Q2 2021 Sempra Energy Earnings Call
[music].
Good day and welcome to the Sempra second quarter earnings call. Today's conference is being recorded on at this time I'd like to turn the conference over to Nelly Molina. Please go ahead.
Good morning, everyone and welcome to our second quarter 2021 earnings call for Sempra.
The webcast of this teleconference and as Leigh presentation is available on our website under the Investor section.
On the line with US today, we have several members of our management team, including Jeff Martin Chairman and Chief Executive Officer, Trevor Mihalik, Executive Vice President and Chief Financial Officer, Justin Bird, Chief Executive Officer of Sempra, LNG I don't know <unk>, Chief Executive Officer of Encore, Kevin Sagar a group of precedent.
And Peter Wall, Senior Vice President Controller, and Chief Accounting Officer.
Before starting I'd like to remind everyone. The 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 at the payment we make today the.
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.
All of the earnings per share amounts in our presentation are shown on a diluted basis and will be discussing certain non-GAAP financial measures.
Please refer to the presentation slides that accompany these call threat the consolation to GAAP measures.
I'd also like to mentioned that the forward looking statements contained in this presentation of speak only as of today August of <unk> 2021 and 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 you.
Thank you Natalie I want to start today by thanking those that attended our virtual Investor Day. This past June and also mentioned that the team and I really enjoy and get it back on the road. This past month and seeing many of you in person as we discussed at our Investor Day, we've simplified our business model narrowed our investment strategy to attractive markets and improved capital discipline.
All with the goal of offering of competitive value proposition, including consistent and attractive returns strong earnings visibility and the EPS growth and a sustainable and growing dividend. Additionally.
Additionally, at the Investor Day, Alan highlighted the robust growth of Oncor continues to see all across the service territory and as a result encore is increasing its capital plan, which Trevor describes in further detail later in today's presentation.
Shifting now to the quarter I am pleased with our financial results and I think it's a testament to the affirmative steps, we've taken to simplify our business model and focus our capital investments on top tier infrastructure growth platforms, we're reporting strong earnings and affirming both of our increased 2021 adjusted EPS.
Guidance range, and our 2022 EPS guidance range I am excited about the progress we've made so far this year and I'm proud of the broad support we are seeing all across our operating businesses now.
Now please turn to the next slide where I'll turn the call over to Trevor to provide both business and financial update.
Thanks, Jeff to.
To begin we have had several positive developments in our operating companies this past quarter.
At Ft Genie in July we received CPUC approval for our 2021 wildfire mitigation plan update building on the utilities longstanding commitment to advanced fire hardening and public safety.
Socal gas began flowing renewable natural gas at 2 additional biomethane projects in support of their goal to provide 20% RMG to core customers by 2030 to help the state reach its de carbonization goals.
In Texas Oncor has provided visibility to their 2022 to 2026 projected capital plan, which has increased to approximately $14 billion over the 5 year period. Additionally.
Additionally, on core did receive PUC approval to extend this rate case filing deadline to June 1.2022.
At Sempra infrastructure, we completed the exchange offer for the Nova shares, resulting in a 96, 4% ownership interest and we plan to launch of cash tender offer for the remaining 3.6% interest.
We're also advancing the sale of the Noncontrolling interest and Sempra infrastructure partners to KKR and while I may have been a bit optimistic at Investor day, We now expect to close the transaction around the end of the third quarter subject to the Mexican competition Commission, completing its economic and market analysis and issuing the <unk>.
Regulatory approval.
With that please turn to the next slide for more details around encore capital plan update.
On core continues to operate in 1 of the fastest growing states with strong macro fundamentals as a result encore is announcing its 2022 to 2026 projected capital plan of approximately $14 billion nearly a $2 billion increase over the 2021% to 2025 capital.
Plan.
Furthermore, encore is increasing its 2021 to 2022 capital plan by approximately $425 million consistent with what Alan outlined at the Investor Day and is largely incorporated in the new $14 billion 5 year capital plan.
On Kors robust capital plan supports the economic development seen throughout its service territory increases in generation interconnection requests strong premise growth and investments in grid resiliency.
A good example of this robust growth can be seen in new relocations expansions and electric service to encore system, which are on pace to exceed 2020 values by 70% and to exceed 2019 values by 170%. Please.
Please turn to the next slide where I will review the financial results.
Earlier. This morning, we reported second quarter 2021, GAAP earnings of $424 million or $1.37 per share.
