of today, 08/07/2025, and it's important to note that the company does not assume any obligation to update or revise any of these forward looking statements in the future. With that, please turn to Slide four, and let me hand the call over to Jeff.

Thank you all for joining us today. Earlier this morning, we reported second quarter twenty twenty five adjusted EPS of zero eight nine dollars which is in line with the prior period's results. With steady execution on our 2025 value creation initiatives, we're pleased with our first half results and remain on track to achieve our goals for the year. As a result, we're also affirming our full year 2025 adjusted EPS guidance range of $4.3 to $4.7 and we're also affirming our 2026 EPS guidance of $4.8 to $5.3 Next, I'd like to provide an update on the progress we've made on the five value creation initiatives announced earlier this year. As a starting point, our current capital plan targets the investment of roughly $13,000,000,000 this year, with over $10,000,000,000 allocated toward our growing U.

S. Utilities. Through the first half of the year, we've already deployed more than $5,000,000,000 of new capital while continuing our efforts to strengthen the regulatory compacts in the jurisdictions where we operate. This includes advocating for constructive regulatory and legislative frameworks to better serve all of our stakeholders. The recently passed House Bill 5,247 in Texas is a great example, and Karen will touch on that development later in today's presentation.

Next, I want to mention that we're making steady progress on our capital recycling initiatives. In the equity sale at Sempra Infrastructure, we've executed an extension to the right of first offer process that is outlined in the limited partnership agreement. With the benefit of that extension, Sempra has entered into a nonbinding letter of intent with KKR. The letter of intent contemplates an equity sale within or even above the 15% to 30% range depending upon valuation and other considerations. Given that we're in ongoing negotiations, we're limited at this time in what we can disclose, but we'll look to provide additional updates once reaching a definitive agreement.

During the quarter, we also advanced the ECO gas sales process and have received substantial interest from both strategic and financial parties. I'd refer you to Slide 10 for more color on both transactions. As previously mentioned, we expect these transactions to close sometime in the 2026, and in combination, we expect these transactions will be accretive to the company's EPS forecast as well as credit. As is our convention, we don't provide any details on M and A transactions until definitive agreements are in place. Subject to the transactions being completed next year, we expect a notably higher contribution of earnings from our regulated utilities, which we expect to improve Sempra's overall credit and business risk profile.

In that regard, I'd like to refer you to slide 12 of the appendix, which highlights our changing business mix. As we continue our transition toward a more utility focused business model, this slide demonstrates two key points. Number one, our utilities are anchored in the two largest economic markets in The United States, California and Texas. And number two, our regulated investments provide investors with broad exposure to both electric and gas utility investments in different markets with constructive regulatory compacts. Taken together, regulatory and geographic diversity across both electric and natural gas investments improves the consistency of our earnings and cash flow while also reducing financial risk.

Moreover, because our five year capital plan increasingly prioritizes growth at Encore, we expect our business mix to become more weighted toward Texas through the end of the decade, a proposition that we feel strongly will enhance Sempra's value over time. Moving to our Fit for 2025 campaign. We continue to make solid progress. The focus here, you'll recall, is on improving customer affordability by reducing internal cost, improving productivity and aligning Sempra's cost structure to its future business needs. To date, we've adopted new technology, found innovative ways to streamline processes and realigned our organizational structure to better serve our customers.

Finally, I'd like to discuss our continued progress in mitigating enterprise risk. SDG and E, as you know, has long been a leader in operational excellence and has made significant investments in data science, technology and wildfire mitigation measures. Moreover, we're pleased to report that SDG and E has hardened 100% of its transmission system with steel structures in the highest fire threat areas or what we call Tier three zones. SDG and E expects to achieve its medium term goal of fully hardening Tier two zones by the 2028. I'd also like to highlight that over the last twenty four months, our engineering and project management teams working alongside our vendors have been successful in reducing the cost per mile of undergrounding by 40%, demonstrating again our commitment to operational efficiency and safety while also improving the affordability of our future services.

And with that, please turn to slide five, where Karen will walk through additional business and financial updates.

Thank you, Jeff. Across our businesses, we have a number of updates to share that demonstrate the progress we've made during the quarter. Starting with Semper, Texas, Encore continues to present a truly compelling investment opportunity as the company continues to execute on its $36,000,000,000 five year capital plan. Encore is also evaluating incremental capital opportunities for the twenty twenty five-twenty twenty nine period, as we've previously outlined. These opportunities are critical to supporting Texas' strong growth and are further reinforced by a series of constructive legislative bills that were recently passed and are designed to enable continued infrastructure expansion across the state.

