Q2 2022 Sempra Energy and Oncor Electric Delivery Company LLC Earnings Call

August 4, 2022

Good day and welcome to be separate.

First quarter earnings call today's conference is being recorded.

At this time I would like to turn the conference over to Glen Donovan. Please go ahead.

Good morning, everyone welcome to <unk> second quarter 2022 earnings call.

Live webcast of this teleconference and slide presentation is available on our website under the investors section.

We have several members of our management team with us today, including Jeff Martin Chairman and Chief Executive Officer.

Trevor Mihalik Executive Vice President and Chief Financial Officer.

Kevin Cigar executive Vice President and group President.

Justin Bird Chief Executive officer of Central infrastructure.

Allen Nye Chief executive of Encore.

Peter Wall, Senior Vice President Controller, and Chief Accounting Officer, and other members of our senior management team.

Before starting I would like to remind everyone that we'll be discussing forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Actual results may differ materially from those projected in any forward looking statements 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.

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 this call for a reconciliation to GAAP measures.

We also encourage you to review our 10-Q for the quarter ended June 32022.

Yes.

I'd also like to mention that the forward looking statements contained in this presentation speak only as of today August four 2022, and it is important to note that the company does not assume any obligation to update or revise any of these forward looking statements in the future.

With that please turn to slide four and let me hand, the call over to Jeff.

Thank you Glenn and thank you all for joining US today earlier. This morning, we reported second quarter 2022, adjusted earnings per share of $1 98 sets and year to date 2022 adjusted earnings per share of <unk>.

$4.90.

Based on the strength of these results. We're now got into the high end of our full year 2022, adjusted EPS guidance range and we're also affirming our full year 2023 EPS guidance range.

Next let me offer some perspectives on how we think about the future at.

At Sempra, we've worked hard to simplify our business model to improve safety and operations and with the benefit of more disciplined capital allocation to also improve our financial performance.

We have built three large scale growth platforms operate in some of the largest energy markets in North America.

Within these platforms, we have an exciting opportunity set here's a quick summary at Sempra, California, we're making capital investments to continue improving safety reliability and sustainability. Each are key components of our recent <unk> filings.

That said protections we couldn't be more excited about the work oncor is doing to support strong economic and demographic growth and the continued integration of cleaner renewable resources.

At Sempra infrastructure, there are significant growth drivers across all three business lines LNG, a net zero solutions clean power and energy networks and.

In the first half of this year, the United States became the number one global exporter of LNG and by the end of the decade, we expect to the United States will extend its significant leadership advantage in this area.

In combination these investment opportunities to support our record $36 billion capital plan for 2022 through 2026 as.

As well as our continued confidence in our projected 6% to 8% annual average long term EPS growth rate, which we announced earlier this year.

Please turn to the next slide where I'll turn the call over to Trevor to provide several business update.

Jeff.

Beginning with Central California, both SD Genie and Socal gas filed their general rate cases, with the CPUC in may to update their authorized revenue requirement for 2024 through 2027.

These comprehensive filings represent a thoughtful effort to support our customers by striking the right balance between maintaining customer affordability and making the necessary infrastructure investments for safer cleaner and more resilient energy systems.

Notably both utilities have outlined the critical areas of investment needed to safeguard their systems and support the state's clean energy goals of achieving carbon neutrality by 2045.

As an example, <unk> filing is centered around investments such as wildfire mitigation system hardening EV infrastructure and innovative technologies to modernize our electrical system.

For Socal gas investments in pipeline safety and integrity and emissions reductions are key priorities and its application.

Support for these rate case priorities will lead to a cleaner energy system and provide long term benefits to our customers.

We look forward to working with all stakeholders on these proceedings to advance a positive outcome.

In April both SD Genie in Socal gas filed their cost of capital applications to update their respective authorized rates of return for 2023 through 2025, and we expect a final decision by year end.

To further support grid resiliency, the CPUC approved <unk> for new micro grid facilities.

These new energy storage projects are expected to improve power continuity during grid outages and are great. Examples of the critical investments STG and he is making to integrate renewables, while enhancing reliability for its customers.

Additionally, socal gas recently announced that since 2015, it achieved a 37% reduction a fugitive methane emissions significantly ahead of the state's goal of a 20% reduction by 2025 and nearing the state's goal of a 40% reduction by 2030.

This achievement is significant and demonstrates socal gas is focus on helping to accelerate the de carbonization of California's energy systems.

Shifting to Sempra, Texas.

Oncor continues to benefit from its demographic growth and strong economic expansion across its service territory. As a result encore has added another 35000, new premises so far this year.

We continue to anticipate maintaining an annual premise growth of approximately 2% in the near term, which is significantly above the industry national average.

Also encore has seen more than a 70% increase in new requests for transmission interconnections compared to the second quarter of 2021.

This highlights the continued growing demand and expected penetration of renewables and their service territory.

On top of significant organic growth Oncor continues to experience near record high temperatures and in recent weeks ERCOT has set new records for peak electrical demand.

As a grid operator encore has been doing its part to help maintain grid reliability. During these extreme weather events, while also executing against a record 15 billion.

Capital plan for 2022 through 2026.

Given oncor significant growth across its service territory, we expect their Capex program will again be adjusted this fall.

As it has done in the past encore will present, its updated rolling five year capital forecast at our board at their October meeting.

And May Oncor filed its rate case with the public utility Commission of Texas.

Questing of four 5% revenue requirement increase over current adjusted rates to support Texas's rapid growth trends and need for continued reliability.

A new rate is expected to go into effect in the first quarter of 2023.

Encore looks forward to working in partnership with its stakeholders to achieve a positive outcome.

Now I'll turn the call over to Justin to discuss updates at Sempra infrastructure, where we've successfully reached a number of important commercial milestones this quarter.

Thanks, Trevor last year, we formed San for infrastructure to be a leading north American infrastructure platform with a standalone investment grade balance sheet. This.

This has enabled us to attract strategic investment partners like KKR in audio while also highlighting the growing equity value of the business.

In June we were pleased to close our 10% sale to audience for approximately $1 7 billion.

With an implied equity value of close to $18 billion.

We look forward to a strong partnership with Audi and together with KKR, we are working collaboratively to advance our strategy of providing cleaner and more secure energy to global customers.

Jeff talked to earlier about the growth that we're seeing in all three business lines at central infrastructure, but what I thought would be helpful is to focus my time on recent developments in U S. LNG. Please turn to the next slide.

Simpler infrastructure as U S. LNG development portfolio has made significant strides.

As we outlined in our last quarterly earnings call. The key work streams at Cameron LNG Phase II include completion of our pending FERC amendment, the competitive feed process and ongoing marketing.

With regard to our recently announced commercial arrangements that Cameron, we have worked hard to align our economic and commercial interests with those of our customers.

You will recall that we plan to take our 50% share of the trained for offtake and sell it back to back the global Counterparties under long term sale and purchase agreements.

We are pleased to confirm that we have substantially achieved this marketing goal as a result of the HOA with the Polish oil and gas company and Ineos, which include the Optionality to move volumes between Cameron LNG phase II and Port Arthur LNG.

Turning to engineering, we are running a competitive feed process with bechtel and a J GC Zachary joint venture. This is expected to be completed in the summer of 2023 at which time, we would expect to move to <unk>.

Next let me discuss port Arthur LNG similar to Cameron, we have maintained a disciplined marketing approach with a focus on linking U S. Natural gas production with some of the leading European buyers of LNG. This strategy has served us well in the current environment given supply disruptions in Europe .

Just as a reminder, we have a FERC order and a domain expert permit in hand, and the permitting and design work are highly advanced for the initial phase of the project. The key remaining work streams involve finalizing the EPC contract with Bechtel to include updated pricing and signing definitive offtake arrangements.

Since our Q1 earnings call, we have entered into HOA with RW <unk>.

<unk> oil and gas company, and Ineos and announced a strategic partnership framework with Conocophillips under which conoco would receive roughly half of the offtake volumes or five MTA under a 20 year totaling type arrangement and potentially make a 30% equity investment in phase one.

Importantly, these announcements marked substantial progress in the marketing phase of this project as it moves forward, we will continue to work with stakeholders, including customers contractors debtholders equity investors and credit rating agencies. The positive takeaway from this is we continued to see great interest from European buyers and volumes.

Are coalescing around projects that have the greatest probability of advancing.

We look forward to updating you on future progress in November on our third quarter call.

As Jeff mentioned earlier the U S has recently become the number one global export of LNG.

Just on the quality of our development sites and their geographic positioning relative to Europe and Asia. We believe our business can help advance America's leadership position in this area, while also providing energy security to our allies and helping facilitate the global energy transition.

Please turn to the next slide where I'll turn the call back to Trevor to discuss <unk> financial results.

Thanks, Justin.

Turning to <unk> financial results earlier. This morning, we reported second quarter 2020 to GAAP earnings of $559 million or $1 77 per share. This compares to second quarter 2021, GAAP earnings of $424 million or $1 37 per share.

Sure.

On an adjusted basis second quarter, 2022 earnings were $626 million or $1 98 per share.

Which compares to our first quarter 2021, adjusted earnings of $504 million or $1 63 per share.

On a year to date basis, 2022, GAAP earnings were $1 billion $171 million or $3 70 per share.

This compares to year to date 2021, GAAP earnings of $1 $298 million or $4 24 per share.

Adjusted year to date 2022 earnings were $1.550 billion or $4 90 per share, which compares to our year to date 2021, adjusted earnings of $1.404 billion or $4 58 per share.

Please turn to the next slide.

The variance in the second quarter 2022, adjusted earnings compared to the same period last year can be summarized by the following.

$48 million of higher equity earnings at Sempra, Texas utilities, primarily due to customer and consumption growth and increase in invested capital.

$41 million of higher CPUC base operating margin net of operating expenses at <unk>, and Socal gas as well as higher FERC margin at SCE G&A.

And $33 million of higher earnings at Sempra infrastructure.

There are a number of items driving this variance. So please refer to the appendix for further detail.

Please return to the next slide.

As we close our prepared remarks, let me give you a couple of key takeaways.

Comparing the financial results from the first half of this year to the same period in 2021, we posted adjusted earnings growth of 10% and adjusted EPS growth of 7%.

It's equally important to note that we have accomplished these results even with the sale of a 30% minority interest in Sempra infrastructure second the steps, we've taken to diversify and strengthen <unk> capital structure came at an opportune time and have put us in an improved position to execute on a new set of exciting development opportune.

<unk>, particularly in the LNG space.

Third going forward, we remain highly focused on safety and operational excellence by executing on our strategy, which includes progressing towards constructive GIC outcomes at Central California.

Extending and improving electric grid, resiliency, and Texas, while encore works with its stakeholders to finalize a constructive base rate case for its customers.

And achieving further milestones in our overall development pipeline at Sempra infrastructure.

And with that this concludes our prepared remarks, so I will now stop and we can open the line to take your questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

And we will take our first question from Shar <unk> with Guggenheim Partners. Please go ahead.

Hey, guys good morning.

Good morning Shar.

Jeff just.

You, obviously youre guiding now to the top end and it appears you're tracking well ahead of plan, especially with some of the commodity optimization upside how are you thinking about I guess the cadence of further updates on 'twenty two as we think about the rest of the year and then just more importantly, how are you sort of thinking about 'twenty three update, especially as we are now.

