Sempra (NYSE:SRE) Q3 2024 Earnings Call Transcript

Sempra (NYSE:SRE) Q3 2024 Earnings Call Transcript November 6, 2024

Sempra misses on earnings expectations. Reported EPS is $0.89 EPS, expectations were $1.05.

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

Glen Donovan : Good morning, and welcome to Sempra’s third quarter 2024 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; Allen Nye, Chief Executive Officer of Oncor; Caroline Winn, Chief Executive Officer of SDG&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 statements we make today. The factors that could cause our actual results to differ materially are discussed in the company’s most recent 10-K and 10-Q filed with the SEC. 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 September 30, 2024. I’d also like to mention that forward-looking statements contained in this presentation speak only of today, November 6, 2024, 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 4, and let me hand the call over to Jeff.

Jeff Martin : Thank you, Glen, and thank you all for joining us today. At Sempra, we believe the growth narrative for energy infrastructure continues to strengthen. With economic expansion and rising electricity demand, the United States is at a critical juncture where expanded investment is needed to upgrade and modernize its synergy networks. Nationally, we face mounting challenges in the form of aging infrastructure, extreme weather events and increased demands being placed on finite dispatchable generation resources. These trends confirm a growing need for new infrastructure investments to improve the resiliency of our energy networks, while at the same time extending the grid to new and diverse sources of energy. Consider that by 2030, the United States will need to have invested over $600 billion in transmission and distribution and that forecast will likely prove conservative due to a series of sector tailwinds.

Here’s an example. Today, Texas is the eighth largest economy in the world and accounts for the highest level of both consumption and production of energy in the U.S. The International Energy Agency is now estimating that by 2026, global AI and data centers will require nearly twice the amount of electricity that the State of Texas currently consumes each year. So demand from digital infrastructure is another important growth driver for our sector. It also flags what I believe is an underappreciated investment thesis at Sempra. Here, we believe the best low risk and high growth play on AI is high voltage transmission. Allen will discuss this later in today’s call, but there’s a significant queue of over 350 gigawatts of generation and storage waiting to come on the grid in Texas.

The critical success factor there is the speed at which companies like Oncor can build, modernize and extend the high voltage transmission grid. That’s exactly why the Texas Legislature passed a bill last session to shorten the permitting timeline for new transmission investments. Not only is Oncor expected to build more high voltage transmission this decade than any other company in America, Oncor’s regulated transmission investments officially go into rates with tracker filings being made twice annually. So the key takeaway for our industry is with economic expansion and higher expected demand growth, it’s reasonable to believe that sector EPS growth will trend higher than historical norms. From my perspective to outperform the peer group in this environment, it requires four key advantages.

Number one, a clear and executable corporate strategy. Number two, exposure to sustained growth in large economic markets with constructive regulation. Number three, economies of scale and operations, technology and access to capital and number four, a strong track record of disciplined capital allocation. That’s why in this higher growth environment, Sempra is well positioned to outperform its peer group. We have the leading utility platforms in the two largest economies in the United States, both Texas and California. And we also own an infrastructure business with scale that invest in projects providing secure and cleaner forms of energy, targeting higher equity returns in our utilities and contributing important cash flows that support our balance sheet and capital campaign.

Currently, we’re in the middle of our fall planning process and one of the early takeaways from network is we have improved visibility to a growing portfolio of investment opportunities. Next, turning to our financial results. I’m pleased with the progress the company has made in the third quarter and throughout the year as we continue to wait a final GRC decision in California. Earlier this morning, we reported adjusted EPS of $0.89 for the third quarter and year-to-date adjusted EPS of $3.12. As a reminder, these results do not yet reflect the California GRC proposed decision, which is pending before the commission. Assuming the final decision is received before year end, the earnings impacts will be applied retroactively to the beginning of 2024.

As a result, we’re affirming our full year 2024 adjusted EPS guidance range, 2025 EPS guidance range and projected long-term EPS growth rate. Next, I’ll turn the call over to Allen Nye, who will take us through recent developments at Oncor, which I continue to believe has the best growth story in our industry. Please turn to the next slide.

Allen Nye : Thank you, Jeff. I’m excited to share another update on the remarkable growth opportunities we have at Oncor. To start with, EIA’s latest short-term energy outlook forecasts 5% load growth between 2024 and 2025 across all ERCOT customers. And longer term, ERCOT expects power demand in Texas to grow by 80% through 2030 from the recent peak demand record of approximately 85 gigawatts. Moving to our operational achievements. In the third quarter, Oncor built, rebuilt or upgraded over 800 miles of T&D lines, increased our premise count by approximately 19,000 and received a 50% increase in new large C&I POI requests. Turning to the $24 billion five-year capital plan that we announced earlier this year, we continue to see a growing portfolio of new investment opportunities.

