Good day and Welcome to the Sempra’s Fourth Quarter 2021 Earnings Call. Today's conference is being recorded. At this time. I would like to turn the conference over to Ms. Nelly Molina. Please go ahead..

Good morning everyone and welcome to Sempra's fourth quarter 2021 Earnings call. In live webcast of this teleconference and a slide presentation is available on our website under the Investors section. We have several members of our management team with us today, including Jeff Martin, Chairman and Chief Executive Officer.

Trevor Mihalik, Executive Vice President and Chief Financial Officer. Lisa Lorac Alexander, Senior Vice President Corporate Affairs and Chief Sustainability Officer. Justin Bird, Chief Executive Officer of Sempra Infrastructure.

Faisel Khan, Chief Financial Officer of Sempra Infrastructure, Allen Nye, Chief Executive Officer of Oncor, Kevin Sagara, Executive Vice President and Group President, and Peter Wall, Senior Vice President, Controller and Chief Accounting Officer.

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. 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. All of the earnings-per-share amounts in our presentation are shown on a diluted basis and we'll be discussing certain non-GAAP financial measures.

Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We also encourage you to review our Annual Report on Form 10-K for the year-ended December 31st, 2021.

I'd also like to mention that the forward-looking statements contained in this presentation speak only as of today, February 25th, 2022, and it's important to note that the company does not assume any obligation to update or revise any of these forward-looking statements in the future.

With that, please turn to slide four and let me hand the call over to Jeff..

size and scale in attractive markets, lower risk and strong recurring cash flows associated with T&D investments, and positive growth trends centered on the expansion of energy networks to support cleaner forms of energy, improved safety and reliability, and the continued integration of North American energy markets.

Our three platforms combined for nearly 300,000 miles of transmission and distribution lines, all in key markets in North America, while serving nearly 40 million consumers. These integrated growth platforms generated approximately $2.6 billion in 2021 full-year adjusted earnings and position us to grow earnings well into the future.

Trevor will walk through the details on our long-term growth drivers later in the presentation.

But at a high level, our projected growth of 6% to 8% is supported by strong continued investment at Sempra, California to support safety, reliability, and the state's ambitious energy transition goals, investment in our Texas utilities to support strong economic growth, and a significant interconnection queue loaded with renewables and disciplined investments at Sempra Infrastructure for fully contracted assets currently under construction, and potential upside to projected growth from projects we currently have in development.

Finally, I think it's worth noting that the vast majority of our assets have some form of inflation protections built into them either through regulatory constructs such as upcoming rate cases or pass-through mechanisms on our infrastructure projects.

Additionally, given our strategic focus on T&D infrastructure, the lower risk section of the energy value chain, we believe we reduced our exposure to many of the traditional risks in the energy space. Whether it's commodity exposure, extreme weather, retail credit, or stranded generation investments.

As we continued to advance our role as a leader in the energy transition, we're also creating an opportunity on this call and future calls for our Chief Sustainability Officer, Lisa Alexander to update you on our progress. Please turn to the next slide..

decarbonization, diversification, and digitalization. This past year we summarized our aspirations in each of these areas as part of Sempra's energy transition action plan, and I'm pleased to update you that we're making great progress. Here are a few examples.

In California, SDG&E completed its inaugural issuance of $750 million in green bonds and secured regulatory approval for three new energy storage projects expected to total 161 megawatts. Additionally, SoCalGas achieved over 4% renewable natural gas deliveries to core customers in 2021.

Moving to Texas, Oncor is doing an excellent job connecting customers to cleaner renewable sources of energy by expanding and modernizing Texas as fast transmission and distribution network.

In 2021, Oncor connected nearly 2,200 megawatts of wind and solar generation bringing the Total renewables connected to Oncor system to approximately 15,500 megawatts. In addition to progress on its operations, Oncor has also entered into a new $2 billion revolving credit facility with sustainability linked to performance metrics.

And lastly, at Sempra Infrastructure, the newly consolidated platform is advancing opportunities in renewables, hydrogen, ammonia, LNG, and carbon capture infrastructure.

The company recently filed an amendment with FERC to incorporate electric drives that are proposed Cameron LNG Phase 2 project, which could help reduce facility emissions by up to 40% while continuing to help de-carbonized global markets.

