Q4 2024 Sempra Earnings Call
Today's conference is being recorded.
Speaker Change: At this time I'd like to turn it over to Glenn Donovan. Please go ahead.
Glenn Donovan: Good morning, and welcome to <unk> fourth quarter 2024 earnings call.
Glenn Donovan: Live webcast of this teleconference and slide presentation are available on our website under events and presentations section.
We have several members of our management team with us today, including <unk>.
Glenn Donovan: Jeff Martin Chairman and Chief Executive Officer.
Karen Cedric: Karen Cedric Executive Vice President and Chief Financial Officer.
Justin Bird: Justin Bird Executive Vice President and Chief Executive Officer of simpler infrastructure.
Justin Bird: Allen Nye, Chief Executive Officer of Encore.
Speaker Change: Don Clevenger, Chief financial Officer of Encore.
Speaker Change: Caroline Winn, Chief Executive Officer of <unk>.
Good day and welcome to SEMPRA's fourth quarter earnings call. Today's conference is being recorded. At this time I'd like to turn it over to Glen Donovan. Please go ahead.
Peter Wong: Peter Wong Senior Vice President Controller, and Chief Accounting Officer, and other members of our senior management team.
Speaker Change: 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.
Good morning and welcome to SEMPRA's fourth quarter 2024 earnings call. A live webcast of this teleconference and slide presentation are available on our website under our events and presentations section.
Speaker Change: 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 filed with the SEC.
Glen Donovan: We have several members of our management team with us today, including Jeff Martin, Chairman and Chief Executive Officer, Karen Sedgwick, Executive Vice President and Chief Financial Officer,
Speaker Change: Earnings per common share amounts in our presentation are shown on a diluted basis, then we will be discussing certain non-GAAP financial measures.
Speaker Change: Justin Bird, Executive Vice President and Chief Executive Officer of Semper Infrastructure. Alan Nye, Chief Executive Officer of Encore. Don Clevenger, Chief Financial Officer of Encore.
Speaker Change: Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures.
Speaker Change: We also encourage you to review our 10-K for the year ended December 31.
Speaker Change: Carolyn Nguyen, Chief Executive Officer of SDG&E. Peter Wall, Senior Vice President, Controller, and Chief Accounting Officer, and other members of our Senior Management Team.
Speaker Change: 2024.
Speaker Change: I'd also like to mention that forward looking statements contained in this presentation speak only as of today February 25, 2025, and it's important to note that the company does not assume any obligation to update or revise any of these forward looking statements in the future.
Speaker Change: Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Jeff Martin: With that please turn to slide five and let me hand, the call over to Jeff.
Speaker Change: Actual results may differ materially from those projected in any forward-looking statement we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K filed with the SEC.
Jeff Martin: Thank you Glenn and thank you all for joining us today.
Jeff Martin: This year as we report our Q4 and full year financial results, we've organized our materials to lay out a clear roadmap for our company to deliver a decisive decade of growth.
Jeff Martin: In part that's why we took the time over the last several months to reach out to investors and the research community to <unk>.
Speaker Change: Earnings per common share amounts in our presentation are shown on a diluted basis and we'll be discussing certain non-GAAP financial measures.
Jeff Martin: Net new ideas and suggestions on how to make todays call as informative as possible.
Speaker Change: Please refer to the presentation slides that accompany this call for a reconciliation to gap measures.
Jeff Martin: With your input we've added a lot more content to todays presentation and adjusted our lists the presenters. So you get to hear directly from a broader group of executives.
Speaker Change: We also encourage you to review our 10K for the year ended December 31st, 2024.
Speaker Change: I'd also like to mention that the forward-looking statements contained in this presentation speak only of today, February 25, 2025, and it's important to note that the company does not assume any obligation to update or revise any of these forward-looking statements in the future.
Jeff Martin: In terms of our agenda I'll start by reviewing our accomplishments in 2024 and provide an overview of our corporate strategy.
Jeff Martin: Then we'll move to the leaders of our three business segments were each will discuss recent developments and operational initiatives in their businesses.
Speaker Change: With that, please turn to slide five and let me hand the call over to Jeff.
Jeff Martin: As well as their respective capital plans.
Jeff Martin: Afterwards, Karen will follow with a presentation on our Q4 and full year financial results and the details surrounding our new five year capital plan and then at the end I'll rejoin you to make some closing remarks.
Jeff: Thank you, Glen, and thank you all for joining us today. This year, as we report our Q4 and full year financial results, we've organized our materials to lay out a clear roadmap for our company to deliver a decisive decade of growth.
Jeff Martin: Turning to our 2024 financial results, we delivered adjusted EPS of $4 65, which is just below the midpoint of our guidance range.
Jeff: In part, that's why we took the time over the last several months to reach out to investors and the research community to get new ideas and suggestions on how to make today's call as informative as possible.
Jeff Martin: Later in today's call Gerry will walk through the key drivers behind those results.
Jeff: With your input, we've added a lot more content to today's presentation and adjusted our list of presenters so you get to hear directly from a broader group of executives.
Jeff Martin: Turning to 2025 guidance, we've adjusted our financial forecast to account for a series of changes.
Jeff Martin: These include the final decision in our California rate cases, as well as updated assumptions related to interest rates commodity prices and O&M costs.
Jeff: In terms of our agenda, I'll start by reviewing our accomplishments in 2024 and provide an overview of our corporate strategy.
Another key assumption in our 2025 guidance has to do with encore.
Jeff: Then we'll move to the leaders of our three business segments, where each will discuss recent developments and operational initiatives in their businesses, as well as their respective capital plans.
Jeff Martin: Its next base rate review as you know, Texas is enjoying strong economic and population growth.
Jeff Martin: Some estimates project, Texas to have the largest population in the United States by 2045.
Jeff: Afterwards, Karen will follow up the presentation on our Q4 and full year financial results and the details surrounding our new five-year capital plan. And then at the end, I'll rejoin you to make some closing remarks.
Jeff Martin: And to further that point from July 2023 to July 2024, Texas added over a half million new residents. The most of any state in the nation.
Jeff: Turning to our 2024 financial results, we delivered adjusted EPS of four dollars and 65 cents, which is just below the midpoint of our guidance range. Later in today's call, Karen will walk through the key drivers behind those results.
Jeff Martin: New business continues to move to the state as well as the economy expands at the end of the decade electricity demand is expected to nearly double.
Jeff Martin: With this backdrop, there is a significant need for new infrastructure, which creates opportunity for encore to increase its capital investments in the state that's why encores preparing to file a comprehensive base rate review later this year rather than waiting until 2027.
Speaker Change: Turning to 2025 guidance, we've adjusted our financial forecast to account for a series of changes. These include the final decision in our California rate cases, as well as updated assumptions relating to interest rates, commodity prices, and O&M costs.
Jeff Martin: Alan will go into more detail, but if the team elects to file a base rate review, which we have assumed in our plan. We believe this will strengthen the company's financial position is it looks to make critical investments necessary to support expected growth in energy demand.
Speaker Change: Another key assumption in our 2025 guidance has to do with Encore filing its next base rate review. As you know, Texas is enjoying strong economic and population growth.
Speaker Change: Some estimates project Texas to have the largest population in the United States by 2045. And to further that point, from July 2023 to July 2024, Texas added over a half million new residents, the most of any state in the nation.
Jeff Martin: Taken all these factors into account, we're revising our full year of 2025 EPS guidance range to $4 30.
Jeff Martin: To $4 70.
Jeff Martin: Our revised 2025 guidance falls below the prior expectations set for our company.
Jeff Martin: That said I am confident that were making the right decisions for the business as 2025 will form a new foundation for our future growth.
Speaker Change: New business continues to move to the state as well, and as the economy expands to the end of the decade, electricity demand is expected to nearly double.
Jeff Martin: In addition, we're announcing our full year 2026 EPS guidance range.
Thank you. Thank you. Thank you.
Speaker Change: With this backdrop, there is a significant need for new infrastructure which creates opportunity for Encore to increase its capital investments in the state.
Jeff Martin: $4 80 to $5 30.
Jeff Martin: Which represents roughly a 12% growth rate from the midpoint of our updated guide.
Speaker Change: That's why ENCQR is preparing to file a comprehensive base rate review later this year rather than waiting until 2027.
Jeff Martin: Guidance.
Jeff Martin: This is important because we expect a pull through strong growth from 2026 into future years.
Speaker Change: Alan will go into more detail, but if the team elects to file a base rate review, which we have assumed in our plan, we believe this will strengthen the company's financial position as it looks to make critical investments necessary to support expected growth and energy demand.
Jeff Martin: In addition to the reference year over year growth, we're seeing remarkable growth in our expected earnings from Sempra, Texas, which supports raising our projected long term EPS growth rate to 7% to 9%.
Speaker Change: Taking all these factors into account, we're revising our full year 2025 EPS guidance range to $4.30 to $4.70.
Jeff Martin: Going forward, we will update our estimated long term growth rate on our year end call in February at the same time that we announced our updated capital plans.
Speaker Change: Our revised 2025 guidance falls below the prior expectations set for our company. That said, I'm confident that we're making the right decisions for the business as 2025 will form a new foundation for our future growth.
Jeff Martin: Finally in keeping with our commitment to provide investors with a competitive total return. We're also pleased to announce that separate board of directors approved increasing the companys annualized dividend for the 15th consecutive year to $2 58 per share.
Speaker Change: In addition, we're announcing our full year 2026 EPS guidance range of $4.80 to $5.30, which represents roughly a 12% growth rate from the midpoint of our updated 2025 guidance.
Jeff Martin: Please turn to the next slide where I'll walk through our recent accomplishments.
Jeff Martin: In 2024, and we made important progress on our five year capital plan by deploying nearly $10 billion of capital across our three business lines. While also delivering solid financial results with 2024 adjusted earnings.
Speaker Change: This is important because we expect to pull through strong growth from 2026 into future years.
Jeff Martin: Roughly $3 billion.
Jeff Martin: In terms of other accomplishments we ended the year with utility rate base of 56 billion.
Jeff Martin: It's also important to note that we're now in a new record capital plan of $56 billion for 2025 to 2029, which represents a 16% increase over the prior plan.
Speaker Change: Going forward, we'll update our estimated long-term growth rate on our year-end calls in February at the same time that we announce our updated capital plans.
Jeff Martin: With over half of our new capital driven by opportunities in encore, where Alan and his team are seeing remarkable customer growth and taken together with California, 90% of the new capital plan is dedicated to our core strategy of investing in regulated utilities with constructive regulation.
Speaker Change: Finally, in keeping with our commitment to provide investors with a competitive total return, we're also pleased to announce that Semper's Board of Directors approved increase in the company's annualized dividend for the 15th consecutive year to $2.58 per share.
Speaker Change: Please turn to the next slide where I'll walk through our recent accomplishments.
Jeff Martin: In California, <unk> and Socal gas received a final decision on their 2020 for general rate cases.
Thank you. Thank you.
Speaker Change: In 2024, we made important progress on our five-year capital plan by deploying nearly $10 billion of capital across our three business lines, while also delivering solid financial results with 2024 adjusted earnings of roughly $3 billion.
Jeff Martin: Which support critical new investments in safety reliability and affordable customer service.
Jeff Martin: Meanwhile, in Texas, you'll recall that the PUC approved encores, nearly $3 billion system resiliency plan, highlighting the constructive nature of that jurisdiction and encores ability to work collaboratively with key stakeholders to advance good public policy.
Speaker Change: In terms of other accomplishments, we ended the year with a utility rate base of $56 billion.
Speaker Change: It's also important to note that we're announcing a new record capital plan of $56 billion for 2025 to 2029, which represents a 16% increase over the prior plan.
Jeff Martin: Oncor has already begun making investments in accordance with the SRP and there are a significant number of near term growth opportunities that Alan will be discussing momentarily. In addition, Allan will outline more clearly what investments fall within his new $36 billion capital plan as well as providing very important visibility too.
Speaker Change: with over half of our new capital driven by opportunities at Encore where Alan and his team are seeing remarkable customer growth and
Speaker Change: Taken together with California, 90% of the new capital plan is dedicated to our core strategy of investing in regulated utilities with constructive regulation.
Jeff Martin: Other incremental investments that are expected to be added to is 2025 to 2029 plan.
Speaker Change: In California, SDG&E and SoCalGas received a final decision on their 2024 general rate cases, which support critical new investments in safety, reliability, and affordable customer service.
Jeff Martin: And new investments that are estimated for the 2030 to $2 34 timeframe.
Jeff Martin: And finally, it simpler infrastructure 2024 was an important year in terms of execution as we continue to advance construction across a series of large scale infrastructure projects.
Speaker Change: Meanwhile in Texas, you'll recall that the PUCT approved ENCQOR's nearly $3 billion system resiliency plan, highlighting the constructive nature of that jurisdiction and ENCQOR's ability to work collaboratively with key stakeholders to advance good public policy.
Jeff Martin: Including most notably ECA LNG phase one in Port Arthur LNG phase one.
Jeff Martin: Please turn to the next slide.
Jeff Martin: A couple of takeaways here utility capital.
Jeff Martin: And approximately 4% over the last decade, however, with economic expansion coming out of Covid reassuring of industry and record levels of investment in cloud computing artificial intelligence and data centers, we're seeing a notable uptick in energy demand.
Speaker Change: Encore has already begun making investments in accordance with the SRP and there are a significant number of near-term growth opportunities that Alan will be discussing momentarily.
Speaker Change: In addition, Allen will outline more clearly what investments fall within his new $36 billion capital plan as well as providing very important visibility to other incremental investments that are expected to be added to his 2025
Jeff Martin: That's why utilities all across the country are quickly ramping up investment to build new energy infrastructure that supports growing energy demand.
Speaker Change: to the 2029 plan, and new investments that are estimated for the 2030 to 2034 timeframe.
Jeff Martin: With over $200 billion of anticipated sector investment in 2025 alone.
We certainly believe we're in the early innings of a new super cycle for the sector.
Speaker Change: And finally, at Semper, infrastructure 2024 was an important year in terms of execution as we continue to advance construction across a series of large-scale infrastructure projects, including most notably Eka LNG Phase I and Port Arthur LNG Phase I.
Jeff Martin: On a relative basis or 16% year over year increase in our five year capital plan compares favorably to the trend shown here.
Jeff Martin: In part that's why we continue to believe Sempra is well positioned in the right markets with the right corporate strategy to create a lot of value in the coming years.
Please turn to the next slide.
Speaker Change: A couple takeaways here. Utility capital investments have grown steadily at approximately 4% over the last decade.
Jeff Martin: Please turn to the next slide.
<unk> core strategy centers on making disciplined investments in good businesses, where we can earn quality returns.
Speaker Change: However, with economic expansion coming out of COVID, reshoring of industry, and record levels of investment in cloud computing, artificial intelligence, and data centers, we're seeing a notable uptick in energy demand.
Jeff Martin: While building scale advantages and large economic markets with favorable regulation.
Jeff Martin: Please turn to the next slide.
Speaker Change: That's why utilities all across the country are quickly ramping up investment to build new energy infrastructure that supports growing energy demand.
Jeff Martin: At Sempra, we have narrowed our participation in the energy value chain with the goal of reducing the impact of commodity environmental and credit risk.
Speaker Change: With over $200 billion of anticipated sector investment in 2025 alone, we certainly believe we're in the early innings of a new super cycle for the sector.
Jeff Martin: Concentrating on transmission and distribution investment and also improves our line of sight to future growth and helps us produce high quality recurring cash flows from regulated utilities, while also investing in long term contracted assets with investment grade Counterparties and our infrastructure platform.
Speaker Change: On a relative basis, our 16% year-over-year increase in our five-year capital plan compares favorably to the trend shown here.
Speaker Change: In part, that's why we continue to believe SEMPRA is well positioned in the right markets with the right corporate strategy to create a lot of value in the coming years. Please turn to the next slide.
Jeff Martin: Please turn to the next slide.
Jeff Martin: To be clear our corporate strategy is designed to build significant scale into our business for the benefit of customers and shareholders to do that we're launching a new record $56 billion capital plan that targets compound annual rate base growth of 10%.
Speaker Change: Here, SEMPR's core strategy centers on making disciplined investments in good businesses where we can earn quality returns while building skill advantages in large economic markets with favorable regulation.
Jeff Martin: Note too that our expectations of future growth are expanding particularly in the state of Texas. That's why we're raising our long term EPS growth estimates to 7% to 9%.
Please turn to the next slide.
Speaker Change: At Semper, we have narrowed our participation in the energy value chain with the goal of reducing the impact of commodity, environmental, and credit risk.
Jeff Martin: Please turn to the next slide where Alan will walk you through our business update at encore.
Alan: Thank you, Jeff we had a successful year at encore headlined by several key accomplishments.
Speaker Change: By concentrating on transmission and distribution investment, it also improves our line of sight to future growth and helps us produce high-quality recurring cash flows from regulated utilities.
Alan: We deployed approximately $4 7 billion.
A new record.
Alan: And grew our rate base by approximately 15% we continue to believe in the Texas Miracle and do not see it slowing down anytime soon.
Speaker Change: while also investing long-term contracted assets with investment-grade counterparties in our infrastructure platform.
Alan: As Jeff mentioned, we are contemplating filing a comprehensive base rate review with the PUC T. This year as you may recall, our last base rate review was approved in 2023 based on a 2021 historic test year.
Please turn to the next slide.
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Speaker Change: To be clear, our corporate strategy is designed to build significant scale into our business for the benefit of customers and shareholders. To do that, we're launching a new, record $56 billion capital plan that targets compound annual rate-based growth of 10%.
Alan: Market conditions have certainly changed with higher interest rates and insurance premiums and.
Speaker Change: Note, too, that our expectations of future growth are expanding, particularly in the state of Texas. That's why we're raising our long-term EPS growth estimates to 7 to 9 percent.
Alan: And inflationary pressure to name a few move.
Alan: Moving to our operational performance in 2020 for encore built rebuilt or upgraded 4300 miles of T&D lines.
Alan: Please turn to the next slide where Alan will walk you through a business update at Encore. Thank you, Jeff. We had a successful year at Encore, headlined by several key accomplishments.
Speaker Change: <unk> increased our premise count by approximately 77000 set company records for new and active transmission interconnection requests and witnessed 4% growth in electricity volumes delivered.
We deployed approximately $4.7 billion, a new record.
Alan: and grew our rate base by approximately 15%. We continue to believe in the Texas miracle and do not see it slowing down anytime soon.
Speaker Change: <unk> was also recognized by EI with the Emergency response award for our May 2024 Storm response, the second worst storm and encores history.
Alan: As Jeff mentioned, we are contemplating filing a comprehensive base rate review with the PUCT this year. As you may recall, our last base rate review was approved in 2023 based on a 2021 historic test year.
Speaker Change: Further demonstrating our commitment to restoring power after extreme weather events as soon as safely possible.
Speaker Change: To come full circle. The main takeaway is that encore had an excellent year.
Market conditions have certainly changed.
Speaker Change: And I'll speak next about the long term growth we are seeing please.
with higher interest rates and insurance premiums.
Speaker Change: Please turn to the next slide.
Speaker Change: As we've highlighted throughout the year.
and inflationary pressure, to name a few.
Speaker Change: New points of interconnection requests grew 27% in 2020 for.
Moving to our operational performance.
Alan: In 2024, Encore built, rebuilt, or upgraded 4,300 miles of T&D lines, increased our premise count by approximately 77,000, set company records for new and active transmission interconnection requests,
Speaker Change: This is an important metric because it serves as a strong leading indicator of customers looking to connect to encore system and.
