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F500-2021-255-Sempra Energy

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500-2020-258-Sempra-Energy

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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 Fourth Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn it over to Glenn Donovan. Please go ahead.

Good morning, and welcome to Sempra's fourth quarter twenty twenty four earnings call. A live webcast of this teleconference and slide presentation are available on our website under our Events and Presentations section. 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 and Chief Executive Officer of Sempra Infrastructure Alan Nye, Chief Executive Officer of Encore Don Clevenger, Chief Financial Officer of Encore Carolyn Wynne, Chief Executive Officer of SDG and E Peter Wall, Senior Vice President, Controller and Chief Accounting Officer 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 statement we make today.

The factors that could cause our actual results to differ materially are discussed in the company's most recent 10 K 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 K for the year ended 12/31/2024. I'd also like to mention that the forward looking statements contained in this presentation speak only of today, 02/25/2025, 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 five and let me hand the call over to Jeff.

Thank you, Glenn, and thank you all for joining us today. This year, as we report our Q4 and full year financial results, we've organized our materials to lay out a clear roadmap for our company to deliver a decisive decade of growth. In part, that's why we took the time over the last several months to reach out to investors and the research community to get new ideas and suggestions on how to make today's call as informative as possible. With your input, we've added a lot more content to today's presentation and adjusted our list of presenters so you get to hear directly from a broader group of executives. In terms of our agenda, I'll start by reviewing our accomplishments in 2024 and provide an overview of our corporate strategy.

Then we'll move to the leaders of our three business segments, where each will discuss recent developments and operational initiatives in their businesses, as well as their respective capital plans. Afterwards, Karen will follow-up the presentation on our Q4 and full year financial results and the details surrounding our new five year capital plan. And then at the end, I'll rejoin you to make some closing remarks. Turning to our 2024 financial results, we delivered adjusted EPS of $4.65 which is just below the midpoint of our guidance range. Later in today's call, Karen will walk through the key drivers behind those results.

Turning to 2025 guidance, we've adjusted our financial forecast to account for a series of changes. These include the final decision in our California rate cases as well as updated assumptions relating to interest rates, commodity prices and O and M costs. Another key assumption in our 2025 guidance has to do with Encore found its next base rate review. As you know, Texas is enjoying strong economic and population growth. Some estimates project Texas to have the largest population in The United States by 02/1945.

And to further that point, from July 2023 to July 2024, Texas added over 500,000 new residents, the most of any state in the nation. New business continues to move to the state as well. And as the economy expands to the end of the decade, electricity demand is expected to nearly double. With this backdrop, there's a significant need for new infrastructure, which creates opportunity for Encore to increase its capital investments in the state. That's why Encore is preparing to file a comprehensive base rate review later this year rather than waiting until 2027.

Alan will go into more detail, but if the team elects to file a base rate review, which we have assumed in our plan, we believe this will strengthen the company's financial position as it looks to make critical investments necessary to support expected growth in energy demand. Taking all these factors into account, we're revising our full year 2025 EPS guidance range to $4.3 to $4.7 Our revised 2025 guidance falls below the prior expectations set for our company. That said, I'm confident that we're making the right decisions for the business as 2025 will form a new foundation for our future growth. In addition, we're announcing our full year 2026 EPS guidance range of 4.8 to $5.3 which represents roughly a 12% growth rate from the midpoint of our updated 2025 guidance. This is important because we expect to pull through strong growth from 2026 in the future years.

In addition to the referenced year over year growth, we're seeing remarkable growth in our expected earnings from Sempra Texas, which supports raising our projected long term EPS growth rate to 7% to 9%. Going forward, we'll update our estimated long term growth rate on our year end calls in February at the same time that we announced our updated capital plans. Finally, in keeping with our commitment to provide investors with a competitive total return, we're also pleased to announce that Sempra's Board of Directors approved increasing the company's annualized dividend for the fifteenth consecutive year to 2.58 per share. Please turn to the next slide where I'll walk through our recent accomplishments. In 2024, we made important progress on our five year capital plan by deploying nearly $10,000,000,000 of capital across our three business lines, while also delivering solid financial results with 2024 adjusted earnings of roughly $3,000,000,000 In terms of other accomplishments, we ended the year with utility rate base of $56,000,000,000 It's also important to note that we're announcing a new record capital plan of $56,000,000,000 for 2025 to 2029, which represents a 16% increase over the prior plan.

With over half of our new capital driven by opportunities at Encore, where Alan and his team are seeing remarkable customer growth and taken together with California, ninety percent of the new capital plan is dedicated to our core strategy of investing in regulated utilities with constructive regulation. In California, SDG and SoCalGas received a final decision on their 2024 general rate cases, which support critical new investments in safety, reliability and affordable customer service. Meanwhile, in Texas, you'll recall that the PUCT approved ENCORE's nearly $3,000,000,000 system resiliency plan, highlighting the constructive nature of that jurisdiction and Encore's ability to work collaboratively with key stakeholders to advance good public policy. Encore has already begun making investments in accordance with the SRP and there are a significant number of near term growth opportunities that Alan will be discussing momentarily. In addition, Alan will outline more clearly what investments fall within his new $36,000,000,000 capital plan as well as providing very important visibility to other incremental investments that are expected to be added to its twenty twenty five to twenty twenty nine plan and new investments that are estimated for the 02/1930 to 02/1934 timeframe.