Earlier this year the company also announced an MOU with Entergy to develop options intended to accelerate deployment of renewable energy to power primarily LNG facilities. Across our industry, companies are adjusting their business models to meet customer demands for increasingly cleaner sources of energy.

At Sempra, we think these trends play to the strength of our company and effectively create a tailwind for new and cleaner investments across our platforms. Please turn to the next slide where I'll hand the call over to Trevor to provide business and financial updates..

Thanks, Lisa. To begin, we've had several positive developments at our operating companies. In the third quarter, SDG &E filed an application with the CPUC to assess its cost of capital for 2022, as a result of the extraordinary event of the COVID-19 pandemic. In December, the CPUC issued a scoping memo with a final decision expected later this year.

Also, the CPUC authorized a memorandum account effective January 1, 2022, to track any differences in revenue requirements resulting from the interim cost of capital decision expected later this year. Additionally, the CPUC is working through the implementation of our renewable natural gas procurement standard.

We're excited about this development and view it as a significant step forward in advancing the future of cleaner fuels here in California. Lastly, SoCalGas recently announced a bold new vision to develop a proposed green hydrogen infrastructure system to serve the Los Angeles basin called Angeles Link.

As contemplated, this project would be the nation's largest green hydrogen infrastructure system and will deliver green hydrogen to the country's largest manufacturing hub to help decarbonize electric generation, industrial processes, heavy-duty trucking, and other sectors that are challenging to fully electrify. Shifting to Texas.

Oncor set a company record for the number of new and active requests received for transmission interconnections in 2021, demonstrating the rapid growth in Texas and continuing opportunities for Oncor to grow its system. Oncor service territory continued to grow as well, with Oncor connecting approximately 70,000 additional premises in 2021.

At Sempra Infrastructure, we signed two MOUs to advance our unique capability of delivering LNG into both the Atlantic and Pacific basins, the first with Entergy that Lisa discussed earlier and the second, an MOU with CFP to jointly develop Vista Pacifico LNG as well as the new regasification project in La Paz, Baja, California Sur.

Additionally, Sempra Infrastructure established a new credit facility in the fourth quarter and issued its inaugural investment-grade bond last month. All with the intention of efficiently financing its growth along with internally generated cash flows. Please turn to the next slide where I'd like to go into additional detail.

On an update relating to Sempra Infrastructure. Here the key takeaway is that we are making progress on our announced sale of an additional 10% interest in the business to audio.

This transaction, which is subject to customary closing conditions and third-party and regulatory approvals valued Sempra Infrastructure and an enterprise value of approximately $26.5 billion, which was $1 billion higher than the KKR transaction.

We expect to use the proceeds to fund utility capital, execute share repurchases, and continue supporting improvements in the balance sheet. Please turn to the next slide where I'll review the financial results. Earlier this morning, we recorded fourth-quarter 2021 GAAP earnings of $604 million or $1.90 per share.

This compares to fourth quarter 2020 GAAP earnings of $414 million or $1.43 per share. On an adjusted basis, fourth quarter 2021 earnings were $688 million or $2.16 per share. This compares to our fourth quarter 2020 earnings of $668 million or $2.28 per share. Full-year 2021 GAAP earnings were $1.254 billion or $4.01 per share.

This compares to 2020 GAAP earnings of $3 billion, $764 million or $12.88 per share. On an adjusted basis, full-year 2021 earnings were $2 billion $637 million or $8.43 per share. This compares favorably to our previous full-year 2020 adjusted earnings of $2,342 billion or $8 per share. Please turn to the next slide.

The variance in full-year 2021 adjusted earnings compared to the prior year was affected by the following key items.

$78 million of lower earnings due to the sales of our Peruvian and Chilean utilities in April and June of 2020, respectively, $126 million of lower earnings from a CPUC decision in 2020 that resulted in the release of regulatory liabilities at Sempra, California, related to prior year's forecasting differences that are not subject to tracking in the income tax expense memorandum account.

This was offset by $216 million due to higher earnings from Cameron LNG JV, primarily due to Phase 1 achieving full commercial operations in August of 2020 and asset and supply optimization primarily driven by changes in natural gas prices in higher volumes.

