Q3 2024 Sempra Earnings Call
The New Year's Eve,
The End.
Cedric Executive Vice President and Chief Financial Officer.
Justin Bird Executive Vice President and Chief Executive Officer of Sempra infrastructure.
Allen Nye, Chief Executive Officer of Encore.
Caroline Winn, Chief Executive Officer of SD G&A.
Peter Walsh, 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 will 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 statement, we make today.
The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K and 10-Q filed with the SEC.
Earnings per common share amounts in our presentation are shown on a diluted basis, and we will be discussing certain non-GAAP financial measures.
These refer to the presentation slides that accompany this call for a reconciliation to GAAP measures.
We also encourage you to review our 10-Q for the quarter ended September 32024.
I'd also like to mention that forward looking statements contained in this presentation speak only as of today November six 2024, and it's important to note that the company does not assume any obligation to update or revise any of these forward looking statements in the future.
With that please turn to slide four and let me hand, the call over to Jeff.
Jeff: Thank you Glenn and thank you all for joining us today at Sempra, We believe the growth narrative for energy infrastructure continues to strengthen with economic expansion and rising electricity, Japan. The United States is at a critical juncture, where expanded investment is needed to upgrade and modernize its energy networks now.
Lastly, we face mounting challenges in the form of agent infrastructure extreme weather events and increased demands being placed on finite dispatch will generation resources.
Jeff: These trends confirm a growing need for new infrastructure investments to improve the resiliency of our energy networks, while at the same time, extending the grid to new and diverse sources of energy.
Consider that by 2030, United States will need to have invested over $600 billion in transmission and distribution and that forecast will likely prove conservative due to a series of sector tailwind here as an example.
Jeff: Today, Texas as the eighth largest economy in the world and accounts for the highest level of both consumption and production of energy in the U S.
Jeff: The International Energy Agency is now estimating that by 2026 global AI and data centers will require nearly twice the amount of electricity that the state of Texas currently consumes each year. So.
Jeff: So demand from digital infrastructure is another important growth driver for our sector.
Jeff: It also flags what I believe is an underappreciated investment thesis at Sempra.
Jeff: Here, we believe the best low risk and high growth play on AI as high voltage transmission Alan will discuss this later in today's call, but theres a significant queue of over 350 gigawatts of generation and storage waiting to come on the grid in Texas.
Jeff: The critical success factor there is the speed at which companies like encore can build modernize and extend the high voltage transmission grid, that's exactly why the Texas legislature passed a bill last session to shorten a permitting timeline for new transmission investments not only is oncor expected to build more high voltage transmission Mr.
Okay than any other company in America encores regulated transmission investments officially go into rates with tracker filings being made twice annually. So the key takeaway for our industry is with economic expansion and higher expected demand growth, it's reasonable to believe that sector EPS growth will trend higher than historical norms.
Jeff: From my perspective to outperform the peer group in this environment. It requires four key advantages number one a clear and executable corporate strategy.
Number two exposure to sustained growth in large economic markets with constructive regulation.
Jeff: Three economies of scale and operations technology and access to capital and number four a strong track record of disciplined capital allocation.
Jeff: Thats why in this higher growth environment, <unk> is well positioned to outperform its peer group, we have the leading utility platforms in the two largest economies in the United States, but.
Texas, and California, and we also own an infrastructure business with scale.
Jeff: And projects, providing secure and cleaner forms of energy targeting higher equity returns in our utilities and contributing important cash flows that support our balance sheet and capital campaign.
Jeff: Currently we are in the middle of our fall planning process and one of the early takeaways network and so we have improved visibility to a growing portfolio of investment opportunities.
Jeff: Next turning to our financial results I am pleased with the progress. The company has made in the third quarter and throughout the year as we continue to wait a final <unk> decision in California earlier. This morning, we reported adjusted EPS of <unk> 89 for the third quarter and year to date adjusted EPS of $3 12.
Jeff: As a reminder, these results do not yet reflect the California <unk> proposed decision, which is pending before the commission.
Jeff: Assuming the final decision is received before year end the earnings impacts will be applied retroactively to the beginning of 2024.
Jeff: As a result, we're affirming our full year 2024, adjusted EPS guidance range.
Jeff: 125, EPS guidance range and projected long term EPS growth rate.
Jeff: Next I will turn the call over to Allen, who will take us through recent developments at Encore, which I continue to believe has the best growth story in our industry. Please turn to the next slide.
Allen: Thank you, Jeff I'm excited to share another update on the remarkable growth opportunities we have at encore.
Jeff: To start with.
Jeff: <unk> latest short term energy outlook forecast, 5% load growth between 2024, and 2025 across all our card customers.
Jeff: And longer term ERCOT expect power demand in Texas to grow by 80% through 2030.
Jeff: From the recent peak demand record of approximately 85 gigawatts.
Jeff: Moving to our operational achievements in the third quarter encore built rebuilt or upgraded over 800 miles of T&D lines increased our premise count by approximately 19000 and received a 50% increase in new large C&I.
Jeff: Quest, turning to the $24 billion five year capital plan that we announced earlier this year.
Jeff: We continue to see a growing portfolio of new investment opportunities.
Jeff: As Youll recall.
Jeff: We filed our inaugural system resiliency plan or SRP earlier, this year and reached an unopposed settlement in August.
Jeff: We continue to advance our filing through the regulatory process.