This compares to second quarter, 2020, GAAP earnings of $2 billion $239 million or $7.61 per share.
On an adjusted basis second quarter, 2021 earnings were $504 million or $1.63 per share.
This compares to our second quarter 2020, adjusted earnings of $501 million or $1.71 per share.
On a year to date basis 2021, GAAP earnings were 1 billion of $298 million or $4.24 per share. This compares to year to date 2020, GAAP earnings of $2.999 billion or $9.91 per share.
Adjusted year to date 2021 earnings were $1.404 billion or.
Our $4.58 per share.
This compares to our year to date 2020, adjusted earnings of $1.242 million or $4.20 per share.
Please turn to the next slide.
The variance in the second quarter 2021, adjusted earnings compared to the same period last year was affected by the following key items.
$126 million from a CPUC decision that resulted in the release of a regulatory liability at the California utilities in 2020 related to prior years forecasting differences that are not subject of tracking and the income tax expense memorandum accounts.
And $22 million of lower earnings due to the sale of our Peruvian and Chilean businesses in April and June of 2020, respectively.
This was more than offset by $38 million higher equity earnings from the Cameron LNG JV, primarily due to phase 1 achieving full commercial operations in August of 2020.
$35 million of lower losses at parents on the other primarily due to lower preferred dividends and lower net interest expense.
$34 million of higher income tax benefits from forecasted flow through items at <unk>, and Socal gas and 22 million dollar of income tax benefit in 2021 from the Remeasurement of certain deferred income taxes at Sempra LNG.
Please turn to the next slide.
We're pleased with our strong operational and financial performance this quarter and are focused on continuing to execute throughout the remainder of the year and with that this concludes our prepared remarks. So now I will stop and we can take your questions.
Thank you if you'd like to ask a question. Please signal by pressing star 1 on your telephone keypad if you're on.
On the speaker phone. Please make sure you're on mute function is turned off to allow the signatory chocolate ma'am.
Again press Star 1 to ask a question, we'll pause just from moment to allow everyone. The of J&J the signal for a question.
Okay.
We'll now take the first question from Shar <unk> Guggenheim Partners. Please go ahead.
Hey, everyone.
Good morning Shar.
Jeff.
Can you, maybe just talk a little bit about the visibility into 'twenty..2 I mean, you. Obviously you on Trevor of reiterated guidance. There is more capex coming into Texas, which includes some contemporaneous recovery can you maybe talk about the other moving pieces of changes in assumptions for 'twenty 2.
E Mail.
Maybe kind of a cost of capital and anything else that can move you in the range of actually incremental to the range.
Right that would start sharp index.
Catering that we're very pleased with the first half results.
To be able to produce $4.58 of adjusted EPS from the first half I think is an extraordinary outcome and that does cause us to be fairly bullish against our increased guidance for 2021.
We certainly think there'll be some pull through of that strength in the 2022 and I think it's a function of the.
The growth that we're seeing in front of of all 3 platforms. So I think there is a portfolio of opportunities here in California, and in Texas, and the Sempra infrastructure, which truly highlights related to perform and execute well I cannot be more pleased.
We obviously did this transaction back in March of 2018 with Encore, we forecasted internally with our board that there will be increased capital opportunities. We were pleased at the time that they had a $7.4 billion commitment to the regulator about the capital program in November of 2017 day launched a great.
This program, but we were not prepared for was the quality of that management team. So Alan is on the call with US today, Dan Clevenger, who is the CFO, Matt Henry the General Counsel and Jim and career of the COO of they are knock on the socks off of it.
Prioritizing what we think is most important sempra with spirit, which is strength of operations and safety.
More to your point on what we can expect next year you did raise the cost of capital.
Talk a little bit about that at the analyst conference and.
And our assumptions for 2022, we indicated that we did not expect in those assumptions.
To include any type of triggering the STG or socal gas, but we did mentioned shar.
There is a trigger to occur which looks more likely now it would probably be limited only to see G&A and within the confines of that business, Kevin cigar and his team. Thanks for taking limit the impact to that forward guidance to roughly 5 to 10. So I would just summarize by saying the first half of this year calls, it's great optimism for our performance.
Even against the increased guidance, we provided for this year I would be disappointed if we're not back in front of our investors taken on increased view of what our performance might be in 2021, we do expect some of that pull through 2 of to continue into 2022, we're obviously not prepared to revise the guidance for 2022, yet largely because of the cost.