In particular, HB 5,247, which established the Unified Tracker Mechanism, or UTM for short, was signed into law by Governor Abbott in June. This bill allows qualifying electric utilities, such as Encore, to record costs to a regulatory asset arising from eligible capital investments and apply for interim rate adjustments through an annual UTM filing. This filing occurs in place of the existing TCAS and DCRF processes. We expect this legislation to help reduce regulatory investment lag and improve the earned return on equity, particularly during sustained periods of higher capital investment necessary to support high growth areas in Texas. Encore's earned ROE is anticipated to increase by 50 to 100 basis points over time versus the existing recovery mechanisms.

Oncor has begun recognizing revenues related to assets placed into service from and after 01/01/2025, and expects to make its initial UTM filing in the 2026. Other legislative outcomes from Texas are summarized on slide 14 in the appendix. Next, due to higher levels of growth and other drivers, Encore's rate case is also important as the company looks to align its cost structure with the current operating environment. In June, Encore filed a request for a comprehensive base rate review, seeking to recover past storm related costs, increase amounts recovered in rates for future storm related costs to better reflect historical costs, mitigate the impact of rising expenses and inflation, and improve its credit metrics and financial strength during a time of unprecedented growth. In its filing, Encore requested, among other items, a 45% equity layer compared to the currently authorized 42.5%, a 10.55% ROE compared to the currently authorized 9.7%, and a 4.94% cost of debt compared to the currently authorized 4.39%.

A key component of the base rate review is that it updates Encore's O and M expenses, which are currently based on a historical 2021 test year, to the level experienced throughout 2024. This is intended to more closely align the costs included in rates to the realities of today's operating environment and help improve Oncor's cost recovery and financial strength. In terms of timing, Oncor is expecting to receive a final order in the 2026. I'd also refer you to slide 13 in the appendix where we present additional information relating to Encore's base rate review. Turning to Semper, California, we're pleased to announce SDG and E has been awarded an estimated $600,000,000 in transmission projects as part of the CalISO twenty twenty four-twenty twenty five transmission plan that was finalized during the quarter.

While most of the related investments are expected to occur beyond the period of our current capital plan, we're excited to continue to support California's transmission system while enhancing safety and reliability across our service territory. Next, I'd like to acknowledge the significant initiatives currently underway to enhance customer affordability. SDG and E recently filed a request with the CPUC targeting savings of approximately $300,000,000 by phasing out certain regulatory programs that are no longer economically beneficial to customers. Recall, too, this amount is incremental to the $200,000,000 of federal tax credits that SDG and E is passing on to customers over the course of this year, further reinforcing our efforts to improve customer affordability. Moving to Sempra Infrastructure, let me start with operational updates.

Cameron LNG Phase I recently celebrated the successful production and export of its one thousandth LNG cargo, marking a significant achievement just six years after its first commissioning cargo in 2019. Elsewhere, we're steadily making progress on major construction projects at ECA LNG Phase one, Cimarron Wind, and Port Arthur LNG Phase one. Together, these projects should help drive a step change in cash flows at Sempra Infrastructure. I'm pleased to note steady progress continues at ECA LNG Phase 1. Now that the company is closer to commercial operations, we're tracking several key near term milestones that are expected to help us meet our financial commitments for next year.

As of July, the project is more than 94% complete. We expect to reach mechanical completion later this year, followed by substantial completion in the 2026. At that time, the facility is expected to begin generating revenues from LNG commissioning cargoes. We now expect sales to our long term SBA customers to start shortly thereafter in the 2026. The Cimarron Wind project is on time and on budget, with overall project completion beyond 85%.

We continue to target commencement of power generation later this year, with commercial operations planned for the 2026. We also continue work towards delivering Port Arthur LNG Phase One, on time and on budget, targeting commercial operations for Train one in 2027 and Train two in 2028. Current construction is advancing the foundations, steel installation, LNG tank construction, ground piping, and dredging activities, with the overall project now surpassing 50% complete. We're also excited about some of the recent developments at Port Arthur LNG Phase II. In May, the project received the Department of Energy non FDA export authorization.