Jeff: As a reminder, the SRP is incremental to our current capital plan.
Jeff: Encores SRP investment will total nearly $3 billion of capital expenditures designed to reduce risk and over $500 million of incremental O&M expense with a majority of the spending to occur in calendar years 2025 to 2027.
Jeff: If approved by the PUC team, we expect to start incurring that spend before the end of the year.
Jeff: We discussed the SRP with the PUC T at its open meeting a couple of weeks ago.
Jeff: And we expect them to continue their consideration of the plan and settlement.
Jeff: At their meeting on November 14th.
Jeff: We've also developed a leading wildfire mitigation program in the state of Texas and continue to leverage the expertise and insights gained from the Texas Forest service and <unk> among others.
Jeff: In addition to the SRP.
Jeff: New investment opportunities are being driven by large C&I customers looking to connect to encore system.
Jeff: The continued increase in interconnection interest and commitments comes from large C&I customers spanning multiple diverse industries located throughout Oncor service territory.
Jeff: We are currently executing our fall planning cycle and alignment with Sempra.
Jeff: To assess future capital projects, and we will be announcing our new five year capital plan on the fourth quarter call given ongoing economic expansion in Texas and significant new customer growth plus transmission anticipated within ERCOT.
Jeff: We're expecting a significant increase in our roll forward five year capital plan of anywhere between 40% to 50% from our current capital plan.
Jeff: In Texas, our growth opportunities remain robust and the regulatory framework supports critical new investments to expand our system and improve grid resiliency and reliability for our customers and across our management team, we couldnt be more excited to support the growing energy needs of our customers.
Jeff: <unk> turned to the next slide.
Jeff: Next I'd like to turn your attention to another major tailwind positively impacting on course anticipated service territory growth.
Jeff: Over both the intermediate and long term.
Jeff: Today ERCOT projects demand growth in the Permian basin to quadruple to $26 four gigawatts in 2038 from the 2023 actual level of six six Gigawatts. This represents an impressive compound annual growth of nearly 10% proving once again that the <unk>.
Jeff: Region has some of the strongest growth prospects in the nation.
Jeff: In early fall the PCT approved ERCOT Permian basin reliability plan, which permits all common local projects totaling approximately $4 billion.
Jeff: To commence immediately.
Jeff: Irrespective of the voltage level that the commission will eventually approve for the needed in port paths, we expect encore to capture a significant portion of the new capital investment opportunities given our current operations in the Permian Basin and ERCOT preliminary recommendations project assignments will be approved.
Jeff: By the PUC.
Jeff: And we're not standing still as we've already begun preparation for the transmission projects expected to be assigned to encore will be filing the necessary certificates of convenience and necessity for those projects beginning in early 2025.
Jeff: And we will continue the necessary make ready work throughout the year.
Jeff: These proceedings are expected to take approximately 180 days under Texas law.
Jeff: In terms of a timeline the Permian plan provides that most of our local projects need to be in service by 2030.
Jeff: With all projects, including the important pathway projects completed by 2038.
Jeff: The full plan calls for a total investment of at least $13 billion in the Permian Basin territory, specifically, the Permian plan proposes 4 billion for local projects and another $9 billion or more of transmission capex at either $3 45 kv or <unk>.
Jeff: <unk> hundred 65 kv voltage levels. The PCT is expected to make a final decision on $3 45 kv or 765 kv import options by May 2025.
Jeff: Please turn to the next slide.
Jeff: Longer term. It is also important to note that ERCOT has provided a preliminary vision of a modern statewide extra high voltage or E. HV grid at this stage. It is preliminary and remain subject to the plan being finalized and obtaining customary reg.
Jeff: <unk> approvals.
Jeff: But assuming this statewide EHP initiative is implemented.
Jeff: Encore expects to construct a significant number of these projects due to the current number of endpoints owned by Encore. These projects when taken together.
Jeff: Would add major transmission lines across the state.
Jeff: To connect new sources of generation.
Jeff: Increase overall electric load serving capability in.
Jeff: And improve system resiliency.
Jeff: As currently envisioned.
Jeff: He is one of the EHP initiative will include the Permian planned 765 kv lines as well as connections in eastern and Central Texas, whereas phase two would include connections in the Texas Panhandle and Rio Grande Valley.
Jeff: Now please turn to the next slide where Karen will walk through business updates at Sempra, California, and Sempra infrastructure.
Karen: Thank you Alan.
Karen: First I'd like to provide some background on the proposed decision we received in our general rate cases last month.
Karen: The proposed decision increases the revenue requirement in 2024 by 10, 5% for Estee, Janie and 14, 8% for Socal gas.
Jeff: Moving to rate base. The PD recommended 2020 for authorized rate base of $8 $4 billion for SD Jeannie and 12 8 billion for Socal gas.
Jeff: There are however, critical aspects of the PD that require additional work.
Jeff: Particularly in areas that impact our ability to manage the system safely.
Jeff: Examples include needed investments for integrity management of our natural gas distribution system and selective underground electrical system support wildfire mitigation efforts.
Jeff: On the positive side, you'll recall that our guarantee addresses a broad range of topics that are important to the growth of our business.
Jeff: For example, the PD adopted certain infrastructure and technology capital projects that were not included in the base attrition in your percentages are.
Jeff: Also important because it will be placed in rates upon completion.
Jeff: Also as a reminder, the proposed decision makes available a process that allows for certain changes to be considered before a final decision is issued.