$139 million of lower losses at parent and other primarily due to the lower preferred dividends from the mandatory conversion of preferred stock and lower net interest expense.

$52 million of higher CPUC base operating margin, net of operating expenses at SDG&E and SoCalGas, $44 million charge in 2020 for amounts to be refunded to customers related to the energy efficiency program at SDG&E, $37 million of higher earnings at Sempra Texas utilities, primarily due to increased revenues from rate updates to reflect increases in invested capital and customer growth.

Please turn to the next slide. We continue to see robust opportunities to invest in our utilities and infrastructure businesses, resulting in a $36-billion five-year capital plan, the largest in our history, and notably at $4 billion increase over the prior plan we announced last year.

This plan is anchored by $33 billion of utility investments, representing nearly 94% of the total capital plan. For SDG &E and SoCalGas, safety and reliability continue to be at the forefront of our planned expenditures. This is important.

Our investments in California centered around the State's regulatory priorities, including wildfire safety and integrity and safety of our gas infrastructure, along with technology investments. Additionally, at Oncor, the capital plan addresses the strong organic growth.

For example, the population of Texas increased more than any other states in 2021, continuing the need for further investments to support this growing demand. Please turn to the next slide. These capital investments in top-tier markets in North America are driving tremendous growth in our projected rate base.

In 2017, we had $14 billion of rate base at the California utilities. And through adding our interest in Oncor, as well as organic growth at both our California and Texas utilities, we grew our rate base to $41 billion in 2021 and expect to grow it even further to $62 billion by 2026.

Just as importantly, we expect to support the strong projected growth without issuing common equity.

Notably, over the next five years, our rate base mix is not expected to change materially with approximately 70% of total rate base dedicated to electric infrastructure, which reflects how well-positioned we are to continue supporting strong trends in electrification in our core utility markets.

Please turn to the next slide, where I'll provide additional details on the opportunities we have to efficiently fund our growing rate base. As we think about our financing strategy, we have multiple opportunities to efficiently fund the expansive growth that we're experiencing at our utilities.

Over the past few years, you've seen us rotate capital to fund utility growth, while also strengthening the balance sheet, finishing 2021 in a strong position with 47% total debt-to-capitalization, an 18% FFO -to-debt.

Looking forward, our financial plan is underpinned by a portfolio of strong operating cash flows that are backed by regulated returns or long-term contracts.

Our robust utility capital plan is further supported by cash generated from Sempra Infrastructure, where projected cash distributions to Sempra combined with the proceeds from the sales to KKR and adia are expected to provide over $7 billion from 2021 through 2026.

Turning to the dividend we continue to target a payout ratio of approximately 50% to 60%, which allows us to aggressively invest in utility growth while supporting the dividend. In addition to the dividend, we see opportunistic share repurchases as a way to efficiently return capital to shareholders from time-to-time.

We remain focused on delivering shareholder value and through this efficient financing strategy, we expect to deliver strong EPS and dividend growth without issuing external common equity. Please turn to the next slide where I'll discuss our near-term EPS guidance ranges and projected long-term EPS growth rate.

We are reaffirming our 2022 EPS guidance range of $8.10 to $8.70 per share, and we're introducing our 2023 EPS guidance range of $8.60 to $9.20 per share. The aforementioned guidance includes plans to continue returning capital to our owners in the form of $1 billion of share repurchases.

This would be an addition to the $500 million of share repurchases we recently completed. Now, let me talk about our longer-term growth.

Our historical execution combined with the growth opportunities in front of us, give us confidence in providing a long-term EPS growth rate of an annual average of 6% to 8%, starting at the midpoint of 2022 EPS's guidance through 2026.

This 6% to 8% growth is driven by our five-year capital plan and continued operational excellence across our businesses. It is anchored by an 8.5% projected rate-based growth at our utilities and only includes projects currently in construction at Sempra Infrastructure.

Importantly, we see opportunities to outperform this projected growth rate through incremental investments across our three platforms.

A few examples would include additional spending on energy storage, wildfire mitigation, electric vehicle infrastructure, and related make ready work, and pipeline safety and reliability in California further economic growth driving transmission and distribution expansion in Texas, and lastly, executing on incremental LNG and other development projects at Sempra Infrastructure that are currently outside the plan.