And finally, at Sempra Infrastructure, twenty twenty four was an important year in terms of execution as we continue to advance construction across a series of large scale infrastructure projects, including most notably EECA LNG Phase I and Port Arthur LNG Phase I. Please turn to the next slide. Couple of takeaways here. Utility capital investments have grown steadily at approximately 4% over the last decade. However, with economic expansion coming out of COVID, reshoring of industry and record levels of investment in cloud computing, artificial intelligence and data centers, we're seeing a notable uptick in energy demand.

That's why utilities all across the country are quickly ramping up investment to build new energy infrastructure that supports growing energy demand. With over $200,000,000,000 of anticipated sector investment in 2025 alone, we certainly believe we're in the early innings of a new super cycle for the sector. On a relative basis, our 16% year over year increase in our five year capital plan compares favorably to the trend shown here. In part, that's why we continue to believe Sempra is well positioned in the right markets with the right corporate strategy to create a lot of value in the coming years. Please turn to the next slide.

Here, Sempra's core strategy centers on making disciplined investments in good businesses where we can earn quality returns while building scale advantages in large economic markets with favorable regulation. Please turn to the next slide. At Sempra, we have narrowed our participation in the energy value chain with the goal of reducing the impact of commodity, environmental and credit risk By concentrating on transmission and distribution investment, it also improves our line of sight to future growth and helps us produce high quality recurring cash flows from regulated utilities, while also investing in long term contracted assets with investment grade counterparties in our infrastructure platform. Please turn to the next slide. To be clear, our corporate strategy is designed to build significant scale into our business for the benefit of customers and shareholders.

To do that, we're launching a new record $56,000,000,000 capital plan that targets compound annual rate base growth of 10%. Note too that our expectations of future growth are expanding, particularly in the state of Texas. That's why we're raising our long term EPS growth estimates to 7% to 9%. Please turn to the next slide where Alan will walk you through a business update at Encore.

Thank you, Jeff. We had a successful year at Encore headlined by several key accomplishments. We deployed approximately $4,700,000,000 a new record and grew our rate base by approximately 15%. We continue to believe in the Texas miracle and do not see it slowing down anytime soon. As Jeff mentioned, we are contemplating filing a comprehensive base rate review with the PUCT this year.

As you may recall, our last base rate review was approved in 2023 based on a 2021 historic test year. Market conditions have certainly changed with higher interest rates and insurance premiums and inflationary pressure to name a few. Moving to our operational performance. In 2024, Encore built, rebuilt or upgraded 4,300 miles of T and D lines, increased our premise count by approximately 77,000, set company records for new and active transmission interconnection requests and witnessed 4% growth in electricity volumes delivered. Encore was also recognized by EEI with the Emergency Response Award for our May 2024 storm response, the second worst storm in Encore's history, further demonstrating our commitment to restoring power after extreme weather events as soon as safely possible.

To come full circle, the main takeaway is that Encore had an excellent year and I'll speak next about the long term growth we are seeing. Please turn to the next slide. As we've highlighted throughout the year, new points of interconnection requests grew 27% in 2024. This is an important metric because it serves as a strong leading indicator of customers looking to connect to Encore system and simultaneously helps replenish the existing queue of active requests, both of which represent future investment opportunities. The increase in interconnection interest continues to emerge primarily from large C and I customers, which span multiple diverse industries located across our service territory.

As of 12/31/2024, the total amount of commercial and industrial load seeking transmission interconnection equaled 137 gigawatts, an approximately 250% increase from 2023. I'd also like to note that Encore is already in possession of over $2,000,000,000 of collateral held under signed agreements, split approximately even between generation and large C and I customers, about a 10x increase since 2018. This collateral protects ratepayers and us from the risk of costs being incurred for a project that is subsequently abandoned. Executed agreements are one of the ways we evaluate the probability of load increases into our capital planning process and this figure indicates these are serious customers with high intentions of developing their projects. Additionally, we provide ERCOT with a high confidence projection for C and I loads seeking interconnection to our transmission system.

Last year, we provided a projection through 2,030 of 25 gigawatts. This year, based on the number of customers who have taken concrete steps towards an interconnection agreement, we have increased our high confidence projection to 29 gigawatts through 02/1931. That amount combined with the customers who have already signed interconnection agreements could potentially increase our 2,031 peak load by approximately 36 gigawatts from C and I transmission customers alone. To put that into context, today's peak load for our whole system is 31 gigawatts. Please turn to the next slide.

Today, we're announcing another record five year capital plan, totaling $36,000,000,000 an increase of 50% over the five year plan we announced last February. Encore's investments over twenty twenty five through 2029 are expected to support diverse growth across our service territory as the region continues to exhibit strong annual premise growth in the 2% range, receive a growing number of interconnection requests from large C and I customers, while remaining a highly desired destination for both business and residential customers to the state. OnCourse territory is vast. Our distribution service territory is over 54,000 square miles, roughly the size of the whole State of New York. And our growth is not concentrated in any one area, but spread out across the DFW Metroplex, West Texas and along the I-thirty 5 Corridor.