Jeff: On November 4th the CPUC heard oral arguments the records of Whats Youre open to the public.
Jeff: S T J in Socal gas as subject matter experts are engaged in the regulatory process and working collaboratively towards reaching a final outcome that's beneficial for all stakeholders.
Jeff: During the quarter, our California utilities also received a final decision in phase II of the cost of capital proceeding.
Jeff: Which has a negative impact on the CCM for 2025.
Jeff: This one time formulaic modification lowers ROE by 42 basis points and reduces the authorized adjustment percentage for future triggers to 20%.
Jeff: The silver lining here is that in a declining interest rate environment such as the one we we now find ourselves then limits the magnitude of subsequent reductions in row and off several years.
Jeff: For planning purposes, I'd also like to note that we expect to file our cost of capital application for the years 2026 to 2028 and March of next year.
Jeff: Turning to the federal Energy Regulatory Commission <unk> submitted a new T O six filing on October 30th.
Jeff: We updated our formulaic rate and made the case for a constructive improvement and the authorized ROE to 12, 5%.
Jeff: This consists of a base ROE of 11, 75% plus a 50 basis point adder.
Jeff: We believe this proposal reflects current market conditions, and we look forward to working through the regulatory process to achieve productive result.
Jeff: Additionally, Zimbra, California, we're excited to share that the FTC service territory has seen electric demand growth.
Jeff: And new all time record peak demand of over five Gigawatts in September.
Jeff: This reflects growing demand from roughly a 160000 EV is connected to our system one of the highest EV penetration rates in the country.
Jeff: And from continued electrification of the southern California economy. Please.
Jeff: Please turn to the next slide.
Jeff: Trying to temper infrastructure, we continue to witness geopolitical developments around the world, which strengthened the value proposition of our infrastructure franchise.
Jeff: The U S is the largest exporter of LNG in the world and is a leader in the sector simpler infrastructure remains well positioned to supply new customers and European and Asian markets.
Jeff: As Europe continues to reduce its energy imports from Russia. We believe there is a growing need for stable lower cost gas supply.
Jeff: Would further drive demand for North American LNG.
Jeff: A few examples include.
Jeff: The EU has recently banned reexports to third party countries, taking effect in March 2025.
Jeff: Ukraine rejected a deal to extend Russian gas or Ukrainian pipelines beyond 2024.
Jeff: The EU is incoming energy Commissioner has intensified efforts to end dependence on Russian gas imports.
Jeff: A number of EU member states are demanding tagging of LNG by source as it enters its ports to further cut back on Russian LNG imports.
Jeff: And this is all on top of the major natural gas pipeline capacity. It was taken offline at the start of the war in Ukraine.
Jeff: Meanwhile, there are strong market consensus that Asian, LNG demand will continue to grow dramatically for the next 15 years with growth estimates range between 70, and 100% from 2023 levels.
Jeff: Much of this demand is tied to the displacement of more carbon intensive fuels, such as coal and refined products from the energy mix in emerging economies in south and Southeast Asia.
Jeff: As well as continued demand growth in China and India.
Jeff: Bottomline simpler infrastructure is well positioned to be a preferred provider to established counter parties seeking to match long term LNG supply with growing demand in Europe and Asia.
Jeff: Alongside these macroeconomic tailwind Cameron LNG phase one continues to perform well.
Jeff: Year to date the facility is already loaded 140, cargos and lifetime to date Cameron has now surpassed 840 cargos.
Jeff: Notably the current 2024 production level exceeds the average annual run rate implied since Sidoti.
Jeff: So we continue to witness strong and improving results from this facility.
Jeff: Turning to construction updates for advancing work on a series of major projects.
Jeff: Okay LNG phase one construction continues to make progress.
Jeff: The project is now focusing on finishing above ground piping installation and.
Jeff: And our timeline to bring commercial operations online and spring 2000, 2026 remains intact.
Jeff: Additionally, we're pleased to announce the expansion of the <unk> pipeline is expected to commence commercial operations before the end of the year.
Jeff: You will recall this pipeline is dedicated to support LNG exports and OCA.
Jeff: Port Arthur stages. One is also advancing as planned and is on time and on budget.
Jeff: Currently work is focused on piling dredging foundations structural steel and above ground piping installations.
Jeff: We also received a FERC letter of authorization for the Louisiana connector pipeline, which will provide feed gas into port Arthur from the Haynesville basin.
Jeff: Mobilization activities to commence building this pipeline have already begun.
Jeff: Moving to our development efforts at Port Arthur Phase II, the focus remains on finalizing off take arrangements and securing project financing.
Jeff: We continue to have discussions with potential off takers, we've made significant commercial progress to date and our focus now on selecting the right customer mix and improving our commercial terms.
Jeff: Most notably Saudi Aramco is our anchor partner on the project with a nonbinding HOA for 5 million tons per annum, and a 25% equity participation.
Jeff: As a reminder, we have an EPC agreement with bechtel to allow for continuous construction across both phases.
Jeff: We also continue to wait for our non FTA export permit, which we expect to be resolved next year.
Jeff: As a result, we're now expecting port Arthur Phase two development timeline to move ahead of the Cameron expansion.
Jeff: The timing of an FID decision for Cameron expansion is uncertain at this point, we continue to work with our partners on the optimal timing for expansion.
Jeff: And we've been in the past, we'll be very disciplined in our efforts to secure quality returns and mitigate risk to capital before making any investment decision.