As you’ll recall, we filed our inaugural system resiliency plan or SRP, earlier this year and reached an unopposed settlement in August. We continue to advance our filing through the regulatory process, but as a reminder, the SRP is incremental to our current capital plan. Oncor’s SRP investment will total nearly $3 billion of capital expenditures designed to reduce risk and over $500 million of incremental O&M expense, with the majority of the spending to occur in calendar years 2025 to 2027. If approved by the PUCT, we expect to start incurring that spends before the end of the year. We discussed the SRP with the PUCT at its open meeting a couple of weeks ago. And we expect them to continue their consideration of the plan and settlement at their meeting on November 14.

We’ve also developed a leading wildfire mitigation program in the state of Texas and continue to leverage the expertise and insights gained from the Texas Forest Service and SDG&E among others. In addition to the SRP, new investment opportunities are being driven by large C&I customers looking to connect to Oncor system. The continued increase in interconnection interest and commitments comes from large C&I customers spanning multiple diverse industries located throughout Oncor service territory. We are currently executing our fall planning cycle in alignment with Sempra to assess future capital projects, and we’ll be announcing our new five year capital plan on the fourth quarter call. Given ongoing economic expansion in Texas and significant new customer growth, plus transmission anticipated within ERCOT, we’re expecting a significant increase in our roll forward five year capital plan of anywhere between 40% to 50% from our current capital plan.

In Texas, our growth opportunities remain robust and the regulatory framework supports critical new investments to expand our system and improve grid resiliency and reliability for our customers. And across our management team, we couldn’t be more excited to support the growing energy needs of our customers. Please turn to the next slide. Next, I’d like to turn your attention to another major tailwind positively impacting Oncor’s anticipated service territory growth over both the intermediate and long term. Today, ERCOT projects demand growth in the Permian Basin to quadruple to 26.4 gigawatts in 2038 from the 2023 actual level of 6.6 gigawatts. This represents an impressive compound annual growth of nearly 10%, proving once again that the region has some of the strongest growth prospects in the nation.

In early fall, the PUCT approved ERCOT’s Permian Basin reliability plan, which permits all common local projects totaling approximately $4 billion to commence immediately, irrespective of the voltage level that the commission will eventually approve for the needed import paths. We expect Oncor to capture a significant portion of the new capital investment opportunities given our current operations in the Permian Basin and ERCOT’s preliminary recommendations. Project assignments will be approved by the PUCT. And we’re not standing still, as we’ve already begun preparation for the transmission projects expected to be assigned to Oncor. We’ll be filing the necessary certificates of convenience and necessity for those projects beginning in early 2025, and will continue the necessary make ready work throughout the year.

These proceedings are expected to take approximately 180 days under Texas law. In terms of the time line, the Permian plan provides that most of the local projects need to be in service by 2030 with all projects, including the import pathway projects, completed by 2038. The full plan calls for a total investment of at least $13 billion in the Permian Basin Territory. Specifically, the Permian plan proposes $4 billion for local projects and another $9 billion or more of transmission CapEx at either 3.45 kV or 7.65 kV voltage levels. The PUCT is expected to make a final decision on 3.45 kV or 7.65 kV import options by May 2025. Please turn to the next slide. Longer term, it is also important to note that ERCOT has provided a preliminary vision of a modern statewide extra high voltage or EHV grid.

At this stage, it is preliminary and remains subject to the plan being finalized and obtaining customary regulatory approvals. But assuming the statewide EHV initiative is implemented, Oncor expects to construct a significant number of these projects due to the current number of endpoints owned by Oncor. These projects, when taken together, would add major transmission lines across Add major transmission lines across the state to connect new sources of generation, increase overall electric load serving capability and improve system resiliency. As currently envisioned, Phase 1 of the EHV initiative would include the Permian Plan 7 65 kV lines as well as connections in Eastern and Central Texas, whereas Phase 2 would include connections in the Texas Panhandle and Rio Grande Valley.

Now please turn to the next slide where Karen will walk through business updates at Sempra California and Sempra Infrastructure.

Karen Sedgwick : Thank you, Allen. I’d first like to provide some background on the proposed decision we received in our general rate cases last month. To start, the proposed decision increases the revenue requirement in 2024 by 10.5% for SDG&E and 14.8% for SoCalGas. Moving to rate base, the PD recommends 2024 authorized rate base of $8.4 billion for SDG&E and $12.8 billion for SoCalGas. There are, however, critical aspects of the PD that require additional work, particularly in areas that impact our ability to manage the system safely. Examples include needed investments for integrity management of our natural gas distribution system and selective undergrounding of our electrical system to support wildfire mitigation efforts.