We're continuing to see strong growth in residential premises that exceeds the historical national average, as well as significant new growth in the large C and I space. Examining the components of our new $36,000,000,000 capital plan, the increases arise from the following items: nearly $3,000,000,000 for the SRP $2,000,000,000 for the Brownfield local common projects for the Permian Basin Reliability Plan $1,000,000,000 for transmission projects for the Delaware Basin Load Integration Plan and West Texas 3 40 5 kV infrastructure plan 2,000,000,000 for interconnection of generation and large C and I customers with executed agreements and $4,000,000,000 for distribution upgrades and other capital needs. We're excited by the prospect that more than 60% of our capital plan presented today is allocated towards transmission projects that will support the growing energy needs of the State Of Texas as these projects tend to be substantial with cost and benefits shared with all rate payers. Our distribution investments, which we recover through the DCRF, will also continue at a robust pace and comprise another 27% of the capital plan, demonstrating the breadth and diversity of growth throughout our service territory. The SRP, which we've highlighted previously, also accounts for $3,000,000,000 and that capital is recovered more favorably than our other investments.

These investments are critical because they support a safer, smarter, more resilient electric grid to help enable continued development across the State of Texas. Notably, OnCore's thirty six billion dollars CapEx plan only includes expected spend for major transmission projects for which we have obtained all regulatory approvals. For example, in the Permian Basin Reliability Plan, approximately $2,000,000,000 has been included for brownfield projects that require no further approvals. Additionally, with regard to customers seeking interconnection at the transmission level, like data centers, our plan only includes those projects for which customers have executed an agreement with us. Please turn to the next slide.

As a result, Encore has clear line of sight to meaningful projects that could amount to an additional $12,000,000,000 over the course of 2025 to 2029 that are outside of our base plan. These projects include potential updates to our SRP in 2028 and 2029, local projects of the Permian Basin Reliability Plan requiring regulatory approvals, projects in the import path of the Permian Basin Reliability Plan, additional transmission POIs such as data centers that have not yet signed agreements with us and projects arising from ERCOT seven sixty five kV strategic transmission expansion plan or STEP among other things. Regarding the Permian Basin Reliability Plan, ERCOT and the PUCT are still evaluating the optimal voltage level for the import pathways as part of the import path phase. We anticipate further determination to be made in the second quarter of this year that will provide clarity on the need and timing of additional transmission investment. With targeted in service dates of 02/1930 and beyond, we anticipate these potential investments to occur in the back end of our current five year plan and extending into the next decade.

We are excited to have begun needed investments to support grid resiliency and we understand this is not a one off event. As such, we anticipate filing an update to our current SRP in 2027 with additional measures to continue the important investments around grid hardening, situational awareness and cyber and physical security of our system. ERCOT has laid out a vision for the development of a modern statewide EHV superhighway. In ERCOT's seven sixty five kV step released last month, ERCOT indicated that the costs between an EHV solution and a traditional three forty five kV solution are likely to be very similar, but the EHB solution would provide a number of superior benefits. We expect more guidance from the PUCT in the first half of this year.

Under either solution, Encore expects to build a significant amount of the needed transmission. Many of these projects I am discussing today continue past the current five year plan. When we look farther out, we believe our growth continues well into the next decade. If current growth trends continue, we estimate investment in our system requiring $55,000,000,000 billion dollars to $75,000,000,000 from 02/1930 to 02/1934. In other words, the Texas Miracle doesn't appear to be stopping anytime soon.

As we execute on our current plan and prepare for potentially higher levels of capital spending, I'll speak to how we prepared to support this growth. Please

the next slide. For years now, Encore has been taking deliberate steps to help secure our future growth potential. Over the past five years, we've significantly expanded our supplier base and inventory stock to help ensure materials are available when and where they are needed. We've also increased our talent pool to bring new knowledge, skill sets and abilities to our workforce, while deploying modern technologies and exercising prudence and increasing our headcount, so that we can efficiently grow our business. As we enhance our resources, we are also achieving improved safety metrics, which is a testament to our continued focus on operational excellence.

Please turn to the next slide and I'll hand the call over to Karen.

Thank you, Alan. I'll start by providing an update on Sempra California's twenty twenty four accomplishments and five year capital plan. Then, since we've received a lot of outreach from the investment community on how the state limits investor exposure to wildfire risk, I want to reserve time to provide an update on that as well. Starting with 2024 accomplishments, we saw a number of material developments in our California utilities. First and foremost, we received a final decision in our general rate cases.

With the final decision, we're now able to focus our efforts on executing the approved plan and continuing to provide customers with safe and reliable energy. And speaking of safety, SDG and E became California's first utility to be awarded with the prestigious Cal OSHA VPP Safety Certification. This designation is the highest safety recognition offered by the nation's largest state run division of Occupational Safety and Health and the award is reserved for organizations that demonstrate exemplary safety practices, employee engagement and injury prevention measures that exceed standard regulatory requirements. It is also noteworthy to mention that STG and E was also once again recognized as the best in the West for electric customer reliability for the nineteenth consecutive year, another accomplishment we're quite proud of. Operationally, we continue to see growing energy demand and recently the California Energy Commission issued a report projecting 2.8% annual growth in statewide electricity consumption from 2023 through 02/1930, which should have favorable impacts to customer affordability by putting downward pressure on rates.

In October, SDG and E submitted its T-six filing with FERC, including a 50 basis point California ISO adder. In December, FERC issued an order finding that SDG and E is not eligible for the ISO adder. SDG and E believes there is a reasonable basis to appeal this decision and has already requested a rehearing. At SoCalGas, the CPUC issued a final decision authorizing the Aliso Canyon Natural Gas Storage Facility to operate at 68,600,000,000 cubic feet or 80% of the site's capacity, representing approximately 11% of the state's overall storage capacity. Ongoing operations will be subject to future CPUC review, but we believe this action confirms the valuable role natural gas continues to play in contributing to a stable and affordable California energy grid.