At this point in time, Port Arthur LNG Phase II has received all major permits necessary for taking FID. Phase II also made significant commercial progress recently. In July, we executed a twenty year SPA with JERA for 1.5 MTPA of offtake capacity. This milestone helps advance the project towards reaching FID and underscores Sempra Infrastructure's commitment to supporting energy security for our customers through stable, long term LNG supply. We're pleased with additional strong offtake interest and remain focused on advancing commercial progress and financing the project.

We're still expecting to take FID in 2025. I conclude the business update by saying there's plenty to be excited about at Sempra Infrastructure as this segment continues to advance growth in LNG, energy networks, and clean energy, while posting strong financial performance. Please turn to the next slide where I'll review the second quarter financial results. Earlier today, Sempra reported second quarter twenty twenty five GAAP earnings of $461,000,000 or $0.71 per share. This compares to second quarter twenty twenty four GAAP earnings of $713,000,000 or $1.12 per share.

On an adjusted basis, second quarter twenty twenty five earnings were $583,000,000 or $0.89 per share. This compares for our second quarter twenty twenty four earnings of $567,000,000 which also equated to $0.89 per share. For the first half of the year, we're pleased with our execution and Sempra is well positioned to deliver a year of solid financial performance on behalf of its shareholders. Please turn to the next slide. Variances in the second quarter twenty twenty five adjusted earnings as compared to the same period last year can be summarized as follows.

At Sempra California, we had $5,000,000 primarily from higher regulatory awards, electric transmission margin, and AFUDC equity, partially offset by lower CPUC base operating margin and lower authorized cost of capital. Semper California also had $37,000,000 of lower income tax benefits and higher net interest expense. As you may recall, we received our final GRC decision for the California Utilities at the end of last year. Since then, as part of our Fit for 25 initiative, we continue making progress in managing costs within the authorized base GRC revenues. We're also prioritizing safety and reliability initiatives based on the outcome of our GRC decision, while advancing efforts aimed at further reducing the cost of service.

Turning to Sempra Texas, we had $6,000,000,000 of higher equity earnings, primarily from higher invested capital and customer growth, partially offset by higher operating and interest expenses as well as lower consumption, primarily attributable to weather. At Semper Infrastructure, we had $26,000,000 of higher revenues, primarily from a contract modification and higher power volumes. At the parent, the $16,000,000 increase is primarily due to timing of higher income tax benefits, higher net investment gains, partially offset by higher net interest expense. Please turn to the next slide. To conclude our prepared remarks, we've made steady progress on our twenty twenty five value creation initiatives and delivered solid financial results for the first half of the year.

At Sempra Texas, we saw important milestones as Oncor filed a comprehensive bait race review the regulatory compact significantly improved with the passage of HB5247. Within Sempra California, we continue to focus on safety, reliability, and customer affordability. And at Semper Infrastructure, we're advancing two important sales transactions and steadily progressing five significant construction projects, all while moving forward on commercial development of Port Arthur LNG Phase two. Bottom line, the key takeaway from my perspective is this is certainly an exciting time for Sempra. 2026 should bring a conclusion to the ENCORE base rate review, and I'd like to take a moment to list several other potential catalysts that can provide upside, including: Number one, continued improvement in earned ROE at Encore due to the UTM.

Two, incremental CapEx opportunities, which are expected to materialize in Texas. Three, ECA LNG Phase I and Cimarron wind earnings contributions coming online at Sempra Infrastructure and four, conclusion of two sales transactions at Sempra Infrastructure, which are expected to unlock value, strengthen Sempra's balance sheet, and provide investment capital for our growing utility platforms. With that, we'll now take a moment to open the line and answer your questions.

Thank you. This concludes the prepared remarks. We will now open the line to take your questions. If you would like to ask a question, please signal by pressing star one, one on your telephone keypad. Your line is open.

Good morning, Jeff, Karen. Good morning. And Luis, congratulations on the full responsibilities of our IR. Well deserved. Jeff, I wanted to dig in a bit on the KKR LOI around the Semper Infrastructure Partner sale process.

As you said in your comments, the LOI is within or potentially above the 15% to 30% range depending on valuation conditions. So does that mean to the extent you will or are discussing stake sales with third parties beyond the current investors that the strategic approach here on business mix is that the full stake is beyond that 30% level or how are you seeing that and where we actually go at the end of the day?