Of capital mechanism is still out there, but we think of at least at <unk>, it's well manage to something around 5 to 10 cents of impact.
Perfect and then you've got the message is pretty clear. Thank you for that Jeff and then just.
Just on I mean, you set of clean pass on LNG at the analyst day.
Since then some contracts have been moved over from Port Arthur.
Do you anticipate Cameron train 4 is now close to being fully subscribed between existing MRV Mou and the Polish oil and as kind of a follow up can you characterize if the economics of Cameron or are better than port Arthur and is there a way to make port Arthur more competitive to potentially get the off take interest.
Back to that site. Thank you.
Sure. Let me, let me kind of take a step back and take a little broader view on I'll come right back to your question.
We talked a little bit of Investor day about.
Our focus right now is on making sure. The eco phase 1 is delivered on time and on budget, we have that coming into our planning period in the second half of 2024, and that's proceeding quite well.
We've been managing the Covid environment down there and the work environment and we remain optimistic about continuing to meet that deadline. Secondly, I think we've been consistent really over the last 18 months.
<unk> continuing to have a more bullish view on Cameron expansion, we're working closely with Mitsui Mitsubishi and hotel will be continuing to have those conversations.
Throughout the fall, we do think that project will have superior returns, which is 1 of the questions you are indicating and thats large of the call because at a high level you can always expect the economics of brow.
Brownfield projects to be generally superior to greenfield projects and the key for Greenfield projects like Port Arthur is it's much more advantageous to do that project at multiple phases at scale, which makes it increasingly more economic but right now bringing online train 4 at Cameron is a top priority for adjusted and size of on the team.
Being able to do that at the same time that you Debottleneck trains 1.2 and 3 really adds to its cost advantage and you mentioned the port Arthur that continues to be a remarkably well situated site. The team is going to ground right now to make it more competitive and we've outlined some of the steps are taken to reduce the emissions profile and.
Thanks.
The recent announcement regarding the Polish oil and gas company. It really is a reflection of the strength to number 1 of that customer relationship and their confidence in our ability to deliver them into a project that meets their long term needs. So I think that relationships in good stead as certainly thank each of 1 is going well, we continue to be quite <unk>.
Bullish on Cameron expansion and Port Arthur is probably a longer term opportunity, but we have more work to be done there.
Perfect that's very clear thanks, so much Jeff congrats.
Thanks, Sean.
We will now take the next question from Jeremy Tonet J.
J P. Morgan. Please go ahead.
Morning, Jeremy.
Hi, good morning, Thanks, Thanks for having me here.
Just wanted to start off if you might be able to talk a bit about timing considerations that went into the choice to raising the encore capex now versus at the analyst day or waiting until <unk> and then could you help us think through some of the limitations might be to add even more capital just given all of the opportunities down there in Texas.
Well I think as a series of questions there and let me try to take them sorry out of them and then Alan I'll pass that to you to provide some more color, but let me just start with a couple of highlight points number 1 Jeremy the.
The growth that we're talking about and the adjustments of the Calico program are really around the number 1 strong premise growth number 2 active transmission interconnection requests primarily focus on renewables and some baseload generation and new T&D investments.
In terms of the timing around revising our plan we had a board meeting of the encore of last week. Alan is very good about bringing back to the board not only the approval of next year's plan for 2022, the taken the opportunity to review longer term, what's the opportunity really was to meet some of the growth needs in Texas. So we.
Feel quite bullish about that opportunity I would add 1 final comment we've seen some questions earlier this morning, but the raised expectation that alan's team has put forward, but they've also got a press release out that provides more detail does not impact the continued expectation of incremental capital in the 770 <unk>.
$5 million range to $1, 2.7 billion. So we've had the opportunity to reevaluate the needs of that business on the needs of our customers over the next 5 years will go into the fall of planning cycle with the view towards updating our board in October and November that's all of the opportunity here was really 1 of providing.
Our latest view as transparently as possible to the street, Alan I know I've covered a number of these points. So I think if you don't mind talk a little bit more detail about the growth that youre seeing across your system and maybe kind of of your approach to governance, which of your board last week.
Yeah, Thanks, Geoff and thanks, Jeremy I think Jeff covered it to a large degree, but let me just give you a little bit of color.
With regards to why now it's exactly what Jeff said I mentioned at the Investor Day that we had a need to go to our board in July to increase our expectations for 2022 in order to get ahead of the game to make sure we have the resources and the equipment actually execute next year.