Please turn to the next slide. Semper California's capital plan totals over $22,000,000,000 through 2029. Major areas of investment include our wildfire mitigation, energy storage and smart meter replacement initiatives. We're also building new transmission lines under FERC's authority, investing in the modernization of the Marino and Onor Rancho compressor stations and continuing to bolster safety through our gas pipeline safety and integrity management programs. As we look into the next decade, we see further opportunities to improve how we deliver our services through innovation and grid modernization efforts focused on safety, reliability and affordable customer service.

Moreover, additional investments will be needed to support growing energy demand and economic development throughout the state. Please turn to the next slide. Operationally, Semper California has a track record of effectively mitigating risk and making innovative investments, which further our market position as a leader in delivering safe and reliable energy. SDG and E recently scored as the most mature wildfire mitigation program across all international utilities. SDG and E's investments in wildfire mitigation have been instrumental in hardening our system based on advanced risk modeling that identified the most weather sensitive areas.

Moreover, these advanced technologies also track wildfire risk throughout the year. With an established leadership position in wildfire mitigation and data science, we commonly field questions about programs here in the state and I thought it'd be helpful to share our company's perspective. In 2019, the state established the wildfire fund under AB1054 to support the financial stability of investor owned utilities. When the Fund was formed, SDG and E initially contributed roughly $320,000,000 Since then, SDG and E has contributed just under $13,000,000 annually. As of today, SDG and E's total contributions represent roughly 2% of the $21,000,000,000 fund.

SDG and E's lower level of contributions reflect its lower risk profile due to three considerations. The relatively small size of SDG and E service territory, the desert like topography that predominates this part of Southern California and the robust level of prior investments SDG and E has made to materially mitigate wildfire risk. Also, it's important to note that SDG and E is not standing still. The company continues to strengthen its capabilities with new investments in wildfire mitigation programs as well as newly developed technology and data science that support proactively monitoring and better protection for local communities. This played out during the recent weather events where SDG and E encountered substantially similar and in some cases worse red flag conditions than what was experienced in the Los Angeles region.

SDG and E successfully managed its system safely and the company came through the event safely. Remember too that SDG and E hasn't had a utility caused wildfire of any significance for over seventeen years. Please turn to the next slide where Justin will provide an update on Sempra infrastructure.

Thanks, Karen. Geopolitical and market events continue to highlight and strengthen the value proposition of our Sempra infrastructure platform and we're making the most of the opportunity. We're making substantial progress on our dual basin LNG strategy through the construction of ECHA LNG Phase 1, Port Arthur LNG Phase 1 and the active development of Port Arthur LNG Phase 2. And when ECHA and Port Arthur LNG Phase 1 are up and running, we'll have the ability to deliver natural gas from the Permian and Haynesville basins into our terminals and dispatch LNG into both the Pacific and Atlantic energy markets. And as the CEO, I can tell you this is an exciting time for Sempra Infrastructure.

First, we delivered financial results at the high end of our range in 2024 and continued to generate strong distributable cash flow to our owners. Second, construction on ECHA LNG Phase one continues to progress and we expect to be on time and on budget in the spring of twenty twenty six. We also reached COD on our GRO pipeline supporting natural gas supply into ECHA LNG. Third, construction on Port Arthur LNG Phase 1 with Bechtel as our EPC contractor and our associated pipeline remain on time and on budget. Lastly, the development of Port Arthur LNG Phase II is an advanced development.

We already have an HOA with Aramco that includes offtake of 5,000,000 tons per annum and a 25% equity interest. We have a fixed price EPC agreement with Bechtel and we have interest of well over five MTPA for the rest of the capacity for Phase two. With this in mind, we're pleased to announce we're targeting FID in 2025. Please turn to the next slide. At Sempra Infrastructure, we continue to focus on safety, disciplined development and construction and operational excellence.

At Cameron, which is now in its fourth year of full production, the team continues to optimize its operations with the plant reaching a 98% reliability rate in 2024. During 2024, Cameron loaded 193 cargos and has now reached eight ninety five cargos since production began in May 2019. At Port Arthur LNG Phase I, we have 3,600 workers on-site, are building out the steel framework for the trains, tank construction, above ground and underground piping, marine berth dredging and have commenced major equipment setting. We continue to target commercial operations for Train one and Train two in 2027 and 2028 respectively. At ECA LNG Phase one, we're excited that the project has reached 90% completion including engineering, procurement and construction progress.

Current work is now focused on pipe testing and insulation, electrical instrumentation and pre commissioning activities. Please turn to the next slide. Turning to Sempra Infrastructure's updated capital plan, we estimate spending $4,000,000,000 through 2029. As a reminder, per our convention, we only include Sempra's proportionate share of capital of projects that have reached FID. And to be clear, our plan is narrowly focused on investments in LNG assets with 16,000,000 tons per annum of projected capacity as well as the supporting pipeline infrastructure.