Sure, let me just start, and I trust you understand that in any M and A deal, Ross, we're fairly limited in what we can say. Obviously, we're trying to have a great transaction. What I'll try to do is recap what we've said publicly, then maybe provide a little bit more color to the latter part of your question. We indicated that we've executed an extension to the right of first offer process under the existing limited partnership agreement, and similarly we've executed a non binding letter of intent with KKR. Also, I would note that LOI the LOI with KKR, by the way, contemplates an equity sale in that 15% to 30% range, and we've also indicated it could be within or above that.

And I would just note that's consistent with, what I said on the Q1 call in May, that the ultimate amount of equity being sold will be dependent upon a number of considerations, including valuation. I also talked about in May, Ross, I think this is probably important for the listening audience that we're focused on four value drivers. So we're looking to obviously optimize the implied equity value of SI from the transaction. We want to make sure we minimize tax leakage. It's also very important as we think about that roll forward five year capital plan that we're thoughtful in the timing and use of proceeds.

And finally, I've been very clear with all of our stakeholders, there's an opportunity here to improve our balance sheet and put some cushion on the balance sheet. So those are our priorities. We certainly are not trying to guide the Street to a higher level of equity sale. It's just there's a fair amount of flexibility that we want to make sure that we're maximizing driving the most value to our owners.

And then you mentioned the capital plan, let me touch on that for a second. The incremental capital at Encore in Texas and the transmission awards that you talk about in the deck, those are still outside the base plan with CCM coming in 2027. How do you see the timing of a capital plan update related to those? And given that it's still outside the plan, can you just kind of give some color on your level of confidence that that spending can be executed?

Yeah, I would do a couple of things. One is in Encore's press release today, go through the process and recap of how they approve and roll forward their capital plan, and I'll try to touch on a little bit of that in remarks this morning. But you recall that earlier this year they announced a base plan at the 100% level of $36,000,000,000 and you're correct, they articulated an opportunity in 2027, 'twenty eight, and 'twenty nine for an improvement to that capital plan by roughly $12,000,000,000 What's important, I think, is Encore has been very clear. They're seeing upward pressure on their capital plan, so we're feeling more confident, obviously, about that $12,000,000,000 And here's the three drivers they've identified. They've had recent legislative developments that have been constructive.

They've had some supportive regulatory decisions. And they're obviously making really good progress, Ross, on the thing we identified in February, which is that $12,000,000,000 was associated with projects they needed additional permits on. They're continuing to make steady progress on permits. So I think in combination, we're quite comfortable, confirming that we expect them to be at the high end of that $12,000,000,000 or more. And the way the process will go is, at their board meeting in October, we'll recap that Roll Forward Five plan with the board.

And remember, they're in the middle of a base rate review, obviously, in Austin as well. So sometime in 2026, we'll look to update that plan. It could be on our February call, but it's going be driven by resolution of their base rate review. I was going to say, if I could, it might be helpful to your question, if you allow me let's let Alan provide just a little bit more context on the key drivers for that capital plan, because I think the growth story continues to get better, including tailwinds beyond the five year plan. Alan, it might be helpful to Ross if you just cover off on what you're thinking about from a growth standpoint and how that $765,000,000 overlay will help.

You bet, Jeff. Yes, thanks, Ross. As Jeff said, growth continues to be very, very strong really all across our system. We already announced this morning we added 20,000 new premise this quarter. That's fairly consistent with the number we've been seeing for many, many quarters now.

West Texas, we continue to see very, very strong growth out there. The Far West Texas weather zone had a new peak in May, 9.2% above the prior peak. And the two transmission loops by which we serve the Permian, the Culberson and Stanton loops both continue to see really increased peaks. Culberson peaked 23.5% above where it did prior June in June. And Stanton was up about 6.9% over the same period.

So West Texas continues to be really strong. The story remains transmission points of intersection and data centers and LC and I load. And as we announced this morning, our total new transmission POIs are up about 47% year to date, with total active POIs up about 38% year to date. And breaking that down a little further, if you look at just traditional LC and I taking data centers out of it, that's up for new about 19% and total are about up 2% quarter versus same quarter. Breaking that down a little further, that entire queue, there's around 1,100 or so, a little over 1,100 total customers that we're dealing with there.

