The operator introduces the Sempra Fourth Quarter Earnings Call and hands it over to Glen Donovan, who welcomes participants and introduces the members of the management team present. He reminds everyone that they will be discussing forward-looking statements and that actual results may differ. The presentation will include non-GAAP financial measures and a reconciliation to GAAP measures. The 10-K for the year ended December 31, 2023 should be reviewed, and the earnings per share amounts reflect a 2:1 stock split announced in the second quarter.

The speaker, Jeff Martin, begins by mentioning that the forward-looking statements in the presentation are only applicable to February 27, 2024 and that the company is not obligated to update them in the future. He then introduces the other executives who will be providing more information on the company's business accomplishments and corporate strategy. This includes a focus on disciplined investments in growing markets and a 20% increase in the company's capital plan, with majority allocated to regulated transmission and distribution investments. The presentation will also include a review of the company's financial results and a Q&A session.

The company's strong financial performance in 2023, despite economic uncertainty, is a result of their investment strategy in energy networks in California and Texas. Their expanded capital plan and increased dividend demonstrate their confidence in long-term earnings growth. Additionally, their successful equity offering has mitigated future equity needs associated with their new plan.

Sempra has made progress in regulatory matters, with increased authorized ROEs in California and a proposed settlement for pending rate cases. In Texas, Oncor completed its base rate review and new legislation supports investments in transmission and distribution. At Sempra Infrastructure, they have declared positive FID on a project, secured financing, and begun construction. Despite a pause on non-FTE export permits, the company remains confident in the commercial value of their projects and will continue to develop them. Sempra is focused on building new infrastructure to support economic and population growth while providing financial returns. As global GDP is expected to double by 2050, the company believes that renewables, natural gas, and cleaner molecules will play a crucial role in meeting rising energy demand and transitioning to a lower carbon future.

The United States has seen record natural gas production due to strong demand and increased use of renewables, resulting in lower carbon emissions. The IEA predicts significant investments in the North American energy sector, particularly in transmission and distribution. The company has a disciplined approach to investing in regulated utilities and contracted assets, leading to consistent earnings growth and top decile performance among peers. Despite challenges such as the pandemic and geopolitical unrest, the company has consistently delivered strong total shareholder returns.

The speaker reiterates the key investment highlights, including their high quality T&D growth platforms in California and Texas, their disciplined approach to capital allocation, and their new 5-year capital plan of $48 billion. They are proud of their recent accomplishments and excited about future opportunities. The next speaker, Trevor, will discuss the financial results at Sempra California, including a strong earnings of $1.75 billion and positive regulatory outcomes such as an increase in their authorized ROE and settlements for rate case requests. They anticipate receiving a proposed decision on their GRC in the second quarter.

The paragraph discusses various updates and developments within Sempra California, including finalized rates that will be retroactive to January 1, 2024, the progress of transmission projects and the recognition of their electric business. It also mentions the increase in authorized storage capacity for Aliso Canyon and the selection of a strategic partner to receive funding for developing a regional hydrogen hub. The key trends supporting growth at Sempra California include its location in the largest U.S. market, job growth, and alignment with state policies promoting sustainable energy. The CPUC has also mandated the construction of new clean energy and energy storage.

California is leading the way in clean energy with the largest source of solar power and highest rate of electric vehicles in the country. San Diego County has a high number of EVs and rooftop solar systems, and Los Angeles' manufacturing sector relies on clean molecules like RNG and hydrogen. Sempra California is investing in modernizing T&D infrastructure to integrate more renewables and support the state's energy transition, while prioritizing safety and affordability. Their capital plan focuses on maintaining an efficient cost structure and providing the best service to customers.