Bridging to our higher 22 base are there some of the recurring benefits that you anticipate taken into 'twenty three like maybe O&M pull forwards any other optimizations.

Well, we appreciate the questions sure I would start by just reflecting on the fact that over the last decade, we've grown our earnings per share at roughly an 8% CAGR I mentioned this in my prepared remarks that we continue to expect the average annual long term adjusted EPS growth rate to be in the range of 6% to 8% I think.

We're fairly excited about being ahead of plan for the year I think thats, the right characterization and given the strength of our results in the first half plus some of the opportunities we itemized in our prepared remarks, we certainly think that sets us up for a continued very very strong growth in income story.

Obviously got into the high end of the range for 2022 and I would note Shar. This is the fifth time.

In six years that we've guided to the high end of the range or increased our guidance. So we feel like there will be some pull through in 2023 and as we head into our Q3 call we should be in a better position to give you a more definitive update.

Okay perfect that helps as we're bridging.

And then just port Arthur is now optically oversubscribed, just given the advanced stage of Port Arthur one and in the.

The expansion I guess, what are the hurdles to putting in.

Timeline for us.

EPC is done would it be feasible to finalize commercial agreements in a relatively short time like maybe mid 23, along with Cameron four.

Yes, I will tell you that one of the ways, we're thinking about resi D decision I know Sean you May have followed this but theres a lot of interest in our San Diego Padres over the last couple of days and to use a sports metaphor. Some people talk about play in small ball moving lenders around the basis, and that's exactly what Justin and five <unk>.

<unk> business, let me just start by kind of characterize where we're at with Cameron expansion or what we referred to as phase II I've got right to port Arthur to get at the heart of your question first at Cameron, we're continuing to move forward on definitive commercial agreements with our partners, namely move into Sps, we're continuing to advance permitting and we're making progress so the competitive feed work so.

We expect to complete those work streams in the middle of next summer.

And that's I D decision thereafter at Port Arthur we're not prepared to set at.

Unexpected date yet.

Can confirm there are scenarios, where it could.

Could occur in 2023 and even in the first half of 2023, we've had some exciting developments. Thank you as you correctly note optically kind of subscribed at least phase one through a series of HOS, but next steps for US is to make sure. We convert those to SCA is a lot of.

Times buyers as you know we want to secure their interest in the facility and move quickly to an HOA and follow up with the SBA. Thereafter, secondly, it's very important work we have underway with Bectal. We've already started our partnership conversations with with Conoco Phillips, we think there'll be very very helpful with us as we evaluate and optimize.

That feed process and thirdly, we are advancing our financing and other development activities. So there's no question from our perspective Charlotte is an exciting project. Our goal at this point is to manage the work streams that I just described in a way that maximizes the project's value for our shareholders and I think we'll be in a better position on the November call to give you more.

Definitive update.

Got it perfect and then just Jeff one last quick one is obviously there is multiple projects that are advancing in parallel paths just want to get.

Yet your reiteration that just given the way <unk> been able to finance. These projects, maybe some incremental debt capacity that you see this as being an equity free build out.

As you go through the growth opportunities at the LNG business.

Yes, I would tell you that <unk> and Trevor and Sandeep ingest team have spent a lot of work around this and I give them credit because we've made as you followed a series of strategic moves not only for them simpler infrastructure with the standalone balance sheet and diversified capital structure.

Steps, we took in the last 18 months also gives us a lot of flexibility. So let me give you a couple of ideas that we've outlined previously about how we expected.

Jay.

First as you know we can always use nonrecourse financing you've seen the team do this okay.

One through three and on acre.

And as we've done in the past, we can sell down project level equity to our off takers. This is our current plan with Conoco Phillips.

Yes, I made this comment earlier, but we're expecting to take a 30% equity interest in port Arthur and I would also mentioned Shar. We may also look to bring in other equity partners at the project level and Port Arthur.

Third step for infrastructure is rated as an investment grade credit. This was an important development for us with significant cash flows and this gives us another great option to access the debt markets and then I would say fourth with the inclusion of KKR and Audi in the capital structure. It provides us with other third party sources of capital and it probably does.

Surprise you to know that we're also routinely taken quite a lot of reverse inquiries from other third parties to participate in our projects. So our goal as we move forward in the development process for Cameron Phase two and Port Arthur Phase one is to make sure. We're evaluating all of these options through the lens of getting off of really high quality.

Project and also through the lens of making sure it creates the most value for our owners.

Perfect Fantastic guys. Thanks, so much jump back in the queue I appreciate it.

Thank you Chuck.

And we will take our next question.

From David Arcaro with Morgan Stanley . Please good morning, David.

Hey, good morning, Thanks, so much for taking my question.

Just wondering if you could talk about some of the cfe.

Okay.

Maybe on one hand could you just talk about the Cisco.

Cisco projects how does the.

Agreement that you've got in place there now help move that project forward incrementally and then also curious on the Salina Cruz LNG terminal site, just any other details you might be able to give at this early stage in terms of size.

Strategic appeal competitiveness timing et cetera.

Yes, yes, I understand your question correctly, I think you alluded to kind of summarize some of the recent developments with cfe kind of our views on that marketplace and some of these newly referenced projects. So I would start with saying we have very constructive relationships in Mexico, Tania Ortiz does a wonderful job in Mexico, and I've had the benefit probably in the last 90.

100 days meeting with the President of Mexico, three different times about how we can continue to grow that relationship and better serve that country. So I think big picture in the short term and long term and we think they will need additional investment, particularly in the energy infrastructure space and David because of the size of our existing energy network, we think we're as well positioned as.

Body to help meet some of the new investment needs to that country. There is a list of SaaS development projects summarized in the appendix at slide 13 by way of references I go forward.

A couple of projects you mentioned, we recently.

The commercial terms for us to reroute the Sonora pipeline around the Yaqui territory, there's still some work to be done by the Mexican government to resolve issues with the indigenous people because we think thats an important step. This the pacifica is a very interesting project is all in or around that 3 million ton per annum stage.

Access to existing pipelines, it's always a nice attribute when you can work with the government to make sure you secure your land concession youre local state and federal permits that we're on.

Also having conversations with CSC to do a capacity released so we have access to the type of volumes of natural gas we need to build that project. So that's something we think the government of Mexico as constructive on and we're going to continue to work forward on the on a development basis.

As to Salina Cruz, one of the things Thats interesting as we think about the root causes of migration is that the business of Mexico, which is about a narrow waste at the southern part of the country Thats just over 200 to 250 kilometers in width.

There's a lot of interest to create an industrial quarter. There I think the president of Mexico is hoping to create 10 different industrial zones, and they're trying to find a way to bring natural gas down the Gulf seaboard. So they could have a potential for an LNG opportunity on the golf side as well as an LNG opportunity on the Pacific because we have.

Such a strong position in U S. Gulf Coast LNG today, we've been far more interested in the Salina Cruz facility that facility would also very similar to this the Pacific <unk> phase one provide a unique geographical access to the Asian markets with an see transfers taken about 11 days to reach that market.

Place, it's very early stage, David but I think what it really goes to is our ability to work with various administrations in Mexico, because our baseline approach is to make sure. We put dollars down there in the country number one we do it selectively number two we tie it to raising the standard of living for the Mexican people and number three.

We tend to try to do it in cooperation with the government. So we're also meeting their stated policy objectives.

Excellent thanks very helpful.

Thank you.

Second question I was curious I know, it's early in the process, but in Texas in terms of the rate case any thoughts on the prospects of settling.

That case here.

Sure I would say similar to our California utilities I'll just start off let's say in the oncor, you'll recall filed its base rate application in may with a view toward reaching a final regulatory outcome. Later this year, but we've got Alan with us on the call and Alan perhaps it would be helpful. If you could.

Just provide some additional color around the process as we move forward from today to get to a good outcome that benefits to rate payers of Texas.

Yes, you bet, Jeff Thanks for the thanks for your question.

As Jeff said, let me just start by saying kind of where we are and then I'll get to where I think we are going.

As Jeff said, we filed in May.

Right now we're in the discovery phase of the proceeding so.

<unk> been asked quite a few unit RFID werent responding to them now.

Kind of some important dates that are coming out of discovery will end on our direct case on the 22nd of this month.

Intervenor testimony is due on August 26.

And then staff testimony will be due on September 2nd with a hearing on the merits only if it's necessary obviously.

September 26 through October 5th So Thats kind of where we are right now where we're going.

On these calls many times over the last five years or so.

We have a very strong reputation in Austin and that strong reputation is built over years and years of doing the right thing and being able to get along and work with our constituents and our state and staff.

And find solutions for difficult problems, including rate cases, and so we have a history.

Finding good outcomes for these rate cases that benefit our customers and our state of the ERCOT market in our company.

It's always important in rate cases, it's essential really to allow the intervenors to have time to analyze your filing our filing and to ask the appropriate questions that they need to do that analysis and that's what we're doing now. However, we are in constant communication with all the parties in our case.

And we will very soon once they they've asked the questions that I need to ask.

Engage them and serious settlement negotiations and we have done in the past we know how to do it.

It's not easy, but we're going to work very hard to try and figure out something that benefits us in the state and our customers and that'll be over the next few weeks or months. So by the time, we get back in October I suspect, we will have a lot more to talk about one way or the other.

But thats kind of where we are now where we're going I feel very good about our case I feel very good about our relationships I feel very good.

Our history and the manner in which we engage these the stakeholders in these settlement discussions.

We will work very hard to try and make that happen in the near future, but right now we're still in the discovery phase. So that's kind of a summary of where we are thank you.

Thank you Alan.

Okay, Great appreciate all the color. Thanks, so much.

Thank you.

And we'll take our next question from Nick Campanella with Credit Suisse. Please go ahead.

Good morning good.

Good afternoon, everyone nice to hear from you I guess I'll just I'll keep the question is gone.

Alan and encore.

We've seen a lot of folks in our service territory to Jason's here is kind of talk up their load forecast and I know that the board needs an updated capital plan higher.

Virtually every year, but is there anything kind of specifically discrete and different about this year versus prior years, and we're kind of thinking about the magnitude of what's needed for the system here.

Yes, it's a great question I'll frame it two different ways and pass it to you Alan as I think it might be helpful. If we just move to some of the growth drivers that you've been seeing in your marketplace number one.

And Nick the reason that's important is I think there is an expectation that the current $15 billion capital program. When it gets revisited on the board with Trevor and I are later in the fall. It has an opportunity just to meet growth for that budget to be increased I don't want get ahead of our board decision on that but secondly, Alan maybe talk about the work that your team.

<unk> is doing beyond just meeting capital growth and how that might play into the fall.

Yes, Jeff I appreciate the question again.

I'll start with just what we're seeing on the growth side to your point.

The state <unk> to your point see just very high demand for our services.

And very strong growth, both organic and demographic growth.

Still seeing 500 people a day move here.

Are seeing corporate relocations now the most fortune 500 companies in any state.

And we're seeing just really large industrial expansions like Samsung and Taylor Ti Global Tech and Sherman things like that so our kind of growth statistics I know.

<unk> covered in our earnings release.

Trevor mentioned them as well.

In his presentation, so I'm not going to I'm not going to go into detail, there, but suffice to say.

We are on a very strong path as far as premise Cisco.

Including not independent of what we have in our press release, just a couple of other factors.