On the positive side, you’ll recall that our GRC addresses a broad range of topics that are important to the growth of our business. For example, the PD adopted certain infrastructure and technology capital projects that were not included in the base attrition year percentages, but are also important because they’ll be placed in rates upon completion. Also as a reminder, the proposed decision makes available a process that allows for certain changes to be considered before a final decision is issued. On November 4, the CPUC heard oral arguments, the records of which are open to the public. SDG&E and SoCalGas’ subject matter experts are engaged in a regulatory process and working collaboratively towards reaching a final outcome that’s beneficial for all stakeholders.

During the quarter, our California utilities also received a final decision in Phase 2 of the cost of capital proceeding, which has a negative impact on the CCM for 2025. This one time formulaic modification lowers ROEs by 42 basis points and reduces the authorized adjustment percentage for future triggers to 20%. The silver lining here is that the declining interest rate environment such as the one we may now find ourselves in limits the magnitude of subsequent reductions in ROE and off cycle years. For planning purposes, I’d also like to note that we expect to file our cost of capital application for the years 2026 to 2028 in March of next year. Turning to the Federal Energy Regulatory Commission, SDG&E submitted a new TO6 filing on October 30, where we updated our formulaic rate and made the case for a constructive improvement in the authorized ROE to 12.25%.

This consists of a base ROE of 11.75% plus a 50 basis point ADR. We believe this proposal reflects current market conditions and we look forward to working through the regulatory process to achieve productive results. Additionally, at Sempra California, we’re excited to share that the SDG service territory has seen electric demand growth, hitting a new all-time record peak demand of over 5 gigawatts in September. This reflects growing demand from roughly 160,000 EVs connected to our system, one of the highest EV penetration rates in the country and from continued electrification of the Southern California economy. Please turn to the next slide. Turning to Sempra infrastructure. We continue to witness geopolitical developments around the world, which strengthen the value proposition of our infrastructure franchise.

The U.S. is the largest exporter of LNG in the sector, Sempra Infrastructure remains well positioned to supply new customers in European and Asian markets. As Europe continues to reduce its energy imports from Russia, we believe there is a growing need for stable, lower-cost gas supply, which would further drive demand for North American LNG. A few examples include: The EU has recently banned re exports to third-party countries taking effect in March 2025. Ukraine rejected a deal to extend Russian gas through Ukrainian pipelines beyond 2024. The EU’s incoming Energy Commissioner has intensified efforts to independence on Russian gas imports. A number of EU member states are demanding tagging of LNG by source as it enters its ports to further cut back on Russian LNG imports, and this is all on top of the major natural gas pipeline capacity that was taken offline at the start of the war in Ukraine.

Meanwhile, there are strong market consensus that Asian LNG demand will continue to grow dramatically through the next 15 years, with growth estimates range between 70% and 100% from 2023 levels. Much of this demand is tied to the displacement of more carbon-intensive fuels such as coal and refined products from the energy mix of emerging economies in South and Southeast Asia as well as continued demand growth in China and India. Bottom line, Sempra Infrastructure is well positioned to be a preferred provider to establish counterparties seeking to match long-term LNG supply with growing demand in Europe and Asia. Alongside these macroeconomic tailwinds, Cameron LNG Phase 1 continues to perform well. Year-to-date, the facility has already loaded 140 cargoes, and lifetime to date, Cameron has now surpassed 840 cargoes.

Notably, the current 2024 production level exceeds the average annual run rate implied since COD. So we continue to witness strong and improving results from this facility. Turning to construction updates. We’re advancing work on a series of major projects. ECA LNG Phase 1 construction continues to make progress. The project is now focusing on finishing above-ground piping installation and our time line to bring commercial operations online in spring 2026 remains intact. Additionally, we’re pleased to announce the expansion of the GRO pipeline, is expected to commence commercial operations before the end of the year. You will recall this pipeline is dedicated to support LNG exports at ECA. Port Arthur Phase 1 is also advancing as planned and is on time and on budget.

Currently, work is focused on piling, dredging, foundations, structural steel and above ground piping installations. We also received a FERC letter of authorization for the Louisiana Connector pipeline, which will provide feed gas into Port Arthur from the Haynesville Basin. Mobilization activities to commence building this pipeline have already begun. Moving to our development efforts at Port Arthur Phase 2, the focus remains on finalizing off take arrangements and securing project financing. We continue to have discussions with potential off-takers. We’ve made significant commercial progress to date and are focused now on selecting the rate tester mix and improving our commercial terms. Most notably, Saudi Aramco is our anchor partner on the project, with a nonbinding HOA for 5 million tons per annum and a 25% equity participation.