And so as Jeff said, we did that we raised 22 from what we previously said was $2.40 to $2.5 up to 2.8.
We also took this opportunity to let you all know that debt.
We're seeing some opportunities this year and so we've upped our 2021.
From 2.4 which is what we previously had told you all to 2.5.
And then just given the fact that we're going to go ahead and talking about increasing 21 and 'twenty 2 we had the opportunity to discuss with our board.
We're seeing some of this growth that Jeff is talking about and so we've been spending a lot of time on capex here at oncor because of what we're seeing and.
What we're seeing is to Jeff's point on Trevor talked about it earlier premise growth last year, we had the largest organic growth rate ever in our company's history.
And we're on pace this year through 2 quarters, both both quarters. This year were higher than the corresponding quarters last quarter last year.
Transmission points of interconnection on both the retail and the generation side or above the levels end of year last year and above the similar quarters of last year.
Economic development, which I think of then Trevor as earlier remarks economic developments in the other thing we look at.
Request for information, which are basically project location specific discussions, we're having with potential builders are up 72% approximately year over year.
And then I always talk about West, Texas on when we're talking about growth the.
West, Texas story continues to be really strong the latest trend is electric of vacation of fields.
Considering ESG ramifications of emissions.
So we're getting some uptick there, but we have another another peak on our Culberson loop transmission system in July hit 760 megawatts versus 678 last year, that's an all time high.
Another peak in the far West, Texas, whether zone in June.
So we're seeing growth all over our system really strong which leads to these capex discussions, we're having and since I told you all at the Investor call, our investor, meaning that we're going to address 2 of our board in July and since we've adjusted 21 up we thought now is a good opportunity to just provide you all with our expectations of the management.
<unk> team of what we're seeing with regards to those outer years in those outer years as you can see on our documents are we're looking at 2.7% to 3 point out for the 4 years.
Outer years of the plan and that's our expectation right now, but as Jeff said, we're going to go into October like we always do and have our meeting on our 5 year plan.
With our shareholders with our independent directors in and with our board and we're going to review the information available to us at that time, and we'll have a number then it may be 14, it may be something else. So we feel very good about 14 right now.
And we will see where we are when we get the October and we'll have something to announce after that to Jeff's point as well.
We added about $1.8 billion to our 5 year expectation right now the.
On the incremental capital that we have talked about in previous meetings in the end investor calls.
In the range of $7.75 to $12.75.
Which I think of it on page 45 of the Investor Day last time, we talked.
That remains available.
We have sometimes from new projects from that incremental kind of bucket into our Capex plan, sometimes the capex that comes from outside debt incremental.
Bucket and it goes into our plan, but notwithstanding the fact that we've raised to right now our expectation to around 14 billion of over 5.
There are significant there remains significant opportunities to invest on our system of knows those additional opportunities are in part reflected in that incremental capex bucket and we've discussed before.
I'll be glad to answer any of the questions, but thanks a lot.
I would just mentioned that I appreciate that color Alan and then for your benefit Jeremy remember, we as the management team and our board of directors underwrote of transaction in the fall of 2017, and we closed at March of 2018 based on the belief that they had made of regulatory commitment to spend roughly $7.4 billion over 5 years.
On a roughly $1.48 billion of year on average and now we're outlining something that looks like on the back end of the plan that could be looking more like 3.
$3 billion of years, that's an almost doubling of the average output in terms of Capex at that company. So we're very pleased with the growth in the state and I think Alan and his team have a great plan to meet that growth in the way, which is the most cost effective for ratepayers.
Got it that was very helpful. Thank you for the thorough answer there maybe if I could just pivot to R&D here if that's okay.
Just wanted to see if you could provide some color on how California cost of customer demand for LNG has been kind of trending over time.
And do you see any kind of policy of regulatory items that you're watching that could support the 20% goal for 2030, and then and then maybe even.
Even though R&D as negative carbon attributes how do you see I guess competing for customers versus the electrification do you see customers choosing 1 path of the other.
Look I think if we're going to meet our long term climate goals as a nation, we need on all of the above strategy right. So electrification is going to be of long term secular trend. We certainly have the opportunity to play that in the big way just as Alan described in Texas, We expect to be a leader in that market and connecting renewable grid solutions to our <unk>.
Good centers here in California, we did something that no 1 else has done across the country. We made a commitment that we would deliver roughly 20% of all of the natural gas delivered on the Socal gas system 20, <unk> to use the renewable natural gas you may have seen the press release in the last week or so we just connected 2 new biomethane plants.