Jeff: Please turn to the next slide.
Speaker Change: Earlier. This morning, <unk> reported third quarter, 2024, GAAP earnings of $638 million or $1 per share.
Speaker Change: This compares to third quarter of 2023, GAAP earnings of $721 million or $1 14 per share.
Speaker Change: On an adjusted basis third quarter 2024 earnings were $566 million or.
Jeff: Were <unk> 89 per share.
Jeff: This compares to our third quarter 2023 earnings of $685 million or $1 <unk> per share.
Jeff: Because the <unk> outcome remains pending our CPUC authorized base revenues in third quarter and year to date 2024 are based on 2023 authorized levels.
Jeff: This is important because assuming we receive a final decision. This year any true up will be retroactively applied to January one.
Jeff: Please turn to the next slide.
Jeff: Variances in the third quarter 2024, adjusted earnings compared to the same period last year can be summarized as follows.
Jeff: Temporary, California, we had $9 million from higher CPUC base operating margin net of operating expenses, including higher authorized cost of capital and higher regulatory interest income.
Jeff: This was more than offset by $52 million, primarily from lower income tax benefits and higher net interest expense.
Jeff: Turning to Sempra, Texas, we had $44 million of lower equity earnings from higher interest and operating expenses and lower consumption, partially offset by higher revenues from invested capital and customer growth.
Jeff: As simpler infrastructure, we had $36 million of lower revenues, and the transportation and renewables business higher O&M and lower asset and supply optimization.
Jeff: Partially offset by $7 million, primarily from higher income tax benefit and lower net interest due to higher capitalized interest.
Jeff: At Sempra parent to $3 million net change is primarily due to higher taxes, partially offset by net investment gains. Please turn to the next slide.
Jeff: To conclude our prepared remarks, I'd like to quickly summarize our key investment highlights.
Jeff: And energy needs to grow and evolve in North America, our commitment to operational excellence supports our focus on delivering safer more reliable and resilient energy and <unk>.
Jeff: Our position as a leader in North America is the largest economic markets gives us a unique opportunity to invest higher levels of capital and critical new energy infrastructure.
Jeff: Through the end of the decade and beyond.
Jeff: For general corporate purposes, and to finance, our growing capital campaign, we are establishing an aftermarket equity program of $3 billion.
Jeff: This will help us fund growth in capital expenditures in a timely and efficient manner, while continuing to maintain the strength of our balance sheet.
Jeff: After we received the <unk> final decision will be in an excellent position to roll forward, our fighter capital plan through 2029.
Jeff: We expect to provide that update in February on our Q4 call and in the interim we'll continue executing on value accretive investments to drive sustainable long term growth.
Jeff: Thank you for joining us I'd like to now open the lineup for your questions.
Speaker Change: Thank you. This concludes the prepared remarks, we will now open the lines to take your questions. Please limit your questions to one question and one follow up.
Speaker Change: If you would like to ask a question. Please signal by pressing star one on your telephone keypad. Please.
Jeff: Please make sure your mute function is turned off we will pause for just a moment to allow everyone to signal for questions.
Jeff: Okay.
Speaker Change: And our first question will come from Nick Campanella from Barclays. Your line is open.
Nick Campanella: Good morning, Hey, good morning, everyone or good afternoon, rather thanks for taking my question.
Speaker Change: Sure.
Speaker Change: So Jeff on your comments about demand growth in sector, EPS growth kind of trending higher than its historical historical norms.
Speaker Change: <unk> been growing EPS above the sector already and I just wanted to confirm that inclusive of all these items that you laid out in the capital side.
Speaker Change: Do you have line of sight to the CAGR like above above the six to eight range and how should we kind of be thinking about that as you kind of piece together all this capital thats coming down the pipe into the fourth quarter. Thanks.
Speaker Change: Thank you for that question Nick.
Speaker Change: We've had these conversations before but when you think about the period from 2000 to 2020, our sector had average EPS growth of roughly 3% now that changes from time to time and in recent years has been trending higher closer to four.
Speaker Change: I would take is going to happen is I think we're in a significant.
Speaker Change: Growth period for our utility sector, what some people refer to as a super cycle in other words, we expect to see growth through this decade and well into the next decade.
Speaker Change: Thank you you're going to see overall average EPS growth across the sector trend higher we have traditionally.
Speaker Change: Oriented towards 6% to 8%.
Speaker Change: Think there's kind of an efficient frontier there in terms of balancing that with a strong dividend policy and I think total return is very important to the utility investors that invest in this sector. So we're very comfortable with the 6% to 8% growth rate and I think the key takeaway from today's call is we certainly have a field of vision to a lot more off.
Speaker Change: <unk> in the future, we certainly will be working hard to exceed the high end of that range, but we're comfortable now with a lot of certainty about the growth backlog, we have that we can deliver that range or better.
Speaker Change: Thanks for that and then just quickly on the ATM.
Speaker Change: When do you think youre going to start to need equity.
Speaker Change: Is it this year or is it next year you were smart last year to kind of Derisked. The equity plan ahead of your formal Capex outlook. So just wondering if that's on the table again and that's it for me. Thanks.
Speaker Change: Yes. Thank you very much Nick last year, you'll recall that we provided a little bit of visibility on our Q3 call to increases in our five year capital plan at the central level and Youre correct, we followed up with a roughly $1 $3 billion secondary offering.