Speaker Change: And simultaneously helps replenish the existing queue of active requests both of which represent future investment opportunities.
Alan: and witnessed 4% growth in electricity volumes delivered. ENCQOR was also recognized by EEI with the Emergency Response Award for our May 2024 storm response, the second worst storm in ENCQOR's history.
Speaker Change: The increase in interconnection interest continues to emerge.
Speaker Change: Primarily from large C&I customers, which span multiple diverse industries located across our service territory.
Speaker Change: As of December 31, 2024.
Alan: further demonstrating our commitment to restoring power after extreme weather events as soon as safely possible.
Speaker Change: The total amount of commercial and industrial load seeking transmission interconnection.
Speaker Change: To come full circle, the main takeaway is that Encore had an excellent year, and I'll speak next about the long-term growth we are seeing. Please turn to the next slide.
Speaker Change: <unk> 137 Gigawatts.
Speaker Change: And approximately 250% increase from 2023 idle.
Speaker Change: I'd also like to note that oncor is already in possession of over $2 billion of collateral held under signed agreements split approximately even between generation and large C&I customers.
Speaker Change: As we've highlighted throughout the year, new points of interconnection requests grew 27% in 2024. This is an important metric because it serves as a strong leading indicator of customers looking to connect to Encore's system.
Speaker Change: A 10 X increase since 2018, this collateral protects ratepayers and us from the risk of costs being incurred for a project that has subsequently abandoned.
Speaker Change: and simultaneously helps replenish the existing queue of active requests, both of which represent future investment opportunities.
Executed agreements are one of the ways, we evaluate the probability of load increases into our capital planning process and.
The increase in interconnection interest continues to emerge.
Speaker Change: primarily from large C&I customers which span multiple diverse industries located across our service territory.
Speaker Change: And this figure indicates these are serious customers with high intentions of developing their projects.
Speaker Change: As of December 31st, 2024, the total amount of commercial and industrial load seeking transmission interconnection
Speaker Change: Additionally, we provide ERCOT with a high confidence projection for C&I loads seeking interconnection to our transmission.
equaled 137 gigawatts.
Speaker Change: Last year, we provided a projection through 2030 of 'twenty five.
an approximately 250% increase from 2023.
Speaker Change: We've taken concrete steps towards an interconnection agreement.
Speaker Change: I'd also like to note that Encore is already in possession of over $2 billion of collateral held under signed agreements, split approximately even between Generation and large C&I customers.
Speaker Change: We have increased our high confidence projection to two nine gigawatts through 2031.
Speaker Change: That amount combined with the customers who have already signed interconnection agreements could.
Speaker Change: about a 10x increase since 2018. This collateral protects ratepayers and us from the risk of costs being incurred for a project that is subsequently abandoned.
Speaker Change: Could potentially increase our 2031 peak load by approximately 36 gigawatts from C&I transmission customers alone to put that into context.
Speaker Change: Today's peak load for our whole system is 31 gigawatts.
Speaker Change: Executed agreements are one of the ways we evaluate the probability of load increases into our capital planning process.
Speaker Change: Please turn to the next slide.
Speaker Change: Today, we're announcing another record five year capital plan.
Speaker Change: and this figure indicates these are serious customers with high intentions of developing their projects.
Speaker Change: <unk> $36 billion.
An increase of 50% over the five year plan, we announced last February.
Speaker Change: Additionally, we provide ERCOT with a high-confidence projection for CNI loads seeking interconnection to our transmission system.
Speaker Change: Encores investments over 2025 through 2029 are expected to support diverse growth across our service territory as the region continues to.
Speaker Change: Last year we provided a projection through 2030 of 25 gigawatts.
Speaker Change: This year, based on the number of customers who have taken concrete steps towards an interconnection agreement.
Speaker Change: Exhibit strong annual premise growth in the 2% range receive a growing number of interconnection requests from large C&I customers.
Speaker Change: We have increased our high confidence projection to 29 gigawatts through 2031.
Speaker Change: While remaining a highly desired destination for both business and residential customers to the state.
Speaker Change: That amount, combined with the customers who have already signed interconnection agreements.
Speaker Change: Encores territory is vast our distribution service territory is over 54000 square miles roughly the size of the whole state of New York and our growth is not concentrated in any one area, but spread out across the DFW Metroplex, West, Texas and along the I 35 corridor.
Speaker Change: could potentially increase our 2031 peak load by approximately 36 gigawatts from CNI transmission customers alone. To put that into context,
Please turn to the next slide.
Speaker Change: Today, we're announcing another record five-year capital plan totaling $36 billion.
Speaker Change: We're continuing to see strong growth in residential premises that exceeds the historical national average as well as significant new growth in the large C&I space examining the components of our new $36 billion capital plan the increases arise from the following items.
Speaker Change: an increase of 50% over the five-year plan we announced last February.
Speaker Change: ENCQOR's investments over 2025 through 2029 are expected to support diverse growth across our service territory as the region continues to exhibit strong annual premise growth in the 2% range.
Speaker Change: Nearly $3 billion for the SRP $2 billion for the brownfield local common projects for the Permian Basin reliability plan.
Speaker Change: receive a growing number of interconnection requests from large CNI customers.
Speaker Change: $1 billion for transmission projects for the Delaware Basin load integration plan and West, Texas, $3 45 kv infrastructure plan $2 billion for interconnection of generation and large C&I customers with executed agreements.
Speaker Change: while remaining a highly desired destination for both business and residential customers to the state.
On course territory is vast.
Speaker Change: Our distribution service territory is over 54,000 square miles, roughly the size of the whole state of New York, and our growth is not concentrated in any one area, but spread out across the DFW Metroplex, West Texas, and along the I-35 corridor.
Speaker Change: And $4 billion for distribution upgrades and other capital needs.
Speaker Change: We're excited by the prospect that more than 60% of our capital plan presented today is allocated towards transmission projects that will support the growing energy needs of the state of Texas as these projects tend to be substantial with costs and benefits shared with all ratepayers our distribution investments.
Speaker Change: We're continuing to see strong growth in residential premises that exceeds the historical national average.
Speaker Change: as well as significant new growth in the large C&I space. Examining the components of our new $36 billion capital plan, the increases arise from the following items.
Speaker Change: Which we recover through the DC RF will also continue at a robust pace and comprise another 27% of the capital plan demonstrating.
Speaker Change: Nearly $3 billion for the SRP, $2 billion for the Brownfield Local Common Projects for the Permian Basin Reliability Plan.
Speaker Change: Demonstrating the breadth and diversity of growth throughout our service territory.
Speaker Change: The SRP, which we've highlighted previously also accounts for $3 billion.
Speaker Change: $1 billion for transmission projects for the Delaware Basin Load Integration Plan and West Texas 345-KV Infrastructure Plan. $2 billion for interconnection of generation and large CNI customers with executed agreements.
Speaker Change: And that capital has recovered more favorably than our other investments.
Speaker Change: These investments are critical because they support a safer smarter more resilient electric grid to help enable continued development across the state of Texas.
and $4 billion for distribution upgrades and other capital needs.
Speaker Change: Notably encores $36 billion Capex plan only includes expected spend for major transmission projects for which we have obtained all regulatory approvals for.
Speaker Change: We're excited by the prospect that more than 60% of our capital plan presented today is allocated towards transmission projects that will support the growing energy needs of the state of Texas.
Speaker Change: For example, in the Permian Basin reliability plan.
Speaker Change: as these projects tend to be substantial with cost and benefits shared with all rate payers. Our distribution investments, which we recover through the DCRF, will also continue at a robust pace and comprise another 27% of the capital plan.
Speaker Change: Approximately $2 billion has been included for brownfield projects that require no further approvals. Additionally.
Speaker Change: With regard to customers seeking interconnection at the transmission level like data centers or.
Speaker Change: demonstrating the breadth and diversity of growth throughout our service territory.
Speaker Change: Our plan only includes those projects for which customers have executed an agreement with us.
The SRP, which we've highlighted previously,
Speaker Change: Please turn to the next slide.
Speaker Change: also accounts for $3 billion, and that capital is recovered more favorably than our other investments.
Speaker Change: As a result.
Speaker Change: Oncor has clear line of sight to meaningful projects that could amount to an additional $12 billion.
Speaker Change: These investments are critical because they support a safer, smarter, more resilient electric grid to help enable continued development across the state of Texas.
Speaker Change: Over the course of 2025 to 2029 that are outside of our base plan.
Speaker Change: These projects include.
Speaker Change: Potential updates to our SRP and 2028 and 2029 local.
Speaker Change: Notably, ONCOR's $36 billion CAPEX plan only includes expected spend for major transmission projects for which we have obtained all regulatory approvals.
Speaker Change: Projects of the Permian basin reliability plan, requiring regulatory approvals.
Speaker Change: Projects and the import path of the Permian Basin reliability plan.
For example, in the Permian Basin Reliability Plan,
Speaker Change: Additional transmission pois, such as data centers that have not yet signed agreements with us.
Speaker Change: Approximately two billion dollars has been included for brownfield projects that require no further approvals.
Speaker Change: And projects arising from ERCOT 765, kv strategic transmission expansion plan or step among.
Speaker Change: Additionally, with regard to customers seeking interconnection at the transmission level like data centers
Speaker Change: Among other things.
Speaker Change: Our plan only includes those projects for which customers have executed an agreement with us.
Speaker Change: Regarding the Permian basin reliability plan ERCOT.
Speaker Change: ERCOT and the PUC T are still evaluating the optimal voltage level for the important pathways as part of the import past dates we anticipate further determination to be made in the second quarter of this year.
Please turn to the next slide.
Speaker Change: As a result, Encore has clear line of sight to meaningful projects that could amount to an additional $12 billion over the course of 2025 to 2029 that are outside of our base plan.
Speaker Change: That will provide clarity on the need and timing of additional transmission investment.
Speaker Change: These projects include potential updates to our SRP in 2028 and 2029.
With targeted in service dates of 2030 and beyond.
Speaker Change: We anticipate these potential investments to occur in the back end of our current five year plan.
Speaker Change: Local projects of the Permian Basin Reliability Plan requiring regulatory approvals.
Speaker Change: And extending into the next decade.
Speaker Change: We are excited to have begun needed investments to support grid resiliency and we understand this is not a one off events.
Speaker Change: Projects and the Import Path of the Permian Basin Reliability Plan.
Speaker Change: additional transmission POIs such as data centers that have not yet signed agreements with us.
Speaker Change: As such.
Speaker Change: We anticipate filing an update to our current SRP and 2027.
Speaker Change: and projects arising from ERCOT's 765KV Strategic Transmission Expansion Plan, or STEP, among other things.
Speaker Change: With additional measures to continue the important investments around grid hardening situational awareness and cyber and physical security of our system.
Regarding the Permian Basin Reliability Plan,
Speaker Change: ERCOT has laid out a vision for the development of a modern statewide E H B Super Highway.
Speaker Change: ERCOT and the PUCT are still evaluating the optimal voltage level for the import pathways as part of the import path phase.
Speaker Change: In ERCOT 765 kv step released last month.
Speaker Change: We anticipate further determination to be made in the second quarter of this year.
<unk> indicated that the cost between an EHR solution and a traditional $3 45 kv solution are likely to be very similar.
Speaker Change: that will provide clarity on the need and timing of additional transmission investment.
with targeted in-service dates of 2030 and beyond.
Speaker Change: The EHP solution would provide a number of superior benefits, we expect more guidance from the PUC and the first half of this year.
Speaker Change: We anticipate these potential investments to occur in the back end of our current five-year plan and extending into the next decade.
Speaker Change: Under either solution oncor expects to build a significant amount of the needed transmission.
Speaker Change: We are excited to have begun needed investments to support grid resiliency and we understand this is not a one-off event.
Speaker Change: Many of these projects I am discussing today continue past the current five year plan.
Speaker Change: As such, we anticipate filing an update to our current SRP in 2027.
Speaker Change: When we look further out we believe our growth continues well into the next decade.
Speaker Change: with additional measures to continue the important investments around grid hardening, situational awareness, and cyber and physical security of our system.
Speaker Change: If current growth trends continue.
Speaker Change: We estimate investment in our system, requiring 55 $2 $75 billion.
Speaker Change: ERCOT has laid out a vision for the development of a modern statewide EHV superhighway.
Speaker Change: From 2030 to 2034.
Speaker Change: In other words, the Texas Miracle doesn't appear to be stopping anytime soon.
Speaker Change: In ERCOT's 765kV step released last month, ERCOT indicated that the cost between an EHV solution and a traditional 345kV solution
Speaker Change: As we execute on our current plan and prepare for potentially higher levels of capital spending.
Speaker Change: I'll speak to how we prepared to support this growth.
Speaker Change: are likely to be very similar, but the EHV solution would provide a number of superior benefits.
Please turn to the next slide.
Speaker Change: For years now encore has been taking deliberate steps to help secure our future growth potential.
Speaker Change: We expect more guidance from the PUCT in the first half of this year.
Speaker Change: Over the past five years, we've significantly expanded our supplier base and inventory stock to help ensure materials are available when and where they are needed.
Speaker Change: Under either solution, Encore expects to build a significant amount of the needed transmission.
Speaker Change: Many of these projects I am discussing today continue past the current five-year plan.
Speaker Change: We've also increased our talent pool to bring new knowledge skill sets and abilities to our workforce.
Speaker Change: When we look farther out, we believe our growth continues well into the next decade.
If current growth trends continue.
Speaker Change: While deploying modern technologies, and exercising prudence and increasing our head count so that we can efficiently grow our business.
Speaker Change: We estimate investment in our system requiring $55 to $75 billion.
Speaker Change: As we enhance our resources. We are also achieving improved safety metrics, which is a testament to our continued focus on operational excellence. Please turn to the next slide and I'll hand, the call over to Karen.
Speaker Change: from 2030 to 2034. In other words, the Texas miracle doesn't appear to be stopping anytime soon.
Speaker Change: as we execute on our current plan and prepare for potentially higher levels of capital spending.
Karen Cedric: Thank you Alan.
I'll speak to how we've prepared to support this growth.
Karen Cedric: Start with providing an update on Sempra, California's 2024 accomplishments and five year capital plan.
Please turn to the next slide.
Speaker Change: For years now, ENCQOR has been taking deliberate steps to help secure our future growth potential.
Karen Cedric: And then since we've received a lot of outreach from the investment community on how the state limits invest our exposure to wildfire risk I want to reserve time to provide an update on that as well.
Speaker Change: Over the past five years, we've significantly expanded our supplier base and inventory stock to help ensure materials are available when and where they are needed.
Karen Cedric: Starting with 2024 accomplishments, we saw a number of material developments at our California utilities first and foremost.
Speaker Change: We've also increased our talent pool to bring new knowledge, skill sets, and abilities to our workforce.
Excluding the approved plan and continuing to provide customers with safe and reliable energy.
Speaker Change: while deploying modern technologies and exercising prudence in increasing our headcount so that we can efficiently grow our business.
Karen Cedric: And speaking of safety FC Genie became California's first utility to be awarded with a prestigious Cal Osha VP P safety certification.
Speaker Change: As we enhance our resources, we are also achieving improved safety metrics.
Karen Cedric: This designation is the highest safety recognition offered by the nation's largest state rent division of occupational safety and health.
Speaker Change: which is a testament to our continued focus on operational excellence.
Speaker Change: Please turn to the next slide and I'll hand the call over to Karen.
Karen Cedric: And the award is reserved for organizations that demonstrate exemplary safety practices.
Karen: Thank you, Alan. I'll start by providing an update on Semper California's 2024 accomplishments and five-year capital plan.
Karen Cedric: Engagement and injury prevention measures that exceed standard regulatory requirement.
Karen: Then, since we've received a lot of outreach from the investment community on how the state limits investor exposure to wildfire risk, I want to reserve time to provide an update on that as well.
Karen Cedric: Also noteworthy to mention that FTE Genie with also once again recognized as the best in the West for electric customer reliability for the 19th consecutive year. Another accomplishment are quite proud of.
Karen: Starting with 2024 accomplishments, we saw a number of material developments in our California utilities. First and foremost, we received a final decision in our general rate cases.
Karen Cedric: Operationally, we continue to see growing energy demand and recently, the California Energy Commission issued a report projecting to 8% annual growth in statewide electricity consumption from 2023 through 2030, which should have favorable impacts to customer affordability by putting downward pressure on rates.
Karen: With the final decision, we're now able to focus our efforts on executing the approved plan and continuing to provide customers with safe and reliable energy.
Karen: And speaking of safety, SCG&E became California's first utility to be awarded with a prestigious Cal-OSHA VPP safety certification.
Karen Cedric: <unk>.
Karen Cedric: In October <unk> submitted its T O six filing with FERC, including a 50 basis point, California, ISO adder in December FERC issued an order finding that SG&A is not eligible for the ISO adder STD.
Karen: This designation is the highest safety recognition offered by the nation's largest state-run division of occupational safety and health.
Karen: And the award is reserved for organizations that demonstrate exemplary safety practices, employee engagement, and injury prevention measures that exceed standard regulatory requirements.
Karen Cedric: <unk> believes there is a reasonable basis to appeal. This decision and is already requested a rehearing.
Karen Cedric: At Socal gas the CPUC issued a final decision authorizing the Aliso Canyon natural gas storage facility to operate at $68 6 billion cubic feet or 80% of the site to capacity.
Karen: It is also noteworthy to mention that STG&E was also once again recognized as the best in the West for electric customer reliability for the 19th consecutive year, another accomplishment we're quite proud of.
Karen Cedric: Representing approximately 11% of the state's overall storage capacity.
Karen: Operationally, we continue to see growing energy demand, and recently, the California Energy Commission issued a report projecting 2.8% annual growth in statewide electricity consumption from 2023 through 2030.
Karen Cedric: Ongoing operations will be subject to future CPUC review, but we believe this action confirms the valuable role natural gas continues to play in contributing to a stable and affordable, California energy grid. Please turn to the next slide.
Karen: which should have favorable impacts to customer affordability by putting downward pressure on rates.
Karen Cedric: Sempra California's capital plan totals over $22 billion through 2029.
Karen: In October, SDG&E submitted its T06 filing with FERC, including a 50-basis point California ISO adder. In December, FERC issued an order finding that SDG&E is not eligible for the ISO adder.
Karen Cedric: Major areas of investment include our wildfire mitigation energy storage and smart meter replacement initiatives.
Karen Cedric: We're also building new transmission lines under FERC three investing in the modernization of the Moreno and honor Rancho compressor stations and continuing to bolster safety through our gas pipeline safety and integrity management programs.
Karen: SDD&E believes there is a reasonable basis to appeal this decision and has already requested a rehearing.
Karen: At SoCalGas, the CPUC issued a final decision authorizing the Aliso Canyon Natural Gas Storage Facility to operate at 68.6 billion cubic feet, or 80% of the site's capacity, representing approximately 11% of the state's overall storage capacity.
Karen Cedric: As we look into the next decade, we see further opportunities to improve how we deliver our services through innovation and grid modernization efforts focused on safety reliability and affordable customer service Mauro.
Karen Cedric: Moreover, additional investments will be needed to support growing energy demand and economic development throughout the state. Please turn to the next slide.
Karen: Ongoing operations will be subject to future CPUC review, but we believe this action confirms the valuable role natural gas continues to play in contributing to a stable and affordable California energy grid. Please turn to the next slide.
Karen Cedric: Operationally simple, California has a track record of effectively mitigating risks and making innovative investments, which further our market position as a leader in delivering safe and reliable energy.