Sempra is announcing over $24 billion of investments, with a focus on modernizing their electric and natural gas systems and integrating renewable energy. They expect these investments to lead to a 7% CAGR growth in rate base from 2023 to 2028. Allen Nye then discusses Oncor's strong financial performance in 2023, including completing a base rate review and achieving a constructive outcome. The Texas legislative session was also successful for the industry, with several bills passed to support a safer and more reliable electric grid. Oncor has a history of working closely with the Texas Legislature and stakeholders, and this session was particularly productive with increased distribution cost recovery and reduced regulatory lag on investments.

The legislature passed HB 2555 to encourage utilities to improve system resilience, and the PUCT finalized rules to implement it. Oncor expects to file their first system resiliency plan within the next few months, which will be reviewed and potentially implemented by the end of the year. The plan will be funded through the DCRF tracker and a regulatory asset, reducing regulatory lag. Oncor has also been performing well operationally, building and upgrading T&D lines and increasing the number of premises served. The Texas grid has performed well during record demand peaks, and Oncor's reliability score has improved by approximately 7% compared to the previous year.

In 2023, Oncor saw a significant increase in transmission interconnection requests, driven by the strong economic growth in Texas. The state's population and commercial and industrial businesses continue to grow, with the DFW Metroplex leading in electric vehicle registrations. Oncor has also seen a rise in large commercial and industrial customers, particularly in data center development and electrification of the oil and gas industry in West Texas. These projects have the potential for thousands of megawatts of new electric load.

ERCOT's recent reliability plan update for the Permian Basin projects a fourfold increase in demand for electricity in the next 15 years, driven by oil and gas production and population growth. Oncor plans to meet this demand through hiring, procurement, and system planning, and has announced a 26% increase in its 5-year capital plan. This growth is expected to result in an 11% annual average rate of rate base growth for Oncor.

Sempra Infrastructure is seeing growth opportunities in Texas, with the Port Arthur LNG Phase 1 project and Oncor's capital plan. They have a dual coast LNG export strategy and a portfolio of energy networks and power transmission infrastructure. They achieved positive FID on Port Arthur LNG Phase 1 and secured all necessary project-level debt and equity contributions. In 2023, they had strong financial results and maintained momentum. ECA LNG Phase 1 is approaching its COD in summer 2025 and Cameron LNG Phase 1 has exceeded 700 cargoes since production began in 2019.

The company's main priorities for development include advancing commercial discussions for offtake volume and equity ownership at Port Arthur Phase 2 and evaluating EPC opportunities at Cameron LNG Phase 2. They are also making progress on Cimarron Wind and participating in a hydrogen hub project. The company is focused on providing cleaner and more secure energy for customers and is impacted by global energy demand.

Sempra Infrastructure plays a crucial role in promoting sustainability by providing cleaner energy solutions, such as natural gas and LNG, which are expected to see a significant increase in demand in the future. As emerging markets continue to grow, there is a greater need for energy to support their development, and Sempra is also investing in renewables to contribute to decarbonization efforts in North America. The need for energy security is another driving factor, and Sempra is working on initiatives to minimize their environmental impact and reduce emissions. They are confident in the value of their export facilities and will continue to work towards advancing these projects.

The permitting pause announced by the Biden administration only affects projects that have not yet received their non-FDA export permit, such as Port Arthur Phase 2. This pause does not impact any of Sempra's currently operating or under construction assets. The delay also does not affect the company's earnings growth visibility or existing capital plan. While the outcome of this policy is uncertain, Sempra remains committed to the environmental benefits of natural gas and LNG. The company is confident in its ability to navigate the regulatory landscape and is optimistic that normal permitting conditions will resume. The company also highlights key projects under construction in the Pacific and Gulf Coast, which will strengthen their competitive advantage as a supplier to Asia and Europe and provide opportunities for future expansion.