In the meantime, our renewable projects such as Cimarron represent a great way to layer in higher return projects with a shorter construction window to take advantage of Sempra infrastructure's excess electric transmission capacity. Overall, our assets have eighteen years of average contract life remaining, which gives us confidence in our ability to continue delivering recurring cash flows and value to our owners in the foreseeable future. Please turn to the next slide. The development of Port Arthur LNG Phase two increases the value of our SI franchise. The brownfield expansion is expected to benefit from scale advantages and continuous construction under Bechtel's leadership.

Furthermore, Phase two will benefit from the common facilities that will be completed in Phase one. In combination, we believe this translates into a lower cost and lower risk expansion of Phase two. As I mentioned, we announced an HOA with Aramco for approximately half of the offtake where they'd also participate in 25% of the project equity. Additionally, we have well over 5,000,000 tons per annum of interest for the remaining offtake and are confident in our ability to meet our customers' needs. Many of our stakeholders are eager for this project to succeed, including ConocoPhillips, as they mentioned in their recent earnings call.

Given recent commercial discussions for additional demand, the momentum of project development and our continued expectation to receive the DOE non FTA permit, we're excited to announce we're targeting a final investment decision later this year pending the execution of definitive commercial agreements, obtaining permits and securing financing among other factors. Please turn to the next slide. Over the long run, our strategy is increasingly focused on the expansion of our dual basin LNG strategy, which could over time represent up to 90,000,000 tons per annum in total LNG exports, while significantly increasing the scope and scale of our business. The timing and ultimate ownership stakes in these projects will depend on market demand, which we believe will remain robust through 02/1940. For context, LNG demand has grown 6% per annum over the last twenty five years and going forward, we estimate that global demand could grow by up to another three fifty million tonnes per annum through 02/1950.

Based on these forecasts and recent capital markets activity in the LNG infrastructure industry, we believe our infrastructure growth franchise continues to provide compelling value to Sempra's shareholders. Now please turn to the next slide where Karen will walk through the Sempra financial update.

Thanks, Justin. Earlier today, Sempra reported fourth quarter twenty twenty four GAAP earnings of $665,000,000 or $1.04 per share. This compares to fourth quarter twenty twenty three GAAP earnings of $737,000,000 or $1.16 per share. On an adjusted basis, fourth quarter twenty twenty four earnings were $960,000,000 or $1.5 per share. This compares to our fourth quarter twenty twenty three earnings of $719,000,000 or 1.13 per share.

Full year 2024 GAAP earnings were $817,002,000 or $4.42 per share. This compares to 2023 GAAP earnings of $30,000,003,000 or $4.79 per share. On an adjusted basis, full year 2024 earnings were $2,969,000,000 or $4.65 per share. This compares to our previous full year 2023 adjusted earnings of $2,920,000,000 or $4.61 per share. Please turn to the next slide.

Variances in the full year 2024 adjusted earnings compared to the same period last year can be summarized as follows. At Semper California, we had $46,000,000 primarily from higher electric transmission margin, higher AFUDC equity and higher CPUC based operating margin and $157,000,000 primarily from higher income tax benefits from flow through items, including higher gas tax repair benefits, partially offset by higher net interest expense. Turning to Semper Texas, we had $43,000,000 of higher equity earnings, primarily from higher invested capital and customer growth, partially offset by higher interest and operating expenses and lower consumption, primarily due to mild weather. At Sempra Infrastructure, we had $170,000,000 of lower transportation earnings, including the cumulative impact of new tariffs going into effect in 2023. Lower asset and supply optimization and lower volumes for the renewables business, partially offset by $50,000,000 primarily from lower net interest expense due to higher capitalized interest and higher income tax benefits.

At Sempra Parent, the $77,000,000 net decrease is primarily due to higher net interest expense and lower income tax benefits. Please turn to the next slide. Now let's turn to our planned investment over the next five years. Driven largely by growth at Semper Texas, our new record $56,000,000,000 capital plan represents an increase of 16% over the prior year plan. Capital investment will remain overwhelmingly focused on our T and D infrastructure with over 90% allocated to our regulated utilities.

In Texas, the growth is simply remarkable. And on top of that, the regulatory construct continues to improve with 97% of our investments now being recoverable through efficient tracker mechanisms, which diminish the impact of regulatory lag. At Sempra California with the GRC final decision, SDG and E and SoCalGas are focused on executing the daily mission of delivering safe and reliable energy. As a reminder, our Sempra infrastructure platform is underpinned by long term U. S.

Dollar denominated contracts that mitigate commodity and counterparty risk. And our infrastructure business provides a great opportunity to achieve attractive risk adjusted returns on long duration energy infrastructure projects. With the long term tailwinds we've discussed today, you can see there's a consistent pipeline of new opportunities to deploy capital, which supports increased earnings power for each of our three platforms. Although there's a lot of excitement about our growth opportunities, we remain committed to a disciplined capital allocation process and financing our growth as efficiently as possible. Please turn to the next slide.

One of the key takeaways from our capital plan is that we're projecting total 2024 rate base of $56,000,000,000 to expand to over $91,000,000,000 by 2029, which amounts to a 10% compounded annual growth rate. Please turn to the next slide to cover our financing plan. As we've highlighted throughout the morning, we have a very large capital plan focused on key investment opportunities with a primary focus on Texas. Our sources and uses calls for a thoughtful mix of investable cash from operations, debt and equity issuances, capital investments, and capital returns to shareholders. Consistent with past practice, our recurring cash flows provide the majority of funds planned for capital investments.

