Sempra (SRE) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Financial Performance: Sempra reported a strong financial performance for the first half of the year, trending above financial forecasts and affirming both the 2024 and 2025 adjusted EPS guidance ranges.
• Investment Opportunities in Texas: Sempra Texas, particularly Oncor, continues to see remarkable growth driven by various industries, with a record five-year capital plan of approximately $24 billion, highlighting the company's bullish outlook on investment opportunities in Texas.
• Advancements in Sempra Infrastructure: Sempra Infrastructure is making significant strides in critical infrastructure investments that support the energy transition and enhanced energy security, with progress across several key development initiatives.
• California Utilities' Strategic Position: Sempra California is well-positioned in the largest economy in the U.S., benefiting from constructive regulation and participating in several decarbonization initiatives that support California's climate goals.
• Operational Excellence and Safety Focus: Sempra emphasizes its unwavering commitment to safety and operational excellence, positioning the company as a leader in delivering reliable and resilient energy.

Pessimistic Highlights

• ECA LNG Phase 1 Delay: The commercial operations date for ECA LNG Phase 1 will be delayed until spring 2026 due to labor retention and productivity issues, resulting in increased capital expenditures for the project.
• Lower Equity Earnings and Revenues: Sempra Infrastructure experienced lower equity earnings and revenues in the transportation business, including the cumulative impact of new tariffs in Mexico in the prior year.

Company Outlook

• Confidence in Financial Commitments: Sempra reconfirms its guidance ranges for 2024 and 2025 and its long-term EPS growth rate of 6% to 8%, reflecting confidence in its financial commitments and the strength of its business model.
• Continued Investment in Growth: The company highlights increased opportunities for investment, particularly in Texas with Oncor's growth and capital spending plans, and in California with strategic investments aligned with state policy goals.

Q & A Highlights

• Q: On the ECA COD delays, how are you thinking about offsets as we roll forward into next year? Can you mitigate the project delay? (Shar Pourreza, from Guggenheim Partners)

  A: We're disappointed in the change of schedule at ECA but remain confident in meeting our return expectations. We have a diverse portfolio with many levers to meet our guidance, including asset optimization and operational efficiencies. We continue to see significant growth across our utility platforms, which we expect to benefit us next year. (Jeff Martin and Karen Sedgwick)

• Q: On the GRC outcome, how are you thinking about a timely outcome in 2024? If a final vote is delayed, how do we think about the financial update for 2025? (Shar Pourreza, from Guggenheim Partners)

  A: We have high confidence that the rate case will be voted out this year, with rates retroactively effective to January 1, 2024. We have a strong track record of working with regulators and stakeholders to get to good outcomes and are comfortable that we'll be able to give a strong update in terms of our forward guidance on our Q4 call. (Jeff Martin)

• Q: On the ECA project cost tracking versus the initial estimates of $2.5 billion, how does the overall project cost track now? (Durgesh Chopra, from Evercore ISI)

  A: The estimated increase in capital for Sempra's net share is about $300 million due to the schedule change at ECA. We still expect to maintain our targeted levered returns in the mid-teens for the overall integrated project. (Jeff Martin and Justin Bird)

• Q: With the SRP settlement in Texas, is there any backlash or concerns from the PUC or other stakeholders given recent weather events? (Durgesh Chopra, from Evercore ISI)

  A: We view the settlement in principle constructively and hope to move to a final settlement in the coming weeks. We feel positive about it and view it as a great sign for our ability to continue to help ratepayers in Texas. (Jeff Martin and Allen Nye)

• Q: How do you think about the SRP in light of recent events and any expansion plans around mobile gen or otherwise? (Julien Dumoulin-Smith, from Jefferies)

  A: We're excited about the settlement in principle of our SRP, which will allow us to accomplish all of the benefits identified in our original filing. We believe this is a very positive development for both us and our customers. (Jeff Martin and Allen Nye)

• Q: On the $13 billion to $15 billion of transmission CapEx proposed by ERCOT in the Permian, how large of a share could Oncor help execute on? (Carly Davenport, from Goldman Sachs)

  A: Given the scope of our operations in the region, we would expect to build a significant portion of the projects that are ultimately approved in the Permian plan. (Allen Nye)