To our system, so whether it's the transportation opportunity, whereas the maritime opportunity on an opportunity to basically deliver renewable natural gas across our network as the priority. We have set a goal of being at the 5% level next year. We remain on track to hit that goal of Scott drew and his team of doing a hell of the job at Socal gas to transform that.
And by doing so as you know <unk> methane in the environment has an 80 times higher detriment than gas, which is combusted in the ordinary course, and there has been some exciting developments I think in terms of how the commission and other stakeholders in the state view of RMG I thought maybe Kevin cigar as our group President for California could talk about the <unk>.
The report that came out of the PUC regarding this.
Thank you Jeremy for that question, Yeah, as you might expect.
Expect we've had a great run so far with the low carbon fuel standard and this isn't the state creating a good amount of demand for R&D, but I think the to go to the next level and to help meet.
The states at very ambitious climate goals.
We saw that the legislature passed SB <unk> 40, and then recently the.
PUC staff to the PUC Energy Division issued of staff report recommending.
Essentially on Rps for RMG for the California utilities.
The levels of based on the California statutory obligation to <unk>.
Organic waste from landfills. So when you look out to 2025 they are supposed to.
Procure of the utilities are supposed to procure biomethane from organic waste equal to about 75% of the state's obligation to.
To divert this waste from landfills, which is about 5.5% of core load of my 2030 that goes up to about 12, 3% of core loans. So.
I asked about creating a more demand that would that would be.
Good opportunity that staff reported hasnt, yet been acted upon but we are hopeful it does shortly.
We're glad you asked the question because it really is a priority to our company and I think there's the Scott drew on the team continue to innovate at Socal gas, we have the opportunity to be a leader in RMG. We've also made some commitments as you've seen Jeremy to be a leader in hydrogen.
Got it Super helpful. If I could slip in 1 last quick 1 here just given some of the resource adequacy concerns that have come up this summer on California, What's your latest thinking on some of the capital opportunities that might present themselves here.
Well look this is of great opportunity to go back and talk about our base business model right, where it T&D company right. So 1 of the things is privileged our commitment to California, and our commitment to Texas as we've moved away from being an owner and operator of electric generation, either fossil or renewable with exception of Mexico and <unk>.
<unk>, we don't have a lot of exposure customer decoupled on whether consumers consume more or less so we very much like that sweet spot of 1 building that kind of long term growing bond portfolio and not being exposed to those issues in terms of capital opportunities. There has been of new announcement on the state where they're looking for 11.5 gigawatts of new.
Capacity additions in terms of generation energy efficiency.
And the long duration storage and we certainly think long duration storage in particular is a unique opportunity where we've developed a capability there at San Diego gas and electric and that will be of continued opportunity, but in the near term. The state has really been aggressive about making sure we find more needs of more ways of supporting our resource adequate.
I think 1 of the great challenges Jeremy is traditionally during some of the highest demand times of the year, we're importing about 25% of the state's power needs from outside of California, and always mix of subject to whats taking place in those other jurisdictions and what their demand needs of our so over a long period of time, California's kind of take steps.
It's going to take 5 to 7 years to get ahead of these demand needs through new capacity additions.
Got it makes sense I'll leave it there. Thank you very much.
I appreciate you joining the call.
We will now take the next question.
From Douglas Chopra Evercore ISI. Please go ahead.
Good morning.
Hey, good morning, Jeff. Thank you for taking my question.
I haven't heard of clarification, and then a follow up question.
I know we've talked about encore, it's on but just.
So the the 21% to 25 Capex as it is now is it causes of $12.6 to $12.7.
<unk> with the $400 million incremental is that the right way to think about it or is it still let's say all of them.
That's the right way to think about it.
Got it okay, perfect and then just on <unk>.
The getting to the close here.
Is you have the cash tender offer for the balance of like 4%.
Debt you currently don't own for Mexico.
Do you have to get the 1 hundreds of percentage of closed the I'm just thinking about what sort of the.
Is it more of a procedural delay on the <unk> does the Mexico like owning 100% of the Mexico needs to get the need to check that box before completing that transaction of KKR.
Yes, I would think about it as 2 different disjunctive ideas here number 1.
Our long term goal is to take the <unk> business platform private as you've indicated there is still about 3.6%, which is floated to public investors and the process that we're following.