In June we received the largest request for service to new subdivisions in our company's history. So that's one.

And then two for July .

Our serve new requests are up about 40% above what we had in our forecast which were already very strong. So the outlook on the printer side is very positive.

Transmission Pois's as stated in our materials.

Historic record highs.

We continue to see just incredible demand out west.

Need for investment as we continue just to see new peak after new peak on our Culberson Lou on the far West, Texas whether zone.

And then very very similar growth at Culberson on R. Stanton area stand alone that serves the Midland basis.

So switching back from that to the Capex.

Those are some of the things that are going to be in our mines and then we're going to discuss with our board going into October and you. All know we do these updates in October and to Jeff's point, we've been already working very hard on that.

So while yes, we are going into October is kind of traditional load growth the growth of the state of Texas all of the things. We traditionally talk about on these calls I think what would make this one potentially slightly different.

Jeff alluded to it is I think we are going about the exercise of this year and the team has been working very hard on this on seeing give.

Given some of the extreme weather that we've been seeing over a period of years now from here to the all of the things we're going through in ERCOT. This summer.

We feel we have a real need.

Its really necessary that we look at and try to figure out how we can harden our system and make it more resilient and then so I know many other utilities are doing the same exercise some have already announced some things, but thats. The other piece of what we have kind of on our plate going into the October boards will have the traditional growth.

Which is already causing pressure on our plan, but then we have the other piece, which is what do we want to do is to try and ensure that we provide the best customer. This customer service. The most reliable service that we can to our customers given some of these extremes shifts in weather that we're seeing and just the need to address.

Yes that on our system. So yeah our October four.

Org meeting will probably be a little more expansive when we talked about capex than it has been in the past and I think that's potentially going to create a lot of opportunities for investment on our system.

Thanks.

Thanks, a lot.

Great I guess just more capital allocation question. Two is you had that you put the six to eight plan out there at the beginning of the year and you really.

A lot of momentum on this LNG business. Since then and as you kind of think through all these financing considerations should we still be thinking about the same level of buybacks here that was outlined on the fourth quarter of 'twenty one.

Yes, Nick I appreciate that question Trevor and I have talked a lot about is something we'll continue to have conversations with our board about but I would give you a couple of takeaways here one is buybacks and dividends have been a foundational part of how we thought about capital allocation for a long period of time.

Since last summer, we've had roughly one point to $5 billion of shares had been repurchased at a price of roughly $1 32.

And at the time at each juncture cost the way, we viewed our stock being undervalued and repurchases Nick as an effective tool to create value for owners, given where stocks trading today I will be very clear we continue to believe our stock is undervalued.

Particularly given the growth opportunities are being outlined on today's call and some of our materials relative to our peer group. That's why as we go into the fall Trevor will lead the team and revisiting our overall capital allocation strategy to evaluate opportunities for share repurchases in the future, but you'll also evaluate those options.

Some of the new capital projects that we'd likely expect to move into our investment horizon. This exercise because not every fall with a view towards driving maximum long term value to our shareholders.

Yes.

Alright, I appreciate that.

Good day, Thanks, Nick.

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

Good morning, Joe Hey afternoon, Jeff.

Alright, thank you.

So Jim.

Let me clean up on a couple of things here.

Baseball metaphor here.

Just with respect to tap.

Taxes, and IRA legislation here any thoughts on how that breaks up across the businesses here. If you can just super brief here I get it's preliminary.

Yes, obviously, the bills and draft. We think it will go through a variety of changes we certainly like the support for the EV market. We certainly like the fact that there is an opportunity for the 45 Q subsea to go up.

Streamlining permitting has been raised in this spill it may be separated Julian it's part of the companion Bill We think that makes all the sense in the world in terms of the minimum book tax issue. Trevor you don't go out and just kind of address how we are looking at that sure Jeff Hey, Julien Hey look on the initial assessment of what we're looking at right now we think the earnings.

Impact will really be de minimis or nonexistent on an earnings standpoint, and then from a cash tax impact.

There may be a real slight cash tax impact, but very manageable. So I think overall, we think the way it's drafted right now.

Yes.

Very easy to work through the <unk> looked at we looked at it Julian I guess $36 billion capital program and whether the Bill goes forward. It doesn't go forward, we don't see it having a material impact either way.

Sure.

Excellent. Thank you for being here.

And then just going back to Port Arthur here again, we're just trying to sharpen our pencil a little bit and I get that its preliminary conversations with bechtel in any number of other parties here, but how do you think about the cost of that project here again, we're looking at a backdrop inflationary in a holistic sense, obviously greenfield site any updated sense at all just to kind of.

Frame the value proposition here.

Yes, I'll give you two things to think about because we havent publically announced costs either for Cameron or for Port Arthur but Cameron because it's a brownfield project. It will also have some debottlenecking benefits associated with it we think it's going to be the one of the one of the lowest per unit cost projects built in the world now obviously, we need to get some work done here, it's still competitive.

Process, but we feel very very good about the cost structure of that is in addition to the base project at Port Arthur It's a Greenfield project. The good news both of these are in the Gulf. Thank you can kind of look at comparables or what other things are costs in the Gulf region, but the good news is we've got a world class EPC contracts, we're working with I cannot be more excited about.

Our relationship with Conoco Phillips call with Ryan Lance yesterday, their CEO I think they've done 12 different LNG projects in the world, they're going to bring a lot of value and expertise to our partnership I think between us and Conoco Phillips in Bectal, we have an opportunity to get to the right cost structure.

Got it so leaning on your partners here for some of that and in fact to that and then just when you think about the SBA is in and just aligning the start for even the first half of 'twenty three as you alluded to a moment ago. When do we need to start to see that announcement I mean, it seems like you also have some equity sell downs coming.

That part of the update this fall here that you've kind of alluded to when you think about putting everything together Trevor maybe.

No I think what we've talked about is we've got.

Heres a work streams underway at Cameron those work streams are a little bit more discrete we've got a fair amount of work to be done yet on port Arthur and I think what we're saying is we probably cannot be more excited Justin.

Julian about where we're at right now.

Thus far in the year about port Arthur but I think we've got enough work streams ahead of us what we want to do is choreographed that through the lens of creating a lot of value and I would just want to make this comment too which is we're running this business for utility shareholders.

So we have a defined view about our strategy investing in T&D type assets that have low risk and theres a lot of other opportunities in the LNG space for people that would be commodity exposed or take construction risk.

The job is to make sure that we risk adjust these projects and put those cash flows in the box. They look substantially similar to our utility cash flows and thats. The type of work the team will be doing as a choreograph those work streams to make sure. When we come back later in the fall we can give our investors a very clear view of how we expect to execute.

Got it alright, thank you guys.

Yes, Justin and LNG on the mine.

Yes.

Yeah.

Okay.

And we will take our next question from Alex <unk> with Wolfe Research. Please go ahead.

Great. Thanks for taking my question.

Maybe just another one on LNG.

And you know the discussions about maybe essentially electrifying.

The terminals.

Do you see that a little bit of a kind of a benefit as youre talking to European parties off takers potential off takers is that is that important to them.

And then maybe.

If you could elaborate a little bit more just in terms of.

How do you think about that.

The <unk> development.

You mentioned that the tax credit.

Your tax rate is obviously, a good thing but maybe.

Just thinking about permitting and such being a little bit owners right. Now do you think there may be a way through permitting reform to simplify that as well to make that kind of more.

Kind of or likely potential.

Okay. Thank you for those questions Alex.

Ill address the first part of your question and pass it suggests that we'll talk about some of the carbon sequestration opportunities, but let me go back to some basics here a little bit over 15 years ago Central was a big energy company right, we had a big commodity desk.

I think one of the things we've tried to focus on as part of our strategic work with our board of directors, particularly over the last five years was our transition to an infrastructure company and we have a decided view that infrastructure, namely continued investment in the grid and network will be a big part of how we support North Americas continued economic expansion and what we like.

Alex is it has a lower risk profile as we continue to electrify the grid and move towards green molecules on the gas side. We think we're in a unique position to be a leader in the clean energy transition. So as you think about how we approach Europeans for the sale of LNG. For example, this is right in our sweet spot. So this is not something that's unique.

Our LNG business every one of our facilities in California, and there may be a couple of limited examples around our compressor stations.

Today source renewables to power those facilities.

And or our renewable green tariffs from the from the local utility.

In Mexico, we are helping the government move away from oil fired generation to natural gas generation the world kind of the top three or four renewable developer there so going back to your specific question.

And we think Theres an opportunity for the expansion to be built on the basis of electric drives we actually delayed the projects somewhat to make sure that we can be more competitive and yes. It does help us with the Europeans, but it's actually intrinsically align with how we think about our own business.

Certainly the Europeans like the fact that we're looking at certificate in over a longer period of time upstream emissions, including where we get our source our natural gas and from an operating standpoint, if we can power those facilities with electricity that over time is increasingly decarbonize. We think that's a plus so over a long period of.

I actually think the United States will be a competitive leader in being able to source and deliver LNG.

More cost competitive basis, but also on the basis of.

Reduced emissions profile. So the second part of your question as the opportunity to sequester carbon again in line with my prior comments, but maybe just that you could talk about.

Our approach on the sequestration side, yes, Thank you Jeff.

Yes, Alex if you think about hackberry.

We're very excited about that opportunity in.

In part because it will help reduce the emissions associated with the Cameron facility equally we think it's an exciting new business and I think as EIA has said, we will not get to net zero without substantial carbon sequestration. So.

In that light in the third quarter of 'twenty, one we filed for our classics carbon injection well permit with EPA you talked about permitting reform I do think it's early stage.

EPA to consider these projects and we are doing all we can along with the industry to help support that process and to make this process expedient and to make sure I have all the right factors are considered.

In May of this year, we signed our participation agreement with the Cameron LNG partners to jointly develop the opportunity. We're very excited about it I think as Jeff referenced earlier a change in the queue 45 benefits that project, but again at a higher level. Alex I think you asked about the Europeans I think we.

Si and XI as part of Sempra are doing all that we can to make our projects less admitted and to promote the energy transition as Jeff mentioned, whether thats through electric drives whether through carbon sequestration, Jeff made a reference to sourcing gas, we're pursuing responsibly sourced gas.

And also other design and operational changes that will make our projects better.

Great. Thank you.

Thank you Alex.

And we will take our next question from Jeremy Tonet with JP Morgan. Please go ahead.

Hi, Good morning, it's rich Sunderland on for Jeremy Thanks for the time today.

I wanted to follow up on the mortality reduction Act questions, California already has some leading environmental goals, but I'm curious if you see the potential changes in the state that could come from greater federal support via the legislation.

Look I think the good news is California has been a.

A leader in the environmental space for three or four decades, and I think that one of the great things about the IRR Bill is particularly its support for electric vehicles. So I think anything we're doing to help the United States continue to Decarbonize as a positive I think you'll find a lot of collaboration between California, policymakers and <unk>.

The policy alignment that's embedded in that bill, but I would again step back and say look it's in draft form today, a lot of different folks who have taken different views and perspectives on it. We think it has a number of positive attributes, but I think there'll be some changes and revisions going forward. So we're going to continue to evaluate it in its current form.

Understood I appreciate the commentary there and then separately. This has been asked a couple of different ways, but I just wanted to circle back to the Bechtel work.