You will recall that in late twenty twenty three, we sold approximately $1,300,000,000 of common stock that settled at the end of last year. We also established our $3,000,000,000 ATM program in November of last year and sold approximately $270,000,000 in equity under the program in the fourth quarter. The plan presented today is intended to provide strong support for our credit ratings with equity issuances in the front end of the plan and share repurchases on the back end. As Jeff will share later, we've historically grown our earnings faster than the sector, which requires a higher level of reinvestment in the business. We have remained consistent in both our dividend strategy and our commitment to maintaining a strong balance sheet.

Please turn to the next slide. In response to requests from investors for a more fulsome view of Sempra's financing plans, in addition to the prior slide, which is our traditional view, this slide provides more detail into our financing strategy. On capital recycling, as we have demonstrated in the past, we'll evaluate and execute on opportunities at Sempra Infrastructure with a view toward improving our regulated business mix over time. In the future, we anticipate these opportunities could come from a variety of areas such as project equity, joint venture arrangements, asset sales or further sell downs within the capital structure of Sempra Infrastructure Partners among other things. What's most important is we're going to remain focused on continuing to provide significant value for shareholders as we look to fund our robust capital plan in the most efficient manner possible.

Finally, we also remain committed to growing our dividend as part of our total shareholder return strategy and are now in our fifteenth consecutive year of dividend raises. Please turn to the next slide. To wrap up my remarks, let me discuss our 2025 and 2026 guidance. As Jeff noted earlier, we're revising our 2025 EPS guidance range to $4.3 to $4.7 Our revised range contemplates Encore submitting for a base rate review this year, which impacts their tracker filings while the case is ongoing. While there is a near term earnings headwind this year associated with the filing, we believe it's the right business decision since Encore is an important inflection point in an unprecedented growth cycle.

It's also important to note that the financial impact of higher growth at Encore is not fully reflected in the intermediate term financial results due to regulatory lag. However, we know over time that Texas will realize increased benefits of this growth and continue to be a larger and important contributor of Sempra's earnings mix. Beyond the adverse impacts of Encore filing its base rate review, there are other considerations impacting Sempra's twenty twenty five guidance. At Sempra California, we're negatively impacted by the implementation of the GRC final decision, a 42 basis point decrease in our return on equity determined by the CPUC related to the CTM, as well as the FERC order removing 50 basis points California ISO adder to transmission related ROE. Moving to Sempra Infrastructure, the two main variables factoring into the lower guidance are the delay in ECHA LNG Phase one COD until spring of twenty twenty six and recent changes to assumptions for natural gas prices.

This will be partially offset by the optimization of transportation capacity. Finally, at parent and other, we've assumed higher interest expense as a result of higher capital investments in 2025 and weighted the capital structure mix more towards higher rate hybrid security issuances. Please turn to the next slide. Looking to 2026, we're announcing projected midpoint earnings of over $3,300,000,000 as ECHA LNG Phase one and Semoran Wind are expected to reach commercial operations and we start to see more benefits from Encore's increased investments, including the SRP. This results in a projected EPS range of $4.8 to $5.3 based on $660,000,000 shares outstanding, reflecting minor impacts from equity sales under our financing programs.

To reiterate, we delivered solid financial performance in 2024 and we remain extremely excited about the future, particularly with improved visibility to strong growth in the medium and long term. With our new capital plan presented today, we're raising our projected long term EPS growth rate to 7% to 9%. Please turn to the next slide where Jeff will finish with his closing remarks.

Thank you, Karen. Next, I'd like to briefly summarize the key takeaways from today's call. Over the last three decades, roughly 10% of public companies have been successful in consistently growing earnings faster than U. S. GDP.

That's why I've long believed that EPS growth in our sector and others is loosely correlated to GDP growth. Looking at this slide, you can see this play out over the last five, ten and twenty plus year time horizons. U. S. GDP has grown on average at 2% and over those same time periods, the utility sector has grown earnings per share in the range of 3% to 4%.

In contrast, over those same time period, Sempra has been successful in growing its adjusted earnings per share faster than both U. S. GDP and the utility sector's adjusted earnings. Note too that we're one of the few companies in the utility sector who have both, number one, announced a long term EPS growth forecast of 7% to 9% and also, number two, delivered that same level of growth over the short and long term. We've been able to accomplish this by emphasizing the importance of a clear corporate strategy, disciplined capital allocation and efficient sourcing of capital, while also simplifying and de risking our business and advancing a culture of high performance.

To be clear, we have a bullish view of Sempra's future growth and we believe we're in the right markets with the right strategy to continue posting strong financial results over the long term. Please turn to the next slide. In 2024, we delivered a total return of 21%. As shown on this slide, Sempra has also delivered a solid total return over the last three years of 45%, which compares favorably to the utility sector. Please turn to the next slide.

There are two key takeaways here. First, there is a changing business mix within Sempra's earnings composition where we're targeting higher exposure to U. S. Investments and specifically regulated utilities. Second, driven by a portfolio of remarkable investment opportunities in Texas, our Semper Texas platform is projected to account for over half of our record $56,000,000,000 5 year capital plan.