Set of pay cash tender process, which will happen over the next week or 2 with the view toward taken out the additional public float and the lift in that business. If there's any remaining shares we'll look to clean that up but separate mechanism in terms of closing that's not really the pacing items for clothes in the pace of iron per closing is there is a small number of <unk>.
Cps related to regulatory approvals and right now we think the pacing item is the competition Commission in Mexico and once they finish their analysis, we think it will be in a position to close the transaction, which we're forecasting is around the end of Q3.
Got it that's super helpful. Thank you guys.
Thanks, a lot for joining us.
We'll now take the next question from Michael the <unk> at Goldman Sachs. Please go ahead.
Hey, guys. Thank you for taking my question just carry on.
Hey, Jeff commodity inputs are up a ton.
How are you thinking about what this means for the construction cost per ton of any new LNG trains, whether it's cameron 4 or somewhere else.
Of that haven't already gone and don't have the lump sum contracts and therefore, what that means.
Really for kind of the economics of North American LNG versus LNG coming from other sources around the world.
Right. So look I think youre asking of great question, I think the input cost to all infrastructure businesses are being impacted Youre also seeing it in other commodity costs as well.
We probably have a multi pronged multi pronged strategy here I would tell you at eco phase 1 obviously, we've gotten the EPC wrap contract we feel good about the contract at <unk>, but that would be a near term focus for us.
In terms of input costs for future projects that goes to our whole feed and pre feed process to make sure we get to the right number.
But I think it does go back to the tissue, Michael that Greenfield projects, which tend to have a little bit of of higher per unit cost in brownfield projects. This will continue to put pressure on that dichotomy, but keep in mind that all of the other projects in the world are subject to those same cost pressures right. So at the same time that you are seeing cost pressures around <unk>.
Struction Youre still seeing a lot higher LNG spot prices around the world and most people who are or observed in this industry think it will be the most dominant fuel used in the world by the early part of next decade, and the only way that's going to occur is as youre going to see a massive build out of continued LNG development in the United State.
Should expect to take its fair share.
Got it. Thank you Jeff much appreciate it hey, 1 for Alan just curious, what's the latest on being able to push out the rate case.
And I guess, a follow on with the higher Capex budget, how do you think about what that means for regulatory lag.
Okay.
Yeah, you bet on Marshall on the answers.
Yes, we received approval.
On July 29 by the public utility Commission to move our rate case filing deadline to June 1.2022 of next year.
So we're off the calendar for this year and we're on the clock for June 1 of 2022.
Second question with regard to lag it was the lag associated with this additional investment is that right. Yeah. Just if if you raised capex.
Do you does that also like I know the the trackers for distribution and transmission could capture much of that but just curious about the forward versus historical looking nature of those.
Those trackers as well as what happens to other parts of the income statement that could drive regulatory lag.
Gotcha Gotcha, Let me, let me answer this way of 97, approximately 97% of everything in this plan that we have now the 5 year plan as tracker eligible.
And those tractors as we talked about 4 of the trackers decreased the lag on the transmission side of the interim T cost tracker decreases lag to about 5 months of approximately while the distribution cost tracker. While it's good is not quite as efficient in the lag on the distribution side, it's about 15 months of about 97.
On percent of everything we've talked about this morning, Thats, a net 14 billion of over 5.
On the lag associated with that investment would generally consistent with these 2.
Periods of time that I've just described.
Got it. Thank you Allen much appreciate it thank.
Thank you.
Yes.
And I would just mentioned as a follow on if the for.
The audience is that volume growth, which theyre experiencing in Texas can also offset some of that lag in the regulatory model.
Yes.
Okay.
We will now take the next question from spicy comp at Keybanc capital markets. Please go ahead.
Hi, Good morning, taking my question I actually think it that way.
What's the question.
Just trying to for some follow ups on the.
The Texas Capex.
Should we think of inflation as being any factor in the increase in the size of the Capex and then as a follow up of my question.
Does the and we think Texas legislation.
On the MTO capex at any point or do you see upside from that.
So what I would try to do is I'll answer the first part of the question and pass it on to you Allen for the Legislative question, but the way to think about it Sophie is that Alan and his team, particularly Jim Greer deserve a lot of credit because they've been looking at meeting the needs for 2021 and planning to meet both the hard cost and soft cost needs for 2022. This is <unk>.
1 of the reasons that the timing of these conversations with the board was moved forward in other words, there are some inflationary and competitive pressures to access the equipment and materials they need to meet their growth needs in the state and they deserve a lot of credit for being proactive to go ahead and secure and line of those resources well in advance, but I don't think beyond that it's had.