Can you just provide background on when that started in terms of finalizing the EPC refresh on port Arthur and just walk from the start of that process to the end of that process and when that should end.

Look we've been working with bechtel for a number of years.

From time to time, you will get updated cost structure and processes from them. It's an open book process that we're working on with them right now and all you're really talking about is a refresh of breakdown to the cost based upon their earlier work and Thats something that is ongoing this fall.

Got it thank you very much.

Tim.

Thank you.

And we will take our next question from Michael <unk> with Goldman Sachs. Please go ahead good afternoon Michael.

Good morning, Jeff. Thank you guys for taking my question I actually I have a couple of them I apologize I just wanted to labor labor and wage inflation, we saw Socal, Ed recently, making Z factor filing we havent actually seen one of those it's been a while in California talking about incremental cost in between rate cases to get line.

Can you talk both for the California utilities in the Texas utility and maybe how they are different in terms of just what youre seeing in the O&M expense escalation.

Well, what we tried to do is when we lay out our five year plan, Michael each fall, we adjust that for our expectation of course, an O&M and capital.

Today, we're the good news is as you think about other participants in the marketplace.

<unk> had rate cases, a year ago or two or three years ago I haven't been following the Edison case, but what's most important for US is we're actually filed all three of our rate cases in may of this year and Alan outlined it earlier today, but Alan expects to get through his rate case proceeding this year with a good outcome, we hope and then <unk>.

So Cal gas the most important part of this is socal gas has just recently reached their labor agreement with their union. All of these current costs are going into the rate cases that were filed in may and there will be a breakdown to our cost structure here in California, and I think it is.

October November filing so separate and apart from various mechanisms that account for this I think one of the thing that really is a benefit to sempra and its really a tailwind is regulated to bring down on all of our cost really in the next six to 12 months. The other thing which is related to your question, which I wouldn't mind touch on Michael is the interest rate.

<unk>, which obviously impacts all three of these businesses given how much their leverage to that Trevor and his team have been actively managing our exposure to maturities and variable costs borrowings. So think about this as an example, since 2017, we've been able to reduce our debt to cap from roughly 46% to 47% today.

And we don't have any maturities between now and 2027.

At our utilities, we have limited near term maturities all of which are in the regulatory mechanisms in California and Texas.

Or infrastructure, you'll recall, we've got standalone, but they've done a lot of recent financing. They all have very limited near term maturities. So we.

With KKR and Audi and raised.

In the last 12 months from that business. So as you think about our cost structure. It will be updated at our current pending rate cases things like interest rates, which we are following closely we think we're in great shape.

Jeff just a cleanup.

It was <unk> 56 to two seven.

Kevin Yes.

46.

Understood and this one.

One maybe for Trevor just curious how you're thinking about that.

Look on core Capex may go up just given the new connects and the demand trends, which have been phenomenal in that part of Texas or those parts of Texas.

And you've already got.

Capex lined up as part of the California rate cases.

It doesn't seem like LNG Capex would ramp dramatically next year would probably be more in 2024 and beyond that a lot of that would be self funded.

Again at the operating subsidiary.

You are sitting with $2 billion of cash on the books you have almost no short term data or a very limited amount of short term currently maturing debt on the books.

Yep.

What point do you actually think youre getting under Levered.

Well, obviously, we've got a record capital program of $36 billion. I think you can take from today's call as we go through the process. This fall I think if I was going to take the over under when we come back on our February call next year I would certainly take the over we.

Great great about our balance sheet, but Trevor maybe as you think about where you expect the oncor Capex to go how are you thinking about managing the balance sheet going forward, Yes, sure, Jeff and Michael just with regards to the balance sheet. That's kind of just a flash in time and so a lot of that those cash proceeds that we got from the sale of the 10% to audio.

Sitting on the balance sheet there.

And again, we have deployed that cash.

Now to pay down certain short term debt since that period of time, but again as Jeff said, we've got an opportunity to continue to deploy capital.

Across the three businesses, but in particular, we're seeing a lot of opportunity at encore and at the Cal utilities to continue to harden, our systems and bring growth to their various resources in there.

Rate base areas and so we feel good about deploying that capital into the Capex plan.

As we continue to see Capex, most likely going up in the near term.

That will be a way to continue deploying that cash.

Got it and can you remind me Trevor does non core generally dividend cash back up to the <unk> holding company or the non core retain that cash to finance its correct.

Now oncor will distribute.

Certain amounts of cash back up under the LLC agreement that we have and they do it both in dividends.

Dividends with excess cash as well as tax payments.

Back up to us so that we can cover the tax the cash tax payments on their earnings right now they do have a lot of capital in front of them and we continue to see us deploying cash into that business, but we are getting at a minimum cash tax payments on a quarterly basis back from from encore.

Encore is largely self funding.

Some of our holdings.

Absolutely, yes, encore is self funding.

Got it okay, great. Thank you guys much appreciated and congrats on a really good quarter.

Thanks, Michael.

Sure.

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

Hi, everybody Ryan.

In terms of <unk>.

LNG cargo diversion for the quarter can you comment on how impactful that was during the second quarter and if you expect any benefit from that have a b a day.

Actual opportunity that you have.

The future quarters and beyond.

Yes. Thank you for the question Ron I'll pass it to a city alumnus.

<unk> will respond to you.

Yeah, Brian So I think we've talked about the sort of the exposure quite a bit over the last several years, it's really comes down to sort of our contract with Chengdu quite half a Bcf a day as you mentioned and so for every dollar increase or decrease in the index price.

Earnings sort of move up and down from that contract by just over $10 million in after tax earnings. So that's kind of what you see.

Whether the cargoes come in or not really isn't important.

Contract itself is indexed.

Index too.

Miss.

In a sense on what that was during this quarter.

And we give you disclosed there on an annualized basis. So I mean, if you want you can kind of split up that way, but that's kind of how the contract works because it has seasonality to it.

Okay.

And then it was briefly mentioned the hackberry TCU asked opportunity the extent inflation reduction act were to pass is that enough.

<unk> D there or would there be any mitigating.

Hurdles to cross to move that project forward.

Yes, I appreciate the question, obviously similar to the <unk>.

<unk>, we're continuing the process there from a permitting standpoint, we've recently made some progress with the participation agreement with a camera partners.

Obviously, if that goes forward moves it from $50 a metric ton to $85 a metric ton, which certainly improves the economics. So it's a project that we're optimistic about in terms of building Ryan, but just as importantly is thematic to how we think about making can be more competitive as an LNG exporter.

Okay. Thank you for taking my question.

Thanks, a lot Ryan.

We will take our next question from Paul Patterson with Glenmark.

Please go ahead.

Hey, good morning.

Hi, Paul.

So I wanted to touch base with you on the.

The provision.

Yes.

In the Senate.

It sounds like you guys are pretty well positioned in terms of.

Your own.

Operations at least youre opening comments et cetera, but being ahead in California.

Is that correct is that a correct assessment and then B I'm just wondering is there any potential opportunity.

Assuming thats correct to perhaps.

Engage in an activity.

We've got the other parties.

Perhaps.

Nothing.

Any comments on that.

Yes, it's a very interesting question. So thank you for raising that I'll give you a couple of thoughts, which as you may have seen in our in our materials that since 2015 Socal gas has really been on their horse trying to reduce methane or fugitive emissions, they've got them down about 37% well above the target that states that for 2020 and very clear.

So the targets in some states set for 2030. So this is going to be an issue of innovation new technology, how you kind of improve your operational processes.

Natural gas Paul has a long term role in the economy here in the United States and globally.

I think there will not be an energy transition without energy securities a base fuels like natural gas are imported but if we don't get about the business about making sure that we don't have fugitive emissions were going to handicap. The long term viability of natural gas as being part of the energy mix. So there is no question that California's lead in this area and the second part of your question is kind of it.

Testing I do think there'll be a very there'll be a number of very large business has built over the next decade, a decade decade, and a half around carbon trading and companies that can assist others and reducing their carbon footprint because remember at least today. The goal is net zero by 2050, so the ability to basic.

<unk> lowered your admissions get credit for it all set other emissions will be really important and I think thats a business case that many people will be evaluated.

Okay, Great and then.

San Diego I think earlier this week past.

Sure.

Carbon plan that dealt with the request of electrification.

Gas sort of an anti fossil fuel sort of thing I'm just wondering how you guys are.

What do you guys think of it in.

And what it may or may not mean for you guys.

Yes, I'll give you a couple of thoughts one is I made this comment earlier, but we're an infrastructure company right and the beautiful thing about that is in California will go out and purchase of fuel at a certain price whether it be electricity or natural gas, we will write a really highly efficient system and we pass that cost onto the customers without markup, so whether we're selling more natural.

Gas or less natural gas isn't really a financial issue to us what we do believe in is Decarbonize in California. So we've made a goal to be a leader in electrification, but we also believe Paul overtime.

As the state will be agnostic as to whether it's a green elektron or a green.

Molecule so.

In San Diego similar to L. A and other parts of the state.

They are establishing a precedent where they'd rather focus on electrification and look at <unk>. We are in both right. So if you reduce capital investment in natural gas in Europe to increase capital investment in new projects electrification again. This is not a financial impact to us what we worry about in the process of whether people are in it Burton.

Really driving up the cost without the benefit that they might think from that but look we're supportive of where the city wants to go and I think one thing that's unique about our business, whether we're in Louisiana, or Mexico, or California, we're strongly aligned with supporting policymakers and making sure. We're advancing services for consumers. So we don't tend to be.

<unk>.

The obstructionists on these types of issues, we tend to try to find a way to help them meet their goals.

Okay, great. Thanks, so much have a good one.

Thank you Paul.

Yes.

Okay.

Hello.

And we can now take our next question from Craig Shere of Cowen. Please go ahead.

Hi, Chris.

So two LNG related question first.

Things Youre focus more mid scale in Mexico.

No there is a variety of drivers for that but.

But we are hearing that nickel inflation is weighing more on the large scale design versus Midscale and was wondering if you have some thoughts about inflation optimal designs in the U S.

As we look past Camryn stage, two and Port Arthur stage, one and then.

One more.

Well I appreciate the question certainly nickel is an important component in a variety of industrial processes, including LNG facilities. They focus so middle mid scale projects and Mexico Appeals to us from a number of angles one is.

These are particularly Vista Pacific Cowen Salina Cruz are greenfield projects and number two we tend to try to avoid adding pipeline costs to a project. So.

The Pacific Okay. So we get to leverage existing pipelines and the eco phase one case, we had an existing pipeline. There are no new tanks. For example at Cameron when you move to the larger scale projects. So we're not impacted but nickel, but thats one of the reasons that Youre question is important it is it's not just Nicole if theres an inflationary pressures.

Across the entire supply chain and that's why we're getting the work done with your EPC contractors to have your calls refresh and make sure you marry those up with your HOA and SBA is to preserve your economics are so important. So you raised an important issue and it's one that we address that overall cost structure.

Great.

My last question.

And.

Preface this by saying I'm not saying that.

A probable scenario.

But would you view it as crazy to think we could have for LNG.

In 2023, totaling perhaps 25 to over 35 million PPA, combining Cameron stage to port Arthur and some combination of a second and third Mexican liquefaction project.

Well Craig I certainly appreciate your optimism and I can tell you that.

The folks who have spent time with particularly in the international oil and gas community I think there is a growing recognition that the.