Sempra Infrastructure is actively working on procurement and engineering activities for the Port Arthur, Louisiana pipeline and Louisiana Storage, which will contribute to the larger Port Arthur Energy Hub. Construction is progressing well across all Sempra Infrastructure platforms, with key milestones approaching at Port Arthur LNG Phase 1, ECA LNG Phase 1, and the GRO expansion. Looking ahead, Sempra Infrastructure has a strong portfolio of growth projects, many of which are brownfield investments made possible by previous greenfield investments. In total, Sempra Infrastructure has $4.4 billion in capital deployment opportunities focused on providing customers with cleaner and more secure energy. The majority of this investment will go towards the Port Arthur Energy Hub, ECA LNG Phase 1, the GRO pipeline expansion, and Louisiana storage development.

Karen Sedgwick is providing a financial update on Sempra's year end results. In the fourth quarter of 2023, they reported GAAP earnings of $737 million, compared to $438 million in the same period in 2022. On an adjusted basis, earnings were $719 million in 2023, compared to $743 million in 2022. Full year 2023 GAAP earnings were $3.030 billion, compared to $2.94 billion in 2022. The results demonstrate the strength of their three growth platforms and set them up for improved growth in 2024. The next slide summarizes the variance of full year 2023 adjusted earnings compared to the previous year. Higher net interest expense and electric transmission and CPUC based operating margin were partially offset by net tax benefits and regulatory interest income and awards at Sempra California. At Sempra Texas, there were higher equity earnings and expenses, but no capital trackers were filed during a rate case, impacting earnings in both 2022 and 2023.

In the fourth quarter, Sempra Infrastructure saw higher earnings due to non-controlling interests, taxes, and asset supply optimization, but lower equity earnings from Cameron LNG. The Port Arthur project, in which Sempra has a 20% stake, is being consolidated for accounting purposes, resulting in higher capitalized interest. At Sempra Parent, there were higher investment gains, but also higher net interest expense and lower income tax benefits. Sempra is also announcing a record $48 billion capital plan, with the majority allocated to regulated utilities in California and Texas, and the remaining for LNG projects and infrastructure.

Sempra has a strong capital plan and has raised equity to support future investments and mitigate financing risks. They anticipate using internal operating cash flows and regulatory authorized debt for financing needs. The company also aims to maintain a 50-60% dividend payout ratio and deliver attractive total shareholder returns. The utilities division is expected to have a 9% annual growth through 2028, leading to a projected 6-8% long-term EPS growth rate. The company has narrowed their 2024 earnings guidance and announced 2025 earnings per share guidance, with a projected midpoint that is 7% higher than 2024 guidance. This includes assumptions for Sempra California's cost of capital trigger.

The company is expecting outcomes in the range of historical rate case decisions for the GRC and is working with the CPUC and interveners to achieve a favorable outcome. In Texas, the system resiliency plan will apply to 2025-2027 with minimal financial impact in 2025. At Sempra Infrastructure, 2022-2023 benefited from an attractive commodity price environment and new tariffs, but this impact is expected to moderate in the future. The share count has increased due to a recent equity offering and other factors.

The paragraph discusses the company's new 5-year plan and the addition of a slide to track investments outside of the plan. It also mentions the company's excitement about investment opportunities and its key priorities, including investing in T&D infrastructure, maintaining a strong balance sheet, and providing returns to shareholders. The company also mentions its record $48 billion capital plan and its confidence in achieving long-term EPS growth. The speaker thanks the audience for joining the call and invites questions.

The speaker concludes their prepared remarks and opens the line for questions. The first question is about the 2025 earnings growth in California and how the GRC process is being factored into planning assumptions. The speaker explains that they focus on making investments aligned with public policy and make reasonable assumptions from a range of potential outcomes. They have settled with some interveners for one-third of the rate case and are looking forward to a proposed and final decision in the second half of the year. The settlement does not impact their assumptions.

Jeff Martin and Trevor Mihalik discuss the cost of capital process at the CPUC, noting that the recent decision has allowed them to narrow their EPS guidance range and raise the midpoint for this year. They believe that California is a constructive regulatory jurisdiction with reasonable returns on equity and a strong framework for addressing climate-related event risk. They also mention that the Energy Division's disposition letter was clear on the issue. When asked about O&M funding or system reinvestment, Jeff Martin asks for clarification on the question.