Speaker Change: What was interesting in our fall planning process this year.
Speaker Change: Both adjusted net worth Alan last week in Dallas at their board meeting they just have remarkable visibility to growth.
Speaker Change: It was important for us to signal to our investors that opportunity now rather than wait until the February time frame, we'll obviously give a lot of details in February but I thought it was important to do that and make sure that we're adding the ATM as an additional tool in our toolbox I think.
Speaker Change: Any of you have followed the fact that Atms have become much more common recently as companies seek alternatives to traditional offerings. So it separately, we just view it as another option for us sufficiently finance our business we've sized it at the $3 billion level I think the best takeaway for everyone is when we get to our February call. We are going to provide a full update.
Speaker Change: On a roll forward capital program, including Nic a sources and uses of funding it will.
Speaker Change: Also be prepared at that time to provide what I hope will be a robust view of 2026 guidance.
Speaker Change: Many thanks.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Shar <unk> from Guggenheim Partners. Your line is open.
Shar: Hello, Hi, Jeff how are you doing.
Jeff: Great Let me just.
Jeff: Quick one to follow up on Nick's question on the equity just on the $3 billion of ATM Couldnt get a sense is that fully funding your anticipated capex increases or could there be more equity coming, especially as we're thinking about potential funding needs that at <unk> as that ramps up thanks.
Speaker Change: Yes. Thank you for the question short of what we do as we go through a very comprehensive bottom up process in the fall, where we force everyone's growth plans inside a simpler across all three platforms to compete for capital and as you've seen in the past the lion's share of our five year capital program goes through our U S utilities in California, and Texas.
Jeff: It takes between.
Jeff: Excuse me 90, and 95% of our overall capital plan goes through our utility so what we've done at this early juncture. It's really provides visibility to the fact that there is a significant increase of capital that will be coming out in encores plan, what we announced in February.
Speaker Change: Thought it was appropriate to make sure. We had this additional tool in our toolbox, we're not prepared to talk about when we would use it but I do think we will provide a lot of detail on our February call.
Speaker Change: Okay, but the $3 billion is the $3 billion, we shouldnt I guess assume it could be higher they exactly exactly.
Speaker Change: Exactly we feel we feel very comfortable with $3 billion.
Speaker Change: Excellent Okay, perfect and then just in terms of the proposed decision in California, just from a planning parameters standpoint does the PD present, a headwind versus your midpoint expectations and sort of given the recommendation for lower attrition year revenue increases could you see capex pulling back at Socal gas.
Speaker Change: And Daniel gas and electric.
Speaker Change: Yeah, what I would describe as in the fall planning process, we're challenging all of our executives to make sure that <unk> got a fulsome and disciplined approach to capital utilization. So there is a process of give and take between both projects as well as overall careful about business and over a long period of time, forcing that discipline inside the organization to compete.
Speaker Change: For capital.
Speaker Change: Just highest return it's also returns relative to risk of that process is ongoing comment I'd make about the PD as we feel there are some aspects of the PD shar, they're actually quite constructive that we noted in our prepared remarks that we also see opportunities to improve that decision in areas that we think are very important to our.
Jeff: Customers, namely safety reliability and affordability. So we had oral arguments earlier this week and a couple of things we highlighted there where we think additional improvements are necessary as the number one the need for additional underground into support wildfire mitigation number two improvements to integrity management program and you'll recall that is.
Speaker Change: Very important for us in terms of operate in the natural gas distribution systems safely.
Speaker Change: To your point, we do think additional increases and post funding is important because that has to align with our expected business level of activity and finally, we're still identifying areas that might offset cost to our customers because of our focus on affordability and that's namely in the form of tax benefit so I would conclude by saying.
Speaker Change: We will continue to work collaboratively, we don't want to get in front of our regulator illness, but I think we have the chance short to do two things get to an outcome. This year and get to an outcome that is constructive for all of our stakeholders.
Speaker Change: Got it fantastic, Jeff I'll see you in a couple of days I appreciate it.
Jeff: Thank you Chuck.
Chuck: Thank you.
Speaker Change: Our next question will come from Julien Dumoulin Smith from Jefferies. Your line is open.
Speaker Change: Hey, good morning, Hey, good to speak to you guys. Thank you so much nicely done.
Speaker Change: Maybe just picking up on the on the encore side that that 40% to 50% range as the tantalizing there.
Speaker Change: Look I know, it's preliminary but can you give us a little bit of a breakdown I know you've got the 3 billion with the SRP.
Speaker Change: But what else is in there right. When you think about that balance of say roughly $6 billion to $9 billion is there.
Speaker Change: The Permian basin, how much of that is low growth can you give us a little bit of a sense of what's baked in.
Jeff: Terms of that range.
Speaker Change: Go for it.
Jeff: Well Julien the good news is you live in Texas. So hopefully you have been seeing a lot of this firsthand for several years now you and I've had this conversation as well as others I have consistently said that oncor has the best overall growth program in the country I think we're seeing that play out in real time, and I think we have an opportunity Alan if you don't mind, while we work through some of the.
Jeff: Growth drivers that youre seeing and provide additional color for Julien yes.
Alan: Yes, you bet Jeff.
Jeff: Thanks Julien.
Speaker Change: We continue to see just very strong growth across our service territory pretty much in all categories are various types of customers that we serve.
Alan: Strong residential and meter growth strong growth on our transmission system, especially.