It's about 186 gigawatts of data centers, about seven gigawatts of what I would call traditional C and I, about five gigawatts of crypto, four gigawatts of kind of oil and gas activity, and then 3% or three rather gigawatts of service to other utilities. So that's what we're seeing there. We continue to have our high confidence load number for 2031 of 38 gigawatts broken down by nine gigawatts of signed interconnection agreements with security provided and another 29.9 gigawatts of high confidence load that we submitted in our officer letter to ERCOT. And finally, and Jeff may have mentioned this, would just refer everyone back to Page 16 of the presentation that lists out the really kind of amazing transmission opportunities that a lot of this growth is providing us both through the Permian plan as well as through the STEP program or the seven sixty five EHV plan, both of which we've said previously we anticipate Encore will build a significant amount of. That remains true.

To the permitting question that Jeff mentioned earlier or stated earlier, I'd simply say this, and I've said this before, I did these for seventeen years before I became General Counsel Encore. I think I did 60 or so of them over about a seventeen year period. We're filing 24 this year, and that will continue for the next couple of years to come.

See, Ralph, I wanted you to have that background because it really feeds into that story about why that $12,000,000,000 incremental is probably going to be conservative.

That makes a lot of sense. Jeff and Alan, thank you very much for the context. Really appreciate it.

Thank you. Our next question will come from Steve Fleishman from Wolfe. Your line is open.

Yes, Thanks. Hi, Jeff. So I guess maybe just following on from there, can you just remind us that your plan right now does not include that $12,000,000,000 or does it include some of it?

No, it does not include that. We're 80% of the $36,000,000,000 plan and all of that represents upside to our base plan, Steve.

Okay. So even like that business mix, the rate base mix chart, that does not include it yet?

Okay. And then just thanks for the update on the Sempra infrastructure. Just I don't know if you can give this answer, but just any sense on timing of moving forward this LOI with KKR? Is this something by the next call? What's kind of going to drive the timing of that?

No, would just say, Steve, it's a complex structured transaction. Obviously, we're dealing with a party we know very, very well. They're in the boardroom at SI. We're engaged on our side. KKR is actively engaged.

We're not going to forecast the timing of it right now, but we're pleased with the progress we've made so far, and we'll continue to look to make an update once we reach a definitive agreement.

Okay. And then I guess just how do you feel about being able to time the sale with this obviously rising CapEx at Encore? Do you feel like you can match that up?

Well, really is a very insightful question. Obviously, we've got a couple of things going on where we're starting our fall planning process, where we're going to do a real bottoms up review of how we roll that capital plan forward and the timing of that capital. And then obviously, we're balancing that, Steve, with not only the timing of potential closing with our counterparty in the transaction, but also how we structure not only their proceeds, but our use of proceeds. So our goal is to make sure that as we roll this plan forward, we're obviously expecting our overall capital program to increase. It will continue to be increasingly weighted toward Texas.

That's the priority inside of our company. And what we want to do, we talked about this a little bit on the fourth quarter call, is make sure that this program is intended to accomplish several things: improve our overall EPS forecast, improve our credit, and also make sure that we're minimizing reliance on, additional, equity issuances. I think we're in a good spot to do this, But you're right, we've got to time this well into 2026. And our goal is to make sure we match up a really efficient use of proceeds and use those proceeds in a way where we're making investments that Wall Street will value the highest. As I indicated earlier, we certainly think that's around the quality and growth in Texas.

Okay. I guess one last thing just on the credit portion of that. You mentioned, I think, the capital recycling potentially getting to the point where you deconsolidate. Just could you talk to how that might impact kind of maybe the metrics and the risk view from a credit standpoint?

Sure. We've provided a little bit of visibility into this in the past. Karen and her team have done a great job of meeting with all agencies. I've also taken the time to go to New York and meet with all the agencies around not only our capital plan, but also the pending SI transactions. And there's really an opportunity here.

Based upon where we land in the equity sale, there's an opportunity to do a couple of things. Number one, one of the thresholds we're evaluating is that when you get to a point where roughly 90% of your earnings composition comes from regulated utilities, that tends to be a signpost that could allow a reevaluation of what your downgrade threshold is. So there's an opportunity in this transaction to move our downgrade thresholds either one notch down or potentially two notch down. That's one point. The second point is, depending upon where you land in the equity cell, you also have the opportunity to deconsolidate your accounting as well as the debt from SI from Sempra's balance sheet.