In the paragraph, two analysts are asking questions about the impact of the rate case outcome on the company's plans for 2024 and 2025. The company's CEO responds by saying that their current plan is based on reasonable assumptions and will be impacted by the outcome of the rate case. He also mentions that they had previously announced an increase in their capital plan and that they are in a strong financial position to support it without the need for additional equity. The analysts then ask about the potential need for additional funding as the company raises its capital expenditures, to which the CEO responds that there is no need for additional equity at this time.

The company has planned for future growth by ensuring they have enough equity to fund their capital plan, which is $3 billion larger than their current market capitalization. They have additional projects in the pipeline, including the ECA project, which will contribute to earnings in 2025. There may be higher development expenses in 2024, but after that, the company's run rate is expected to increase.

The speaker discusses the first phase of the Pacific Coast LNG facility and how it differentiates Sempra Infrastructure with a dual coast business model. They then address a question about the value engineering timeframe for the Cameron project and provide updates on construction at ECA and Port Arthur. The speaker emphasizes their commitment to delivering superior risk-adjusted returns and reveals that they are seeing significant commercial demand for low cost brownfield LNG assets. They also mention that Cameron will be one of the most technologically advanced and environmentally friendly LNG facilities.

The company is working towards taking an FID on the Cameron 2 project in the first half of 2025. They are also awaiting a DOE non-FTA export permit for the Port Arthur project and are exploring financing options for both projects. The company also has other LNG opportunities in the early stages of development, but none have received positive FID yet. The 5-year capital plan has increased by 20%, but the company reiterates their long-term growth rate of 6% to 8%. It is unclear how this increase will impact rate base and earnings growth over the current period.

Jeff Martin discusses the rate base growth for Sempra's utilities, which is expected to be around 10%. This is higher than previously forecasted and will result in a total rate base of $78 billion by the end of the planning period. The majority of this growth is coming from Texas, which is the strongest part of Sempra's story. Martin expresses confidence in the company's ability to deliver 6-8% earnings per share growth and notes that they have consistently performed in the 7-10% range over the past several years. There is potential for the 2% annual premise growth in Texas to be conservative, as recent growth opportunities have been promising.

The growth story in Texas is unique due to its diversity and the majority of CapEx being allocated to transmission. This benefits all ratepayers in the state and has resulted in record-breaking growth on the system. Premise growth remains strong with a 14% increase year-over-year and there have been new and active points of interconnection. The diversity and magnitude of customers is significant, with 46 retail requests between 300 megawatts and 2,600 megawatts in size.

The company has experienced significant growth in both the number and size of customers, with a 34% increase in generation interconnection and a 16.6% increase in the West Texas weather zone peak. This has resulted in a $24.2 billion capital expenditure plan, with the majority of the investment being allocated to distribution and transmission expansion. 70% of the capital is for pure growth, and 97% is subject to recovery through trackers. Additionally, over 60% of the capital is focused on transmission, which helps the company maintain low costs and benefits all customers in the state. One question was asked during the conference call.

The speaker, Jeff Martin, is responding to a question about an update on a project in late April. Trevor Mihalik adds that a decision will be made in late April and negotiations will take place over the next four months. The speaker is then asked about the timeline for non-FDA permanent extensions and whether the pause for new applications will accelerate the process. Jeff Martin responds that there is no standard timeline for extensions and that they have used this process in the past. He also mentions that the filing for Port Arthur Phase 2 is pending and that they have development milestones that they are pursuing concurrently with the permitting process.

Jeff Martin is thanking everyone for joining the conference and acknowledges that there were other competing calls. He also encourages any follow-up questions to be directed to their IR team. The call is now concluded and participants can disconnect.

This summary was generated with AI and may contain some inaccuracies.