Karen: Semper California's capital plan totals over 22 billion dollars through 2029.
Karen Cedric: <unk> recently score as the most mature wildfire mitigation program across all international utilities.
Karen: Major areas of investment include our wildfire mitigation, energy storage, and smart meter replacement initiatives.
Karen Cedric: <unk> investments in wildfire mitigation have been instrumental in hardening our system based on advanced risk modeling and identified the most weather sensitive areas. Moreover, These advanced technologies also track wildfire risks throughout the year.
Karen: We're also building new transmission lines under FERC's authority, investing in the modernization of the Moreno and Honorancho compressor stations, and continuing to bolster safety through our gas pipeline safety and integrity management programs.
Karen Cedric: With an established leadership position in wildfire mitigation and data science, we commonly field questions about programs here in the states and I thought it'd be helpful to share our company's perspective in.
Karen: As we look into the next decade, we see further opportunities to improve how we deliver our services through innovation and grid modernization efforts focused on safety, reliability, and affordable customer service.
Karen Cedric: In 2019, the state established a wildfire fund under $10 54 to support the financial stability of Investor owned utilities.
Karen: Moreover, additional investments will be needed to support growing energy demand and economic development throughout the state. Please turn to the next slide.
Karen Cedric: When the fund was formed SGD initially contributed roughly $320 million.
Karen: Operationally, Semper California has a track record of effectively mitigating risks and making innovative investments which further our market position as a leader in delivering safe and reliable energy.
Karen Cedric: Since then <unk> has contributed just under $13 million annually as of today.
Karen Cedric: <unk> total contributions represent roughly 2% of the 21 billion dollar funds.
Karen: SDG&E recently scored as the most mature wildfire mitigation program across all international utilities.
Karen Cedric: FTE genius lower level of contributions reflect its lower risk profile two to three considerations there.
Karen: STG&E's investments in wildfire mitigation have been instrumental in hardening our system based on advanced risk modeling that identified the most weather-sensitive areas. Moreover, these advanced technologies also track wildfire risk throughout the year.
Karen Cedric: The relatively small size of <unk> service territory.
Karen Cedric: Like <unk> the predominate to this part of southern California, and the robust level of prior investments.
Karen: With an established leadership position in wildfire mitigation and data science, we commonly field questions about programs here in the state, and I thought it'd be helpful to share our company's perspective.
Karen Cedric: And he has made to materially mitigate wildfire risk.
Karen Cedric: Also it's important to note that SD Genie is not standing still.
Karen Cedric: The company continues to strengthen its capabilities with new investments in wildfire mitigation programs as well as newly developed technology and data science to support proactively monitoring and better protection for local communities.
Karen: In 2019, the state established a wildfire fund under AB 1054 to support the financial stability of investor-owned utilities.
Karen: When the fund was formed, SDGD initially contributed roughly $320 million.
Karen: Since then, SDG&E has contributed just under $13 million annually. As of today, SDG&E's total contributions represent roughly 2% of the $21 billion fund.
Karen Cedric: This played out during the recent weather events.
Karen Cedric: <unk> encountered substantially similar and in some cases worse red flag conditions, and what was experienced in the Los Angeles region.
Karen Cedric: <unk> successfully managed it systems safely and the company came through the events safely.
Karen: SDG&E's lower level of contributions reflect its lower risk profile due to three considerations.
Karen Cedric: Remember too that <unk> hasn't had utility cost wildfire of any significance for over 17 years.
the relatively small size of SDG&E Service Territory,
Karen: the desert-like topography that predominates this part of Southern California, and the robust level of prior investments SDG&E has made to materially mitigate wildfire risk.
Karen Cedric: Please turn to the next slide where Justin will provide an update on separate infrastructure. Thanks Karen.
Justin Bird: Political and market events continue to highlight and strengthen the value proposition of our sempra infrastructure platform.
Karen: Also it's important to note that SDG&E is not standing still.
Karen Cedric: And we're making the most of the opportunity.
Karen Cedric: We're making substantial progress on our dual basin LNG strategy through the construction of ACA LNG phase one port Arthur LNG phase, one and the active development of Port Arthur LNG Phase III.
Karen: The company continues to strengthen its capabilities with new investments and wildfire mitigation programs, as well as newly developed technology and data science that support proactively monitoring and better protection for local communities.
Karen Cedric: And when ACA and Port Arthur LNG Phase, one are up and running we will have the ability to deliver natural gas from the Permian and haynesville basins into our terminals and dispatch LNG into both the Pacific and Atlantic Energy markets.
Karen: This played out during the recent weather events where SCG&E encountered substantially similar, and in some cases worse, red flag conditions than what was experienced in the Los Angeles region.
Karen: SDG&E successfully managed its system safely and the company came through the event safely.
Speaker Change: And as the CEO I can tell you. This is an exciting time for Sempra infrastructure.
Karen: Remember, too, that SDHD hasn't had a utility-caused wildfire of any significance for over 17 years.
Speaker Change: First we delivered financial results at the high end of our range in 2024 and continued to generate strong distributable cash flow to our owners.
Karen: Please turn to the next slide where Justin will provide an update on SEMPRA infrastructure. Thanks, Karen. Geopolitical and market events continue to highlight and strengthen the value proposition of our SEMPRA infrastructure platform.
Speaker Change: Second construction on <unk> LNG phase one continues to progress and we expect to be on time and on budget in the spring of 2026.
Speaker Change: We also reached the <unk> on our <unk> pipeline supporting natural gas supply into ex LNG.
Speaker Change: and we're making the most of the opportunity. We're making substantial progress on our dual basin LNG strategy through the construction of ECHA LNG Phase 1, Port Arthur LNG Phase 1, and the active development of Port Arthur LNG Phase 2.
Speaker Change: Third construction on Port Arthur LNG phase, one with Bectal as our EPC contractor and our associated pipeline remain on time and on budget.
Speaker Change: And when ECHA and Port Arthur LNG Phase I are up and running, we'll have the ability to deliver natural gas from the Permian and Haynesville basins into our terminals and dispatch LNG into both the Pacific and Atlantic energy markets.
Speaker Change: Lastly, the development of Port Arthur LNG Phase II isn't an advanced development, we already have an HOA with Aramco that includes offtake of 5 million tons per annum, and a 25% equity interest we have a fixed price EPC agreement with bechtel.
Speaker Change: And as the CEO, I can tell you this is an exciting time for Sempra infrastructure.
Speaker Change: And we have interest of well over five <unk> for the rest of the capacity for phase III with this in mind, we're pleased to announce we're targeting FID in.
Speaker Change: First, we delivered financial results at the high end of our range in 2024 and continued to generate strong distributable cash flow to our owners.
Speaker Change: In 2025.
Speaker Change: Please turn to the next slide.
Speaker Change: Second, construction on ECHA LNG Phase 1 continues to progress and we expect to be on time and on budget in the spring of 2026.
Speaker Change: At Sempra infrastructure, we continue to focus on safety disciplined development and construction and operational excellence at Cameron, which is now in its fourth year of full production. The team continues to optimize its operations with the plant, reaching a 98% reliability rate in 2024.
Speaker Change: We also reached COD on our GRO pipeline supporting natural gas supply into ECHA LNG.
Speaker Change: Third, construction on Port Arthur LNG Phase 1 with Bechtel as our APC contractor and our associated pipeline remain on time and on budget.
Speaker Change: During 2020 for Cameron loaded 193, cargos and has now reached 895 cargoes since production began in May 2019.
Speaker Change: Lastly, the development of Port Arthur LNG Phase II is an advanced development.
Speaker Change: At Port Arthur LNG Phase, one we have 3600 workers on site.
Speaker Change: We already have an HOA with Aramco that includes offtake of 5 million tons per annum and a 25% equity interest
Speaker Change: Our building out the steel framework for the trains tank construction above ground and underground piping marine birth dredging and have commenced major equipment setting.
Speaker Change: We have a fixed-price EPC agreement with Bechtel, and we have interest of well over 5 MTPA for the rest of the capacity for Phase 2. With this in mind, we're pleased to announce we're targeting FID in 2025.
Speaker Change: We continue to target commercial operations for train one and train two in 2027 and 2028, respectively.
Please turn to the next slide.
Speaker Change: Okay LNG phase one we're excited that the project has reached 90% completion, including engineering procurement and construction progress current work is now focused on pipe testing and installation electrical instrumentation and pre commissioning activities. Please turn to the next slide.
Speaker Change: At Sempra Infrastructure, we continue to focus on safety, discipline development, and construction, and operational excellence.
Speaker Change: Turning to Sempra infrastructures updated capital plan, we estimate spending $4 billion through 2029.
Speaker Change: During 2024, Cameron loaded 193 cargoes and has now reached 895 cargoes since production began in May 2019.
Speaker Change: As a reminder per our convention, we only includes <unk> proportionate share of capital of projects that have reached FID.
Speaker Change: At Port Arthur LNG Phase 1, we have 3,600 workers on site, are building out the steel framework for the trains, tank construction, above ground and underground piping, marine berth dredging, and have commenced major equipment setting.
Speaker Change: And to be clear our plan is narrowly focused on investments in LNG assets with 16 million tons per annum of projected capacity as well as the supporting pipeline infrastructure.
Speaker Change: In the meantime, our renewable projects such as Cimarron represent a great way to layer in higher return projects with a shorter construction window to take advantage of the sempra infrastructures excess electric transmission capacity.
Speaker Change: We continue to target commercial operations for train 1 and train 2 in 2027 and 2028 respectively.
Speaker Change: At ECHA LNG Phase 1, we're excited that the project has reached 90% completion, including engineering, procurement, and construction progress.
Speaker Change: Overall, our assets have 18 years of average contract life remaining which gives us confidence in our ability to continue delivering recurring cash flows and value to our owners in the foreseeable future.
Speaker Change: Current work is now focused on pipe testing and insulation, electrical instrumentation, and pre-commissioning activities. Please turn to the next slide.
Please turn to the next slide.
Speaker Change: The development of Port Arthur LNG Phase II increases the value of our XI franchise. The brownfield expansion is expected to benefit from scale advantages and continuous construction under <unk> leadership.
Speaker Change: Turning to SEMPRA infrastructure's updated capital plan, we estimate spending four billion dollars through 2029. As a reminder, per our convention, we only include SEMPRA's proportionate share of capital of projects that have reached FID.
Speaker Change: Furthermore, phase II, we will benefit from the common facilities that will be completed in phase one and.
Speaker Change: And to be clear, our plan is narrowly focused on investments in LNG assets with 16 million tons per annum of projected capacity, as well as the supporting pipeline infrastructure.
Speaker Change: In combination we believe this translates into a lower cost and lower risk expansion of phase III.
Speaker Change: As I mentioned, we announced an HOA with Aramco for approximately half of the offtake, where they'd also participate in 25% of the project equity.
Speaker Change: In the meantime, our renewable projects, such as Cimarron, represent a great way to layer in higher return projects with a shorter construction window to take advantage of Semper infrastructure's excess electric transmission capacity.
Speaker Change: Additionally, we have well over 5 million tonnes per annum of interest for the remaining offtake and are confident in our ability to meet our customers' needs.
Speaker Change: Overall, our assets have 18 years of average contract life remaining, which gives us confidence in our ability to continue delivering recurring cash flows and value to our owners in the foreseeable future.
Speaker Change: Many of our stakeholders are eager for this project to succeed including Conocophillips as they mentioned in their recent earnings call.
Given recent commercial discussions for additional demand the momentum of project development and our continued expectation to receive the Doa non FTA permit we're excited to announce we're targeting a final investment decision later this year pending the execution of definitive commercial agreements obtaining permits and secure.
Please turn to the next slide.
Speaker Change: The development of Port Arthur LNG Phase II increases the value of our SI franchise. The brownfield expansion is expected to benefit from scale advantages and continuous construction under Bechtel's leadership.
Speaker Change: Furthermore, Phase 2 will benefit from the common facilities that will be completed in Phase 1. In combination, we believe this translates into a lower cost and lower risk expansion of Phase 2.
Speaker Change: <unk> financing among other factors. Please turn to the next slide over the long run our strategy is increasingly focused on the expansion of our dual base in LNG strategy.
Speaker Change: As I mentioned, we announced an HOA with the RAMCO for approximately half of the offtake, where they'd also participate in 25% of the project equity.
Speaker Change: Which could over time represent up to 98 million tons per annum, and total LNG exports, while significantly increasing the scope and scale of our business the.
Speaker Change: Additionally, we have well over 5 million tons per annum of interest for the remaining offtake and are confident in our ability to meet our customers needs.
Speaker Change: The timing and ultimate ownership Stakes in these projects will depend on market demand, which we believe will remain robust through 2040 for context LNG demand has grown 6% per annum over the last 25 years and going forward, we estimate that global demand to grow by up to another 350 million.
Speaker Change: Many of our stakeholders are eager for this project to succeed, including ConocoPhillips, as they mentioned in their recent earnings call.
Speaker Change: Given recent commercial discussions for additional demand, the momentum of project development, and our continued expectation to receive the DOE non-FTA permit,
Speaker Change: <unk> tons per annum through 2015.
Based on these forecasts and recent capital markets activity in the LNG infrastructure industry. We believe our infrastructure growth franchise continues to provide compelling value to <unk> shareholders.
Speaker Change: We're excited to announce we're targeting a final investment decision later this year pending the execution of definitive commercial agreements, obtaining permits, and securing financing, among other factors.
Speaker Change: Now please turn to the next slide where Karen will walk through the Sempra financial update thanks.
Speaker Change: Please turn to the next slide. Over the long run, our strategy is increasingly focused on the expansion of our dual-basin LNG strategy.
Speaker Change: Thanks, Justin earlier today, <unk> reported fourth quarter, 2024, GAAP earnings of $665 million or $1 <unk> per share.
Speaker Change: which could over time represent up to 90 million tons per annum in total LNG exports while significantly increasing the scope and scale of our business.
Speaker Change: This compares to fourth quarter, 2023, GAAP earnings of $737 million or $1 16 per share.
Speaker Change: The timing and ultimate ownership stakes in these projects will depend on market demand, which we believe will remain robust through 2040.
Speaker Change: On an adjusted basis fourth quarter, 2024 earnings were $960 million or $1 50 per share.
Speaker Change: For context, LNG demand has grown 6% per annum over the last 25 years, and going forward, we estimate that global demand could grow by up to another 350 million tons per annum through 2050.
Speaker Change: This compares to our fourth quarter 2023 earnings of $719 million or $1 13 per share.
Speaker Change: Full year 2024, GAAP earnings were $2.817 billion or $4 42 per share.
Speaker Change: Based on these forecasts and recent capital markets activity in the LNG infrastructure industry, we believe our infrastructure growth franchise continues to provide compelling value to SEMPRA's shareholders.
Speaker Change: This compares to 2023 GAAP earnings of $3 $30 million or $4 79 per share.
Speaker Change: Now, please turn to the next slide where Karen will walk through the SEMPRA financial update. Thanks, Justin. Earlier today, SEMPRA reported fourth quarter 2024 gap earnings of $665 million, or $1.04 per share.
Speaker Change: On an adjusted basis full year 2024 earnings were $2.969 billion.
Speaker Change: Or $4 65 per share.
Speaker Change: This compares to our previous full year 2023, adjusted earnings of $2 billion $920 million or.
Karen: This compares to fourth quarter 2023 gap earnings of $737 million, or $1.16 per share.
Speaker Change: Or $4 61 per share please turn to the next slide.
Speaker Change: Variances in our full year 2024, adjusted earnings compared to the same period last year can be summarized as follows.
Karen: On an adjusted basis, fourth quarter 2024 earnings were $960 million, or $1.50 per share.
Speaker Change: At Sempra, California, we had $46 million, primarily from higher electric transmission margin higher AFDC equity and higher CPUC base operating margin.
Karen: This compares to our fourth quarter 2020 free earnings of $719 million or $1.13 per share.
Speaker Change: And $157 million, primarily from higher income tax benefits from flow through items, including higher gas tax repair benefits, partially offset by higher net interest expense.
Karen: Full year 2024 GAAP earnings were $2,817,000,000 or $4.42 per share.
Karen: This compares to 2023 GAAP earnings of $3,030,000,000 or $4.79 per share.
Speaker Change: Turning to separate Texas, we had $43 million of higher equity earnings primarily from higher invested capital and customer growth.
Karen: On an adjusted basis, full year 2024 earnings were $2,969,000,000, or $4.65 per share.
Speaker Change: Partially offset by higher interest and operating expenses and lower consumption, primarily due to mild weather.
Speaker Change: Simpler infrastructure at $170 million of lower transportation earnings, including the cumulative impact of new.
Karen: This compares to our previous full year 2023 adjusted earnings of $2,920,000,000 or $4.61 per share. Please turn to the next slide.
Speaker Change: Apply optimization and lower volumes from the renewables business, partially offset by $50 million, primarily from lower net interest expense due to higher capitalized interest and higher income tax benefits.
Karen: Variances in the full year 2024 adjusted earnings compared to the same period last year can be summarized as follows.
Karen: At Semper California, we had 46 million dollars primarily from higher electric transmission margin, higher AFUDC equity, and higher CPUC based operating margin.
Speaker Change: At Sempra parent to $77 million net decrease is primarily due to higher net interest expense and lower income tax benefits.
Karen: and $157 million primarily from higher income tax benefits from flow-through items including higher gas tax repair benefits partially offset by higher net interest expense.
Speaker Change: Please turn to the next slide.
Now, let's turn to our planned investment over the next five years.
Speaker Change: Driven largely by growth at Sempra, Texas, our new record $56 billion capital plan represents an increase of 16% over the prior year plan.
Karen: Turning to Semper, Texas, we had $43 million of higher equity earnings, primarily from higher invested capital and customer growth, partially offset by higher interest in operating expenses and lower consumption, primarily due to mild weather.
Speaker Change: Capital investment remain overwhelmingly focused on our T&D infrastructure with over 90% allocated to our regulated utilities.
Karen: At Semper Infrastructure, we had $170 million of lower transportation earnings, including the cumulative impact of new tariffs going into effect in 2023, lower asset and supply optimization, and lower volumes for the renewables business.
Speaker Change: In Texas the growth is simply remarkable.
Speaker Change: And on top of that the regulatory construct continues to improve with 97% of our investments now being recoverable through efficient tracker mechanisms.
Speaker Change: Which diminished the impact of regulatory lag.
Speaker Change: At Sempra, California, with the <unk> final decision SD Genie in Socal gas are focused on executing the daily mission of delivering safe and reliable energy.
Karen: At sum per parent, the $77 million net decrease is primarily due to higher net interest expense and lower income tax benefits.
Speaker Change: As a reminder, our central infrastructure platform is underpinned by long term U S dollar denominated contracts that mitigate commodity and counterparty risk.
Please turn to the next slide.
Karen: Now let's turn to our planned investment over the next five years.
Speaker Change: And our infrastructure business provides a great opportunity to achieve attractive risk adjusted returns and long duration energy infrastructure projects.
Karen: Driven largely by growth at Semper Texas, our new record $56 billion dollar capital plan represents an increase of 16% over the prior year plan.
Speaker Change: With a long term tailwind we've discussed today you can see there is a consistent pipeline of new opportunities to deploy capital.
Karen: Capital investment will remain overwhelmingly focused on our T&D infrastructure with over 90% allocated to our regulated utilities.
Speaker Change: Which supports increased earnings power for each of our three platforms.
In Texas, the growth is simply remarkable.