Now, this one's a little bit more complex because it really goes across three dimensions. It goes across the level of equity ownership. It goes across issues relating to governance, either positive or negative control. And then it goes to issues of materiality. And as you would expect, Steve, each of the agencies has a little bit different test as they look at that.

But that's why we talk about having a little bit of flexibility as we go forward in our transaction, is we want to make sure that we're maximizing the overall value for our investors, and that will be one of the criteria we'll evaluate in the end.

Thank you. Our next question will come from Faye Shea from Barclays. Your line is open.

Good morning. Good afternoon. It's Nick Campanella.

So hey. Hey. I just wanted to ask one follow-up on the LOI. Just is there a point at which this RoFR extension expires?

No, we're not going to go into details on it. But the way to think about it is the most important thing is that extension is designed to give the parties adequate time to do a transaction. And that's something that I think would be evergreen or rolling forward until the parties reach a definitive agreement.

Understood. And then just maybe on California, any high level thoughts on your participation in a potential AB ten fifty four solution this year, as well as maybe just on some of the status of the affordability bills that are out there? I know that a lot of folks have seen the Governor's proposal, but just how would you kind of characterize stakeholder engagement beyond that? Do you see the state ultimately getting to kind of a constructive outcome here in September?

Let me try to tackle both these issues. I'll talk about our view on the wildfire legislation, and I'll transition to affordability. I would note we're pleased to have Caroline Wynn with us today, who oversees all of our operations in California. Certainly, Caroline, please chip in as I go forward. What I would start with on wildfire legislation, and we've taken, obviously, lots of questions on this when we've been on the road and on prior calls, but I'm not sure I can add a lot to it publicly, Nick, except to say we have always thought that we'll get to some progress in stabilizing the AB ten fifty four framework this year.

Obviously, in the draft bill that was leaked, you'll see that there's also a component to it that talks about a study bill. We also think that's important. We see that as part of any package that takes place this fall, and there will probably be opportunities to continue to improve the AB ten fifty four framework going into 2026. There's several weeks left in the session. Obviously, our team is very much engaged.

The one comment I would say is, just as a matter of principle, we're not really supportive from a utility practice and procedure standpoint on the use of shareholder dollars. You may recall this is important to CEMRA because we haven't had a major wildfire in just over eighteen years. I might just say, though, we're to look at the totality of the circumstances. We realize there's a broader set of issues for all stakeholders, so that's something that we would continue to evaluate. Caroline, do you want to add anything else on the wildfire side other than that?

I'd maybe just take an opportunity to step back and talk a little bit about how SDG and E is building a better business. As we head into our eighteenth year since a large wildfire due to utility infrastructure, SDG and E has continued to expand and enhance their industry leading wildfire mitigation program. This is a team of employees who really have a growth mindset and a strong culture that we need to be better than we were yesterday. A couple of leadership areas in my mind is superior situational awareness. They have strong community engagement and service mindset.

They're a leader in data science. But maybe a few enhancements that we've done this year is expansion of the weather network, and that includes cameras and additional artificial intelligence. And that's going to improve our forecasting and our monitoring capabilities. We've deployed a dual Blackhawk helicopter strategy for rapid response and quicker inspections and patrols. We've done enhanced inspection regime that includes drone inspections of our wildland urban interface areas and we've expanded our public safety power shutoff preparedness and our capabilities.

So we're ready for the season and really pleased with the conversations that we're having in Sacramento in terms of fund replenishment.

And Nick, the reason I think this is important is, obviously there is a big focus today on financial issues and insurance and the ten fifty four framework, which we think is very important, but the thing that's important inside this business every day is to keep building a better operational program, a better ability to basically mitigate wildfire. I think you're going to continue to see this company, extend the leadership position there. I'll transition real quickly over to the affordability issue. With roughly four weeks left in the legislative session, my instinct here, Nick, is you're going see some of these bills coalesce around a single bill. And what we're focused on is most of these bills are talking about potential long term impacts.

And I think what Caroline deserves a lot of credit for is inside the company, we're pushing for things that have an immediate impact to customers. That continues to be our message in Sacramento. So we've talked about earlier today filing for an opportunity to pull back about $300,000,000 from regulatory programs that we think are not fully serving customers today. You may recall from the rate case, we're passing on about $200,000,000 of tax credit benefits to our customers. Caroline's led a process, Nick, to update our organizational structure in terms of improving how we efficiently serve customers, and obviously we want to keep pushing the edge on innovation and new technologies.