Please turn to the next slide where I'll highlight our historical execution. This slide is a good depiction of how we've historically met or exceeded our published EPS guidance ranges.

And done so consistently, reflecting our long track record of disciplined capital allocation, thoughtful execution and a commitment to deliver on our financial projections. Please turn to the next slide. Let me summarize our investment proposition.

We've invested time and energy in building a high-performing infrastructure company that is well-positioned in some of the fastest-growing markets in North America.

Overlaid with a commitment to capital discipline, we have a track record of operational excellence, disciplined financial execution, and dedication to consistently returning value to our shareholders in the form of dividends and opportunistic share repurchases.

Bottom line, we're excited about the future of Sempra and the critical role that our infrastructure will play in supporting future economic growth in the energy transition. Please turn to the last slide.

Over the last four years, we've continued to update our portfolio with a view towards prioritizing markets with strong fundamentals, and constructive regulation and simplifying our business model to improve execution and building scale, financial strength, and a high performing culture to deliver improved financial results.

With the benefit of those strategic efforts, it allowed us to end 2021 in a strong position. And looking forward, we have three integrated platforms with improved visibility to future growth. With that, this concludes our prepared remarks. We'll now stop and take your questions..

Thank you. [Operator Instructions] And we'll take our first question from Shahriar Pourreza with Guggenheim Partners. Please go ahead..

Hey, guys..

Good morning, Shahriar..

Morning.

So really comprehensive update Jeff and Trevor, but I just -- starting off as we look at your 6% to 8% growth profile, we get a pretty good sense of the utility growth, but as we think about maybe drilling down a bit further and bifurcating the growth, can you just elaborate a little bit more on the drivers of SIP? Any color on the cadence of growth there, as ECA phase I moves to completion in ‘24, do you see a more level earnings contribution from renewables and energy networks?.

Thank you for that question, and certainly, I think you're making a very interesting point. You can tell that 94% of our five-year capital program is dedicated to our utilities, and this is not the first year that we've made that type of prioritization. You've seen us grow our U.S.

rate base from the end of 2017 which was about $14 billion to roughly $41 billion today, so that remains an ongoing priority.

The capital that is in the plan today for Sempra Infrastructure, it is fairly conservatively projected, as you know Shar, our convention really is to focus on projects where we have already taken FID and they're in construction.

I might refer you to Slide 34, where it outlines a basket of incremental opportunities that we certainly think could be quite positive for the company. There is about $5.2 billion to $5.7 billion of incremental opportunities. I think part of that informs our view that our projections are fairly conservative..

Shahriar Pourreza:.

Jeff Martin:.

Shahriar Pourreza:.

Jeff Martin:.

Shahriar Pourreza:.

Jeff Martin:.

We will pick our next question from Jeremy Tonet with JPMorgan. Please go ahead..

Rich Sunderland:.

Jeff Martin:.

Rich Sunderland:.

Jeff Martin:.

Rich Sunderland:.

Jeff Martin:.

Rich Sunderland:.

Jeff Martin:.

Great. Thank you, Rich. And thank you, Jeff. So I think as Jeff mentioned, given the robustness of the LNG market and what we view as our privilege platform in the Pacific Gulf -- Pacific and Gulf Coast locations, I think you're seeing two things. One, we're seeing a dramatic increase in the market interest for our facilities.

And two, I think you're seeing heightened confidence in our ability to execute on our development projects. First, speaking of Cameron, we're making great progress on the expansion. Project at Cameron, given the timing of the filing of the amendment to the FERC permit, we're now targeting FID in the first portion of 2023.

We're also making great progress on Vista. We are actively marketing about 10 million tonnes per annum of offtake and we're seeing. Extremely high levels of interest. So make no mistake, we're working with our partners and customers to get them supply as soon as possible.

I wish we could give them more now, but as many of you know, the projects take time to develop, permit, and build. Also, we've made great progress in the last 24 months on Cameron. We reached full COD in 2020, hit record production last quarter, and we're working with our customers and partners to accelerate the debottlenecking of the phase 1.

We took FID on ECA in November of 2020, as Trevor mentioned, the projects on time, on budget and being done safely. We expect first LNG there towards the end of 2024, and you should expect us to optimize volumes out of ECA once we reached full production.