World Today is short natural gas and I think not only is it short natural gas and key parts of the civilized World OECD Nations and non OECD nations, where short infrastructure in key markets to export it so.

We're going to be very disciplined about how we think about projects going forward Justin did a good job of articulating the various stakeholders, who are working with US right now our primary focus is on making sure we deliver eka phase one on time and on budget. It takes up a lot of justice attention, that's our top priority.

Secondly, we've taken the step of given some guidance around when we expect to take <unk> at Cameron. We think this is a world class projects. The type of partners. We have there are absolutely excellent in partners that we've worked with for a long period of time.

It comes to Port Arthur and other opportunities. There's no question that there is tremendous excitement on the marketing side of it and it's our job to tell.

The additional time to make sure we line up the economics manage their risk and do it in a way that creates a win for our utility shareholders.

Okay.

Thank you.

Thank you for joining us.

We will take our next question from Anthony <unk> with Mizuho. Please go ahead.

Yes. Thanks, so much for taking my question, hopefully real easy one and I wish you a padre as luck has been a big signing earlier this week.

Yes.

Okay.

On and off take agreement for the LNG.

I just wanted to understand is there a significant competition from the LNG terminals and kind of look at it from the off taker signing other than price.

I also want to purchase their purchase of the LNG use the terminal a versus terminal, but your other options.

Yes, well, let me just start by saying that a lot of times people tend to focus on.

Company, a versus company b versus Sempra and either way I try to think about it is the United States has a big role to play and you're out there competing as a nation against Australia, and the Qataris, North, Russia, Mozambique, and other locations as you get down into the United States you start thinking about competitive advantages.

One of the things there's a lot of people are focused on is the relative advantages of having a west coast facility that can shorten the transit time on the high seas from roughly 25% to 26 days to go from the Gulf Coast through the Panama Canal to Asia, whereas a west coast export facility can do that antenna.

11 days.

In the Gulf Coast, It really is well positioned obviously to serve.

Europe and as you talk to those parties a couple of things that creates an advantage for US number one we're a $50 billion equity value company. We've got a strong balance sheet. We've been in the gas business for over 100 years, we have a lot of established relationships. If you are talking with a utility in Europe . Those are important to them that we've got.

That utility background that strong balance sheet.

We've got a track record right we've been in the LNG business for close to 17 years now we're not a new entrant. So I think scale stretch the balance sheet track record is important and obviously, having Cameron. It's one of the flagship projects in America. Today is a really really important part of our reputation and we take the operational excellence at that facility.

<unk>.

One of our top obligation so good luck.

This is not about talking down the competition, we've got a pretty unique footprint and thats been recognized today, when we market our projects.

A lot of excitement around our opportunity to bring some of these to the market.

Great. Thanks for taking my question.

Hi, Thank you for joining us.

Sure.

And that concludes today's question and answer session.

At this time I'd like to turn the conference back to Jeff Martin for any additional or closing remarks.

Sure I'd just like to conclude by thank you to everyone for joining US I know is a busy day with a lot of other competing company calls if there are any follow up items. Please reach out to our IR team with any additional questions. I also want to mentioned Trevor and Glenn look forward to seeing many of you who are attending the Citi Conference. Later this month I think thats on the 16th and 17th in Las Vegas. This concur.

<unk> our call.

Thank you for your participation you may now disconnect.

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Good day and welcome to the separate.

Second quarter earnings call today's conference is being recorded.

At this time I would like to turn the conference over to Glen Donovan. Please go ahead.

Good morning, everyone welcome to <unk> second quarter 2022 earnings call.

Live webcast of this teleconference and slide presentation is available on our website under the investors section.

We have several members of our management team with us today, including Jeff Martin Chairman and Chief Executive Officer.

Trevor Mihalik Executive Vice President and Chief Financial Officer.

Kevin Tsujihara Executive Vice President and group President.

Justin Bird Chief Executive Officer of Sempra infrastructure.

Allen Nye Chief executive of Encore.

Peter Wall, Senior Vice President controller, and Chief Accounting Officer.

And other members of our senior management team.

Before starting I would like to remind everyone that we'll be discussing forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.

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 share amounts in our presentation are shown on a diluted basis, and we will 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 June 32022.

I'd also like to mention that the forward looking statements contained in this presentation speak only as of today August four 2022, and it's important to note that the company does not assume any obligation to update or revise any of these forward looking statements in the future.

With that please turn to slide four and let me hand, the call over to Jeff.

Thank you Glenn and thank you all for joining US today earlier. This morning, we reported second quarter 2022 adjusted earnings per share of $1 98.

And year to date 2022 adjusted earnings per share of $4 90.

Based on the strength of these results. We're now guiding to the high end of our full year 2022, adjusted EPS guidance range and we're also affirming our full year 2023 EPS guidance range.

Let me offer some perspectives on how we think about the future at.

At Sempra, we've worked hard to simplify our business model to improve safety and operations and with the benefit of more disciplined capital allocation to also improve our financial performance.

We have built three large scale growth platforms operate in some of the largest energy market in North America.

At San protections, we couldnt be more excited about the work encore is doing to support strong economic and demographic growth and the continued integration of cleaner renewable resources.

As simpler infrastructure there are significant growth drivers across all three business lines, LNG and net zero solutions clean power and energy networks and.

In the first half of this year, the United States became the number one global exporter of LNG and by the end of the decade, we expect in the United States will extend its significant leadership advantage in this area.

In combination these investment opportunities to support our record $36 billion capital plan for 2022 through 2026 as.

As well as our continued confidence in our projected 6% to 8% annual average long term EPS growth rate, which we announced earlier this year.

Please turn to the next slide where I'll turn the call over to Trevor to provide several business update.

Thanks, Jeff.

Beginning with Central California, both SD Genie and Socal gas filed their general rate cases, with the CPUC in may to update their authorized revenue requirement for 2024 through 2027.

Notably both utilities have outlined the critical areas of investment needed to safeguard their systems and support the state's clean energy goals of achieving carbon neutrality by 2045.

As an example.

<unk> filing is centered around investments such as wildfire mitigation system hardening EV infrastructure and innovative technologies to modernize our electrical system.

For Socal gas investments in pipeline safety and integrity and emissions reductions are key priorities and its application.

Support for these rate case priorities will lead to a cleaner energy system and provide long term benefits to our customers.

We look forward to working with all stakeholders on these proceedings to advance a positive outcome.

In April both <unk> and Socal gas filed their cost of capital applications to update their respective authorized rates of return for 2023 through 2025, and we expect a final decision by year end.

To further support grid resiliency, the CPUC approved <unk> for new micro grid facilities.

Additionally.

<unk> gas recently announced that since 2015 and achieved a 37% reduction a fugitive methane emissions significantly ahead of the state's goal of a 20% reduction by 2025 and nearing the state's goal of a 40% reduction by 2030.

This achievement is significant and demonstrates socal gas is focus on helping to accelerate the de carbonization of California's energy systems.

Shifting to Sempra, Texas.

Oncor continues to benefit from its demographic growth and strong economic expansion across its service territory. As a result encore has added another 35000, new premises so far this year.

We continue to anticipate maintaining an annual premise growth of approximately 2% in the near term, which is significantly above the industry national average.

Also encore has seen more than a 70% increase in new requests for transmission interconnections compared to the second quarter of 2021.

This highlights the continued growing demand and expected penetration of renewables and their service territory.

On top of significant organic growth Oncor continues to experience near record high temperatures and in recent weeks ERCOT has set new records for peak electrical demand.

As a grid operator encore has been doing its part to help maintain grid reliability. During these extreme weather events, while also executing against a record 15 billion capital plan for 2022 through 2026.

Given oncor significant growth across its service territory, we expect our Capex program will again be adjusted this fall.

As it has done in the past Oncor will present, its updated rolling five year capital forecast to the board at their October meeting.

And Mei Oncor filed its rate case with the public utility Commission of Texas.

Questing of four 5% revenue requirement increase over current adjusted rates to support Texas's rapid growth trends and need for continued reliability.

The new rate is expected to go into effect in the first quarter of 2023.

<unk> looks forward to working in partnership with its stakeholders to achieve a positive outcome.

Now I'll turn the call over to Justin to discuss updates at Sempra infrastructure.

And we've successfully reached a number of important commercial milestones this quarter.

Thanks, Trevor last year, we formed San for infrastructure to be a leading north American infrastructure platform with a standalone investment grade balance sheet.

This has enabled us to attract strategic investment partners like KKR in audio while also highlighting the growing equity value of the business.

In June we were pleased to close our 10% sale to audience for approximately $1 7 billion.

With an implied equity value of close to $18 billion.

We look forward to a strong partnership with audio and together with KKR. We are working collaboratively to advance our strategy of providing cleaner and more secure energy to global customers.

Jeff talked to earlier about the growth that we're seeing in all three business lines at Sempra infrastructure, but what I thought would be helpful is to focus my time on recent developments in U S. LNG. Please turn to the next slide.

Simpler infrastructures U S. LNG development portfolio has made significant strides.

As we outlined in our last quarterly earnings call. The key work streams at Cameron LNG Phase two include completion of our pending FERC amendment, the competitive feed process and ongoing marketing.

With regard to our recently announced commercial arrangements at Cameron, we have worked hard to align our economic and commercial interests with those of our customers.

You will recall that we plan to take our 50% share of the trained for offtake and sell it back to back to global Counterparties under long term sale and purchase agreements.

Just as a reminder, we have a FERC order and our export permit in hand, and the permitting and design work are highly advanced for the initial phase of the project. The key remaining work streams involve finalizing the EPC contract with Bechtel to include updated pricing and signing definitive offtake arrangements.

Since our Q1 earnings call, we have entered into <unk> with R. W.

<unk> oil and gas company, and Ineos and announced a strategic partnership framework with Conocophillips under which conoco would receive roughly half of the offtake volumes or five MTA under a 20 year tolling type arrangement and potentially make a 30% equity investment in phase one.

Importantly, these announcements mark substantial progress in the marketing phase of this project as it moves forward, we will continue to work with stakeholders, including customers contractors debtholders equity investors and credit rating agencies. The positive takeaway from this is we continue to see great interest from European buyers and volumes.

Are coalescing around projects that have the greatest probability of advancing.

We look forward to updating you on future progress in November on our third quarter call.

As Jeff mentioned earlier the U S has recently become the number one global export of LNG.

Just on the quality of our development sites and their geographic positioning relative to Europe and Asia. We believe our business can help advance America's leadership position in this area.

We're also providing energy security to our allies and helping facilitate the global energy transition.

Please turn to the next slide where I'll turn the call back to Trevor to discuss <unk> financial results.

Thanks, Justin.

Turning to San Francis Financial results earlier. This morning, we reported second quarter 2020 to GAAP earnings of $559 million or $1 77 per share. This compares to second quarter 2021, GAAP earnings of $424 million or $1 37 per share.

Sure.

On an adjusted basis second quarter, 2022 earnings were $626 million or $1 98 per share.

Which compares to our first quarter 2021, adjusted earnings of $504 million or $1 63 per share.

On a year to date basis, 2022, GAAP earnings were $1 billion $171 million or $3 70 per share.

This compares to year to date 2021, GAAP earnings of $1 $298 million or $4 24 per share.

Adjusted year to date 2022 earnings were $1.550 billion or $4 90 per share, which compares to our year to date 2021, adjusted earnings of $1.404 billion or $4 58 per share.