As a reminder, we have an EPC agreement with Bechtel to allow for continuous construction across both phases. We also continue to wait for our DOE non-FDA export permit, which we expect to be resolved next year. As a result, we’re now expecting Port Arthur Phase 2 development time line to move ahead of the Cameron expansion. The timing of an FID decision for Cameron expansion is uncertain at this point. We continue to work with our partners on the optimal timing for expansion. As we’ve been in the past, we’ll be very disciplined in our efforts to secure quality returns and mitigate risk to capital before making any investment decision. Please turn to the next slide. Earlier this morning, Sempra reported third quarter 2024 GAAP earnings of $638 million or $1 per share.

This compares to third quarter 2023 GAAP earnings of $721 million or $1.14 per share. On an adjusted basis, third quarter 2024 earnings were $566 million or $0.89 per share. This compares to our third quarter 2023 earnings of $685 million or $1.08 per share. Because the GRC outcome remains pending, our CPUC authorized base revenues in third quarter and year-to-date 2024 are based on 2023 authorized levels. This is important because assuming we receive a final decision this year, any true-up will be retroactively applied to January 1. Please turn to the next slide. Variances in the third quarter 2024 adjusted earnings compared to the same period last year can be summarized as followed. At Sempra, California, we had $9 million from higher CPUC base operating margin, net of operating expenses, including higher authorized cost of capital and higher regulatory interest income.

This was more than offset by $52 million, primarily from lower income tax benefits and higher net interest expense. Turning to Sempra Texas. We had $44 million of lower equity earnings from higher interest and operating expenses and lower consumption, partially offset by higher revenues from invested capital and customer growth. At Sempra Infrastructure, we had $36 million of lower revenues in the transportation and renewables business, higher O&M and lower asset and supply optimization, partially offset by $7 million, primarily from higher income tax benefit and lower net interest due to higher capitalized interest. At Sempra parent, the $3 million net change is primarily due to higher taxes, partially offset by net investment gains. Please turn to the next slide.

To conclude our prepared remarks, I’d like to quickly summarize our key investment highlights. As energy needs grow and evolve in North America, our commitment to operational excellence supports our focus on delivering safer, more reliable and resilient energy. And our position as a leader in North America’s largest economic markets gives us unique opportunity to invest higher levels of capital in critical new energy infrastructure through the end of the decade and beyond. For general corporate purposes and to finance our growing capital campaign, we are establishing an at-the-market equity program of $3 billion. This will help us fund growth in capital expenditures in a timely and efficient manner, while continuing to maintain the strength of our balance sheet.

After we received the GRC final decision, we’ll be in an excellent position to roll forward our 5-year capital plan through 2029. We expect to provide that update in February on our Q4 call. And in the interim, we’ll continue executing on value-accretive investments that drive sustainable, long-term growth. Thank you for joining us. And I’d like to now open the line-up for your questions.

Q&A Session

Operator: Thank you. This concludes the prepared remarks. [Operator Instructions] And our first question will come from Nick Campanella from Barclays.

Nick Campanella : So Jeff, on your comments about demand growth and sector EPS growth kind of trending higher than it’s historical norms. You’ve been growing EPS above the sector already. And I just want to confirm that inclusive of all these items that you laid out on the capital side, do you have line of sight to the CAGR like above the 6% to 8% range? And how should we kind of be thinking about that as you kind of piece together all this capital that’s coming down the pipe into the fourth quarter?

Jeff Martin : Thank you for that question, Nick. And we’ve had these conversations before. But when you think about the period from 2000 to 2020, our sector had average EPS growth of roughly 3%. Now that changes from time to time. And in recent years, it’s been trending higher closer to 4%. What I think is going to happen is I think we’re in a significant growth period for our utility sector, what some people are referring to as a super cycle. In other words, we expect to see growth through this decade and well into the next decade. And I think you’re going to see overall average EPS growth across the sector trend higher. We have traditionally oriented towards 6% to 8%. We think there’s kind of an efficient frontier there in terms of balancing that with a strong dividend policy.

And I think total return is very important to the utility investors that invest in the sector. So we’re very comfortable with the 6% to 8% growth rate. And I think the key takeaway from today’s call is, we certainly have a field of vision to a lot more opportunities in the future. We certainly will be working hard to exceed the high end of that range but we’re comfortable now that with a lot of certainty about the growth backlog we have that we can deliver that range or better.

Nick Campanella : And then just quickly on the ATM. When do you think you’re going to start to need equity? Is it this year? Or is it next year? You were smart last year to kind of derisk the equity plan ahead of your formal CapEx outlook. So just wondering if that’s on the table again, and that’s it for me.