Any influence in terms of how we're thinking about the recast over 5 years, but Alan maybe you could talk about the various bills are continuing to our pending on the legislature and how you might think about forward capex related to those bills.
Yeah, Thanks, Jeffrey I agree with that and the answer on the inflation and with regards to legislation there's kind of 2 things to think about here Theres what was passed and it has been signed by the governor and the regular session, which is now to a large degree been shifted over to the PUC on the ERCOT. There's over 30 rule makings presently going on at the public utilities.
Commission.
Basically you're going to.
Set out how this legislation is going to be implemented and then there are a number of bills that have been filed right now in special session. So I'll address it this way special session of the Governor did not include electric issues in the charge and then on the call rather than the call is what limits of the topics that can be addressed by the legislature. So.
We're monitoring what's going on at the legislature with these bills that relate to the electric industry, but we don't believe they're going anywhere without the charge on the call being changed which we don't anticipate happening. So our focus really is more on the activities of the PUC, where the rule makings are going on.
I talked about this I think during the Investor call. There are quite a few bills of bunch of rule makings, a lot of them have to do with <unk>.
See ERCOT issues Theres, some coordination between agencies and the industry participants and then there is some general calls for Weatherization and things like that so we'll have to see it's too early to predict what's going to come out of this rulemaking is they've just at the beginning.
But to the extent of anything comes out of that that would be incremental to what we have on our capex plan right now.
The other thing that I mentioned, the Investor call. There was a another bill that was not related to winter storm Yuri but it added on economics benefit test of the transmission approval process in ERCOT and we think that has the potential to potentially.
The allow us to get more projects economic projects the work comp, but again, we'll have to wait and see how that how that all shakes out before we'll know for sure.
And so that's my answer.
And so on <unk> I, just want to make sure we answered both of your questions.
Did that answer.
Yeah, Yeah, if I can just add a follow up I'd say of different question now that we know that the Texas Trc is pushed to 2020 and otherwise any of the regulatory Kevin just kind of it looks like through the end of the year.
How would you characterize the puts and takes that growth.
Moving to the high end of your 'twenty or 'twenty, 1 guidance, we're supposed to low end.
Well I would just make a couple of comments 1 was the movement of the Texas rate case was assumed in our planning numbers. So we provided at the Investor Day I made some comments earlier on this call that I cannot be more pleased with the strength of our financial performance in the first 6 months to be able to post $4.58.
<unk> of adjusted EPS, I think that really bodes well for the second half of this year and I do expect sandy to some pull through into 2022, and I mentioned 1 of the offsetting considerations, what's the cost of capital we talked about earlier.
Great.
Okay.
That answers my questions. Thanks, so much.
Wonderful thank you for joining us.
We will now take the next question from James Thalacker with BMO capital markets.
Please go ahead.
Okay.
Yeah.
Okay.
Yeah.
James you may be on mute.
Good morning, guys. Thank you for taking the point.
Good morning.
But this might be a question for Alan and not putting the cart before the horse, but traditionally T&D companies in Texas have been viewed as lower risk in the capital structures have reflected this.
Over the last couple of years.
Yes, we've obviously seen with the impact of the area an increase of hurricane risk and now we've got a new <unk> coming in has there been any discussion potentially about thinking of the equity layer is the 1 way to sort of beef up the credit.
In anticipation of maybe.
The more widespread.
The system hardening.
And Alan I'll make a quick comment and turn it over to you and I. Appreciate that question I would just make 1 comment which is we as a management team has spent a lot of time in the last 3 years really trying to distinguish what we think is a unique benefit of T&D investments relative to other businesses that are either weather exposed or consumer volume exposed are exposed to.
The stranded cost risks with generation. So as you think about in California. The blackouts that happened last summer you think about how we operated through the pandemic here in California, and in Texas, and you think about storm urea, which you referenced all we've really done is raise our guidance and exceed our guidance right. So this is the strength of having the T&D.
The model that we think gives us unique visibility to consistent financial performance. So I just want to make that point, because we talk very consistently about the value of the model that we're pursuing and why we think it deserves a higher valuation and I think it really is very much true of the T&D business in Texas, So Alan feel free to go head on.
Add some additional color around how you think about your equity layer.
Yeah sure Thanks, Jeff Yeah.
Agree look I think our equity layer is lower than maybe the national average things that are going on in other parts of the country.