Please turn to the next slide.

The variance in the second quarter 2022, adjusted earnings compared to the same period last year can be summarized by the following.

$48 million of higher equity earnings at Sempra, Texas utilities, primarily due to customer and consumption growth and increase in invested capital.

$41 million of higher CPUC base operating margin net of operating expenses at <unk>, and Socal gas as well as higher FERC margin at SCE G&A.

And $33 million of higher earnings at Sempra infrastructure.

There are a number of items driving this variance. So please refer to the appendix for further detail.

Please return to the next slide.

As we close our prepared remarks, let me give you a couple of key takeaways first.

Comparing the financial results from the first half of this year to the same period in 2021, we posted adjusted earnings growth of 10% and adjusted EPS growth of 7%.

It's equally important to note that we have accomplished these results even with the sale of a 30% minority interest in San for infrastructure.

Second the steps, we've taken to diversify and strengthen <unk> capital structure came at an opportune time and have put us in an improved position to execute on a new set of exciting development opportunities, particularly in the LNG space.

Third going forward, we remain highly focused on safety and operational excellence by executing on our strategy, which includes progressing towards constructive trc outcomes at Sempra, California.

Extending and improving electric grid, resiliency, and Texas, while encore works with its stakeholders to finalize a constructive base rate case for its customers and.

In achieving further milestones in our overall development pipeline at Sempra infrastructure.

And with that this concludes our prepared remarks, so I will now stop and we can open the line to take your questions.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.

And we will take our first question from Shar <unk> with Guggenheim Partners. Please go ahead.

Hey, guys good morning.

Good morning Shar.

Jeff just.

Obviously, youre guiding now to the top end and it appears you're tracking well ahead of plan, especially with some of the commodity optimization upside.

Are you thinking about I guess, the cadence of further updates on 'twenty two as we think about the rest of the year and then just more importantly, how are you sort of thinking about 'twenty three update, especially as we're now bridging to our higher 22 base are there some of the recurring benefits that you anticipate taking into 'twenty three like maybe O&M pull forwards any other.

Optimizations.

Obviously got into the high end of the range for 2022 and I would note Shar. This is the fifth time in six years that we've guided to the high end of the range or increased our guidance. So we feel like there will be some pull through in 2023 and as we head into our Q3 call we should be in a better position to give you a more definitive update.

Okay, perfect that helps us as we're bridging.

And then just port Arthur is now optically oversubscribed, just given the advanced stage of Port Arthur one in and did the expansion I guess what are the hurdles to putting in.

Timeline for us.

<unk> has done would it be feasible to finalize commercial agreements in a relatively short time like maybe mid 23, along with Cameron four.

Yes, I will tell you that one of the ways. We're thinking about RFID decision I know Sean you may have followed this but theres a lot of interest in our San Diego Padres over the last couple of days.

And to use a sports metaphor some people talk about play in small ball moving runners around the basis and that's exactly what Jess and advisors and the team are doing on the LNG business. Let me just start by kind of characterize where we're at with Cameron expansion or what we referred to as phase II and I'll get right to port Arthur to get at the heart of your question first at Cameron.

We're continuing to move forward on definitive commercial agreements with our partners, namely move into Sps, we're continuing to advance permitting and we're making progress on a competitive feed work. So we expect to complete those work streams in the middle of next summer and assess and Saudi decision thereafter at Port Arthur we're not prepared to set in.

Unexpected date, yet, but I can confirm there are scenarios, where <unk> could occur in 2023 and even in the first half of 2023, we've had some exciting developments I think as you correctly noted that using the optically kind of subscribed at least phase one through a series of HOS, but next steps for <unk>.

So to make sure we convert those to SCA is a lot of times buyers as you know will want to secure their interest in the facility and move quickly to an HOA and follow up with the SBA. Thereafter, secondly, it's very important work we have underway with Bectal. We've already started our partnership conversations with with Conoco Phillips, we think there'll be very very.

Help with us as we evaluate and optimize that feed process and thirdly, we're advancing our financing and other development activities. So there is no question from our perspective Charlotte is an exciting project. Our goal at this point is to manage the work streams that I just described in a way that maximizes the project's value for our shareholders.

We will be in a better position on the November call to give you a more definitive update.

Got it perfect and then just Jeff one last quick one is obviously there is multiple projects that are advancing in parallel path just want to get your reiteration that just given the ways you've been able to finance. These projects, maybe some incremental debt capacity that you see this as being an equity free build out.

As you go through the growth opportunities that the LNG business.

Yes, I would tell you that sizable and Trevor and Sandeep adjusted team have spent a lot of work around this and I give them credit because we've made as you've followed a series of strategic moves the not only form simpler infrastructure with the standalone balance sheet and diversified capital structure, but.

Yes, we took in the last 18 months also gives us a lot of flexibility. So let me give you a couple of ideas that we've outlined previously about how we expect to see these projects.

First as you know we can always use nonrecourse.

You've seen the team do this okay.

One through three and on acre second as we've done in the past, we can sell down project level equity to our off takers. This is our current plan with Conocophillips.

Just I made this comment earlier, but we're expecting to take a 30% equity interest in port Arthur and I would also mentioned Shar. We may also look to bring in other equity partners at the project level and Port Arthur.

Third separate infrastructures rated as an investment grade credit. This was an important development for us with significant cash flows and this gives us another great option to access the debt markets and then I would say fourth with the inclusion of KKR and Audi in the capital structure. It provides us with other third party sources of capital and it probably doesn't.

Project and also through the lens of making sure it creates the most value for our owners.

Perfect Fantastic guys. Thanks, so much jump back in the queue I appreciate it.

Thank you Shar.

Yes.

And we will take our next question.

From David Arcaro with Morgan Stanley . Please good morning, David.

Hey, good morning.

Thanks, so much for taking my question.

I'm wondering if you could talk about some of the cfe.

I believe in May.

And then maybe on one hand could you just talk about.

Cisco projects how does the.

Agreements that you've got in place there now help move that project forward incrementally and then also curious on the Salina Cruz LNG terminal site, just any other details you might be able to give us at this early stage in terms of size.

Strategic appeal competitiveness timing et cetera.

Yes, yes, I understand your question correctly, I think you will be to kind of summarize some of the recent developments with cfe kind of our views on that marketplace and some of these newly referenced projects. So I would start with saying we have very constructive relationships in Mexico, Tania Ortiz does a wonderful job in Mexico, and I've had the benefit probably in the last 90.

It's a 100 days meeting with the President of Mexico, three different times.

<unk> continue to grow that relationship and better serve that country. So I think big picture in the short term and long term and we think they will need additional investment, particularly in the energy infrastructure space and David because of the size of our existing energy network. We think we're as well positioned as anybody to help meet some of the new investment needs of that country. There is.

The list of SaaS development projects summarized in the appendix at slide 13 by way of references I go forward.

A couple of projects you've mentioned we recently.

The commercial terms for us to reroute the Sonora pipeline around the Yaqui territory, there's still some work to be done by the Mexican government to resolve issues with the indigenous people, who we think thats an important step. This the pacifica is a very interesting project is on or around that 3 million ton per annum stage.

<unk> access by two existing pipelines, it's always a nice attribute when you can work with the government to make sure you secure your land concession youre local state and federal permits that were.

Also having conversations with CSC to do a capacity release. So we have access to the type of volumes of natural gas we need to build that project. So that's something we think the government of Mexico as constructive on and we're going to continue to work forward on the on a development basis.

Such a strong position in U S. Gulf Coast LNG today, we've been far more interested in the Salina Cruz facility that facility would also very similar to this the Pacific <unk> and <unk> phase one provide a unique geographical access to the Asian markets with an see transfers taken about 11 days to reach that market.

Place, it's very early stage, David but I think what it really goes to is our ability to work with various administrations in Mexico, because our baseline approach is to make sure. We put dollars down there in the country number one we do it selectively number two we tie it to raise in the standard of living for the Mexican people and number three.

We tend to try to do it in cooperation with the government. So we're also meeting their stated policy objectives.

Excellent thanks very helpful.

Thank you.

Second question I was curious I know, it's early in the process putting taxes.

Terms of the rate case any thoughts on the prospects of settling.

That case here.

Sure I would say similar to our California utilities I'll just start with let's say an encore you recall filed its base rate application in may with a view toward reaching a final regulatory outcome. Later this year, but we've got Alan with us on the call and Alan perhaps it would be helpful. If you just provide some additional color around the process as we move forward from today.

To get to a good outcome that benefits to rate payers of Texas.

Yes, you bet, Jeff Thanks for the thanks for the question.

As Jeff said, let me just start by saying kind of where we are and then I will get to where I think we are going.

As Jeff said, we filed in May.

Right now we're in the discovery phase of the proceeding so.

<unk> been asked quite a few unit RFID werent responding to them now.

Kind of some important dates that are coming out of discovery will end on our direct case on the 22nd of this month.

Intervenor testimony is due on August 26.

And then staff testimony will be due on September 2nd with a hearing on the merits only if it's necessary obviously.

September 26 through October 5th So Thats kind of where we are right now where we're going.

On these calls many times over the last five years or so.

We have a very strong reputation in Austin and a strong reputation is built over years and years of doing the right thing and being able to get along and work with our constituents and our state and staff.

And find solutions for difficult problems, including rate cases, and so we have a history.

Finding good outcomes for these rate cases that benefit our customers and our state your top market in our company.

We will very soon once they they've asked the questions that I need to ask.

Engage them and serious settlement negotiations and we have done in the past we know how to do it.

But thats kind of where we are now where we're going I feel very good about our case I feel very good about our relationships I feel very good.

Our history and the manner in which we engage these the stakeholders in the settlement discussions.

We'll work very hard to try and make that happen in the near future, but right now we're still in the discovery phase. So that's kind of a summary of where we are thank you.

Thank you Alan.

Okay, Great appreciate all the color. Thanks, so much.

Thank you.

Yeah.

And we will take our next question from Nick Campanella with Credit Suisse. Please go ahead.

Good morning.

Good afternoon, everyone nice to hear from you I guess I'll just I'll keep the question is gone.

With Alan and Encore.

We've seen a lot of folks.

Service territory to Jason Tier is kind of talk up their load forecast.

I know that the board meets an updated capital plan higher virtually.

And Nick the reason that's important is I think there is an expectation that the current $15 billion capital program. When it gets revisited on the board with Trevor and I are later in the fall. It has an opportunity just to meet growth for that budget to be increased I don't want to get ahead of our board decision on that but secondly, Alan maybe talk about the work that your team.

Is doing beyond just meeting kalpoe growth and how that might play into the fall.

Yes, Jeff I appreciate the question again.

I'll start with just what we're seeing on the growth side to your point.

The state <unk> to your point see just very high demand for our services.

And very strong growth, both organic and demographic growth.

Still seeing 500 people a day move here.

Are seeing corporate relocations now the most fortune 500 companies in any state.

And we're seeing just really large industrial expansions like Samsung and Taylor Ti <unk> in Sherman things like that so our kind of growth statistics I know.

As covered in our earnings release and in <unk>.

Trevor mentioned them as well.

In his presentation, so I'm not going to I'm not going to go into deep detail, there, but suffice to say.

We are on a very strong path as far as print of Cisco.