Jeff Martin : Yes. Thank you very much, Nick. Last year, you recall that we provided a little bit of visibility on our Q3 call to increases in our five year capital plan at the Sempra level. And you’re correct, we followed up with a roughly $1.3 billion secondary offering. I think what was interesting in our fall planning process this year and both Justin and I were with Allen last week in Dallas at their Board meeting, they just have remarkable visibility to growth. And I thought it was important for us to signal to our investors that opportunity now rather than wait until the February time frame, we’ll obviously give a lot of details in February, but I thought it was important to do that. And make sure that we were adding the ATM as an additional tool in our toolbox.

And I think many of you have followed the fact that ATMs have become much more common recently as companies seek alternatives to traditional offerings. So at Sempra, we just view it as another option for us to officially finance our business. We’ve sized it at the $3 billion level. And I think the best takeaway for everyone is when we get to our February call, we’re going to provide a full update on our roll-forward capital program, including, Nick, sources and uses of funding, and we’ll also be prepared at that time to provide what I hope will be a robust view of 2026 guidance.

Operator: Our next question will come from Shar Pourreza from Guggenheim Partners.

Shar Pourreza : Let me just quickly want to follow up on Nick’s question on the equity. Just on the $3 billion of ATM, I couldn’t get a sense, is that fully funding your anticipated CapEx increases? Or could there be more equity coming, especially as we’re thinking about potential funding needs at SIP as that ramps up?

Jeff Martin : Yes. What we do is we go through a very comprehensive bottom-up process in the fall, where we force everyone’s growth plans inside of Sempra across all 3 platforms to compete for capital. And as you’ve seen in the past, the lion’s share of our five year capital program goes through our U.S. utilities in California and Texas. It traditionally takes — between 90% and 95% of our overall capital plan goes through our utility. So what we’ve done at this early juncture is really provide visibility to the fact that there is a significant increase of capital that will be coming out in Oncor’s plan when we announce in February, and we thought it was appropriate to make sure we had this additional tool in our toolbox. We’re not prepared to talk about when we would use it, but I do think we’ll provide a lot of detail on our February call.

Shar Pourreza : Okay. But the $3 billion is the $3 billion we shouldn’t, I guess, assume it could be higher.

Jeff Martin : Exactly. We feel very comfortable with $3 billion.

Shar Pourreza : Okay. Perfect. And then just in terms of the proposed decision in California, just from a planning parameter standpoint, does the PD present a headwind versus your midpoint expectations? And sort of given the recommendation for lower attrition year revenue increases, could you see CapEx pulling back at SoCalGas and San Diego Gas & Electric?

Jeff Martin : Yes. What I would describe is in the fall planning process, we’re challenging all of our executives to make sure that they’ve got a fulsome and disciplined approach to capital utilization. So there is a process of give and take between both projects as well as overall capital by business. And over a long period of time, forcing that discipline inside the organization to compete for capital. And it’s not just highest return, it’s also returns relative to risk. So that process is ongoing. A comment I make about the PD is we feel there are some aspects of the PD, Shar, that are actually quite constructive. But we noted in our prepared remarks, that we also see opportunities to improve the decision in areas that we think are very important to our customers namely safety, reliability and affordability.

So we had oral arguments earlier this week and a couple of things we highlighted there where we think additional improvements are necessary as the — number one, the need for additional undergrounding to support wildfire mitigation; number two, improvements to integrity management programs. And you’ll recall, that’s very important for us in terms of operating the natural gas distribution system safely. To your point, we do think additional increases in post year funding is important because that has to align with our expected business level of activity. And finally, we’re still identifying areas that might offset cost to our customers because of our focus on affordability, and that’s mainly in the form of tax benefits. So I would conclude by saying we’ll continue to work collaboratively.

We don’t want to get in front of our regulator on this. But I think we have the chance, Shar, to do two things: get to an outcome this year and get to an outcome that’s constructive for all of our stakeholders.

Operator: Our next question will come from Julien Dumoulin-Smith from Jefferies.

Julien Dumoulin-Smith : Maybe just picking up on the Oncor side that 40% to 50% range is tantalizing there. Look, I know it’s preliminary, but can you give us a little bit of a breakdown? I know you got the $3 billion with the SRP. But what else is in there, right? When you think about that balance of, say, roughly $6 billion to $9 billion, is that Permian Basin? How much of that is low growth? Can you give us a little bit of sense of what’s baked in, in terms of that range and where you go from it?

Jeff Martin : Well, Julien, the good news is you live in Texas. So hopefully, you’ve been seeing a lot of this first-hand. For several years now, you and I have had this conversation as well as others. I have consistently said that Oncor has the best overall growth program in the country. I think we’re seeing that play out in real time. And I think we have an opportunity, Allen, if you don’t mind. Why don’t we walk through some of the growth drivers that you’re seeing and provide additional color for Julien.