Given the plan that Alan outlined today and the clear line of sight to significant new investments that fall outside of Encore's thirty six billion dollars plan, we are taking concrete steps to firmly set our growth strategy around the Texas market. That includes setting an aspirational goal of producing one half of Sempra's earnings from Texas by the end of the decade. Please turn to the next slide. Earlier, I reviewed the strength of our recent total return. On this slide, you can see that Sempra has been successful in posting strong total returns that compete favorably to the utility sector and the broader market over a longer time horizon.

That's why from our perspective, the blueprint for long term value creation comes from investing in good businesses, running them well, building leadership positions in key economic markets, allocating excess cash flow wisely and compounding returns over long periods of time. At this point, I'll pause and we'll take a moment to open up the line to take your questions. Thank you for joining today's call. Before opening up the Q and A, I want to make a few supplemental remarks. I know we passed out a lot of new information this morning and the changes in assumptions are causing impacts to your financial models and also a lot of frustration.

So let me start off by apologizing. We have lowered our guidance in 2025 due to a series of issues, most notably key changes in our planning assumptions in the last couple of months. First, the California GRC came in late December below our planning assumptions, particularly on the front end of the plan. We do have opportunities, however, to support stronger growth from Sempra California in the back half of the plan as we get recovery from the investments we're making outside the GRC base revenues. Second, based on the FERC decision on December 31, we have removed the FERC CAISO adder from our expected return on our transmission assets in California.

And finally, and this is an important one, we think it's the right decision for Encore to go back in early for a base rate review to reset its cost structure and that puts downward pressure on those earnings forecast for this year. That decision will be made by the Encore team later this spring. Now turning to guidance. We have the opportunity to continue a 6% to 8% growth rate off of 2024 actuals. I'd like to repeat that.

We could have maintained a 6% to 8% growth rate, but we chose not to because we have fundamentally raised our expectation of the earnings power of this business over the long term. We have discussed this difference in view of long term growth on previous earnings calls. But at Sempura, our long term growth forecast represents the growth we expect to produce over a sustained period of time. In this higher growth environment, we believe that range is 7% to 9% and we've appropriately raised our guidance. Turning now to our current five year plan.

We expect to grow earnings per share at 9% or higher and we expect the earnings contribution from Texas, which is more valued in the market to significantly increase as a part of our overall earnings mix with Encore's rate base roughly doubling over the planned period. Before I close out, let me tell you why we're confident in our plan and producing results well above what we've talked about today. Number one, as Karen talked about in her prepared remarks, the most important way to finance growth is through operating cash flows. That's why we have various initiatives underway at our company to improve our cost structure and our financial returns. Improved financial returns will improve our long term growth.

Number two, as Alan outlined, his team expects to add another $12,000,000,000 to their capital plan. It's important to be clear here that is incremental capital that is expected within the planned period between 2025 and 2029. Third, Port Arthur Phase II is not included in the plan, but we certainly expect that project to move forward later this year. You'll recall, we have a very conservative practice of only putting projects in the plan at Semper Infrastructure after they have reached a final investment decision. And finally, number four, in our Utility segments, there are other planned opportunities related to authorized ROEs and capital structure as well as other improvements to the applicable regulatory construct.

In conclusion, we have lowered our guidance for 2025, but the key takeaway is we expect to produce stronger earnings per share growth in the future. Conservatively, we expect to produce 9% or higher through 2029 and it will disproportionately come from Sempra, Texas. I'll stop at this point so the operator can open the call and we'd be glad to take your questions.

Thank you. This concludes the prepared remarks. We will now open the line to take your questions. And our first question will come from Shar Pourreza from Guggenheim Partners. Your line is open.

Good morning, Jeff. So just maybe starting off on the 25% rebates, there's just three pieces I want to reconcile there. First, is the plan embedding lower rate base growth in California or is that partially moved to future plan years? And then similarly in Texas, does the higher interest in investment cost in 2025 reverse with the potential base rate filing? And then third, the natural gas sensitivity that remains with at SIP, what was assumed versus the downward revision for '25 there?

Thanks. I mean, it's a loaded question, but it's just around the thanks.

Look, Shar, there's no question our revised guidance falls below the prior expectation that we've set. That being said, I think we're making the right decision for the business, particularly looking to bring Encore in earlier for a base rate review. The answers to your question are yes, yes, and we have not disclosed the third answer. What I thought might be helpful is to see if Karen can go through a little bit more detail, Karen. If you want to return to Slide 42, it might be helpful to walk through the key drivers to our 2025 guidance.

Sure. Thanks, Jeff. So I think we just finalized the five year plan with our Board last week and there's a few key items at each business platform. So the first one that Jeff talked about is Semper Texas. Our plan assumes that OnCore does file this comprehensive base rate review rather than waiting until 2027.

Among other things, this impacts their trapper filings during the course of the proceeding, but it also provides the opportunity to update their revenue requirements to reflect the higher O and M insurance costs and interest expense that they're seeing. With the unprecedented growth in Texas, we think it makes sense to file more periodic rate cases to ensure the company's financial strength. And while this is a negative for 2025, we think it's the right thing to do for Texas future growth. Turning to California, we have adjusted our financial forecast to include the final decision on the GRC, which came in below the assumptions that were included in our prior plan. Also, it's important to note that the CPUC lowered the authorized return on equity by 42 basis points for 2025.