Including not independent of what we have in our press release, just a couple of other factors.

In June .

We received the largest request for service to new subdivisions in our company's history. So that's one.

And then two for July are served new requests are up about 40% above what we had in our forecast which were already very strong. So the outlook on the printer side is very positive.

Transmission is as stated.

In our materials.

Historic record highs.

And then we continue to see just incredible demand out west.

Our need for investment as we continue just to see new peak after new peak on our Culberson Lou on the far West, Texas whether zone.

And then very very similar growth at Culberson on our standing area stand alone that serves the Midland basis.

So switching back from that to the Capex.

So while yes, we are going into October is kind of traditional load growth the growth of the state of Texas. All the things. We traditionally talk about on these calls I think what would make this one potentially slightly different.

Jeff alluded to it is I think we are going about the exercise this year and the team has been working very hard on this on seeing give.

Given some of the extreme weather that we've been seeing over a period of years now from Yuri to all the things we're going through in ERCOT. This summer.

We feel we have a real need.

Which is already causing pressure on our plan, but then we have the other piece, which is what do we want to do.

And ensure that we provide the best customer this customer service. The most reliable service that we can to our customers given some of these extremes shifts in weather that we're seeing and just the need to address that on our system. So yeah. Our October four.

Org meeting will probably be a little more expansive when we talk about capex than it has been in the past and.

And I think thats potentially going to create a lot of opportunities for investment on our system.

Thanks.

Thanks, a lot.

Great I guess just more capital allocation question. Two is you had that you put the six to eight plan out there at the beginning of the year and you realize a lot of momentum on this LNG business. Since then and as you kind of think through all these financing considerations should we still be thinking about the same level of buybacks here that was outlined on the fourth quarter of two.

One.

Yes, Nick I appreciate that question Trevor and I have talked a lot about it's something we'll continue to have conversations with our board about but I would give you a couple of takeaways here one is buybacks and dividends have been a foundational part of how we thought about capital allocation for a long period of time.

Since last summer that we've had roughly one point to $5 billion of shares had been repurchased at a price of roughly $1 32 and at the time at each juncture cost the way, we viewed our stock being undervalued and repurchases Nick as an effective tool to create value for our owners given.

Where our stock is trading today it would be.

Clear we continue to believe our stock is undervalued, particularly given the growth opportunities there'll be an outline of today's call and some of our materials relative to our peer group.

As we go into the fall Trevor will lead the team and revisiting our overall capital allocation strategy to evaluate opportunities for share repurchases in the future, but youll also evaluate those options against some of the new capital projects that we'd likely expect to move into our investment horizon. This exercise Nick is done every fall.

The view toward driving maximum long term value to our shareholders.

Yes.

Alright, I appreciate that have a good day thanks Nick.

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

Good morning, Julien Hi afternoon, Jeff.

Thank you.

So Jim.

Let me clean up on a couple of things.

Baseball metaphor here.

Just with respect to <unk>.

Taxes in IRI legislation here any thoughts on how that breaks up across the businesses here. If you can just super brief here I get it's preliminary.

Dreamliner permitting has been raised in this bill it may be separated Julien as part of a companion Bill we think that makes all the sense in the world in terms of the minimum book tax issue. Trevor you will go ahead, and just kind of address how we're looking at that sure Jeff Hey, Julien Hey look on the initial assessment of what we're looking at right now we think the earnings.

Impact will really be de minimis or nonexistent on an earnings standpoint, and then from a cash tax impact.

There may be a real slight cash tax impact, but very manageable. So I think overall, we think the way it's drafted right now.

<unk> it's <unk>.

Very easy to work through.

We looked at it Julian against our $36 billion capital program and whether the Bill goes forward. It doesn't go forward, we don't see it having a material impact either way.

Sure.

Excellent. Thank you for being here.

And then just going back to Port Arthur here again, we're just trying to sharpen our pencil a little bit and I get that its preliminary conversations with bechtel and any number of other parties here, but how do you think about the cost of that project here again, we're looking at a backdrop inflationary in a holistic sense, obviously greenfield site any updated sense at all just to kind of.

Frame the value proposition here.

Yes, I'll give you two things to think about because we havent publically announced costs either for Cameron or for Port Arthur but Cameron because of the brownfield projects that will also have some debottlenecking benefits associated with it we think it's going to be the one of the one of the lowest per unit cost projects built in the world now obviously, we need to get some work done here, it's still competitive.

Process, but we feel very very good about the cost structure that is in addition to the base project at Port Arthur is a Greenfield project. The good news both of these are in the Gulf. Thank you can kind of look at comparables or what other things are costs in the Gulf region, but the good news is we've got a world class EPC contracts, we're working with I cannot be more excited about.

Our relationship with Conocophillips at a call with Ryan Lance yesterday, the CEO I think they've done 12 different LNG projects in the world, they're going to bring a lot of value and expertise to our partnership I think between us and Conoco Phillips in Battle, we have an opportunity to get to the right cost structure.

Got it so leaning on your partners here for some of that and in fact do that and then just when you think about the SBA and just aligning this after the even the first half of 'twenty three as you alluded to a moment ago. When do we need to start to see that announcement I mean, it seems like you also have some equity sell downs coming is that part of the update this fall here that you've kind of alluded to.

When you think about putting everything together Trevor maybe.

No I think what we talked about is we've got a.

A series of work streams underway at Cameron those work streams are a little bit more discrete we've got a fair amount of work to be done yet on port Arthur and I think what we're saying is we probably cannot be more excited Justin Julian about where we're at right now thus far in the year about port Arthur but I think we've got enough work streams ahead of us what we want to do is Corey.

Graph that through the lens of creating a lot of value and I just want to make this comment too which is.

We're running this business for utility shareholders right. So we have a defined view about our strategy investing in T&D type assets that have low risk and theres a lot of other opportunities in the LNG space for people that wont be commodity exposed or take construction risk our job is to make sure that we risk adjust these projects and put them.

Cash flows in a box they look substantially similar to our utility cash flows and thats. The type of work the team will be doing as a choreograph those work streams to make sure. When we come back later in the fall we can give our investors a very clear view of how we expect to execute.

Got it alright, thank you guys.

Yes, Justin and LNG on the mine.

Yes.

Yeah.

Okay.

And we will take our next question from Alex <unk> with Wolfe Research. Please go ahead.

Great. Thanks for taking my question maybe.

Maybe just another one on LNG.

The discussions about maybe essentially electrifying.

The terminals.

You see that a little bit of a kind of a benefit as youre talking to European parties off takers potential off takers is that is that important to them.

And then maybe.

If you could elaborate a little bit more just in terms of.

How you think about that.

The <unk> development.

Mentioned that the tax credit would be a higher tax rate is obviously, a good thing but maybe.

Just thinking about permitting and such being a little bit owners right. Now do you think there may be a way through permitting reform to simplify that as well to make that kind of more.

Kind of where likely potential.

Yes, thank you for those questions Alex.

Address the first part of your question and pass it to just to talk about some of the carbon sequestration opportunities, but let me go back to some basic tier.

A little bit over 15 years ago, <unk> was a big energy company right, we had a big commodity desk.

One of the things we've tried to focus on as part of our strategic work with our board of directors, particularly over the last five years was our transition to an infrastructure company and we have a decided view that infrastructure, namely continued investment in the grid network will be a big part of how we support North Americas continued economic expansion and what we like about.

LNG business every one of our facilities in California, and there may be a couple of limited examples around our compressor stations.

Source renewables to power those facilities.

And or our renewable green tariffs from the from the local utility in Mexico, we are helping the government move away from oil fired generation to natural gas generation and we're kind of a top three or four renewable developer there so going back to your specific question.

Cameron, we think theres an opportunity for the expansion to be built on the basis of electric drives we actually delayed the projects somewhat to make sure that we can be more competitive and yes. It does help us with the Europeans, but it's actually intrinsically aligned with how we think about our own business. So certainly the Europeans like the fact that we're looking at certificate and over a long.

Longer period of time upstream emissions, including where we get our source our natural gas and from an operating standpoint, if we can power those facilities with electricity that over time is increasingly decarbonize, we think thats a plus over a long period of time I actually think the United States will be a competitive leader in being able to.

Source and deliver LNG.

On a more cost competitive basis, but also on the basis of <unk>.

Our reduced emissions profile. So the second part of your question as the opportunity to sequester carbon again aligned with my prior comments, but may be just that you could talk about.

Our approach on the sequestration side, yes, Thank you Jeff.

Yes, Alex if you think about hackberry.

We're very excited about that opportunity in.

In that light in the third quarter up 21, we filed for our classics carbon injection well permit with EPA you talked about permitting reform I do think it's early stage for EPA to consider these projects and we are doing all we can along with the industry to help support that process and to make this process <unk>.

And to make sure I have all the right factors are considered.

And also other design and operational changes that will make our projects better.

Great. Thank you.

Thank you Alex.

And we will take our next question from Jeremy Tonet with JP Morgan. Please go ahead.

Hi, Good morning, it's rich Sunderland on for Jeremy Thanks for the time today.

I wanted to follow up on the reduction Act questions, California already has some leading environmental goals, but I'm curious if you see the potential changes in the state that could come from greater federal support via the legislation.

Look I think the good news is California has been.

A leader in the environmental space for three or four decades, and I think that one of the great things about the IRR Bill is particularly its support for electric vehicles. So I think anything we're doing to help the United States continue to Decarbonize, who is a positive I think youll find a lot of collaboration between California policymakers.

Now the policy alignment that's embedded in that bill, but I would again step back and say look it's in draft form today, a lot of different folks who have taken different views and perspectives on it. We think it has a number of positive attributes, but I think there'll be some changes and revisions going forward. So we're going to continue to evaluate it in its current form.

Understood I appreciate the commentary there and then separately. This has been asked a couple of different ways, but I just wanted to circle back to the Bechtel work.

Can you just provide background on on when that started in terms of finalizing the EPC refresh on port Arthur and just walk from the start of that process to the end of that process and when that should end.

Look we've been working with bechtel for a number of years.

From time to time, you'll get updated cost structure and processes from them. It's an open book process that we're working on with them right now and all you're really talking about is a refresh of breakdown to the cost based upon their earlier work and Thats something that is ongoing this fall.

Got it thank you very much.

Tim.

Thank you.

And we will take our next question from Michael Levine with Goldman Sachs. Please go ahead good afternoon Michael.

Good morning, Jeff. Thank you guys for taking my question.

Actually I have a couple of them I apologize just one labor labor and wage inflation, we saw Socal, Ed recently make a Z factor filing we havent actually seen one of those it's been a while in California talking about incremental cost in between rate cases to get line can you talk both for the California utilities.

And the Texas utility and maybe how they are different in terms of just what youre seeing in O&M expense escalation.

Well, what we tried to do is when we lay out our five year plan, Michael each fall, we adjust that for our expectation of course, an O&M and capital.

Today, we're the good news is as you think about other participants in the marketplace.

They've had rate cases, a year ago or two or three years ago I haven't been following the Edison case, but what's most important for US is we're actually filed all three of our rate cases in may of this year and Alan outlined it earlier today, but Alan expects to get through his rate case proceeding this year with a good outcome, we hope and then <unk>.

<unk> did account for this I think one of the thing that really is a benefit to sempra and its really a tailwind is regulated to bring down on all of our cost really in the next six to 12 months. The other thing which is related to your question, which I wouldn't mind touch on Michael is the interest rate environment, which obviously impacts all three of these businesses given how much theyre levered.