Allen Nye : Yes, you bet, Jeff. And thanks, Julien. We continue to see just very strong growth across our service territory pretty much in all categories of various types of customers that we serve. Strong residential and meter growth, strong growth on our transmission system, especially regarding LC&I interconnections, strong growth in West Texas and the Permian and increased opportunities to invest in kind of the transmission backbone of ERCOT to support our customers bulk power transfers across the state. As I said in my opening remarks or Jeff did, premise growth continues to be very strong. We added 19,000 this quarter and we continue to see long-term growth around 2% or double the national average. Transmission points of interconnection continue to be a big deal for us.

New transmission point of interconnections were up 38% versus the same quarter last year. Total transmission point of interconnections were up 17% versus the same quarter last year. Generation remains very strong. We have over 500 projects seeking to interconnect to us right now in our queue, gives us about a 13% increase over the same quarter last year for generation. The biggest jump continues to be with regards to LC&I customers seeking to connect to our transmission system. We have 379 of those right now, and that represents a 23% increase over the same quarter last year, but the real story is in request from what we refer to as large load customers, right? The customers that are seeking to interconnect with our system that are seeking to interconnect at a level of at least 100 megawatts individually all the way up to multiple gigawatts.

I think I represented the last quarter that we had about 80 gigawatts of those customers. And a quarter later, we’re now up to 103 gigawatts of potential load additions related to that group of customers. Of that 103, 82 gigawatts approximately is data center related and 21 approximately gigawatts is unrelated to data centers. So I just want to make two points with regards to that 103 number. If you look at our system right now, our current peak load on the Oncor system is about 31 gigawatts. So when you’re comparing that to 103 gigawatts, we’re looking at potential load additions of more than 3x our current peak load. That’s one. And then the other point, which I just made briefly a moment ago is 103 gigawatts this quarter versus 80 gigawatts last quarter represents about a 29% increase in potential load from these types of customers in one quarter.

So that continues to be a big driver of what we’re looking at going forward into February. West Texas, again, remains a great story with the Far West Texas weather zone peaking at about 15% above the 2023 peak. Our two transmission loops that we serve the Permian and the Delaware through continue to be strong with The Culberson Loop, up 26% versus the peak of last year already and the Stanton Loop up 5.7%. So the strong growth we’re seeing in West Texas. Obviously, we can talk about the Permian plant in a minute, but it’s also leading to, what I would call, base load — the non-Permian plan additions in the region, including projects that are coming out of the Delaware Basin project study of 2019. We’re presently in stages 2 through 5 of that group of projects as well as the Permian Basin load integration study project from 2021, which we now refer to as the West Texas infrastructure project.

So we have a number of transmission projects moving forward out of those two studies and plans that are separate and apart from the Permian plan. Obviously, we still have the Permian plan, Permian Basin reliability plan going through the PUC process right now as well as the extra high-voltage plan that was mentioned previously. We’ve got our SRP still to come, hopefully on November 14. And then we have, of course, the ERCOT revised load forecast of 152 gigawatts as well as the general regional transmission plan coming out in December. So those are a lot of the things that we are looking at with our Board right now. Very excited to have all these opportunities on our system. We think it’s a great growth story. And by February, we’ll have this all worked out.

Jeff Martin : And then, Julien, what I would add just to summarize a couple of points from Allen’s discussion is growth at Oncor is both geographically diverse and it cuts across all customer categories. And as I said in my prepared remarks, I think that our AI exposure is an understated investment thesis at Sempra. Think about this, Oncor has 82 gigawatts of pending interconnection request for AI. I would challenge any other company in America to put forward a bigger number. And keep in mind, the entire state of California has a 50 to 55 overall gigawatt peak. So just an interconnection request for AI only, Oncor is dealing with 82 gigawatts of future opportunities. Their growth is also centered on the most valuable asset in the utility world, and that’s high voltage transmission.

High-voltage transmission comprises 60% of their overall capital plan. And I would also add, in addition to broad exposure to growth, Oncor benefits from a constructive regulatory compact with tracker mechanisms that we’ve discussed before, they’re being filed twice annually to true-up for T&D investments. So it is a remarkable growth story. It is remarkable exposure to transmission and particularly from customer growth and AI. And I think it’s got one of the best regulatory compacts in the country.

Julien Dumoulin-Smith : Yes. Those are truly phenomenal statistic. And I agree, I see it. With that said, actually, you’re talking about 60% is high voltage. I mean, what are you guys reflecting in that range on the 765, the higher element on the transmission. Is that basically the upper end there? Just to clarify.