That's in addition to the FERC fifty point basis point COSO adder that Jeff spoke about. In combination, these three items put downward pressure on our previous forecast for Sempra California. And then of course at SI last year we announced a change in the expected schedule for commercial operations at ECHA LNG to spring of twenty twenty six. And finally, at parent, we're seeing higher interest expense from growth in our capital plan as well as updated assumptions related to changes in interest rates over the prior year's forecast. Given all these impacts, it was important for us to reset our 2025 guidance and create a new base for our expected growth.

Yes. Thank you, Karen. And Sharath, to your third question, obviously, our natural gas price assumption has gone down across the plan period.

Got it. And then just lastly, shifting, Jeff, to the forward view, you're highlighting the upside in Texas that is material and longer term on the S and P side with Port Arthur going into service and Port Arthur II now on an FID track. I guess the incremental to the new 7% to 9% plan, what does that imply for where you are in the range coming off the lower base, especially these incremental items come into plan? And I'm asking more around the current trajectory, not beyond 29%. Can you breach the 9% in the current trajectory?

Yes, Gerrard. Thank you for that question. In the supplemental remarks I made earlier on this call, I clarified that we fully expect in the 2025 to 2029 plan to be at 9% or higher as a CAGR across that plan period. But remember, as we've always talked about, we tend to guide our EPS forecast over long periods of time at 7% to 9%. It just so happens that in the plan period, we fully expect to exceed that.

Fantastic. Thank you guys so much. Appreciate it.

Thank you. Our next question will come from Nick Campanella from Barclays. Your line is open.

Hi, Nick. Hey, good morning, everyone or good afternoon. Thanks for taking the time. So I just wanted to touch on, you're raising your rate base CAGR about 1% and I understand you have to finance a lot of this capital and there's lag in Texas. But 1% increase in the rate base CAGR for roughly a 10% or more cut in EPS expectations just seems somewhat counterintuitive.

And I know that you said you can get back or you're within the 6% to 8% off of 2024% on when you look back to the original plan, you can get there. But even using the high end of the 7% to 9% plan, it doesn't imply that you're really back in that range until 2029%. I could have something wrong with the math there, but just why is it prudent to invest this much amount of capital and for shareholders to kind of take this much pain upfront for that capital? Thank you.

Yes. Thank you, Nick, for the question. On a couple of points there, as we did clarify that we could have maintained a 6% to 8% long term EPS growth rate off of 2024 actuals. And that gives you some sense about how we're thinking about the future. What's fundamentally changed in this higher growth environment for all utilities is we think we have the opportunity for sustained EPS growth at levels above 6% to 8% and we've guided into the long term for that range.

In the plan that we're talking about, we will not produce 7% to 9%. We expect to produce 9% or higher. And to your point, there's no question that the front end of our financial results has been impacted. We've got a lot of work to do as a management team to grind through 2025 to exceed expectations and come back in 2026 and do it again. But long term, there's a fundamental view in our company that we have the opportunity to produce higher earnings and higher earnings per share than we've done historically.

And that's why we're guiding to above the 9% range for the 2025 to 2029 period. And let me give you an example why I'm so bullish if you allow me. Number one, go back to Encore. This is one of the upsides to our plan. And I think it's very important to be clear about what our expectations are.

Encore has a base plan of $36,000,000,000 that's shown on slide 14. This is a conservative view and generally covers only three areas of planned investment, Nick. First, approved investments inside SRP. Number two, capital investments where all regulatory approvals are already in hand and capital needed to satisfy large C and I transmission requests that are subject to an existing interconnection or other agreement. Within that same planning horizon of 2025 NIC to 2029, again 2025 to 2029, Encore management expects to make additional capital investments totaling $12,000,000,000 and that's really important.

And I'm just going to ballpark it for you. But if you run that through the waterfall of their earned ROE and their existing equity layer, that's $400,000,000 to $500,000,000 of upside earnings that we're talking about coming from that capital. And you can see that reflected on slide 15. So allow me to talk about Nick what some of those incremental opportunities are that are expected by the Encore management team. There's seven of them.

Number one, updates to the roll forward system resiliency plan for calendar years 2028 and 2029. You'll recall that SRP today finishes in 2027 roughly. Number two, transmission investments in the Delaware Basin Load Integration Plan. They are awaiting regulatory approval today. Transmission projects required by the local plan within the Permian Basin Reliability Study where regulatory approvals are also pending.

And similarly, import pathways arising from the Permian Basin Reliability Study. There are three more new transmission projects for customers who are expected to sign interconnection or other agreements and number six, new transmission identified and ERCOT's strategic transmission expansion plan that are expected within the planning period. And finally, additional maintenance and distribution upgrades. When we acquired the majority of Encore in 2018, their rate base was $12,000,000,000 Today it has more than doubled to $26,000,000,000 and we expect it to double again to over $52,000,000,000 by 2029. And that $52,000,000,000 does not have the 12,000,000,000 of additional investments that are now expected.

When you take the base plan together with the additional capital opportunities outlined, Encore expects to invest approximately $48,000,000,000 in electrical network through 2029. I hope that's helpful.

Thanks for the information. And then I guess just moving to the equity needs, can you clarify, it seems like there's a lot of equities in the front part of the plan. Is that going to be would you consider a block? And then you kind of talked about buying back stocks, in footnote two, the sources and uses. And I heard you in the prepared remarks, Karen, just if you're issuing equity and repurchasing equity in the same five year plan, where does the balance sheet stand in the near term and why is that the right kind of strategy here?

Sempra (SRE) Q4 2024 Earnings Call Transcript

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