Alan: Regarding L C&I interconnections.
Alan: Strong growth in West, Texas, the Permian and increased opportunities to invest in kind.
Alan: The transmission backbone of ERCOT to support our customers in both power transfers across the state.
Alan: As I said in my opening remarks, our Jeff did premise growth continues to be very strong. We added 19000 this quarter and we continue to see long term growth around 2%.
Alan: Or double the national average transmission points of interconnection.
Alan: Continue to be a big deal for us.
Alan: New transmission point of interconnections are up 38% versus the same quarter last year.
Jeff: Total transmission point of interconnections are up 17% versus the same quarter last year.
Jeff: Generation remains very strong we have over 500 projects seeking to interconnect to us right now in our Q.
Jeff: Gives us about a 13% increase.
Jeff: Over the same quarter last year for generation.
Jeff: The biggest jump continues to be with regards to L. C&I customers seeking to connect to our transmission system.
Jeff: We have 379 of those right now and then.
Jeff: That represents a 23% increase over the same quarter last year, but the real story.
Jeff: As in requests from what we referred to as large load customers right.
Jeff: Customers that are seeking to interconnect with our system that are seeking to interconnect at a level of at least 100 megawatts individually all the way up to multiple gigawatts.
Jeff: I think I've represented last quarter that we had about 80 gigawatts of those customers and.
Jeff: In a quarter later, we're now up to 103 gigawatts of potential load additions related to that group of customers.
Jeff: $103 82, gigawatts approximately as datacenter related in 'twenty, one approximately gigawatts is unrelated to data centers. So I just wanted to make two points with regards to that 130 number.
Jeff: If you look at our system right now our current peak load on the Encore system is about 31 gigawatts.
Jeff: So when you're comparing that to 103 Gigawatts now we're looking at potential load additions of more than three times, our current peak load that's one.
Jeff: And then the other point, which I just made briefly a moment ago is 103 gigawatts this quarter versus 80 Gigawatts last quarter.
Jeff: Represents about a 29% increase in potential load from these types of customers in one quarter.
Jeff: So that continues to be a big driver of what we're looking at going forward into February.
Jeff: West, Texas again remains a great story with the far West, Texas, whether its own peaking at about 15% above the 2023 peak.
Jeff: Our two transmission loops that we serve the Permian and the Delaware.
Jeff: Through continued to be strong with the Culberson loop up 26% versus the peak of last year already.
Jeff: In the Stanton loop up five 7%.
Jeff: So the strong growth, we're seeing in West, Texas, Obviously, we can talk about the Permian plan in a minute, but it's also leading to what I would call baseload.
Jeff: They are rather non Permian planned additions.
Jeff: In the region, including projects that are coming out of the Delaware Basin project study of 2019, we're presently aimed stages to two through five of that group of projects.
Jeff: As well as the Permian Basin load integration study project from 2021, which we now referred to as the West Texas infrastructure projects. So we have.
Jeff: A number of transmission projects moving forward out of those two studies and plans that are separate and apart.
Jeff: From the Permian plan, obviously, we still have the Permian planned Permian basin reliability plan going through the PUC process right now.
Jeff: As well as the extra high voltage plan that was mentioned previously we have.
Jeff: Got our SRP still to come hopefully on November 14th.
Jeff: And then we have of course, the ERCOT revised load forecast of 152, Gigawatts as well as the general regional transmission plan coming out in December.
Jeff: So those are a lot of the things that we're looking at with our board right now very excited to have all of these opportunities on our system. We think it's a great growth story.
Jeff: And by February we will have this all worked out.
Jeff: And then Julien what I would add just to summarize a couple of points from Allianz discussion is growth at oncor is both geographically diverse and it cuts across all customer categories and as I said in my prepared remarks, I think that our AI exposure under the understated investment thesis at Sempra think.
Jeff: About this encore has 82 gigawatts of pending interconnection request for AI I would challenge any other come in America to put forward, a bigger number and keep them.
Jeff: The entire state of California, as a $50 to 55 overall gigawatt peak, so just an interconnection request for AI only.
Jeff: Core is dealing with 82 gigawatts of future opportunities. The growth is also centered on the most valuable asset in the utility world and Thats high voltage transmission high voltage transmission comprises 60% of their.
Jeff: Overall capital plan.
Jeff: And I would also add in addition to broad exposure to growth oncor benefits from a constructive regulatory compact with tracker mechanisms that we've discussed before they are being followed twice annually to true up for T&D investments. So it is a remarkable growth story. It is remarkable exposure to transmission and particularly.
Jeff: From customer growth in AI and I think it's got one of the best regulatory compacts in the country.
Speaker Change: Yes, they are truly phenomenal statistics, thank you for sharing.
Speaker Change: And I agree I see it.
Speaker Change: With that said actually you're talking about 60% is high voltage I mean, what are you guys, reflecting in that range on the 765, the higher element on the transmission is that basically the upper end there just to clarify.
Speaker Change: Yes.
Jeff: As we went through our prepared remarks, there is about $13 billion in that Permian plan, which I think assumes a $3 45 kv, but I think the most important thing that Alan mentioned was is the PUC will be making the determination as to whether thats, a $3 45 upgrade and build out in may or whether it's 765 so that.
Jeff: It remains to be seen.
Speaker Change: We will know that seems like Thats the next chairman.
Speaker Change: Yes.
Speaker Change: Great guys best of luck, you've got a lot on our plate here.