I think, Caroline, in terms of public policy advocacy that your team has led, we're trying to remove the public purpose programs from customers' bills, which are important, as well as make continued improvements to that metering framework. Would you like to make any closing comments on affordability, Caroline?

No, I mean other than to say you're exactly right, Jeff, we are focused on immediate bill reductions that benefit customers, and I think the transition of the public purpose programs to state budget will save customers $100 annually, addressing the $1,300,000,000 just annual cost shift as part of net energy metering, there's a bill going on, on that. And we also believe that increasing the climate credit, if we're able to double the climate credit from the state and using GHG funds to do so, especially during the summer months when built at IS, we think there's just great opportunity to provide that affordability for customers.

So Nick, know that was probably a longer answer than you anticipated, but we're very engaged on both issues here in the state.

Definitely appreciate your thoughts. Have a good day.

Thank you. Our next question will come from David Arcaro from Morgan Stanley. Your line is open.

Hey, thanks so much for taking my questions. Morning. Wondering if you could give an update on the LNG market and contracting opportunities that you're seeing for Port Arthur. Good to see the JERA agreement move forward, but how has macro backdrop and maybe the current administration's efforts been impacting those discussions?

Yeah, I would just start and I'll pass it to Justin. We certainly think this is one of the understated issues today in the market is the macroeconomic backdrop for LNG continues to strengthen in our view, and maybe Justin you can provide a little bit more color for David.

Yeah, David, hello. Yeah, I think we still have a very bullish view on LNG, particularly from The US. We think there's probably growth for two primary reasons, energy security and affordability in Europe, and then growing demand for gas in Asia. In Europe, the EU ban on transshipments of Russian LNG from earlier this year and Ukraine's rejection of a deal to extend their gas volumes through the pipelines reflect growing confidence in a future without Russian gas and therefore a greater reliance on U. S.

LNG. This is part of the reason why we think the Gulf Coast assets, Cameron and Port Arthur, are well positioned to meet that demand. Asia, over the long run, we, as well as many others, expect LNG will continue to penetrate the overall share of the energy supply by replacing coal and meeting the growing needs of end consumers. Demand is expected to grow through the expansion of natural gas pipeline and distribution systems in the developing markets. And then also, fired generation load is expected to grow to meet peak demands in the summer and winter as well as support grid reliability.

So this, we think, supports the Pacific Coast location as you think about ECA and future expansions at ECA. Again, our overall outlook for demand growth has not changed. We continue to believe Sempra Infrastructure's LNG assets are very well positioned to support these needs, and we're seeing that in the marketplace.

Yeah, the only thing I would add, David, is just think about it too as a basis play, right? We have historically had remarkable production of natural gas here in The United States with very little price volatility. So it's a combination of low price and low volatility relative to the markers in both Asia and Europe. And we continue to think that thesis is intact and we feel very good about the backdrop.

Great. Yeah, thanks for that color. Very helpful. And then had a follow-up on the Texas side of things. Appreciate all the details as always, Alan, on the data center pipeline.

Obviously, that pipeline has increased a lot, but the high confidence numbers seem to be consistent versus last quarter. So, I'm wondering what the dynamic is there. Are you kind of at a limit that you see in terms of what you can connect in through 02/1931? Or what would you see as maybe the cadence of projects getting into that high confidence band that you characterized?

Yes. David, thanks for the question. I should have clarified that earlier. It's not that there are not more projects out there. It is not that we cannot meet those projects.

It's just that those numbers are updated once a year with ERCOT and we continue to see increased demand in that queue and we continue to work with those parties to execute FEAs and get collateral and advance those projects. So we'll see when we update it next, but I would anticipate those numbers will continue to increase.

Just remarkable too, David, when he went through those numbers earlier on today's call, he's got over 200 gigawatts of interconnection requests, and he's got a peak load today on the Encore system of 31 gigawatts. So the opportunity is really significant, and it's not just leveraged the data centers. I think it goes across what's unique for his story is how much it goes across a variety of different sectors in the C and I class of customers.

Yeah, very clear. Okay, great. Thank you so much.

Thank you. And we have time for one last question today. And our question will come from Carly Davenport from Goldman Sachs. Your line is open.

Sempra (SRE) Q2 2025 Earnings Call Transcript

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