Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sempra (SRE, Financial) reported strong financial performance with adjusted EPS of $0.89 for Q2 2024 and year-to-date adjusted EPS of $2.24.
- The company reaffirmed its full-year 2024 and 2025 EPS guidance ranges, showcasing confidence in its financial outlook.
- Sempra Texas, particularly Oncor, continues to see remarkable growth, with annual premise growth trending around 2%, nearly double the national average.
- Sempra Infrastructure is advancing critical infrastructure investments supporting the energy transition and enhanced energy security.
- The company has a strong track record of delivering a 10% adjusted EPS compound annual growth rate since 2018.
Negative Points
- The ECA LNG Phase 1 project has experienced delays, pushing the commercial operations date to spring 2026, resulting in increased capital expenditures.
- Sempra California's General Rate Case (GRC) decision has been delayed, impacting financial visibility and planning.
- The company faces challenges with labor retention and productivity issues at the ECA LNG project site.
- Higher net interest expenses and lower income tax benefits have negatively impacted financial results in some segments.
- Sempra Infrastructure's ECA LNG project delay will lead to additional carrying costs and lower estimated commissioning revenues.
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, or should we assume some level of timing drag?
A: Jeffrey Martin, Chairman, President, & CEO: We're disappointed in the change of schedule at ECA. However, we target mid-teen equity returns across the portfolio at Sempra Infrastructure, and we continue to believe that ECA remains in line with those original targets. We have plenty of opportunities to both grow and reduce costs where it makes sense. Karen Sedgwick, EVP & CFO, added that they are taking several steps to ensure they deliver on their financial commitment, including asset optimization and driving operational efficiencies.
Q: On the GRC outcome, how are you thinking about a timely outcome in '24 on the GRC? If a final vote is delayed, how do we think about the cadence of the financial update for '25?
A: Jeffrey Martin, Chairman, President, & CEO: We have a strong GRC filing for both San Diego Gas Electric and SoCalGas, aligned with the state's key priorities. We expect a proposed decision later this summer and a final decision before the end of the year. Rates would be retroactively effective to January 1, 2024. We have a strong track record of working with regulators and stakeholders to get good outcomes.
Q: On the ECA project, how does the overall project cost track versus the initial estimates of $2.5 billion?
A: Jeffrey Martin, Chairman, President, & CEO: The estimated increase in capital for Sempra's net share is about $300 million. We still expect to maintain our targeted delivered returns in the mid-teens for the overall integrated project. Justin Bird, EVP & CEO - Sempra Infrastructure, added that the project is roughly 85% complete, and they are confident in reaching commercial operations in the spring of 2026.
Q: Regarding the SRP in Texas, is there any backlash from the PUC or other stakeholders given recent weather events?
A: Jeffrey Martin, Chairman, President, & CEO: The timing of the SRP agreement in principle is very good. Oncor has a strong reputation for operational excellence and storm response. The SRP program will allow us to continue hardening the system, and we expect the dollars to start flowing in Q4 of this year.
Q: How do you think about the SRP in light of recent weather events and potential expansion plans?
A: Jeffrey Martin, Chairman, President, & CEO: We are very bullish on the capital opportunity in Texas. The SRP outlines nearly $3 billion of capital investments, incremental to the current $24 billion campaign. Allen Nye, CEO of Oncor, added that they are in the process of drafting a definitive settlement agreement and supporting testimony, with details to be public by August 16.
Q: Does the ECA development impact the on-time, on-budget conversation for Port Arthur LNG Phase 1 and Phase 2?
A: Jeffrey Martin, Chairman, President, & CEO: Port Arthur LNG Phase 1 is not impacted. It's a different market and craft labor pool, with a fully wrapped EPC contract with Bechtel. Justin Bird, EVP & CEO - Sempra Infrastructure, added that they have executed a fixed-price EPC agreement with Bechtel for Phase 2 and are progressing well with commercial discussions.
Q: On the $13 billion to $15 billion of transmission CapEx proposed by ERCOT in the Permian, how large of a share could Oncor execute?
A: Allen Nye, CEO of Oncor: Given the scope of our operations in West Texas, we anticipate being a heavy participant in that $13 billion to $15 billion plan. We expect to build a significant portion of the projects that come out of this plan.
Q: How are you thinking about timing for going back in for another rate case in Texas?
A: Jeffrey Martin, Chairman, President, & CEO: We continue to evaluate this with our Board. We are not required to come back in until the summer of 2027. Allen Nye, CEO of Oncor, added that they will continue to analyze and provide updates as needed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