Speaker Change: Although there is a lot of excitement about our growth opportunities, we remain committed to a disciplined capital allocation process in financing our growth as efficiently as possible.
Karen: And on top of that, the regulatory construct continues to improve, with 97% of our investments now being recoverable through efficient tracker mechanisms.
Speaker Change: Please turn to the next slide.
which diminish the impact of regulatory lag.
Speaker Change: One of the key takeaways from our capital plan is that we're projecting total 2020 for rate base of $56 billion to expand to over $91 billion by 2029.
Karen: At Semper, California, with the GRC final decision, SDG&E and SoCalGas are focused on executing the daily mission of delivering safe and reliable energy.
Speaker Change: Which amounts to a 10% compounded annual growth rate.
Karen: As a reminder, our SEMPR infrastructure platform is underpinned by long-term U.S. dollar denominated contracts that mitigate commodity and counterparty risk.
Speaker Change: Please turn to the next slide to cover our financing plan.
Speaker Change: As we've highlighted throughout the morning, we have a very large capital plan focused on key investment opportunities with a primary focus on Texas.
Karen: And our infrastructure business provides a great opportunity to achieve attractive risk-adjusted returns on long-duration energy infrastructure projects.
Speaker Change: Our sources and uses cost for a thoughtful mix of investable cash from operations debt and equity issuances capital investments and capital returns to shareholders.
Karen: With the long-term tailwinds we've discussed today, you can see there's a consistent pipeline of new opportunities to deploy capital.
Speaker Change: Consistent with past practice, our recurring cash flows provides the majority of funds plan for capital investments.
Karen: which supports increased earnings power for each of our three platforms.
Karen: Although there is a lot of excitement about our growth opportunities, we remain committed to a disciplined capital allocation process and financing our growth as efficiently as possible.
Speaker Change: You will recall that in late 2023, we sold approximately $1 3 billion of common stock.
Speaker Change: Settled at the end of last year.
Speaker Change: We also established our $3 billion ATM program in November of last year and sold approximately $270 million in equity under the program in the fourth quarter.
Please turn to the next slide.
Karen: One of the key takeaways from our capital plan is that we're projecting total 2024 rate base of $56 billion to expand to over $91 billion by 2029.
Speaker Change: The plan presented today is intended to provide strong support for our credit ratings with equity issuances and the front end of the plan and share repurchases on the backend.
which amounts to a 10% compounded annual growth rate.
Karen: Please turn to the next slide to cover our financing plan.
Jeff Martin: As Jeff will share later, we've historically grown our earnings faster than the sector, which requires a higher level of reinvestment in the business.
Karen: As we've highlighted throughout the morning, we have a very large capital plan focused on key investment opportunities with a primary focus on Texas.
Speaker Change: We have remained consistent in both our dividend strategy and our commitment to maintaining a strong balance sheet.
Karen: Our sources and uses calls for a thoughtful mix of investable cash from operations, debt and equity issuances, capital investments, and capital returns to shareholders.
Speaker Change: Please turn to the next slide.
Speaker Change: In response to requests from investors for a more fulsome view of <unk> financing plans. In addition to the prior slide which is our traditional view this.
Karen: Consistent with past practice, our recurring cash flows provide the majority of funds planned for capital investments.
Speaker Change: This slide provides more detail into our financing strategy.
Speaker Change: On capital recycling as we have demonstrated in the past, we will evaluate and execute on opportunities at Tempur infrastructure.
Karen: You will recall that in late 2023, we sold approximately $1.3 billion of common stock that settled at the end of last year.
Karen: We also established our three billion dollar ATM program in November of last year and sold approximately 270 million dollars in equity under the program in the fourth quarter
Speaker Change: With a view toward improving our regulated business mix over time in the future. We anticipate these opportunities could come from a variety of areas such as project equity.
and a lot of other people. Thank you. Thank you.
Speaker Change: Duane venture arrangements.
Karen: The plan presented today is intended to provide strong support for our credit ratings with equity issuances in the front end of the plan and share repurchases on the back end.
Speaker Change: Asset sales.
Speaker Change: Or further sell downs within the capital structure, a simpler infrastructure partners among other things.
Speaker Change: What's most important and we're going to remain focused on continuing to provide significant value for shareholders. As we look to fund our robust capital plan and the most efficient manner possible.
Karen: As Jeff will share later, we've historically grown our earnings faster than the sector, which requires a higher level of reinvestment in the business.
Karen: We have remained consistent in both our dividend strategy and our commitment to maintaining a strong balance sheet.
Speaker Change: Finally, we also remain committed to growing our dividend as part of our total shareholder return strategy.
Please turn to the next slide.
Karen: In response to requests from investors for a more fulsome view of SEMPRA's financing plans, in addition to the prior slide, which is our traditional view, this slide provides more detail into our financing strategy.
Speaker Change: And are now in our 15th consecutive year of dividend raises please turn to the next slide.
Speaker Change: To wrap up my remarks, let me discuss our 2025 and 2026 guidance.
Karen: On capital recycling, as we have demonstrated in the past, we'll evaluate and execute on opportunities at Semper Infrastructure.
Speaker Change: As Jeff noted earlier, we're revising our 2025 EPS guidance range to $4 30 to $4 70.
Karen: with a view toward improving our regulated business mix over time. In the future, we anticipate these opportunities could come from a variety of areas such as project equity,
Speaker Change: Our revised range contemplates oncor submitting for a base rate review this year, which impacts their tracker filings with the cases ongoing.
Speaker Change: Well there is a near term earnings headwind this year associated with the filing we believe it's the right business decision since encore as an important inflection point.
Karen: joint venture arrangements, asset sales, or further sell downs within the capital structure of Semper infrastructure partners, among other things.
Speaker Change: Precedented growth cycle.
Karen: What's most important is we're going to remain focused on continuing to provide significant value for shareholders as we look to fund our robust capital plan in the most efficient manner possible.
Speaker Change: It's also important to note that the financial impact of higher growth at Encore has not fully reflected in the intermediate term financial results due to regulatory lag.
Speaker Change: However, we know overtime, the Texas will realize increased benefits of this growth and continue to be a larger an important contributor of sampras earnings mix.
Karen: Finally, we also remain committed to growing our dividend as part of our total shareholder return strategy.
Karen: and are now in our 15th consecutive year of dividend raises. Please turn to the next slide.
Speaker Change: Beyond the adverse impacts of encore filing its base rate review there are other considerations impacting 2025 guidance.
Karen: To wrap up my remarks, let me discuss our 2025 and 2026 guidance.
Speaker Change: At Sempra, California.
Speaker Change: Were negatively impacted by the implementation of the <unk> final decision.
Karen: As Jeff noted earlier, we're revising our 2025 EPS guidance range to $4.30 to $4.70.
Speaker Change: A 42 basis point decrease in our return on equity determined by the CPUC related to the CCM as well as the FERC order, removing 50 basis points, California, ISO adder to transmission related Roe.
Karen: A revised range contemplates ENCQOR submitting for a base rate review this year, which impacts their tracker filings while the case is ongoing.
Karen: While there is a near-term earnings headwind this year associated with the filing, we believe it's the right business decision since Encore entered an important inflection point in an unprecedented growth cycle.
Speaker Change: Moving to simpler infrastructure are the two main variables factoring into the lower guidance or the delay and echo LNG phase one Coa until spring of 2026.
Speaker Change: And recent changes to assumptions for natural gas prices.
Karen: It's also important to note that the financial impact of higher growth at Encore is not fully reflected in the intermediate term financial results due to regulatory lag.
Speaker Change: This will be partially offset by the optimization of transportation capacity.
Speaker Change: Finally, a parent and other we have assumed higher interest expense as a result of higher capital investments in 2025 and weight of the capital structure mix more towards higher rate hybrid security issuances.
Karen: However, we know over time that Texas will realize increased benefits of this growth and continue to be a larger and important contributor of STEMPRA's earnings mix.
Karen: Beyond the adverse impacts of ENCQOR filing its base rate review, there are other considerations impacting SEMPRS 2025 guidance.
Speaker Change: Please turn to the next slide.
Speaker Change: Looking to 2020, we're announcing projected midpoint earnings of over $3 3 billion.
Karen: at Semper California were negatively impacted by the implementation of the GRC Final Decision.
Speaker Change: As Echo LNG phase one and some are on win are expected to reach commercial operations.
Karen: A 42 basis point decrease in our return on equity, determined by the CPUC, related to the CCM. As well as the FERC order removing 50 basis points, California ISO adder, to transmission related ROE.
Speaker Change: And we start to see more benefits from encores increased investments, including the SRP.
Speaker Change: This results in our projected EPS range of $4 80 to $5 30.
Speaker Change: Based on 660 million shares outstanding.
Karen: Moving to SEMPERT infrastructure, the two main variables factoring into the lower guidance are the delay in ECHA LNG Phase 1 COD until spring of 2026, and recent changes to assumptions for natural gas prices.
Speaker Change: <unk> minor impacts from equity sales under our financing programs.
Speaker Change: To reiterate we delivered solid financial performance in 2024 and.
Speaker Change: And we remain extremely excited about the future.
Karen: This will be partially offset by the optimization of transportation capacity.
Speaker Change: Particularly with improved visibility to strong growth in the medium and long term.
Karen: Finally, at Parent & Other, we've assumed higher interest expense as a result of higher capital investments in 2025 and weighting the capital structure mix more towards higher rate hybrid security issuances.
Speaker Change: With our new capital plan presented today, we're raising our projected long term EPS growth rate to 7% to 9%.
Speaker Change: Please turn to the next slide where Jeff will finished with his closing remarks.
Speaker Change: Thank you Karen next I'd like to briefly summarize the key takeaways from today's call.
Please turn to the next slide.
Karen: Looking to 2026, we're announcing projected midpoint earnings of over $3.3 billion, as ECHA LNG Phase I and Cimarron Wind are expected to reach commercial operations.
Speaker Change: Over the last three decades, roughly 10% of public companies have been successful and consistently growing earnings faster than U S. GDP. That's why I've long believed that EPS growth in our sector and others is loosely correlated to GDP growth.
Karen: And we start to see more benefits from ENCQOR's increased investments, including the SRP.
Karen: This results in a projected EPS range of $4.80 to $5.30 based on 660 million shares outstanding, reflecting minor impacts from equity sales under our financing programs.
Speaker Change: Looking at this slide you can see this play out over the last 510, and 20 plus year time horizon.
Speaker Change: GDP has grown on average at 2% and over those same time periods. The utility sector has grown earnings per share in the range of 3% to 4%.
To reiterate, we delivered solid financial performance in 2024.
Speaker Change: In contrast over those same time periods Sempra has been successful in growing its adjusted earnings per share faster than both U S GDP and the utility sectors adjusted earnings.
Karen: And we remain extremely excited about the future, particularly with improved visibility to strong growth in the medium and long term. With our new capital plan presented today, we're raising our projected long-term EPS growth rate to 7 to 9 percent.
Speaker Change: Note too that we're one of the few companies in the utility sector, who have both number one announced a long term EPS growth forecast of 7% to 9% and also number two deliver that same level of growth over the short and long term.
Karen: Please turn to the next slide where Jeff will finish with his closing remarks.
Speaker Change: Thank you, Karen. Next, I'd like to briefly summarize the key takeaways from today's call. Over the last three decades, roughly 10% of public companies have been successful in consistently growing earnings faster than U.S. GDP.
Speaker Change: We've been able to accomplish this by emphasizing the importance of a clear corporate strategy disciplined capital allocation and efficient sourcing of capital, while also simplifying and de risking our business and advancing our culture of high performance.
Speaker Change: That's why I've long believed that EPS growth in our sector and others is loosely correlated to GDP growth.
Speaker Change: Looking at this slide, you can see this play out over the last 5, 10, and 20 plus year time horizons.
Speaker Change: To be clear, we have a bullish view of <unk> future growth and we believe we are in the right markets with the right strategy to continue posting strong financial results over the long term.
Speaker Change: U.S. GDP has grown on average at 2%, and over those same time periods, the utility sector has grown earnings per share in the range of 3 to 4%.
Speaker Change: Please turn to the next slide.
Speaker Change: In contrast, over the same time period, SEMPRA has been successful in growing its adjusted earnings per share faster than both U.S. GDP and the utility sector's adjusted earnings.
Speaker Change: In 2024, we delivered a total return of 21%.
Speaker Change: As shown on this slide Sempra has also delivered a solid total return over the last three years of 45%, which compares favorably to the utility sector. Please turn to the next slide.
Speaker Change: Note too that we're one of the few companies in the utility sector who have both, number one, announced a long-term EPS growth forecast of seven to nine percent and also, number two, delivered that same level of growth over the short and long term.
Speaker Change: There are two key takeaways here first there is a changing business mix within sensus earnings composition, where we're targeting higher exposure to U S investments and specifically regulated utilities.
Speaker Change: We've been able to accomplish this by emphasizing the importance of a clear corporate strategy, disciplined capital allocation, and efficient sourcing of capital, while also simplifying and de-risking our business and advancing a culture of high performance.
Speaker Change: Driven by our portfolio of remarkable investment opportunities in Texas are separate Texas platform is projected to account for over half of our record $56 billion five year capital plan.
Speaker Change: To be clear, we have a bullish view of Semper's future growth, and we believe we're in the right markets with the right strategy to continue posting strong financial results over the long term.
Speaker Change: Given the plan that Alan outlined today, and a clear line of sight to significant new investments that fall outside of encores $36 billion plan. We are taking concrete steps to firmly set our growth strategy around the Texas market that includes setting an aspirational goal of producing one half of <unk>.
Please turn to the next slide.
Speaker Change: In 2024, we delivered a total return of 21%. As shown on this slide, SEMPRA has also delivered a solid total return over the last three years of 45%, which compares favorably to the utility sector. Please turn to the next slide.
Speaker Change: Earnings from Texas by the end of the decade.
Speaker Change: Please turn to the next slide.
Speaker Change: Earlier I'll review the strength of our recent total return on this slide you can see that Sempra has been successful and posting strong total returns that compete favorably to the utility sector and the broader market over a longer time horizon, that's why from our perspective, the blueprint for long term value.
Thanks for watching!
Speaker Change: There are two key takeaways here. First, there is a changing business mix within SEMPRA's earnings composition where we're targeting higher exposure to U.S. investments and specifically regulated utilities.
Speaker Change: Asian comes from investing in good businesses running them well building leadership positions in key economic markets allocating excess cash flow wisely and compounding returns over long periods of time.
Speaker Change: Second, driven by a portfolio of remarkable investment opportunities in Texas, our Semper Texas platform is projected to account for over half of our record $56 billion five-year capital plan.
Speaker Change: Given the plan that Allen outlined today and the clear line of sight to significant new investments that fall outside of Encore's $36 billion plan, we are taking concrete steps to firmly set our growth strategy around the Texas market.
Speaker Change: At this point I'll pause and we'll take a moment to open up the line to take your questions.
Speaker Change: That includes setting an aspirational goal of producing one half of SEMPRA's earnings from Texas by the end of the decade. Please turn to the next slide.
Speaker Change: Thank you for joining today's call before opening.
Speaker Change: The Q&A I want to make a few supplemental remarks.
Speaker Change: We passed out a lot of new information this morning, and the changes in assumptions or calls and impacts your financial model and also a lot of frustration. So let me start off by apologizing, we have lowered our guidance in 2025 due to a series of issues, most notably key changes in our planning assumptions in the last couple of months.
Speaker Change: Earlier, I reviewed the strength of our recent total return. On this slide, you can see that Sempra has been successful in posting strong total returns that compete favorably to the utility sector and the broader market over a longer time horizon.
Speaker Change: That's why, from our perspective, the blueprint for long-term value creation comes from investing in good businesses, running them well, building leadership positions in key economic markets,
Speaker Change: First the California Trc came in in late December below our planning assumptions, particularly on the front end of the plan. We do have opportunities however to support stronger growth from separate California in the back half of the plan as we get recovery from the investments, we're making outside the JRC base revenues.
Speaker Change: allocating excess cash flow wisely and compounding returns over long periods of time.
Speaker Change: At this point, I'll pause and we'll take a moment to open up the line to take your questions.
Speaker Change: Second based on the FERC decision on December 31, we have removed the FERC tie so adder from our expected return on our transmission assets in California, and finally and this is an important one we think it's the right decision for Oncor to go back and early for a base rate review to reset its cost structure and that puts downward.
Speaker Change: Thank you for joining today's call. Before opening up the Q&A, I want to make a few supplemental remarks.
Speaker Change: I know we've passed out a lot of new information this morning and the changes in assumptions are causing impacts to your financial models and also a lot of frustration, so let me start off by apologizing.
Speaker Change: Pressure on those earnings forecast for this year.
That decision will be made by the encore team later this spring.
Speaker Change: Now turning to guidance, we had the opportunity to continue a 6% to 8% growth rate off a 2024 actuals I'd like to repeat that.
Speaker Change: We have lowered our guidance in 2025 due to a series of issues, most notably key changes in our planning assumptions in the last couple months. First,
Speaker Change: We could have maintained a 6% to 8% growth rate, but we chose not to because we have fundamentally raised our expectation of the earnings power of this business over the long term.
Speaker Change: The California GRC came in in late December below our planning assumptions, particularly on the front end of the plan.
Speaker Change: We do have opportunities, however, to support stronger growth from Sempra California in the back half of the plan as we get recovery from the investments we're making outside the GRC-based revenues.
Speaker Change: We have discussed this difference in view of long term growth on previous earnings calls, but at Sempra. Our long term growth forecast represents the growth we expect to produce over a sustained period of time and this higher growth environment, We believe that range of seven 9% and we've appropriately raised our guidance.
Speaker Change: Second, based on the FERC decision on December 31, we have removed the FERC TISO adder from our expected return on our transmission assets in California.
Speaker Change: Turning now to our current five year plan, we expect to grow earnings per share at 9% or higher and we expect the earnings contribution from Texas, which is more valued in the market to significantly increase as a part of our overall earnings mix with encores rate base roughly doubling over the plan period.
And finally, and this is an important one...
Speaker Change: We think it's the right decision for ENCQOR to go back in early for a base rate review to reset its call structure, and that puts downward pressure on their earnings forecast for this year. That decision will be made by the ENCQOR team later this spring.
Thank you.
Speaker Change: Now, turning to guidance, we had the opportunity to continue a 6 to 8 percent growth rate off of 2024 actuals.
Speaker Change: Before I close out let me tell you why we're confident in our plan and producing results well above what we've talked about today number one as Karen talked about in her prepared remarks. The most important way to finance growth is through operating cash flows. That's why we have various initiatives underway at our company to improve our cost structure and.
Speaker Change: I'd like to repeat that. We could have maintained a 6 to 8 percent growth rate, but we chose not to because we have fundamentally raised our expectation of the earnings power of this business over the long term.
Speaker Change: We have discussed this difference in view of long-term growth on previous earnings calls, but at Sempera, our long-term growth forecast represents the growth we expect to produce over a sustained period of time.
Speaker Change: Our financial returns improved financial returns will improve our long term growth number two as Alan outlined his team expects to add another $12 billion to the capital plan. It is important to be clear here that as incremental capital that is expected within the plan period between 2025.
Speaker Change: In this higher growth environment, we believe that range is 7-9% and we've appropriately raised our guidance.
Speaker Change: Turning now to our current five-year plan, we expect to grow earnings per share at 9% or higher, and we expect the earnings contribution from Texas, which is more valued in the market, to significantly increase as a part of our overall earnings mix.
Speaker Change: In 2029.