Jeff Martin : Yes. As we went through our prepared remarks, there’s about $13 billion in that Permian plan, which I think assumes a 345 kV. But I think the most important thing that Allan mentioned was, is the PUCT will be making a determination as to whether that’s a 345 upgrade and build out in May or whether it’s 765. So that remains to be seen. We’ll know the answer to that next year.

Operator: And our next question will come from Carly Davenport from Goldman Sachs.

Carly Davenport : Maybe just to start on the LNG business. Any — are you anticipating any changes to the outlook there just as a result of the administration changes. And then, as you think about Port Arthur Phase 2, is the permit sort of the last gating factor that would determine when you take FID on that project?

Jeff Martin : And maybe we’ve got Justin Bird with us here who is the CEO of Sempra Infrastructure perhaps, Justin, you can walk through Port Arthur Phase 2 and then speak to the permit issue that Carly referenced.

Justin Bird : As Karen noted in her prepared remarks, we continue to advance Port Arthur 2. And I’d say we’ve made considerable progress. As noted on our Q2 call, we saw an increased interest in Port Arthur 2, and I’m happy to say that interest has further increased since the call, and momentum continues to build commercial discussions for off-take and project equity are ongoing and I think we’re seeing better terms. We have our 20-year agreement with Aramco for 5 million tons per annum as well as 25% of the equity. Our EPC agreement with Bechtel allows for continuous construction. We view that as a competitive advantage. And on the permitting side, as you noted, we’re waiting for our DOE non-FTA export permit and we expect that to be resolved in the first half of next year.

We continue to identify sources of financing for the project and advance the other key milestones to put us in a position to take a final investment decision. To wrap up, I’d say the expansion of Port Arthur is a terrific opportunity and we look forward to advancing the project.

Carly Davenport : That’s really helpful commentary there. And then maybe just shift quickly back to Texas and I appreciate all of the commentary there so far. Just as you look forward to 2025, is there anything that you’d highlight that you’re looking out for in the legislative session in Texas that could impact the growth outlook there?

Jeff Martin : No, I would just say that I think that based upon the meetings we had last week, I think, obviously, 2025 will be the biggest capital deployment year, I think, in that company’s history. The team is putting together their overall legislative strategy for next year. And Allan, perhaps, you could just mention if there’s anything notable that you want to discuss.

Allen Nye : Jeff, I think you covered it. I mean, Carly, there’s obviously a lot of chatter in Austin about utility issues. We’ve had that before. I think we are in an excellent position going into this session as Oncor. Obviously, we’re going to have to deal with things like the fallout from Hurricane Beryl. But there is nothing that I am overly concerned about right now. Obviously, we’ll have to wait till a few more weeks until we see what bills get filed. But we are more than ready to handle anything that comes our way, and I’m confident and excited going into discussion to see what we can do. .

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

Durgesh Chopra : Just can I go back to the equity really quickly. I just want to clarify something. The $3 billion, does that — is that basically all the equity that you need as you roll forward the plan from — the five year plan ’25 to ’29. Can you clarify that? And then maybe any color that you can share in terms of timing of the $3 billion equity. Does that have to be done next year? Or will it be spread out toward the planning period?

Jeff Martin : Sure. I’ll just start by Durgesh review on what our goal is for February. On our Q4 call, our convention has been to really present our five year capital plan, almost like an analyst conference, frankly. And when we do that, we reconcile the balance sheet and do come a deep dive in to sources and uses of funding. So that conversation is probably more appropriate for February. What we also do in February is we tend to basically go into proper guidance. So we’ll release 2026 guidance at that time. We’ve always felt like if we have some early visibility in the fall before you get to February, where we can kind of guide the street to our expectations, we think that’s always been viewed helpful. So I think we had a real opportunity today to come forward with a very bullish, muscular view of our Texas capital program.

We’ll fine tune that and come out with more details in February. And likewise, on the ATM, we just view this as another financing alternative for us. Our job is to make sure we compete capital internally. We are also using hybrids and as part of our overall funding mechanism and having the ATM in place, we think, is being thoughtful.

Durgesh Chopra : I just wanted to clarify that looks like we’re going to get more color. Can I just quickly ask you one more question? Just anything on the LNG permit pause given the sort of the election results. Previously, you kind of talked about — sorry, go ahead, Jeff.

Jeff Martin : No, I’m sorry. Please finish your question.

Durgesh Chopra : No, that’s it. Just any update there as it relates to the pause.