It's something we always look at when we're putting together our rate case, we're probably about even with the Centerpoint and AEP right now.
But now that we've got a little time going into June of next year, it's almost been a lot of time on and figure out where we can.
And accomplish we have a long long history as I've said many times on these calls of.
Working with the all the constituents and our cases and that was demonstrated again by the support we got for pushing this rate case off and we'll see what we can accomplish yes, Yuri things like that certainly impact our thoughts on our analysis.
And but yes, maybe cart before the horse a little bit right now seeing as we won't go until June of next year.
Thanks.
Okay, great. Thanks, guys I appreciate the thoughts thanks James.
Once again to ask a question please press star 1.
Now take the next question from Paul Zimbardo with Bank of America. Please go ahead.
Hi, good morning, Thanks for taking the time.
Good morning.
I wanted to follow up after the significant on core Capex increase that you talked all about how should we think about the potential for share repurchases and just overall thoughts on the balance sheet target to you previously articulated.
Yeah, I'll start with share repurchases and you recall Paul the last summer, we did an accelerated share repurchase program or we put to work about $500 million.
I think the weighted average cost of that program was right around $123 plus or minus the board also supported a new authorization of $2 billion on the way. We've long time thought about this is we're really stores of capital for you our owners and whatever creates the best path for owners and that's what we're going to do so we are of current outstanding authorization.
As I mentioned, we actually review this as an opportunity from time to time, and we expect to be opportunistic in our approach. So it's something that we continue to evaluate and it's something that we will use as we have in the past opportunistically.
In terms of the balance sheet Trevor you'll make some comments in terms of how you think about we ended last year in terms of SSO to on how you've grown the equity layer yeah sure. Thanks, Jeff So Paul as you know last year, we ended right around 70% on the <unk> to debt and were still kind of tracking around debt plus or -1%.
And feel good about where we are on the metrics.
We also talked about our debt to equity layer and we're also at the end of the second quarter at sub 50% right now and again, we have the proceeds that will be coming in from the the Sempra infrastructure partners transaction that we're really utilizing to continue to shore up the balance sheet and as Jeff said.
Looking at opportunities to deploy that.
In the most effective way for our shareholders and we couldnt be more pleased about the opportunities around organic growth share repurchases or other opportunities to create shareholder value.
Okay great.
And just to follow up on Jeremy's question about some of the resource adequacy concerns we have seen in the west.
Are you seeing any opportunities to potentially increase or accelerate within the plan some of those.
I believe it was $2 billion of clean power investments the detailed at the analyst day.
Yes, we talked about a couple of things on Jeremy's question I was speaking more to what the industrial and utility opportunity was so obviously there are opportunities there around energy efficiency, primarily at <unk> of the big focus on long duration battery storage, which is desperately needed in the state of the state has circled about 11.5.
Gigawatt opportunity for new resources, what Youre, referring to is on the unregulated side of our business and separate infrastructure Youll recall that Justin bird is leading 3 separate P&L with tani on the team 1.
1 of which is clean power. So we do have about 3 gigawatt of development opportunities on the border and we did preview of very interesting project by the way at the Investor Day, which is our battery storage projects. You may recall, we have a combined cycle plant on the border. We've got 2 underutilized transmission system dispatched <unk>.
And of the California independent system, operator, and.
Net thermal plant also has a second plant that was targeted 15 years ago for construction. We've got all of the transmission in place and Thats been re designated as a 500 megawatt opportunity for battery storage. So our goal is to be able to dispatch out of northern Mexico with both wind and solar resources backed up in <unk>.
Reported with its own resource adequacy from its battery production, so you're making a great point that is an opportunity we're going to be active to pursue it.
Yeah.
Okay. Thank you again for the time.
Thank you. Thank you very much.
Yes.
Yes.
It depends on no further questions at this time of Mr. Jeff Martin I'd like to turn the conference back to use of any additional or closing remarks.
Yes, just a quick of a couple of comments here is I know, it's a busy time of the year as people head ends of kind of the summer vacation period, particularly on the Wall Street that we look forward to stay on some of you in person of the Wolfcamp for instance September Steve always runs of Great Conference. So we're looking forward to being back on the road. Additionally, I mentioned that we're going to do some virtual conferences with Goldman and city is.
Well as some <unk> of summer in Asia.
Everyone has a great rest of your summer and thank you again for joining us and fill of free per custom to reach out to our IR team with additional questions. This concludes today's call.
That concludes today's call. Thank you for your participation you may now disconnect.