Speaker Change: Thank you Julien.
Julien: Thank you.
Speaker Change: And our next question will come from Carly Davenport from Goldman Sachs. Your line is open.
Carly Davenport: Hey, Jeff how are you. Thanks, so much for taking the questions.
Carly Davenport: Okay.
Speaker Change: Maybe just to start on the LNG business any are you anticipating any changes to the outlook. There just as a result of the administration changes and then as you think about Port Arthur Phase two is the permit sort of the last gating factor that would determine when you take FID on that project.
Speaker Change: Thank you and then maybe we've got Justin Bird with US here, who is the CEO of separate infrastructure, perhaps Jesse you could walk through Port Arthur Phase II, and then speak to the permit issue that currently referenced yes, hi, Carly.
Justin Bird: As Karen noted in their prepared remarks, we continue to advance port Arthur too and I'd say we've.
Jeff: <unk> made considerable progress.
Jeff: As noted on our Q2 call. We saw an increased interest in port Arthur too and I'm happy to say that interest has further increased since the call and momentum continues to build.
Jeff: <unk> discussions for uptake in project equity are ongoing and I think we're seeing better terms we.
Jeff: Our 20 year agreement with Aramco for 5 million tons per annum as well as 25% of the equity.
Jeff: Our EPC agreement with <unk> allows for continuous construction.
Jeff: We view that as a competitive advantage and on the permitting side as you noted we're waiting for our non FTA export permit.
Jeff: And we expect that to be resolved in the first half of next year.
Jeff: We continue to identify sources of financing for the project and advance the other key milestones to put us in a position to take a final investment decision.
Jeff: To wrap up I would say the expansion of Port Arthur is a terrific opportunity and we look forward to advancing the project.
Speaker Change: Great. That's really helpful commentary, there and then maybe just to shift quickly back to Texas and I. Appreciate all of the commentary there. So far just as we look forward to 2025 is there anything that you'd highlight that you are looking out for in the legislative session in Texas that could impact the growth outlook there.
Speaker Change: No I would just say that I think that based upon the meetings. We had last week I think obviously 2025 will be the biggest capital deployment year I think in that company's history. The team is putting together their overall legislative legislative strategy for next year and Alan perhaps you could just mentioned if there is anything notable that you wanted to discuss.
Alan: Yes, Jeff I think you've covered it I mean currently.
Alan: There's obviously a lot of chatter in Austin about utility issues.
Jeff: We've had that before I think we are in a.
Jeff: Excellent position going into this session as oncor, obviously, we're going to have to deal with things like the fallout from hurricane barrel.
Jeff: But there is nothing that I am overly concerned about right now obviously, we'll have to wait till <unk>.
Jeff: A few more weeks until we see what bills get filed.
Jeff: But we are more than ready to handle anything that comes our way and I am confident in it.
Jeff: Excited going into session to see what we can do.
Speaker Change: Great. Thanks, so much for the time.
Speaker Change: Thanks, Charlie.
Speaker Change: Thank you our.
Speaker Change: Our next question will come from <unk> Chopra from Evercore ISI. Your line is open.
Speaker Change: Yes, Hey, Jeff Thanks for giving your time, Hey, just can I go back to the equity really quickly I just wanted to clarify something.
Speaker Change: The $3 billion does that is that basically all the equity that you need.
Speaker Change: You roll forward the plan from the five year plan 25 to 2009 can you clarify that and then maybe any color that you can share in terms of timing of the 3 billion equity does that have to be done next year or will it be spread out toward the planning Peter Thank you.
Speaker Change: Sure I'll just start by reviewing what our goal is for February on our Q4 call. Our convention has been to really presents our five year capital plan almost like an analyst conference frankly, and when we do that we reconcile the balance sheet and do kind of a deep dive into sources and uses of funding. So that conversation is probably more appropriate for <unk>.
Speaker Change: Curious what we also do in February as we tend to basically go into prop your guidance. So what we released 2026 guidance at that time, we've always felt like if we have some early visibility in the fall before you get to February where we can kind of guide the street to our expectations. We think thats always been viewed helpful. So I think we had a real opportunity.
Speaker Change: <unk> today to come forward with a very bullish muscular view of our Texas capital program, we will fine tune that and come out with more details in February and likewise on the ATM. We just view this as a another financing alternative for US our job is to make sure. We can peak capital internally we also.
Speaker Change: Or use in hybrids as part of our overall funding mechanism and having the ATM in place we think is being thoughtful.
Speaker Change: Got it okay I just wanted to clarify that it looks like we're going to get more color Hey can I just quickly ask one more question.
Speaker Change: Just any.
Speaker Change: And anything on the LNG apartment pause given the sort of the election results.
Speaker Change: Previously you guys have talked about.
Speaker Change: Sorry go ahead, Jeff.
Jeff: No I am sorry, please finish your question.
Jeff: No.
Jeff: Just any updates there.
Jeff: As it relates to the policy.
Speaker Change: No I would just say that maybe.
Jeff: <unk>.
Jeff: Maybe a higher level comment we've tended to kind of run our business is a nonpartisan business right. We're not we don't focus a one party or the other remember.
Jeff: Six years ago, we refocused our business from energy to energy infrastructure and historically, that's been an area of strong bipartisan support and frankly, even under the by the administration and there is bipartisan support for infrastructure Bill.