Speaker Change: Third Port Arthur Phase two is not included in the plan, but we certainly expect that project to move forward. Later. This year you will recall, we have a very conservative practice of only putting projects in the plan at Sempra infrastructure.
with Encore's rate base roughly doubling over the planned period.
Speaker Change: After they have reached a final investment decision and finally number four in our utility segments. There are other plant opportunities related to authorized Roe.
Speaker Change: Before I close out, let me tell you why we're confident in our plan and producing results well above what we've talked about today. Number one, as Karen talked about in her prepared remarks,
Speaker Change: And capital structure as well as other improvements to the applicable regulatory construct.
Speaker Change: The most important way to finance growth is through operating cash flows.
Speaker Change: In conclusion.
Speaker Change: We have lowered our guidance for 2025, but the key takeaway is we expect to produce stronger earnings per share growth in the future conservatively, we expect to produce 9% or higher through 2029, and it will disproportionately come from separate Texas.
Speaker Change: That's why we have various initiatives underway at our company to improve our call structure and our financial returns. Improved financial returns will improve our long-term growth.
Speaker Change: Number two, as Alan outlined, his team expects to add another $12 billion to their capital plan. It's important to be clear here, that is incremental capital that is expected within the plan period between 2025 and 2029.
Speaker Change: Stop at this point to the operator can open the call and we'd be glad to take your questions.
Speaker Change: Thank you. This concludes the prepared remarks, we will now open the line to take your questions. Please.
Speaker Change: Third, Port Arthur Phase 2 is not included in the plan, but we certainly expect that project to move forward later this year. You'll recall we have a very conservative practice of only putting projects in the plan at Semper Infrastructure.
Speaker Change: 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.
Speaker Change: Please make sure your mute function is turned off we'll pause for just a moment to allow everyone to signal for questions.
Speaker Change: after they have reached a final investment decision. And finally, number four, in our utility segments, there are other plan opportunities related to authorized ROEs and capital structure, as well as other improvements to the applicable regulatory construct.
Speaker Change: And our first question will come from Shar <unk> from Guggenheim Partners. Your line is open.
Speaker Change: Morning, Shar good morning, guys good morning, Jeff.
In conclusion...
Speaker Change: So just maybe starting off on the 25 Rebase. This just three pieces I want to reconcile there.
Speaker Change: We have lowered our guidance for 2025, but the key takeaway is we expect to produce stronger earnings per share growth in the future. Conservatively, we expect to produce 9% or higher through 2029, and it will disproportionately come from SempraTexas.
Speaker Change: First is the plan embedding lower rate base growth in California is that partially moved to future plan years, and then similarly in Texas does the higher interest in investment cost in 'twenty five reverse with the potential base rate filing and then third the natural gas sensitivity that remains with S. P. What was assumed.
Speaker Change: I'll stop at this point so the operator can open the call, and we'd be glad to take your questions.
Speaker Change: Thank you. This concludes the prepared remarks. We will now open the line to take your questions. Please limit your questions to one question and one follow-up. If you would like to ask a question, please signal by pressing star 1-1 on your telephone keypad.
Speaker Change: Versus the downward revision for 25, there. Thanks, Adam it's a loaded question, but it's just.
Speaker Change: Yeah. Thanks.
Speaker Change: Sure. There is no question, our revised guidance falls below the prior expectations. We've set that being said I think we're making the right decision for the business, particularly looking to bring encore in earlier for a base rate review the answers to your question are yes, yes, and we have not disclosed the third answer what I thought.
Speaker Change: Please make sure your mute function is turned off. We will pause for just a moment to allow everyone to signal for questions.
Thank you.
Speaker Change: And our first question will come from Ashar Peraza from Guggenheim Partners. Your line is open.
Speaker Change: It might be helpful is to see if Karen can go through a little bit more detail Caren. If you want to return to slide 42, it might be helpful to walk through the key drivers to our 2025 guidance.
Good morning, Shar. Good morning, guys. Good morning, Jeff.
Speaker Change: So, just maybe starting off on the 25 rebates, there's just three pieces I want to reconcile there. First, is the plan embedding lower rate-based growth in California or is that partially moved to future plan years?
Karen Cedric: Sure. Thanks, Jeff. So I think we just finished finalize the five year plan with our board last week and there was a Q2 key items that each business platform. So the first one that Jeff talked about and some of our Texas. Our plan assumes that oncor dose file this comprehensive our base rate review rather than waiting until 2027.
and then similarly in Texas.
Speaker Change: Does the higher interest and investment cost in 25 reverse with the potential base rate filing? And then third, the natural gas sensitivity that remains at SIP, what was assumed versus the downward revision for 25 there? Thanks. I mean, it's a loaded question, but it's just around the...
Speaker Change: Among other things.
Speaker Change: It also provides the opportunity to update our revenue requirements to reflect the higher O&M insurance costs and interest expense that theyre seeing.
Speaker Change: Look, Char, there's no question our revised guidance falls below the prior expectation that we've set.
Speaker Change: With the unprecedented growth in Texas, we think it makes sense to buy a more periodic rate cases to ensure the company's financial strength and while this is a negative for 2025, we think it's the right thing to do for Texas future growth.
Speaker Change: That being said, I think we're making the right decision for the business, particularly looking to bring Encore in earlier for a base rate review.
Speaker Change: The answers to your question are yes, yes, and we have not disclosed the third answer. What I thought might be helpful is to see if Karen can go through a little bit more detail, Karen. If you want to return to slide 42, it might be helpful to walk through the key drivers to our 2025 guidance.
Speaker Change: Turning to California, we have adjusted our financial forecast to include the final decision on the JRC, which came in below the assumptions that were included in our prior plan.
Speaker Change: Also it's important to note that the CPUC lowered the authorized return on equity.
Speaker Change: 42 basis points for 2025, that's in addition to the FERC.
Speaker Change: A 50 point basis point peso, Adam and Jeff spoke about.
Speaker Change: In combination these three items put downward pressure on our previous forecast for Central California.
Speaker Change: Then of course, it I'm, sorry last year, we announced the change in the expected schedule for commercial operations at <unk>.
Speaker Change: <unk> spring 2020.
Speaker Change: And finally inherent we're seeing higher interest expense from growth in our capital plan as well as updated assumptions related to changes in interest rates over the prior year's forecast.
Speaker Change: as well as the higher O&M, insurance costs, and interest expenses. With the unprecedented growth in Texas, we think it makes sense to file more periodic rate cases to ensure the company's financial strength. And while this is a negative for 2025, we think it's the right thing to do for Texas future growth.
Speaker Change: Given all of these impacts it was important for us to reset our 2025 guidance and create a new base for our expected growth. Yes. Thank you, Kevin and Charles to your third question, obviously, our natural gas price assumption has gone down across the plan period.
Speaker Change: Turning to California, we have adjusted our financial forecast to include the final decision on the GRC, which came in below the assumptions that were included in our prior plan.
Speaker Change: Got it got it and then just lastly, shifting adjusted the forward view, you're highlighting the upside in Texas that is material and longer term on the S&P side with port Arthur going into service and Port Arthur to now on an F. D track I guess, the incremental to the new 7% to 9% plan what does that imply for where you are in.
Speaker Change: Also it's important to note that the CPUC lowered the authorized return on equity by 42 basis points for 2025. That's in addition to the FERC 50-point basis point CISO adder that Jeff spoke about.
Speaker Change: In combination, these three items put downward pressure on our previous forecast for Sempere, California. And then, of course, at SI last year, we announced a change in the expected schedule for commercial operations at ECA L&G to spring of 2026.
Speaker Change: The range coming off the lower base, especially these incremental items come into plan and I'm asking more around the current trajectory not beyond 29 can you breach the 9% in the current trajectory. Thanks.
Speaker Change: Yes sure. Thank you for that question in the supplemental remarks I made earlier on this call clarified that we fully expect in the 2025 to 2029 plan to be at 9% or higher as a CAGR calls that plan period, but remember as we've always talked about we tend to guide our EPS forecast.
Speaker Change: And finally, as parent, we're seeing higher interest expense from growth in our capital plan, as well as updated assumptions related to changes in interest rates over the prior year's forecast.
Speaker Change: Given all these impacts, it was important for us to reset our 2025 guidance and create a new base for our expected growth. Yeah, thank you, Karen. And Shara, to your third question, obviously our natural gas price assumption has gone down across the plan period.
Speaker Change: Over long periods of time at 79%. It just so happens that in the plan period, we fully expect to exceed that.
Speaker Change: Fantastic. Thank you guys. So much appreciate it thank you shar.
Speaker Change: Thank you.
Speaker Change: and longer term on the SAP side with Port Arthur going into service.
Speaker Change: Our next question will come from Nick Campanella from Barclays. Your line is open hi, Nick.
Speaker Change: Port Author 2 now on an FID track. I guess the incremental to the new seven to nine percent plan
Speaker Change: Rick.
Speaker Change: Hey, good morning, everyone or good afternoon. Thanks for taking the time. So I just wanted to touch on you are raising your rate base CAGR about 1% and I understand you have to finance a lot of this capital and there is lag in Texas.
Speaker Change: What does that imply for where you are in the range coming off the lower base, especially these incremental items coming to plan? And I'm asking more around the current trajectory, not beyond 29. Can you breach the 9% in the current trajectory?
Speaker Change: But 1% increase in the rate base CAGR for roughly 10% or more cut in EPS expectations, just seems somewhat counterintuitive and I know that you said you can get back your within the six to eight off of 2024. When you look back to the original plan you can get there, but even using the high end.
Speaker Change: Yes, JR. Thank you for that question. In the supplemental remarks I made earlier on this call, I clarified that we fully expect in the 2025 to 2029 plan to be at 9% or higher as a CAGR across that plan period.
Speaker Change: But remember, as we've always talked about, we tend to guide our EPS forecast over long periods of time at 7 to 9 percent. It just so happens that in the planned period, we fully expect to exceed that.
Speaker Change: Of the seven to nine plan.
Speaker Change: It doesn't imply that you really back in that range until 29, I could add something wrong with the math there, but just why is it prudent to invest.
Speaker Change: Much about capital and for shareholders to kind of take this much paying upfront for that capital. Thank you. Yes, yes. Thank you Nick for the question.
Thank you.
Speaker Change: Fantastic. Thank you guys so much. Appreciate it. Thank you, Char.
Thank you.
Speaker Change: A couple of points there as we did clarify that we could have maintained a 6% to 8% long term EPS growth rate off a 2024 actuals and that gives you some sense about how we're thinking about the future.
Speaker Change: Our next question will come from Nick Campanella from Barclays. Your line is open. Hi, Nick.
Speaker Change: It's fundamentally changed and has higher growth environment for all utilities is we think we have the opportunity for sustained EPS growth at levels above 6% to 8% and we've got it into the long term for that for that range.
Speaker Change: In the plan that we're talking about we will not produce 7% to 9%, we expect to produce 9% or higher and to your point. There is no question in the front end of our financial results has been impacted we've got a lot of work to do as a management team to grind through 2025 to exceed expectations and come back in 2020.
Speaker Change: somewhat counterintuitive and you know, I know that you said you can get back, you were within the six to eight off of 2024. When you look back to the original plan, you can get there, but even using the high end of the seven to nine plan, you know
Speaker Change: It doesn't imply that you're really back in that range until 29. I could have something wrong with the math there, but just why is it prudent to invest?
Speaker Change: Six and do it again, but long term there is a fundamental view on our company that we have the opportunity to produce higher earnings and higher earnings per share than we've done historically and Thats why were guiding to above the 9% range for the 2025 to 2029 period now let me give you. An example, so bull.
Speaker Change: this much amount of capital and for shareholders to kind of take this much pain up front for that capital. Thank you.
Speaker Change: Thank you, Nick, for the question. You hit on a couple points there. We did clarify that we could have maintained a 6% to 8% long-term EPS growth rate off of 2024 actuals, and that gives you some sense about how we're thinking about the future.
Speaker Change: If you'll allow me.
Speaker Change: <unk> go back to Encore. This is one of the upsides to our plan and I think it's very important to be clear about what our expectations are.
Speaker Change: What's fundamentally changed in this higher growth environment for all utilities?
Speaker Change: is we think we have the opportunity for sustained EPS growth at levels above 6 to 8 percent.
Speaker Change: Oncor has a base plan of $36 billion as shown on slide 14. This is a conservative view and generally covers only three areas. The planned investment Nick first approved investments inside SRP.
Speaker Change: and we've got it into the long term for that range.
Speaker Change: in the plan that we're talking about, we will not produce.
7-9%. We expect to produce 9% or higher.
Speaker Change: Number two capital investments were all regulatory approvals are already in hand, and capital needed to satisfy large C&I transmission request that are subject to an existing can interconnection or other agreement.
And to your point,
Speaker Change: There's no question that the front end of our financial results has been impacted.
Speaker Change: We've got a lot of work to do as a management team to grind through 2025.
to exceed expectations.
Speaker Change: Within that same planning horizon 2025 to 2029 again 2025 to 2029 Oncor management expects to make additional capital investments totaling $20 12 billion and Thats really important and I am just call. It ballpark. It for you, but if you run that through the waterfall of the earned ROE in their existing.
and come back in 2026 and do it again.
Speaker Change: But long term, there's a fundamental view in our company that we have the opportunity to produce higher earnings.
Speaker Change: and higher earnings per share than we've done historically, and that's why we're guiding to above the 9% range for the 2025 to 2029 period. And let me give you an example of why I'm so bullish, if you'll allow me.
Speaker Change: Equity layer, that's $400 million to $500 million of upside earnings that we're talking about coming from that capital and you can see that reflected on slide 15.
Speaker Change: Number one, go back to encore. This is one of the upsides to our plan and I think it's very important to be clear about what our expectations are.
Speaker Change: Allow me to talk about Nick what some of those incremental opportunities are that are expected by the oncor management team. There are seven of them number one updates to the roll forward system resiliency plan for calendar year 'twenty eight 'twenty nine youll recall that SRP today finishes in 2027 roughly <unk>.
Speaker Change: Encore has a base plan of $36 billion. It's shown on slide 14. This is a conservative view and generally covers only three areas of planned investment, Nick. First, approved investments inside SRP.
Speaker Change: Number two, capital investments where all regulatory approvals are already in hand and capital needed to satisfy large CNI transmission requests that are subject to an existing interconnection or other agreement.
Speaker Change: Number two transmission investments in the Delaware basin load integration plan.
Speaker Change: We are waiting regulatory approval today.
Speaker Change: Transmission projects required by the local plan within the Permian Basin reliability study or regulatory approvals are also pending and similarly important pathways arising from the Permian basin reliability study.
Speaker Change: Within that same planning horizon of 2025 NIC to 2029, again, 2025 to 2029, Encore Management expects to make additional capital investments totaling $2012 billion.
Speaker Change: There are three more new transmission projects for customers, who were expected assigned interconnection or other agreements and.
Speaker Change: And that's really important, and I'm just going to ballpark it for you. But if you run that through the waterfall of their earned ROE and their existing equity layer, that's $400 to $500 million of upside earnings that we're talking about coming from that capital. And you can see that reflected on slide 15.
Speaker Change: And number six new transmission identified in ERCOT strategic transmission expansion plan. They are expected within the planning period, and finally additional maintenance and distribution upgrades. When we acquired the majority of encore in 2018 the rate base was $12 billion today has more than doubled to 26 billion.
Speaker Change: So, allow me to talk about, Nick, what some of those incremental opportunities are that are expected by the Encore management team. There's seven of them.
Speaker Change: And we expect it to double again to over $52 billion by 2029 and that $52 billion does not have the $12 billion of initial investments that are now expected. When you take the base plan together with the additional capital opportunities outlined oncor expects to invest approximately $48 million in electrical network through <unk>.
Speaker Change: Number one, updates to the Roll Forward System Resiliency Plan for calendar years 28 and 29. You'll recall that SRP today finishes in 2027, roughly.
Speaker Change: Number two, transmission investments in the Delaware Basin Load Integration Plan. They are awaiting regulatory approval today.
Speaker Change: Transmission projects required by the local plan within the Permian Basin Reliability Study, where regulatory approvals are also pending, and similarly, import pathways arising from the Permian Basin Reliability Study.
Speaker Change: 29.
Speaker Change: I hope that's helpful.
Speaker Change: Thanks for the information.
Speaker Change: And then I guess moving to the equity needs.
Speaker Change: Let me clarify it seems like there's a lot of equity in the front part of the plan that.
Speaker Change: There are three more. New transmission projects for customers who are expected to sign interconnection or other agreements.
Speaker Change: Is that going to be would you consider a block.
Speaker Change: Then you kind of talk about buying back stock.
Speaker Change: In footnote two the sources and uses and I heard you in the prepared remarks Caron.
Speaker Change: If you are issuing equity and repurchasing equity in the same five year plan, where does the balance sheet stand in the near term and why is that the right kind of strategy here. Thank you, yes, Nick I'll address that and Ken you can come in if I. If you like how do you think that my comment, but I would refer you to slide 33, Nick.
Speaker Change: When we acquired the majority of Encore in 2018, their rate base was $12 billion.
Speaker Change: Today it's more than doubled to $26 billion, and we expect it to double again to over $52 billion by 2029. And that $52 billion does not have the $12 billion of initial investments that are now expected.
Speaker Change: Our equity needs are substantially similar to what we had outlined on a net basis.
Speaker Change: Over the last couple of years.
Speaker Change: When you take the base plan together with the additional capital opportunities outlined, Encore expects to invest approximately $48 billion in an electrical network through 2029.
Speaker Change: The three things I'd focus on is the most efficient source of financing as always our operating cash flow. We have a number of different initiatives in place to improve returns and lower cost. So we can maximize our internally generated cash flows that will be a priority and a core part of our financing plan second we will look to issue new debt as well as new hybrids that gets shipped.
I hope that's helpful.
Thank you.
Speaker Change: Thanks for the information and then I guess just moving to the equity needs.
Speaker Change: Can you clarify, you know, it seems like there's a lot of equities in the front part of the plan. Is that going to be, would you consider a block? And then you kind of talk about buying back stocks. And footnote two, the sources and uses, and I heard you in the prepared remarks, Karen.
Speaker Change: Percent equity treatment and to your point I'll, let sue.
Speaker Change: Specifically to it you'll recall.
Speaker Change: Last quarter, we established an ATM program to provide additional financing flexibility we plan to use that program and other sources of equity financing, including asset sales at Sempra infrastructure. We've got an evaluation process underway focused in our Mexican assets and Thats something we will look to update the street on in the coming months.
Speaker Change: If you're issuing equity and repurchasing equity in the same five-year plan, where does the balance sheet stand in the near term, and why is that the right kind of strategy here?
Speaker Change: Yeah, Nick, I'll address that, and Karen, you can come in if you want to add anything to my comment. But I would refer you to slide 33, Nick.
Speaker Change: Orders.
Speaker Change: That can come in the form of selling down further in the capital structure at SaaS as well as.
Speaker Change: The expected asset sales are referenced.
Speaker Change: You know, our equity needs are substantially similar to what we've outlined on a net basis, you know, over the last couple of years. The three things I would focus on is the most efficient source of financing is always our operating cash flow. We have a number of different initiatives in place to improve returns and lower cost.
Speaker Change: Asset sales at or above the $1 billion level, we expect to issue $2 billion to $3 billion in net equity and that is reflected on slide 33.
Speaker Change: Each of these sources will be used to officially fund our capital plan.
Speaker Change: So we can maximize our internally generated cash flows. That will be a priority and a core part of our financing plan.