Jeff Martin : No. I would just say that maybe a higher level comment. We have intended to kind of run our business as a nonpartisan business, right? We don’t focus on 1 party or other. Remember, about six years ago, we refocused our business from energy to energy infrastructure. And historically, that’s been an area of strong bipartisan support. And frankly, even under the bond administration, there was bipartisan support for the infrastructure bill. And I think as we look forward, when we think about delivering cleaner and secure energy, it’s not more about one party or another, it’s about knowing what’s best for our country and for our customers. So when it comes to LNG. We’ve always had a constructive view that America has an opportunity to play a larger role in the world.

I think you’re going to continue to see this country, a leadership position in the production of energy. It’s going to basically benefit our domestic uses. Hopefully, it will continue to support a growing economy here in the United States. But look, quite frankly, we have an increasingly important role in serving our allies abroad. And LNG is a very, very important tool of American Foreign Policy. I think you’ll continue to see us take an important role at Sempra Infrastructure. And I think we have growing confidence in getting the permits we need for Port Arthur Phase 2 in the first half of next year.

Operator: And we now have time for one more question. And our last question will come from Steve Fleishman from Wolfe.

Steve Fleishman : I appreciate it. Just going back to the California case, you mentioned — and affordability seems to be a focus and you mentioned the tax-related benefits that could be something you suggested. Could you give us a sense of just how much that could impact rates to the benefit of customers and your thinking on that?

Jeff Martin : I think what took place in the proposed decision was they outlined but they thought the changes in the step-up in revenue requirement was for year one and then through the attrition years. And I think we’re being really focused on making sure that we can operate our systems safely. We’re working with all the different parties or a part of the proceeding. And as you do that, it’s important if you’re trying to propose additional funding that you’re also trying to find ways to reduce cost. So I think what took place in the oral argument this week was we outlined a series of opportunities where we thought that customers would benefit from additional safety investments, including to our integrity programs into our wildfire undergrounding programs.

And I think to do that we’ve also proposed some additional tax benefits that would lessen the impact to customers. So this is a process in California where you try to work with all the different stakeholders to get to a good outcome. I think we have some confidence that we’ll get that done this year and then we’ll get to an outcome that people feel good about.

Steve Fleishman : And just based on the kind of proposals you made there, like, the attrition adjustments, what would they be roughly per year relative to the proposed decision?

Jeff Martin : Yes. What I don’t want to do is I don’t really want to front run the process we’re in right now. We’re actually making some comment filings tomorrow. And what we want to do is let the process roll forward, give everyone the opportunity to participate in it. I think the decision itself that we have today has proposed, there’s a lot of constructive aspects to it but we’re very deeply involved in it right now, Steve, over the next couple of weeks. So I’d prefer to let the process play out. And our comments tomorrow, I think will be instructive to your question.

Steve Fleishman : And then lastly, just on Oncor, which is phenomenal. I remember you raised your capital plan to $48 billion overall from, I think $40 billion back. I think that was early this year or late last year. Would this be all incremental to the $48 billion for all of Sempra, Were some of that already including somewhat higher capital at Oncor? There’s been so many capital increases. It’s hard to keep track of.

Jeff Martin : Thank you for framing a high-class problem, by the way. So look, we’re going through a very disciplined process. This is not a process at Sempra where you just put one project on top of another project and sum up the total of the capital. We do, Steve, really go through a rigorous process to make capital compete. But there’s no question that the growth we’re seeing at Oncor will be incremental to our $48 billion and there’s still opportunities that other two business platforms to also grow their capital needs. So that process is underway today. But clearly, the Oncor program is incremental to the $48 billion.

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

Jeff Martin : Well, we certainly appreciate everyone joining us on the call today. I’d like to close out with a few summary comments. First, we’re optimistic about finalizing our general rate cases here in California by the end of the year and we’ll work with all parties to get to a constructive outcome. Second, I was pleased that we’re able to update everyone today on developments at Oncor. We see significant investment opportunities in Texas from the SRP program, diverse customer growth across Oncor service territory, including connection requests from data centers totaling 82 gigawatts. We also see new investments necessary to support growth in the Permian Basin and expanding the transmission backbone for ERCOT. Third, note that at our infrastructure business, we continue to operate a growing portfolio of assets and also are managing several major construction projects simultaneously, which should, together translate into higher levels of growth in the future for Sempra.

And finally, the strength of our three combined growth platforms gives us a lot of confidence and continued to grow our business while delivering shareholder value over the long-term. I would also like to mention that Trevor Mihalik will be retiring at the end of the year has served at Sempra for over a decade, held numerous leadership positions and been a great partner to me. Please join me in thanking Trevor for all of his contributions. If there are any follow-up items, please reach out to our IR team with your questions and we certainly look forward to seeing many of you at EEI in Florida next week. This concludes our call.

Operator: Thank you for your participation. You may now disconnect.