Jeff: And I think as we look forward when we think about delivering cleaner and secure energy its not more about one party or another it's about doing what's best for our country and for our customers.
Jeff: When it comes to LNG, we've always had a constructive view that America has an opportunity to play a larger role in the world I think youre going to continue to see this country assert our leadership position in the production of energy is going to basically benefit our domestic users hopefully it will continue to support our growing economy here in the United States.
Jeff: But look quite frankly, we have increasingly.
Jeff: Increasingly important role in serving our allies abroad, and LNG is a very very important tool of American important policy I think youll continue to see us take.
Jeff: <unk> role at separate infrastructure, and I think we have growing confidence in getting the permits we need for port Arthur Phase III in the first half of next year.
Jeff: Thank you Jeff.
Jeff: Thank you.
Jeff: Thank you.
Speaker Change: And we now have time for one one more question and our last question will come from Steve Fleishman from Wolfe. Your line is open.
Speaker Change: Good morning, Steve.
Steve Fleishman: Yes. Good morning, Thank you I appreciate it.
Speaker Change: The just going back to the California case, you mentioned.
Steve Fleishman: And the affordability seems to be a focus and you mentioned the <unk>.
Steve Fleishman: The tax related benefits.
Steve Fleishman: B.
Jeff: Something you suggested could you give a sense of just.
Jeff: How much that could impact rates.
Jeff: To the benefit of customers.
Speaker Change: And your thinking on that.
Speaker Change: No I think what took place in the proposed decision was they outlined.
Speaker Change: The changes in the step up in revenue requirement was for year, one and then through the attrition years.
Speaker Change: We're being really focused on making sure that we can operate our system safely work with all of the different parties are a part of the proceeding and as you do that it's important if you're trying to propose additional funding that youre also trying to find ways to reduce cost. So I think what took place in the oral argument. This week was we outlined a series of opportunities.
Speaker Change: Where we thought that customers would benefit from additional safety investments, including two.
Speaker Change: Integrity programs into our wildfire underground and programs and I think to do that we've also proposed some additional tax benefits that would lessen the impact to customers. So this is a process in California, where you try to work with all the different stakeholders, who gets a good outcome and I think we have some confidence that we'll get that done this year and then we'll get to know.
Speaker Change: And that people feel good about.
Speaker Change: That's good and just based on the current proposals you've made there.
Speaker Change: Tricia adjustments.
Speaker Change: What would they be roughly per year relative to the proposed decision.
Speaker Change: Yes, what I don't want to do is I don't really want to front run the process. We're in right now we're actually making some comment filings tomorrow and what we want to do is let the process rolled forward to give everyone the opportunity to participate in it I think.
Speaker Change: The decision itself that we have today this proposed where theres a lot of constructive aspects to it but we're very deeply involved in it right now Steve over the next couple of weeks. So I'd prefer to let the process play out in our comments Tomorrow I think will be instructive to your question.
Steve Fleishman: Okay understood and then lastly, just on an encore which is phenomenal.
Speaker Change: B.
Speaker Change: I remember you raised your capital plan to 48 billion overall from I think 40.
Speaker Change: Back I think that was early this year or late last year would this be all.
Speaker Change: Incremental to the 48 billion for all of central where some of that.
Speaker Change: Earned including somewhat higher.
Speaker Change: Capital at Oncor, there's been so many capital increases it's hard to keep track of.
Speaker Change: Thank you for framing the high class problem by the way so look we are.
Speaker Change: We are going through a very disciplined process. This is not a process that separate where you just put one project on top of another project in sum up the total of the capital we do Steve really go through a rigorous process to make capital compete but theres no question that the growth we're seeing in encore will be incremental to our 48 and there is still.
Speaker Change: Opportunities in our other two business platforms to also grow their capital needs so that.
Speaker Change: That process is underway today, but clearly the encore program is incremental to the 48.
Speaker Change: Okay.
Speaker Change: Thank you.
Jeff: Thank you.
Speaker Change: Thank you that concludes today's question and answer session. At this time I'd like to turn the conference back to Jeff Martin for any additional closing remarks.
Jeff Martin: Well, we certainly appreciate everyone joining us on the call today I'd like to close out with a few summary comments first we're optimistic about finalizing our general rate cases here in California by the end of the year and we will work with all parties to get to a constructive outcome.
Jeff Martin: I was pleased that we were able to update everyone. Today on developments at encore, we see significant investment opportunities in Texas from the SRP program diverse customer growth across Oncor service territory, including connection requests from data centers totaling 82, Gigawatts. We also.
Jeff Martin: See new investments necessary to support growth in the Permian basin, and expanding the transmission backbone for ERCOT.
Jeff Martin: Note that at our infrastructure business, we continue to operate a growing portfolio of assets and also are managing several major construction projects simultaneously, which together translate into higher levels of growth in the future for Sempra and finally, the strength of about three combined growth platforms gives us.
Jeff: A lot of confidence in continuing to grow our business, while delivering shareholder value over the long term.
Jeff: I would also like to mention that Trevor Mahalik will be retiring at the end of the year.
Jeff: Served at Sempra for over a decade held numerous leadership positions have been a great partner to me. Please join me in thanking Trevor for all of his contributions.
Jeff: If there are any follow up items, please reach out to our IR team with your questions and we certainly look forward to seeing many of you at <unk> in Florida next week. This concludes our call.
Speaker Change: Thank you for your participation you may now disconnect.
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