Speaker Change: Thank you.
Speaker Change: And our next question will come from Steve Fleishman from Wolfe Research. Your line is now open.
Speaker Change: Second, we'll look to issue new debt as well as new hybrids that get 50% equity treatment. And to your point, I want to speak specifically to it.
Speaker Change: Good morning, Steve Yeah, Okay. Thanks.
Speaker Change: You'll recall last quarter we established an ATM program to provide additional financing flexibility.
Speaker Change: Thanks for the question. So just could you give us some sense of where <unk> to debt.
Speaker Change: We plan to use that program and other sources of equity financing, including asset sales at Semper Infrastructure. We've got an evaluation process underway focusing on our Mexican assets, and that's something we'll look to update the street on in the coming months and quarters.
Speaker Change: Is it the I guess 24 and.
Speaker Change: 25, and just if you had a chance to.
Speaker Change: Yes.
Speaker Change: So with a new plan to the rating agencies and how that effects.
Speaker Change: Your view thanks.
Speaker Change: Sure one of the things we do Steve is we always coordinate our capital play out in our expected sources and uses usage closely with the rating agencies. This is obviously something we'll be meeting with them. In later this spring, but can perhaps you can just update Steve on where we're at in terms of current discussions sure. So I will say for 'twenty forward.
Speaker Change: That can come in the form of selling down further in the capital structure at SI as well as the expected asset cells that are referenced.
Speaker Change: Assuming asset sales at or above the $1 billion level, we expect to issue $2 to $3 billion in net equity, and that's reflected on slide 33. Each of these sources will be used to officially fund our capital plan.
Speaker Change: Are there metrics for Autodesk.
and Glen Donovan. Thank you.
Speaker Change: The main agencies, we are in constant discussions with them about our financial plan and Thats why in our sources and uses you saw that we had some equity in there that of course is to get us closer to those metrics that they're looking for Nf off all the debt.
Thank you.
Thank you.
Speaker Change: And our next question will come from Steve Fleischman from Wolfe Research. Your line is now open. Good morning, Steve. Yeah. Hey. Thanks for the question. So just, could you give us some sense of where FFO2Debt is at the, I guess, 24 and 25, and
Speaker Change: The other thing I would add Steve it's been helpful. Recently, as we crystallize the 2023 offering that we had in forwards on this at the end of December We also got some ATM.
25 and just if you had a chance to
Speaker Change: Equity and in the fourth quarter, and obviously, adding about $3 billion of hybrids last year was also helpful.
Speaker Change: shows the new plan of the rating agencies and how that affects their view.
Speaker Change: Okay.
Thanks.
Speaker Change: Yes.
Speaker Change: Sure, one of the things we do, Steve, is we always coordinate our capital plan and our expected sources and uses closely with the rating agencies. This is obviously something we'll be meeting with them in later this spring, but Karen, perhaps you can just update Steve on where we're at in terms of current discussions.
Speaker Change: Are you going to disclose what the <unk> that was our plan.
Speaker Change: Well we targeted.
Speaker Change: We target, obviously, 15% at S&P, and Karen and Glenn you would add anything else to that.
Speaker Change: Yeah.
Karen: Sure, so I will say for 24, we are below their metrics for FFO to debt for the main agencies. We are in constant discussions with them about our financial plan, and that's why in our sources and uses, you saw that we had some equity in there, and that, of course, is to get us closer to those metrics that they're looking for in FFO to debt.
Speaker Change: Yes, obviously.
Speaker Change: <unk> is too.
Speaker Change: Meet and exceed those metrics. So those are the discussions that we're having with the rating agencies right now and the equity that Jeff took you through is going to be what gets us there.
Speaker Change: So Steve I think we are comfortable in the plan that will meet our metrics for 2025.
Karen: The other thing I would add, Steve, that's been helpful recently is we crystallized the 2023 offering that we had in forwards at the end of December.
Speaker Change: Okay.
Speaker Change: Okay, and then on the earned returns in Texas.
Karen: We also got off some ATM equity in the fourth quarter, and obviously adding about $3 billion of hybrids last year was also helpful.
Speaker Change: Can you give us any flavor on just even in 'twenty six but by the time you do every relief kind of what earned ROE.
Speaker Change: Are you, earning and.
Speaker Change: You know like a.
Karen: Okay, but are you going to disclose what the FFO to debt was or in the plan?
Speaker Change: Rough cut it looks like there is still like 78% could be wrong, there, but just like how do you get those.
Glen Donovan: Well, you know, we targeted, you know, we target obviously 15% at S&P and Karen or Glen, you'll add anything else to that?
Speaker Change: Up towards the allowed.
Speaker Change: Yes. Thank you for the question for our audience, you'll recall that we've got a nine 7% authorized Roe.
Thank you.
Speaker Change: Because we have a we filed two different trackers, both for distribution and transmission each year, Steve you're noting it correctly, we've got regulatory lag at that business that impacts our earned ROE.
Speaker Change: Yeah, obviously our plan is to meet and exceed those metrics, so those are the discussions that we're having with the rating agencies right now, and the equity that Jeff took you through is going to be what gets us there.
Speaker Change: The second thing that impacts earned ROE as Steve is remember they have a backwards test year. So right now they're operating off of their 2021 cost structure. The most important thing is across that planning cycle. They will generally be between eight and 9% at some point in the five year plan. They are actually above 9% a couple of things are happening right SRP both the.
Speaker Change: So, Steve, I think we're comfortable in the plan that we'll meet our metrics for 2025.
Okay.
Okay, and then on the earned returns in Texas.
Speaker Change: Can you give us any flavor on just even in 26 but by the time you do have rate relief kind of what earned ROEs are you earning and
Speaker Change: Current SRP and the roll forward SRP for 28, and 29 are helpful. Plus we expect to do things relative to our ROE and equity layers and probably just as importantly is to true up our cost structure one of the things that they've gone through as they have historically not going in for rate cases on a periodic basis, but I think what's important now.
Speaker Change: you know like a rough cut looks like they're still like seven to eight percent but could be wrong there but just like how do you get those
up toward the allowed and when.
Speaker Change: They are going through so much growth, Steve as they build out their delivery capability. It is very important and we should assume that they come back in for more periodic rate cases. So we're comfortable that they'll have higher earned roes across the planning period.
Speaker Change: Yeah, thank you for the question. You know, for our audience, you recall that we've got a 9.7% authorized ROE. Because we have a, we file two different trackers, both for distribution and transmission each year. Steve, you're noting it correctly. We've got regulatory lag at that business.
Speaker Change: They run in that 8% to 9% and much closer to nine a little bit above or below that towards the end of the planning cycle.
that impacts our earned ROE.
Speaker Change: The second thing that impacts earned ROE, Steve, is remember they have a backwards test year, so right now they're operating off of their 2021 call structure.
Speaker Change: Okay.
Speaker Change: Last question just you know.
Speaker Change: Obviously this is a big reset to the prior plans and then you kind of highlighted now this 9% growth up from the seven to nine you said this morning, just what Jeff could you say when we talked to folks like.
Speaker Change: The most important thing is across that planning cycle, they will generally be between 8 and 9 percent. At some point in the five-year plan, they're actually above 9 percent.
A couple things are happening, right? SRP.
Speaker Change: Both the current SRP and the roll forward SRP for 28 and 29 are helpful, plus we expect to do things relative to our ROEs and EQUI layers.
Speaker Change: Youre going to see definitely to make sure.
Speaker Change: This 9% or better.
Speaker Change: Yes, a couple of things I appreciate you give them the opportunity to have the question as I think we've got the right strategy, Steve We've got a good financing plan, we've got a lot of growth and part of what you are challenged to do is just make sure you're allocating capital to the highest opportunities I think what we just went through with our board of directors and we just finalized our financial plan last week.
Speaker Change: And, probably just as importantly, is to true up our call structure. One of the things that they've gone through is they've historically not gone in for rape cases on a periodic basis.
Speaker Change: But I think what's important now is they're going through so much growth, Steve, as they build out their delivery capability. It's very important and we should assume that they come back in for more periodic rate cases.
Speaker Change: <unk> is making sure that we're allocating capital Steve just proportionately to the businesses, we think will earn the highest value on the street and Youre seeing us gear, our capital plan around growth at encore at our separate Texas segment. One of the most important things. We can do is continue to deliver better regulatory outcomes, we added <unk>.
Speaker Change: So, we're comfortable that they'll have higher earned ROEs across the planning period, but generally they run in that 8 to 9 percent and much closer to 9, a little bit above or below that toward the end of the planning cycle.
Okay.
Speaker Change: last question just you know obviously this is a big reset to the prior plans and then you've kind of highlighted now this 9% growth up from the 7 to 9 you said this morning just what Jeff could you say we talked to folks like
Speaker Change: Areas of regulatory outcomes at the end of 2024, and you'll recall that California rate case was supposed to be decided in December of 2023, so that put a lot more entropy into our financial plan. So I'd offer two things number one we need to finish our financial planning process earlier in the year number two.
Speaker Change: You're going to do definitely to make sure you hit this 9% or better.
Speaker Change: Yeah, a couple things. I appreciate you giving me the opportunity to have the question. I think we've got...
Speaker Change: We need to make sure that we're delivering better regulatory outcomes and number three which I feel very good about is we need to continue to allocate capital with a lot of discipline, where we can produce the best results.
Speaker Change: the right strategy, Steve, we've got a good financing plan, we've got a lot of growth, and part of what you're challenged to do is...
Speaker Change: is make sure you're allocating capital to the highest opportunities. I think what we just went through with our board of directors, we just finalized our financial plan last week.
Speaker Change: <unk> taken encore back in for a rate case, even though it pushes downward pressure on their returns. This year is the right thing for the business longer term. So just a little bit of a different view in terms of how you framed that as there is 100% chance that we have lowered our expectations for what we can produce and 25% and 26 <unk>.
Speaker Change: is making sure that we're allocating capital, Steve, disproportionately to the businesses we think will earn the highest value on the street. And you're seeing us gear our capital plan around growth at Encore and our Shipper Texas segment.
Speaker Change: Management issue I personally own that you should expect to see us fight and call to exceed expectations in 2025, and we should come back and do that again in 2026, but the key point I want to tell you is the earnings power of this business is higher today than it was a year ago. So you can focus on the 2000.
Speaker Change: One of the most important things we can do is continue to deliver better regulatory outcomes. We had a series of regulatory outcomes at the end of 2024, and you recall, Steve, that California rate case was supposed to be decided in December of 2023.
Speaker Change: So that put a lot more entropy into our financial plan. So I'd offer two things to you. Number one, we need to finish our financial planning process earlier in the year.
Speaker Change: 29 plan, but our longer term assumption of what we can produce in a higher growth environment has gone up and that's not really related to the reset of 2025, we see more earnings power in the business and what we need to do Steve is spend more time with our investors and the sell side to make sure Theres no asymmetry of knowledge.
Speaker Change: Number two, we need to make sure that we're delivering better regulatory outcomes. And number three, which I feel very good about, is we need to continue to allocate capital with a lot of discipline where we can produce the best results.
Speaker Change: And I think taking Encore back in for a rate case, even though it pushes downward pressure on their returns this year, is the right thing for the business longer term. So just a little bit of a different view in terms of how you frame that is.
Speaker Change: The planning numbers, we have in front of us are not exact planning numbers, you'll have visibility too. So I think part of the answer to your question is let's find ways to have more transparency. So that you have the same confidence that we do in the long term our long term earnings power of the business.
Speaker Change: There is a 100% chance that we have lowered our expectations for what we can produce in 2025 and 2026.
Speaker Change: Thank you I appreciate it.
Speaker Change: That's a management issue. I personally own that. You should expect to see us fight and claw to exceed expectations in 2025, and we should come back and do that again in 2026. But the key point I want to tell you is the earnings power of this business is higher today than it was a year ago.
Steve Fleishman: Thank you Steve.
Steve Fleishman: Yes.
Steve Fleishman: Thank you.
Steve Fleishman: And one moment for our next question. Please.
David Arcaro: Our next question will come from David Arcaro from Morgan Stanley. Your line is open.
Speaker Change: So, you can focus on the 2029 plan, but our longer-term assumption of what we can produce in a higher-growth environment has gone up.
David Arcaro: Good morning, David Hey, good morning, Thanks, so much for.
Steve Fleishman: Taking the question I guess, maybe a bit of a continuation of that last question is there a point in the plan, where you expect that crossover to meet kind of when you catch back up to the prior six to eight.
and that's not really related to the reset of 2025.
Speaker Change: We see more earnings power in the business, and what we need to do, Steve...
Speaker Change: EPS growth level.
Speaker Change: It's been more time with our investors and the sales side to make sure there's no asymmetry of knowledge. The planning numbers we have in front of us are not the exact planning numbers y'all have visibility to.
Speaker Change: Level.
Speaker Change: Look I'm not sure that we're providing the guidance as to where the crossover occurs I think what we're trying to express.
Speaker Change: We've really revise the long term view of the earnings per share growth rate that we can deliver while we're talking about inside our five year planning period, we expect to beat that rate of growth.
Speaker Change: So I think part of the answer to your question is, let's find ways to have more transparency so that you have the same confidence that we do in the long-term earnings power of the business.
Speaker Change: And that's really important I mean, even today and in the fifth year of our plan. We've got an earnings per share number that is well above the fifth year of last year's plan right. So what we're trying to do is make sure that we're getting the strength of our convictions about the business the ability to grow the business in the long term and we don't feel great about the 2025 guidance that it was the <unk>.
Thank you. Appreciate it. Thank you, Steve.
Thank you.
Thank you.
Thank you.
And one moment for our next question, please.
Speaker Change: Our next question will come from David Arcaro from Morgan Stanley. Your line is open.
Speaker Change: Right thing to do for the business our job now David is to make sure that we execute well and 25% and 26% to make sure we earn everyone's confidence.
Speaker Change: Good morning, David. Hey, good morning. Thanks so much for taking the question. I guess maybe a bit of a continuation of that last question. Is there a point in the plan where you expect that crossover to meet, kind of when you catch back up to the prior six to eight, you know, EPS growth?
Speaker Change: Yes understood.
Speaker Change: Appreciate the comments there and then maybe.
Speaker Change: To be able to touch on the that we've got.
Speaker Change: Active legislation active legislative backdrops, I guess in both Texas, and California here would you be able to touch on your thoughts around potential impacts or changes to the financial profile of Texas utilities based on any legislation that could come this session and then maybe.
level.
Speaker Change: Look, I'm not sure that we're providing the guidance as to where the crossover occurs. I think what we're trying to express is...
Speaker Change: We've really revised the long-term view of the earnings per share growth rate that we can deliver.
Speaker Change: While talking about inside a five-year planning period, we expect to beat that rate of growth.
Speaker Change: On the wildfire legislative backdrop in California any efforts there.
And that's really important. I mean, even today.
Speaker Change: Two to look for some more longer term changes to the wildfire.
Speaker Change: In the fifth year of our plan, we've got an earnings per share number that is well above the fifth year of last year's plan, right?
Speaker Change: Funding and protection.
Speaker Change: So what we're trying to do is make sure that we're guiding the strength of our convictions about the ability to grow the business in the long term.
Speaker Change: Sure. There is a variety of questions you have or what might be helpful. Is let me give you a little bit of visibility into where the growth is coming from in Texas, because I think thats reflective of the quality of the legislative session. We had.
Speaker Change: And we don't feel great about the 2025 guidance, but it was the right thing to do for the business. Our job now, David, is to make sure that we execute well in 2025 and 2026, to make sure we earn everyone's confidence.
Speaker Change: Two years ago, and I think that also impacts how Alan can talk about that but Alex you could do two things maybe provide a little bit of color about where youre seeing growth show up on the system and how that influences. Some of the regulatory initiatives will fall on the regulatory and legislative initiatives to fallen in Austin, Yeah. Sure. Thank you I know I talked a lot about <unk>.
Yeah, understood. Appreciate the comments there and then maybe...
Speaker Change: You know, would you be able to touch on the, we've got, um...
Speaker Change: In my prepared remarks, Bob it's unprecedented.
Speaker Change: Really unlike anything we've ever seen and I'll try to break it down in some categories and maybe provide some color and some context.
Speaker Change: impact or changes to the financial profile of Texas utilities based on any legislation that could come this session and then maybe
Speaker Change: First premise growth as I've said before continues to be around 2% annual.
Speaker Change: on the wildfire legislative backdrop in California, any efforts there to look for some more longer term changes to the wildfire funding and protection.
Speaker Change: We connected 77000, new premise in 'twenty four.
Speaker Change: A 5% year over year increase from 23.
Speaker Change: The story really continues to be transmission points of interconnection, where we set a record for new inactive transmission.
in the stage.
Speaker Change: Ms.
Speaker Change: Our Q.
Speaker Change: The total for 'twenty four is up above the total for 23 by about 28%.
Speaker Change: because I think that's reflective of the quality of the legislative session we had.
two years ago.
Speaker Change: And I think that also impacts how Alan can talk about that. But Alan, if you could do two things.
Speaker Change: Broken down into generation NL C&I, the two categories here generation in.
Speaker Change: Maybe provide a little bit of color about where you're seeing growth show up on the system and how that influences some of the regulatory initiatives you're following, regulatory and legislative initiatives you're following in Austin.
Speaker Change: 24 is up about 8% over where it was in December of 'twenty three.
Speaker Change: And then the real story continues to be on the L. C&I Q.
Speaker Change: Yes, sir, Jeff. Thank you. I know I talked a lot about growth in my prepared remarks, but it's unprecedented Really unlike anything we've ever seen and I'll try to break it down to some categories and maybe provide
Speaker Change: We're 24 numbers were up about 62% above where they were in December of 'twenty three.
Speaker Change: This this I'll C&I Q presently represents about 137 gigawatts of potential load.
Speaker Change: some color and some context. First, premise growth, as I said before, continues to be around 2% annual. We connected 77,000 new premise in 24 to 5% year-over-year increase from 23.
Speaker Change: Thats about a 250% increase over where we were in December of 'twenty three.
Speaker Change: Broken down two ways into two pieces, rather about 119 Gigawatts of that 137 total is data centers and about 18 Gigawatts as non data center more traditional C&I.
Speaker Change: The story really continues to be transmission points of interconnection where we set a record for new and active transmission POIs in our queue.
Speaker Change: The total for 24 is up above the total for 23 by about 28 percent.
Speaker Change: With regard to this potential I'll C&I load in 2024, we submitted to ERCOT a list of L. C&I customers that we had high confidence.
Speaker Change: broken down into Generation and LC&I, the two categories here. Generation in 24 is up about 8% over where it was in December of 23.
Speaker Change: And then the real story continues to be on the LC&I queue, where 24 numbers were up about 62% above where they were in December of 23.
Speaker Change: Later, so the likelihood of the potential load actually materializing. So in 2024, we submitted 25 gigawatts of high confidential at high confidence load rather.
Speaker Change: This LC&IQ presently represents about 137 gigawatts of potential load. That's about a 250% increase over where we were in December of 2023.
Speaker Change: In 2025, we increased that to two nine gigawatts of high confidence potential load.
Speaker Change: So when you look at our 25 high confidence load projection of 29, and you add that to the number of customers with whom we already have signed agreements involving collateral.
Speaker Change: broken down two ways into two pieces rather about 119 gigawatts of that 137 total is data centers and about 18 gigawatts is non data center more traditional LC&I
Speaker Change: That represents a potential new load of approximately 36 gigawatts on a system that presently peaks about 31, gigawatts. So we're looking at increasing potentially our peak load by about 200% or more by 2031 now.