To that.

Trevor and his team have been actively managing our exposure to maturities and variable cost borrowings. So think about this as an example, since 2017, we've been able to reduce our debt to cap from roughly 46% to 47% today and we don't have any maturities between now and 2027.

At our utilities, we have limited near term maturities all of which are in the regulatory mechanisms in California and Texas.

Or infrastructure, you'll recall, we've got a stand alone bank had done a lot of recent financing. They all have very limited near term maturities. So, we even with KKR and Audi and race <unk>.

In the last 12 months from that business. So as you think about our cost structure. It will be updated in our current pending rate cases things like interest rates, which we are following closely we think we're in great shape.

Jeff just a cleanup.

It was 56 two.

Kevin Yes.

46.

Understood and this one may be for Trevor just curious how you're thinking about that.

Look on core Capex may go up just given the new connect and the demand trends, which have been phenomenal in that part of taxes for those parts of Texas.

And you've already got.

Capex lined up as part of the California rate cases.

It doesn't seem like LNG capex with dramatically next year would probably be more in 2024 and beyond that a lot of that would be self funded down at the again at the operating subsidiary.

Youre sitting with $2 billion of cash on the books you have almost no short term data or a very limited amount of short term currently maturing debt on the books.

Yep.

What point do you actually think you are getting underway.

Well, obviously, we've got a record capital program of $36 billion. I think you can take from today's call as we go through the process. This fall.

The over under when we come back on our February call next year I would certainly take the over we.

Feel great about our balance sheet, but Trevor maybe as you think about where you expect the oncor capex ago. How are you thinking about managing the balance sheet going forward, Yes, sure, Jeff and Michael just with regards to the balance sheet. That's kind of just a flash in time and so a lot of that those cash proceeds that we got from the sale of the 10% to audio.

Our sitting on the balance sheet there.

And again, we have deployed that cash.

Now to pay down certain short term debt since that period of time, but again as Jeff said, we've got an opportunity to continue to deploy capital.

Across the three businesses, but in particular, we're seeing a lot of opportunity at encore Nf decal utilities to continue to harden, our systems and bring growth to to their various resources in there.

Rate base areas and so we feel good about deploying that capital into the Capex plan and as we continue to see Capex, most likely going up in the near term.

That will be a way to continue deploying that cash.

Got it and can you remind me Trevor does non core generally dividend cash back up to the <unk> holding company or the noncore retain that cash to finance its correct.

No encore will distribute.

Certain amounts of cash back up under the LLC agreement that we have and they do it both in dividends.

Dividends with excess cash as well as tax payments backup to us. So that we can cover the tax the cash tax payments on their earnings right now they do have a lot of capital in front of them and we continue to see us deploying cash into that business, but we are getting at a minimum cash tax payments on a quarter.

Basis back from from Encore.

Encore is largely self funding from the temporary hold absolutely, yes encore is self funding.

Okay, great. Thank you guys much appreciate it congrats on a really good quarter.

Hey, Thanks, Michael.

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

Hi, everybody Hey, Ryan.

In terms of.

LNG cargo diversion for the quarter can you comment on how impactful that was during the second quarter and if you expect any benefit from that have a b a day contractual opportunity that you have into the future quarters and beyond.

Yes. Thank you for the question Ryan I'll pass it to a city alumnus and let <unk> respond to you.

And after tax earnings so that's kind of what you see.

Cargoes come in or not really isn't important.

The contract itself is indexed index too.

Rice.

Samsung what that was during this quarter.

And we give you disclosed on an annualized basis. So I mean, if you want you can kind of split up that way, but that's kind of how the contract works because it has seasonality to it.

Okay.

And then it was briefly mentioned the hackberry TCU asked opportunity the extent inflation reduction act were to pass is that enough.

To recap these there or would there be any mitigating.

Hurdles to cross to move that project forward.

Yes, I appreciate the question obviously similar to some of other projects, we're continuing the process there from a permitting standpoint.

We've recently made some progress with the participation agreement with a camera and partners.

Okay. Thank you for taking my question.

Thanks, a lot Ryan.

And we'll take our next question from Paul Patterson with Glenmark. Please go ahead.

Hey, good morning.

Hi, Paul.

So I wanted to touch base with you on.

The provision.

And in the Senate for methane it sounds like you guys are pretty well positioned in terms of.

Your own.

Operations at least.

Your opening comments et cetera, but being ahead in California.

Is that correct is that a correct assessment and then b.

Just wondering is there any potential opportunity.

Assuming thats correct to perhaps.

Engage in an activity.

We the other parties.

Perhaps willing to that stuff.

Any comments on that.

So the targets Thats the stage set for 2030. So this is going to be an issue of innovation new technology, how you kind of improve your operational processes.

Natural gas Paul has a long term role in the economy here in the United States and globally.

I think they will not be an energy transition without energy securities a base fuels like natural gas are imported but if we don't get about the business about making sure that we don't have fugitive emissions were going to handicap. The long term viability of natural gas as being part of the energy mix. So there.

There's no question that California has led in this area and the second part of your question is kind of interesting I do think there'll be a very there'll be a number of very large business has built over the next decade, a decade decade, and a half around carbon trading and companies that can assist others and reducing their carbon footprint because remember at least today.

The goal is net zero by 2050, so the ability to basically lower your admissions get credit for it offset other emissions will be really important and I think thats a business case that many people will be evaluated.

Okay, Great and then sandy.

San Diego I think earlier this week past.

Sure.

Carbon plan that dealt with the request of electrification.

Gas sort of an anti fossil fuel sort of thing I'm just wondering how you guys are.

What you guys think of it.

And what it may or may not mean for you guys.

Yes, yes, I'll give you a couple of thoughts one is I made this comment earlier, but we're an infrastructure company right and the beautiful thing about that is in California will go out and purchase of fuel at a certain price where there'd be electricity and natural gas will write a really highly efficient system and we pass that cost on to the customers without markup, so whether we're selling more NASA.

The state will be agnostic as to whether it's a green elektron or a green.

Our molecule so.

In San Diego, similar to La and other parts of the state.

<unk> seen a precedent where they'd rather focus on electrification and look at <unk>. We are in both right. So if you reduce capital investment in natural gas and you ought to increase capital investment in new projects electrification again. This is not a financial impact to us what we worry about in the process of whether people are inadvertently.

Driving up the cost without the benefit that they might think from that but look we're supportive of where the city wants to go and I think one thing that's unique about our business, whether we're in Louisiana, or Mexico, or California, we're strongly aligned with supporting policymakers and making sure. We're advancing services for consumers. So we don't tend to be.

Struction. This on these types of issues, we tend to try to find a way to help them meet their goals.

Okay, great. Thanks, so much have a good one.

Thank you Paul.

Yes.

Okay.

Yes.

Okay.

Hello.

And we can now take our next question from Craig Shere of Cowen. Please go ahead.

Hi, Ian.

So two LNG related questions first.

Things Youre focus more mid scale in Mexico.

Now there is a variety of drivers for that but.

But we are hearing that nickel inflation is weighing more on the large scale design versus Midscale and was wondering if you have some thoughts about inflation optimal designs in the U S.

As we look past Camryn stage, two and Port Arthur stage, one and then.

One more.

These are.

Particularly vis a Pacific Cowen Salina Cruz are greenfield projects and number two we tend to try to avoid adding pipeline calls to a project. So.

Mr Pacific, Okay, So we get to leverage existing pipelines and the acre phase one case, we had an existing pipeline. There are no new tanks. For example at Cameron when you move to the larger scale projects. So we're not impacted but nickel, but thats one of the reasons that Youre question is important as it is not just Nicole if there's inflationary pressures.

Across the entire supply chain and that's why we're getting the work done what's your EPC contractors to have your calls refresh and make sure you marry those up with your HOA and SBA is to preserve your economics are so important. So you raised an important issue and it's one that we address an overall cost structure.

Great and.

My last question.

And.

Preface this by saying I'm not saying that.

A probable scenario.

But would you view it as crazy to think we could have for LNG.

In 2023, totaling perhaps 25 to over 35 on CPA, combining camryn stage to port Arthur and some combination of a second and third Mexican liquefaction project.

Well Craig I certainly appreciate your optimism and I can tell you that.

The folks that I spend time with particularly in the international oil and gas community I think there is a growing recognition that the.

We're going to be very disciplined about how we think about progress going forward Justin did a good job of articulating the various stakeholders, who are working with US right now our primary focus is on making sure we deliver eka phase one on time and on budget. It takes up a lot of justin's attention that's our top priority.

On the marketing side of it and it's our job to tell.

The additional time to make sure we line up the economics manage their risk and do it in a way that creates a win for our utility shareholders.

Okay.

Thank you.

Thank you for joining us.

We will take our next question from Anthony <unk> with Mizuho. Please go ahead.

Yes. Thanks, so much for taking my question, hopefully real easy one and I do wish you Padre as luck after the big signing earlier this week.

Yes.

Okay.

On and off take agreement for the LNG, just I guess I just wanted to understand is there a significant competition from the LNG terminals and kind of look at it from the off taker signing other than price.

Else would've purchaser purchaser of the LNG use to pick.

Terminal a versus terminal b are there options.

Yes, well, let me just start by saying that a lot of times people tend to focus on.

The a versus company b versus Sempra and either way I try to think about it is the United States has a big role to play and you're out there competing as a nation against South Australia, and the Qataris, North, Russia, Mozambique and other locations.

As you get down into the United States, you start thinking about competitive advantages one of the things that has a lot of people are focused on is the relative advantages of having a west coast facility that can shorten the transit time on the high seas from roughly 25% or 26 days to go from the Gulf Coast through the Panama Canal to Asia.

Whereas a west coast export facility can do that in 10 or 11 days.

In the Gulf Coast, It really is well positioned to obviously to serve Europe and as you talk to those parties a couple of things that creates an advantage for us number one.

We're a $50 billion equity value company, we've got a strong balance sheet, we have been in the gas business for over 100 years, we have a lot of established relationships. If you are talking with a utility in Europe . Those are important to them that we've got that utility background that strong balance sheet.

We've got a track record right we've been in the LNG business for close to 17 years now we're not a new entrant. So I think scale stretch the balance sheet track record is important and obviously, having Cameron is one of the flagship projects in America. Today is a really really important part of our reputation and we take the operational excellence at that facility.

<unk>.

One of our top obligation so good luck.

This is not about talking down the competition, we've got a pretty unique footprint and that's being recognized today, where we market. Our projects. It's created a lot of excitement around our opportunity to bring some of these the market.

Great. Thanks for taking my question.

Hey, Thank you for joining us.

And that concludes today's question and answer session.

At this time I would like to turn the conference back to Jeff Martin for any additional or closing remarks.

Sure I'd, just like to conclude by thanking everyone for joining US I know is a busy day with a lot of other competing company calls if there are any follow up items. Please reach out to our IR team with any additional questions. I also want to mentioned Trevor and Glenn look forward to seeing many of you who are attending the Citi Conference. Later this month I think thats on the 16th and 17th in Las Vegas. This concur.

<unk> our call.

Thank you for your participation you may now disconnect.

Q2 2022 Sempra Energy and Oncor Electric Delivery Company LLC Earnings Call

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