Speaker Change: With regard to this potential LC&I load, in 2024 we submitted to ERCOT a list of LC&I customers that we had high confidence.
Speaker Change: An important component to that that factor or that fact, rather is that is L. C&I customers alone.
that they would eventually sign an agreement and post collateral.
Speaker Change: which we believe are clear key indicators of the likelihood of the potential load actually materializing. So in 2024, we submitted 25 gigawatts of high-confidence load.
Speaker Change: That growth number does not include residential growth does not include small commercial growth and it does include oil and gas growth that will come back to ultimately connect to the Permian project.
Speaker Change: So when Youre looking at our 36 billion five year capital plan right now.
Speaker Change: In 2025, we increase that to 29 gigawatts of high competent potential load.
Speaker Change: We only have about 12 gigawatts of that L. C&I load in the $36 billion plan with about eight five gigawatts of that being data.
Speaker Change: So, when you look at our 25 high confidence load projection of 29 and you add that to the number of customers with whom we already have signed agreements involving collateral.
Speaker Change: So to Jeff's point, when you look at the incremental bucket, we fully expect much of that $12 billion to ultimately build part of our base plan.
Speaker Change: That represents potential new load of approximately 36 gigawatts on a system that presently peaks about 31 gigawatts. So we're looking at increasing potentially our peak load by about 200% or more by 2031.
Speaker Change: I'll, just conclude by saying West, Texas remains very strong the far west, Texas, whether zone that set a new peak that was in 24 that was about 16% above the prior year peak and then with regards to.
Speaker Change: important component to that that factor or that fact rather is that is LC&I customers alone.
Speaker Change: Our two transmission loops that serve that area. The culberson new peak in 'twenty four was about 42% above the peak in 'twenty three.
Speaker Change: That growth number does not include residential growth, does not include small commercial growth, and it doesn't include oil and gas growth that will ultimately connect to the Permian project. So when you're looking at our $36 billion five-year capital plan right now,
Jeff Martin: And the stand peak was about eight 8% above the 23 peaks. So overall incredibly strong growth all over our system, which is really driving the increased cap numbers that Jeff just described I'm talking about regulatory initiatives are tracking legislation, yes, yeah. So we're early on in the Texas Legislative session.
Speaker Change: We only have about 12 gigawatts of that LC&I load in the $36 billion plan, with about 8.5 gigawatts of that being data.
Speaker Change: And we still have a long ways to go with committee hearings and Bill still being filed.
Speaker Change: So, to Jeff's point, when you look at the incremental bucket, we fully expect much of that $12 billion to ultimately be a part of our base plan.
Speaker Change: Some of the things that we're particularly interested in and are following.
Speaker Change: Various ideas related to the backlog an increase in large load customers much of which I just discussed.
Speaker Change: I'll just conclude by saying West Texas remains very strong. The far West Texas weather zone set a new peak that was N24 that was about 16 plus percent above the prior year peak. And then with regards to
Speaker Change: In particular issues.
Speaker Change: Issues related to cost allocation issues.
Speaker Change: For example, SP six.
Speaker Change: Proposals to reflect utility actual cap structures as reflected in recent financial filings.
Speaker Change: are two transmission loops that serve that area. The Culberson new peak in 24 was about 42% above the peak in 23.
Speaker Change: Such as HP 2668, we think this would be an important step because it would shore up the balance sheets of the state's utilities. During this high period of really strong growth.
Speaker Change: and the Stanton peak was about 8.8% above the 23 peak.
Speaker Change: Overall, incredibly strong growth all over our system, which is really driving the increased cap numbers that Jeff just described. Can you talk about regulatory initiatives you're tracking? Legislation? Yeah. Yeah, so we're early on in the Texas legislative session.
Speaker Change: And then we're tracking various ideas that could potentially set limits on Youtube 11 liabilities of utilities, given some of the more challenging weather events that we're all facing and there's been at least a couple of bills filed in that regard maybe more to come.
Speaker Change: And, you know, we still have a long ways to go with committee hearings and bills still being filed.
Speaker Change: So we're going to continue watching theres other concept as well, but those are kind of.
Speaker Change: Some of the key areas right now.
Speaker Change: Some of the things that we're particularly interested in or following are various ideas related to the backlog and increase in large load customers, much of which I just discussed.
Speaker Change: The bottom line is we remain very confident that the state of Texas will continue to implement good public policies that support both our customers and our shareholders. Thank you Alan and David I'll also talk a little bit about how we're thinking about legislation in California.
Speaker Change: and in particular, issues related to cost allocation issues, for example, SB 6.
Speaker Change: We have a financial backstop in place today under $10 54.
Speaker Change: Proposals to reflect utility actual cap structures as reflected in recent financial filings, such as HB 2668.
Speaker Change: Over the last five years, I think that served us state well, providing stability to the marketplace as well, allowing utilities to raise capital efficiently, which also reduces cost to customers.
Speaker Change: We think this would be an important step because it would shore up the balance sheets of the state's utilities during this high period of really strong growth.
Speaker Change: Paired to forecast the outcome of this legislative session that I am confident that the right people are focused on the issue with the view toward reducing risk and remember this is not just the utility issue. This is a broader wildfire risk is really a societal issue in California.
Speaker Change: And then we're tracking various ideas that could potentially set limits on liabilities of utilities given some of the more challenging weather events that we're all facing and there's been at least a couple of bills filed in that regard and maybe more to come.
Speaker Change: I would also note that on slide 47% 48 data do we provide a wildfire mechanism summary about how it works currently and in that scenario at the very bottom of the second page on 48, you can see it outlines that the liability cap at <unk> using that 20% of the rolling three year average rate base.
I think the bottom line is we remain very confident.
Speaker Change: that the state of Texas will continue to implement good public policies that support both our customers and our shareholders. Thank you, Allen. And David, I'll also talk a little bit about how we're thinking about legislation in California.
Speaker Change: Is $1 4 billion and that's a worst case scenario.
Speaker Change: And the wildfire mechanism <unk> has not had a significant utility calls wildfire in 17 years.
Speaker Change: As you know, we have a financial backstop in place today under AB 1054.
Speaker Change: And recently <unk>.
Speaker Change: Over the last five years, I think that served the state well, providing stability to the marketplace.
Speaker Change: <unk> encountered substantially similar in some cases worse red flag conditions than was experienced in the la region. This year and <unk> successfully managed it systems safely. So we think theres an opportunity for legislation, we feel great about the backdrop of baby $10 54, but the most thing most important thing we can do as a <unk>.
Speaker Change: as well in allowing utilities to raise capital efficiently, which also reduces cost to customers. I'm not prepared to forecast the outcome of this legislative session, but I'm confident.
Speaker Change: that the right people are focused on the issue with a view toward reducing risk. And remember, this is not just a utility issue, this is a broader wildfire risk. It's really a societal issue in California.
Speaker Change: Management team across all three of our business platforms has run our businesses safely and protect our communities.
Speaker Change: I would also note that on slide 47 and 48, David, we provide a wildfire mechanism summary about how it works currently.
Speaker Change: Great. Thanks very much.
David Arcaro: Thank you David.
Speaker Change: And in that scenario, at the very bottom of the second page on page 48,
David Arcaro: Thank you one moment for our next question. Please.
Speaker Change: You can see it outlines that the liability cap at SDG&E, using that 20% of the rolling through your average rate base, is $1.4 billion, and that's a worst-case scenario.
Speaker Change: Our next question will come from Ross Sandler from Bank of America. Your line is open.
Ross Sandler: Ross Good morning, good morning.
Speaker Change: Afternoon on this side of the phone.
David Arcaro: Just a couple of questions maybe.
Speaker Change: Beyond the wildfire mechanism, SDG&E has not had a significant utility call to wildfire in 17 years.
Karen Cedric: Maybe one for you Karen go back to slide <unk> for a second.
David Arcaro: Just trying to understand kind of.
David Arcaro: Moving pieces and maybe the magnitude of the moving pieces a little bit I know the exact magnitude talk here, but.
Speaker Change: worse red flag conditions than was experienced in the LA region this year.
David Arcaro: The California <unk> was out.
Speaker Change: and SDG&E successfully managed its system safely. So we think there's an opportunity for legislation. We feel great about the backdrop of AB 1054, but the most important thing we can do as a management team across all three of our business platforms is run our businesses safely and protect our communities.
David Arcaro: <unk>.
Speaker Change: And then LNG phase one was delayed to the spring of 'twenty six.
Speaker Change: In August I believe of last year or so.
Speaker Change: With that sort of contemplated in your prior 25 guidance kind of on the third quarter call.
Speaker Change: Or is that pushing into the low end, whereas most of the magnitude sort of midpoint to midpoint.
Great, thanks very much.
Thank you, David.
Speaker Change: Based on the Texas change is the 50 basis points, the things that we've gotten the state's Dan or I'm, just trying to figure out what was in 25 in the third quarter call in some of these factors and then what kind of wound Gary.
Thank you. One moment for our next question, please.
Speaker Change: Our next question will come from Ross Fowler from Bank of America. Your line is open.
Speaker Change: Good morning, Ross. Morning. Morning, or afternoon on this side of the phone. How are you? So, just a couple of questions, kind of, maybe one for you, Karen. Go back to slide 42 for a second.
Speaker Change: Sure. Thanks, Ross. Thank you for the question, obviously, we've talked about the three most important recent events two of which were at the very end of December and then the recent decision on the base rate case noncore Sharon why don't you go back and review some of the 2025 issues that we're referring to sure and it's a good question because as you know we were working on our plan.
Speaker Change: Just trying to understand kind of the moving pieces and maybe the magnitude of the moving pieces a little bit. I know the exact magnitudes aren't here but...
Speaker Change: All through the fall and again I mentioned, we just finalized that recently so some of the data point we had.
The California GSU PD was out in the fall.
Speaker Change: And EECA LNG Phase 1 was delayed to the spring of 26 on...
Speaker Change: Suddenly did not so starting with the with the California rate case, we had a proposed decision in that rate case.
Speaker Change: in August, I believe, of last year. So, was that sort of contemplated in your prior 25 guidance, kind of on the third quarter call on that EAI, or is that pushing you to the low end, or is most of the magnitude sort of midpoint to midpoint?
Speaker Change: We received the final at the end of December which was.
Speaker Change: Unfortunately not.
Speaker Change: I thought it would get better between the proposed and the final.
Speaker Change: What we see we did not see that here and then going into January as we implemented that rate case, we continue to see more pieces has been put that through our financial plan and again the impact it's having them having things outside the rate case and having to hold those funds on our balance sheet is causing additional pressure because it's taking.
Speaker Change: based on the Texas changes, the 50 basis points, the things that we've gotten since then or just trying to figure out what was in 25 on the third quarter call and some of these factors and then what kind of moved everything.
Thank you for joining us.
Speaker Change: Sure. Hey, Ross, thank you for the question. Obviously, we talked about the three most important recent events, two of which were at the very end of December and then the recent decision on the base rate case in Encore. Karen, why don't you go back and review some of the 2025 issues that we're referring to.
Speaker Change: So long for us to get that funding now again, we do that gets resolved in the latter half of our plan, but that was certainly an impact.
Speaker Change: Continued to get worse, the other two big pieces in California, the peaceful new about with the with the cost of capital. So that was the bigger of the two obviously.
Speaker Change: And I think you can chat then it's probably about <unk>.
Speaker Change: 50 $50 million hit there what was added at the end of December with the FERC ISO adder, but again was unexpected so.
Speaker Change: That's closer I think to about $20 million additional so those are two things that also impact of California and Texas.
Speaker Change: We received the final at the end of December, which was...
Speaker Change: This is this is really brand new we really looked at the plan, we talked a lot to oncor about.
Speaker Change: Going into this rate case testing the higher cost of capital World.
Speaker Change: Ryzen insurance overall O&M costs.
Speaker Change: The decision here really is.
Speaker Change: 25, we think it's the right thing to do so I know, it's hard I know it's disappointing. We think this is a right decision.
Speaker Change: GAAP earnings.
Speaker Change: In the future and then as I mentioned as we load in the Texas growth, which was again higher than we anticipated even November December.
Karen: but that was certainly an impact that continued to get worse. The other two bigided pieces in California, the piece we knew about was the cost of capital, so that was the bigger of the two, obviously, and I think you could calculate as probably about, you know, $50 million hit there. What was added at the end of December was the FERC Kaiso Adder, that again was unexpected, so that's closer I think to about 20 million additional.
Speaker Change: That's having us.
Speaker Change: <unk> interest at the parent to fund.
Speaker Change: This growth. So there is a mixture there are things we know in the third quarter and then things that became a newly aware of in late December and.
Speaker Change: Really.
Speaker Change: Some of these items just in the last two weeks, Jeff you want to add anything no I think thats good.
Speaker Change: Yes. Thank you and then and then just Jeff you said something interesting about the growth rate because it's growing at about 12%, 13% midpoint to midpoint of 25 to 26, and then you said it.
and the cultural impact of California.
Karen: In Texas, you know, this is really brand new. We really looked at the plan. We talked a lot to Encore about going in for this rate case, just seeing the higher cost of this capital growth, the rise in insurance to overall O&M costs.
Speaker Change: Interestingly on the call that that should pull forward of future years, Okay think about seven and nine I'm just trying to think about the rate base here should they think about that seven and nine are now youre staying above nine off that 26 base because of that growth is pulling through.
Karen: The decision here really is, if they hit to 25, we think it's the right thing to do. So I know it's hard, I know it's disappointing, we think this is the right decision to get earnings in the future. And then as I mentioned, as we load in the Texas growth, which was again higher than we anticipated in even November or December, that's having us increase interest at the parent to fund all this growth. So there's a mixture there of things we knew in the third quarter and then things that
Speaker Change: Yes about the above nine on the 25.
Speaker Change: Yes.
Speaker Change: I think this is one of the challenge we're all so I think we've had conversations with you on another analyst.
Speaker Change: For many many years, we did not have a long term EPS growth rate and I think it was in 2022, where we brought that back and one of the reasons. We brought it back was we view that as a long term expectation of sustained growth. What do we think we can produce so think about that over seven to 10 years, we're really in an upswing of capital spending across the industry.
Karen: a newly aware of in late December and really some of these items just in the last two weeks. Jeff, do you want to add anything there? No, I think that's good.
Speaker Change: And based on our visibility we tried to provide some of that today as you saw the growth in encores anticipating in the 32030 to 2034 timeframe. So we have a raised expectation of how we can grow the business over the long term now when you come back inside the 2025 to 2029 plan, which are articulating, we certainly think that.
Speaker Change: Thank you and then and then just Jeff you said something interesting about the growth rate because it's growing at about
Speaker Change: 12, 13%, midpoint to midpoint, 25 to 26. And then you said, interestingly on the call, that that should pull through to future years. So if I think about seven to nine, I'm just trying to think about the right base year. Should I think about that seven to nine, or now you're saying above nine?
Speaker Change: We're going to be at or above the high end of that right and the issue will be what happens in the intra planning years that you're referring to and this is one of the issues is most analysts just take 1.07 or a 1.08 and they add that each year in the plan and we don't expect our earnings growth to be like that we expect there to be.
Speaker Change: Off the 26 base because that growth is pulling through or should I say about the above 9 on the 25?
Speaker Change: Yeah, I think this is one of the challenges, Ross. I think we've had conversations with you on and other analysts.
Speaker Change: You know for many many years we did not have a long-term EPS growth rate And I think it was in 2022 where we brought that back
Speaker Change: Periods of growth well above 79% at various parts of the plan and you're going to have years like you have now where <unk> got the lower growth in 2025. So if you think about our business over a long period of time, we have had inflection points just like you see today. The management team is frustrated by many of our investors are frustrate.
And one of the reasons we brought it back was...
Speaker Change: We view that as a long-term expectation of sustained growth. What do we think we can produce? So think about that over 7 to 10 years.
Speaker Change: We're really in an upswing of capital spinning across the industry.
Speaker Change: And based on our visibility, we try to provide some of that today, as you saw the growth that ENCQOR is anticipating in the 2030 to 2034 timeframe. So we have a raised expectation of how we can grow the business over the long term. Now, when you come back inside the 2025 to 2029 plan, which you're articulating,
Speaker Change: By it but fundamentally our view of what we can produce over longer periods of time has increased and we're going to try and do exactly what you are talking about increase the growth rate in the interim planning years through 2029.
Speaker Change: Given your kind of a roadmap of the things we're going to be focused on to try to improve our projections.
Speaker Change: We certainly think that we're going to be at or above the high end of that, right?
Speaker Change: And some of that growth range, Jeff to be fair is the lumpiness of when the LNG.
Speaker Change: And the issue will be what happens in the intra-planning years that you're referring to.
Speaker Change: Amen to that.
Speaker Change: Gary.
Speaker Change: And this is one of the issues is most analysts just take, you know, 1.07 or 1.08 and they add that each year in the plan. And we don't expect our earnings growth to be like that. We expect there to be periods of growth well above 79 percent at various parts of the plan. And you're going to have years like you have now where you've got lower growth in 2025.
Speaker Change: Exactly correct I mean as an example, you raised this with Karen but it was a significant issue that we could maintain guidance for 2025 by moving.
Speaker Change: Eco phase one out of 2025 that was a big issue. We felt copper we have plenty of room to do that but there was kind of a series of things that put us into the low end of the range as Karyn talked about and these three recent events I think caused us to reassess 2025.
Speaker Change: If you think about our business over a long period of time, we have had inflection points just like you see today.
Speaker Change: For 2025, as an inflection point for us Ralph I think youre on the right issues, we're going to exceed expectations relative to the seven 9% what we have to do a better job of is in the near term producing results that exceed expectations.
The management team is frustrated by it.
Speaker Change: Many of our investors are frustrated by it, but fundamentally, our view of what we can produce over longer periods of time has increased.
Speaker Change: And we're going to try to do exactly what you're talking about, increase the growth rate in the intra-planning years through 2029. And I've given you kind of a roadmap of the things we're going to be focused on to try to improve our projections.
Speaker Change: Commitment on our management team to get back to that.
Speaker Change: Okay. Thank you very much thank.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: And some of that growth there is, Jeff, to be fair, is the lumpiness of when the L&D project
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
It's coming to that.
that ended up in that period.
Speaker Change: And our next question will come from Carly Davenport from Goldman Sachs. Your line is open.
Speaker Change: That's exactly correct. I mean, as an example, you raised this with Karen.
Speaker Change: But it was a significant issue that we could maintain guidance for 2025.
Speaker Change: Hello Carlos.
Speaker Change: Hey, guys. Thanks for taking the questions. Maybe just two quick ones for me on an upcoming regulatory filings first just as you look to cost of capital in California, just given some of the moving pieces. There lately can can you talk a little bit about what you expect to put forth there and anything you can share about what's embedded in the plan around calc.
by moving.
Speaker Change: Eco Phase 1 out of 2025. That was a big issue. We felt comfortable, we had planning room to do that, but there was kind of a series of things that put us into the low end of the range as Karen talked about.
Speaker Change: And these three recent events, I think, caused us to reassess 2025.
2025 is an inflection point for us all.
Speaker Change: Cornea returns.
I think you're on the right issues.
Speaker Change: Yes, I would just start by saying that we saw some backwardation in the authorized returns in California in the last 12 months as there were changes to the cost of capital mechanism that filing is upcoming for our company and we look forward to doing that I think our planning assumption is something very similar to what we have in the plan. Today. We also think given the market environment as an.
Speaker Change: We're going to exceed expectations relative to seven to nine percent. What we have to do a better job of is in the near term producing results that exceed expectations. We've got a track record of doing that and there's a commitment on our management team to get back to that.
Okay, thank you very much.
Thank you.
Speaker Change: <unk> to improve our returns in the state.
Thank you.
Thank you.
Speaker Change: Great.
One moment for our next question.
Speaker Change: That's helpful. And then just as you look towards a potential oncor rate case filing I apologize if I missed this but I think you had mentioned a more frequent cadence.
Speaker Change: And our next question will come from Carly Davenport from Goldman Sachs. Your line is open.
Speaker Change: <unk> Saar going forward, just kind of any color on what you think that could look like relative to the four year requirement.
Carly Davenport: Hello Carly. Hey Jeff, thanks for taking the questions. Maybe just two quick ones for me on upcoming regulatory filings. First, just as you look to cost of capital in California, just given some of the moving pieces there lately, can you talk a little bit about what you expect to put forth there and anything you can share about what's embedded kind of in the plan around California returns?
Speaker Change: Yes, you'll recall that the two rate cases.
Speaker Change: <unk> ago Encore sell their rate case in November of 2017, and that was an event that was in the middle of our purchase of the Esa H interest.
Speaker Change: Back in with a base year of 2021 to prosecute that case in 2022 and remember it wasn't actually finalized until may of 'twenty. Three so you've got a rate case in may of 2023 with a cost run rate in that business off of 2021 and think about the growth had been through currently in terms of head count O&M increase.
Jeff: Yeah, I would just start by saying that we saw some back gradation in the authorized returns in California in the last 12 months as there were changes to the cost of capital mechanism.
Speaker Change: That filing is upcoming for our company, and we look forward to doing that. I think our planning assumption is something very similar to what we have in the plan today. We also think, given the market environment, it's an opportunity to improve our returns in the state.
Speaker Change: Insurance costs, and I think thats really been together with the regulatory lag putting pressure on the earned ROE.
Speaker Change: We think this is the right time is something that we don't want to be definitive about in the middle of the legislative session that we're careful enough to assume that in our guidance. It does put material downward pressure on our expectation for 2025, but youll see that have a very positive expectation in 2026, it will depend on when those rates are effective.
Speaker Change: Great. That's helpful. And then just as you look towards the potential encore rate case filing, apologies if I missed this, but I think you had mentioned a more frequent cadence of filings there going forward. Just kind of any color on what you think that could look like relative to the four-year requirement.
Speaker Change: We think this is the right thing to do to put them on a better footing to earn much higher earned Roes.
Speaker Change: Yeah, you'll recall that the two rape cases ago, Encore sold their rape case in November of 2017. That was in the middle of our purchase of the EFH interest.
Speaker Change: Yeah.
Speaker Change: I appreciate that color. Thank you. Thank.
Speaker Change: Thank you Carla.
Speaker Change: Yeah.
Speaker Change: They went back in with a base year of 2021 to prosecute that case in 2022. And remember, it wasn't actually finalized until May of 23.
Speaker Change: Thank you.
Speaker Change: And our next question will come from Anthony <unk> from Mizuho. Your line is open.
Speaker Change: So, you've got a rate case in May of 2023 with a cost run rate in that business off of 2021. And think about the growth they've been through, Carly, in terms of headcount, O&M, increased insurance costs. And I think that's really been, together with the regulatory lag,
Speaker Change: Hello.
Speaker Change: Pedro and just two quick questions. One is I guess, maybe it's kind of following Steve's question earlier as I think about the cadence of regulatory filings I think theres another filing that what happened in California, maybe in 'twenty six for new rates in 28.
putting pressure on their earned ROEs.
Speaker Change: What what confidence do you have that the plan is stress enough that we don't have a repeat of it looks like a challenging filing cadence as December that caused this reset that the next plan a similar thing given even though Texas is growing it's still 45% of the company.
Speaker Change: We think this is the right time. It's something that we don't want to be defensive about in the middle of a legislative session.
Speaker Change: But we're careful enough to assume that in our guidance it does put
Speaker Change: material downward pressure on our expectation for 2025, but you'll see that have a very positive expectation in 2026. It'll depend on when those rates are effective. We think this is the right thing to do to put them on a better footing to earn much higher earned ROEs.
Speaker Change: Yeah, a couple of things as you know through 2027, when we come back into California and file. The next rate case. The good news in California is use a forward test year, which I think is a positive fact, we've also got the pending FERC decision about what our new FERC rate of return will be that you may remember, we followed for $12 two.
Appreciate that color. Thank you.
Thank you, Carly.
Thank you.
Thank you. Thank you.
Speaker Change: And our next question will come from Anthony Crodell from Mizzou. Your line is open.
Speaker Change: 5%.
Speaker Change: Without the FERC Caddo, that's 11, 75% there is an opportunity to prosecute that case or settle it but we think theres an opportunity to improve returns at FERC. Obviously currently mentioned this too but the cost of capital mechanism. This year is a positive and obviously the regulatory filing is taking place at oncor is a positive I will mentioned.
Hello Anthony.
Anthony Crodell: How are you doing? Just two quick questions. One is, I guess, maybe it's kind of following Steve's question earlier. If I think about the cadence of regulatory filings, I think there's another filing that would happen in California, maybe in 26 for new rates in 28.
What...
Anthony Crodell: What confidence do you have that the plan is stressed enough that, you know, we don't have a repeat of, it looks like a challenging filing came this past December, that caused this reset, that the next plan, a similar thing, given even though Texas is growing, it's still 45% of the company.
Speaker Change: That centerpoint on their recent rate case got a slightly higher bump to their equity layer clearly I think there's an opportunity there as well for oncor. So look I think we've got the business setup now where we have relatively conservative assumptions.
Speaker Change: Outline all of the positive aspects of opportunities that are not in the plan, but you raised another good one which is there are opportunities around earned Roe.
Anthony Crodell: Yeah, a couple things is, you know, through 2027 when we come back into California and file the next rate case.
Speaker Change: Capital structure and other issues in our regulatory compact, both in Texas, and California, and with FERC, which could prove to be upside to our plan.
Anthony Crodell: The good news in California is you use a forward test year, which I think is a positive fact.
Anthony Crodell: We've also got the pending FERC decision about what our new FERC rate of return will be. Now, you may remember we filed for 12.25 percent.
Speaker Change: Great and then just one quick follow up.
Ross Sandler: I think to Ross's question, you had talked about.
Ross Sandler: Investors may Miss some of your earnings power of the company and they just take last year's number and multiply it by 1.7, what some some factor just thoughts as you feel and just hearing are you seeing the plan is more resilient thoughts of not giving annual guidance.
without the percato, that's 11.75%.
There's an opportunity to prosecute that case or settle it.
Speaker Change: But we think there's an opportunity to improve returns at FERC. Obviously, Carly mentioned this too, but the cost of capital mechanism this year is a positive, and obviously the regulatory filings taking place at ENCQR is a positive. I will mention that CenterPoint on their recent rate case got a slightly higher bump to their equity layer.
Ross Sandler: Rather than just two years you gave US 25, they give US 26, we've seen some companies I feel really good about the plan you've been giving us an annual guidance north of the two years any thoughts of doing that to get the street more transparency of the earnings power given it may not be linear.
Ross Sandler: Yes.
Ross Sandler: Make a great point because it certainly has not been historically linear for our company and I think this has been a misunderstanding from time to time.
Ross Sandler: If you go back to the middle part of last decade, we gave out years, one and two and we gave a fifth year earnings guidance I wish I had given a fifth your earnings guidance for this call to think people will be a lot happier by the way we haven't done that.
Speaker Change: capital structure and other issues in a regulatory compact both in Texas and California and with FERC which could prove to be upside to our plan.
Ross Sandler: I would say that what we started doing in 2022, Anthony was given years, one and two and I think we understand that we can deliver those with some level of confidence today and we're going to try to beat those and then we've raised our long term EPS guidance range. We think about that is that number beyond the planning period.
Speaker Change: Okay, and then just one quick follow-up. I think to Ross's question you talked about
Speaker Change: investors may miss some of the earnings power of the company if they just take last year's number and multiply it by 1.07 or you know what some some factor just thoughts as you feel and just hearing it you think the plan is more resilient thoughts of not giving annual guidance
Ross Sandler: I've indicated that we're quite confident that we can deliver at or above that range in the planning period. So you raised a good point I think the key issue is to make sure that theres not asymmetry of knowledge between what we have in our plan and how we illustrate it or make it transparent to wall Street and I think we've got some more work to be done in that area. So we're certainly open minded about it.
Speaker Change: further than just two years. You give us 25, they give us 26. We've seen some companies that feel really good about their plan, even giving us an annual guidance north of the two years. Any thoughts of doing that to give the street more transparency of the earnings, given it may not be linear?
Speaker Change: Yeah, you make a great point because it certainly has not been historically linear for our company and I think this has been a misunderstanding from time to time. If you go back to the middle part of last decade, we gave out years one and two and we gave a fifth year earnings guidance.
Ross Sandler: Other ideas to increase that transparency.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thank you.
Ross Sandler: And our next question.
Speaker Change: We will come from Paul Fremont from Ladenburg Thalmann <unk> co. Your line is open.
Anthony Crodell: You know, I wish I'd given a fifth-year earnings guidance for this call because I think people would be a lot happier, by the way. We haven't done that. But I would say that what we started doing in 2022, Anthony was given years one and two.
Ross Sandler: Okay.
Ross Sandler: Great.
Ross Sandler: I guess my first question is really a follow up to <unk> question in terms of cost of capital are you assuming that.
Anthony Crodell: And I think we understand that we can deliver those with some level of confidence today, and we're going to try to beat those.
Ross Sandler: There was no significant change in our in the.
Ross Sandler: Yes.
Ross Sandler: ROE assumption that comes out of the cost of capital this year.
Anthony Crodell: and then we've raised our long-term EPS guidance range. We think about that as a number beyond the planning period.
Ross Sandler: Yes, I would say that we've got an existing cost of capital for both businesses I think in.
Anthony Crodell: But I've indicated that we're quite confident that we can deliver at or above that range in the planning period.
Ross Sandler: In the plan today, we think it's substantially similar to that but I think theres an opportunity to exceed the plan expectations.
Speaker Change: You raise a good point. I think the key issue is to make sure that there's not asymmetry of knowledge between what we have in our plan and how we illustrate it or make it transparent to Wall Street. And I think we've got some more work to be done in that area. So we're certainly open-minded about other ideas to increase that transparency.
Speaker Change: Great and then also following up on David <unk> question on California legislation.
Ross Sandler: Yes.
Ross Sandler: There was no replenishment of the fund is there an alternative.
Speaker Change: Great. Thanks for taking my questions. Hey, thank you. Thank you. And our next question.
Ross Sandler: That you see.
Ross Sandler: Coming out of the legislature.
Ross Sandler: Rather than.
Paul Fremont: We'll call, come from Paul, Fremont, from Lattenberg, Thalman & Co., your line is open.
Ross Sandler: Topping up the <unk>.
Ross Sandler: <unk>.
Ross Sandler: Back to the $21 billion.
Thank you.
Speaker Change: Yes. This is a great question and obviously this has been on the minds of a lot of people up and down the state and a lot of people who are investors in the state and what I can't do is I really can't forecast the outcome I can basically say that.
in the
Ross Sandler: The mechanism is in place today has worked well so I know there's a lot of ideas today about for example, extending the <unk> bonds, which would make that in perpetuity fun. So it go well above $21 billion. That's one of the ideas have been floated around another idea has been floated is allowing for greater participate.
Paul Fremont: ROE assumption that comes out of the cost of capital this year.
https://www.kenhub.com
Paul Fremont: Yeah, I would say that we've got an existing cost of capital for both businesses. I think in the plan today, we think it's substantially similar to that, but I think there's an opportunity to exceed the plan expectations.
Speaker Change: Great, and then also following up on sort of David Acquara's question on California legislation, if there was no replenishment of the fund, is there an alternative?
Ross Sandler: <unk> from other utilities in the state specifically the large municipal utilities.
Ross Sandler: Theres been discussions around allowing each utility to have their own separate or segregated wildfire fund from our standpoint. It goes back to a couple of things number one you got to remember this is a societal issue in California.
Ross Sandler: Wildfires are rarely started by utilities lots of people are impacted I think theres a lot of focus on making sure. This gets solved I know for example that Guggenheim is backend as a consultant with the Governor's office. Guggenheim was also a consultant back in 2019 for AB $10 54. So look I think the right people are joined on the issue.
topping up the fund back to the 21 billion dollars.
Speaker Change: Yeah, this is a great question and obviously this has been on the minds of a lot of people up and down the state and a lot of people who are investors in the state. And what I can't do is I really can't forecast the outcome. I can basically say this.
Ross Sandler: And from our standpoint, because we had such little contributions to the fund and a relatively low liability cap. Even if we were improved it we think the fund makes a lot of sense anything we can do as a state to strengthen the fun and ensure theres not issues or concerns like the ones. You are addressing would be very very helpful. But we feel good about number one.
Speaker Change: The mechanism that's in place today has worked well. So I know there's a lot of ideas today about, for example, extending the CWR bonds.
which would make that an in-perpetuity fund.
Speaker Change: So it would go well above $21 billion. That's one of the ideas that's been floated around. Another idea that's been floated is allowing for greater participation from other utilities in the state, specifically the large municipal utilities.
Ross Sandler: One, making sure we run a safe business that will always be our day to day focus and we will obviously be at the table in Sacramento to support legislation that strengthened to either the current mechanism or some form of replacement that's better than what we currently have.
Speaker Change: There's been discussions around allowing each utility to have their own separate or segregated wildfire fund. From our standpoint, it goes back to a couple of things. Number one, you've got to remember this is a societal issue in California.
Speaker Change: And then another a california utility sort of implied that might not happen. This legislative session that it might take.
Speaker Change: Right, wildfires are rarely started by utilities. Lots of people are impacted. I think there's a lot of focus on making sure this gets solved. I know for example that Guggenheim is back in as a consultant with the governor's office.
Speaker Change: Two years.
Speaker Change: For the legislature to put something new in place.
Speaker Change: Is that timing consistent with with your thoughts.
Speaker Change: Guggenheim was also a consultant back in 2019 for AB 1054. So look, I think the right people are joined on the issue.
Ross Sandler: Okay.
Ross Sandler: A couple of times now I'm not prepared to forecast an outcome I am prepared to say that a lot of people are working on it right now so I think an answer from our legislative body sooner rather than later would be helpful.
Speaker Change: And from our standpoint, because we had such little contributions to the fund and a relatively low liability cap, even if we were imprudent, we think the fund makes a lot of sense. Anything we can do as a state to strengthen the fund.
Speaker Change: Feel good about the current framework of AB 254, so any activity that strengthens wall street's confidence that you can earn an appropriate return and California is a positive and guess what it also allows our rate payers to have lower cost. So this issue of taken risk away from the business, making sure we have the appropriate returns.
Speaker Change: and ensure there's not issues or concerns like the ones you're addressing would be very very helpful, but
Speaker Change: We feel good about, number one, making sure we run a safe business.
Speaker Change: That will always be our day-to-day focus and will obviously be at the table in Sacramento to support legislation that strengthens either the current mechanism or some form of replacement that's better than what we currently have.
Ross Sandler: And the appropriate equity layers, that's very very important in terms of how we access capital and it allows the rate payers to be exposed to less cost.
Speaker Change: And then another California utility sort of implied that it might not happen this legislative session, that it might take
Ross Sandler: And then.
Ross Sandler: When I look at your 26 sort of guidance numbers. It looks like the benefit at encore is mostly eaten up completely eaten up by bi losses.
Speaker Change: It's been two years for the legislature to put something new in place. Is that timing consistent with your thoughts?
Ross Sandler: Additional loss at the parent.
Speaker Change: Look, I've said it a couple of times now, I'm not prepared to forecast an outcome. I'm prepared to say that a lot of people are working on it right now.
Ross Sandler: Can you is that because of the timing of the oncor rate case or <unk>.
Speaker Change: So, I think an answer from our legislative body sooner rather than later would be helpful.
Ross Sandler: What's happening there.
Ross Sandler: Would you mind repeating that question again.
Speaker Change: I feel good about the current framework of AB 1054, so any activity that strengthens Wall Street's confidence that you can earn an appropriate return in California is a positive. And guess what? It also allows our ratepayers to have lower costs.
Ross Sandler: Sure It looks in 2006 as if the improved demand.
Ross Sandler: At Sempra taxes.
Ross Sandler: Offs is more than offset by.
Ross Sandler: Additional losses at the parent.
Speaker Change: So this issue of taking risk away from the business, making sure we have the appropriate returns and the appropriate equity layers, that's very, very important in terms of how we access capital, and it allows the rate payers to be exposed to less cost.
Ross Sandler: Okay.
Ross Sandler: Well I would say there is a lot of different things that go into the parent cost structure right. Obviously it has to do with tower.
Glenn Donovan: Financing the business, whether we're using hybrids were used in traditional financing mechanisms, whether we're doing equity I would not associate those two together I think what we're trying to do is we're going to provide greater earnings power from all three business segments across the five year plan and I think Karen job and Glenn This job as a treasurer is to make sure we're fine.
Thank you.
And then...
Speaker Change: When I look at your 26 sort of guidance numbers, it looks like the benefit at Encore is mostly eaten up or completely eaten up by losses or additional loss at the parent.
Ross Sandler: <unk> in the most efficient way possible. If we can beat those 2026 numbers I can assure you we're going to try to do that.
Ross Sandler: Yeah.
Ross Sandler: Thank you 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 closing remarks.
Yeah, would you mind repeating that question again?
Speaker Change: Sure, it looks in 26 as if the improvement at Sempra, Texas is more than offset by additional losses at the parent.
Ross Sandler: Yes.
Ross Sandler: So I would just say that we're pleased that people could join us on the call I know theres been a lot of changes in terms of how people are thinking about our business I. Appreciate the fact that there are some competing calls today as well we appreciate everyone joining us.
Speaker Change: Well, you know, I would say there's a lot of different things that go into the parent call structure, right? Obviously, it has to do with how we're, you know, financing the business, whether we're using hybrids, we're using traditional financing mechanisms, whether we're doing equity.
Speaker Change: Alex I mentioned that our executive team is attending multiple investor conferences in New York next week, I think thats, a real opportunity to meet with Oncor and our senior team. We hope to see many of you there per customer. If there are any follow up items. Please reach out to our IR team or to your questions. Thank you again and this concludes our call.
I would not associate those two together.
Speaker Change: I think what we're trying to do is we're going to provide greater earnings power from all three business segments across the five-year plan. And I think Karen's job and Glen's job as the treasurer is to make sure we're financing it in the most efficient way possible. If we can beat those 2026 numbers, I can assure you we're going to try to do that.
Ross Sandler: Thank you for.
Ross Sandler: And for your participation you may now disconnect everyone have a wonderful day.
Thank you.
Speaker Change: Thank you, 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 closing remarks.
Speaker Change: So I would just say that we're pleased that people could join us on the call I know there's been a lot of changes in terms of how people are thinking about our business I appreciate the fact that there are some competing calls today as well. We appreciate everyone joining us
Speaker Change: I want to mention that our executive team is attending multiple investor conferences in New York next week. I think that's a real opportunity to meet with Encore and our senior team. We hope to see many of you there. Per custom, if there are any follow-up items, please reach out to our IR team with your questions. Thank you again, and this concludes our call.
Speaker Change: Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.