So to really sum it up Rich, we're focused on delivering LNG to our customers under long-term 20-year contracts. LNG demand is growing about 5% to 10% per year.

And you should expect us to grow with the market or better, and lastly, we think we can deliver superior risk-adjusted returns to our shareholders by making disciplined investments in our LNG infrastructure..

Greg thank you for the commentary there..

Thank you..

We'll take our next question from Durgesh Chopra with Evercore ISI. Please go ahead..

Hey. Good morning, team. Thank you for taking my question. Jeff, big picture, what do you see of the regulated versus non-regulated earnings mix evolving here from '22 to 2026 in [Indiscernible]. The majority of the increase in capex is dedicated towards utilities.

How are you thinking about that? Any updated thoughts there? Or how should we think about that business [Indiscernible] over time..

Yeah. One of the things that was excited about for today's call was one of the slides that showed that at the end of 2017, our U.S. utility rate base was $14 billion. Today, it's $41 billion and by the end of the five-year period that you are addressing is going to be $62 billion.

And we have a fair amount of confidence to be able to grow that size of rate base. That's a 4.4 times growth over that nine-year period of time.

And I think what that really reflects is the benefit of over the last four years, our capital recycling program and our focus on these T&D marketplaces where if you're in the right markets with good regulation, you can continue to produce higher recurring cash flows and grow your business faster than your peers.

We certainly think that one of the arguments that comes through in our materials is the important role that Sempra Infrastructure plays in supporting that growth. So if you go back to the December timeframe of 2020, the market was valuing the IEnova business and LNG business at about $9 billion.

We have a slide here today that shows our ability to basically extract roughly $7 billion out of that business to support the type of growth you're seeing in our utility. So I think my conclusion would be we have three very strong platforms that are very capable of growing. Each of them have scale and a leadership position in the markets they serve.

I think we've got this thing teed up to deliver really good results in the years ahead..

Got it. That's helpful, Jeff. Thank you. Just one quick clarification on the MOUs at Cameron LNG and the Vista Pacifica. That would be the additional capex there.

What kind of the balance sheet grew? Would you need equity for that additional capex or you think you can absorb that would in the context of upside to the capex plan?.

Right. Yeah. Justin talked about this opportunity that we're working on for $10 million tons per annum of new capacity. They have a self-funded business model today where they can resource third-party equity at the project level. They can also call in their equity partners.

And one of the things that's really exciting about the Sempra Infrastructure transaction was, we set that business up with an investment-grade balance sheet and a mandate that they self-fund their business.

And when they can return capital to the parent to support our share repurchases and our dividend program and our growth and our utilities, they can do that.

So I think one of the things that Trevor oftentimes says is, that business produces a flywheel of cash, and that has been very instrumental to Sempra success in growing this utility platform, and we'll look to them to help finance their growth on LNG side..

Got it. Thank you so much, guys. Appreciate the update today..

Thank you for joining us..

Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead..

Good morning, Steve..

Hey, hi. I guess it's afternoon here. The -- just a follow-up on LNG and specifically Cameron.

If you do get to FID in first half of '23, when would Cameron likely be online, expansion?.

So in terms of the additional train, it would roughly be four years. After that I think the other thing to remember about the Cameron project as a whole, as I mentioned, we're looking to accelerate the debottlenecking, which we think can produce an incremental 1 million tons per annum.

And we would expect that to come online prior to the full second train. Sorry, the full additional train at Phase two..

So the way to think about Steve would be fully online by 2027, which is about a 48-month period of time. Justin is making a great point, we're looking to have access to additional volumes from debottlenecking, probably within our five-year plan period..

Okay. And that would be incremental to the plan, the debottlenecking [Indiscernible].

That's correct. That's something we're following very closely. It's important..

Okay. That's great. And then Jeff, obviously you've got a new long-term growth rate out, the stock has been doing better this year, and that's great. And so -- but I'd be curious if you were to -- what would make you consider changing the structure of Sempra, i.e. breaking off SIP or selling more SIP.

What are the things that could change the way it is or you're likely, given the way this is all coming together just to continue the path you've laid out today?.

I will give you a couple of comments, Steve and I mentioned some of this earlier in the call, but I think today's call really is a combination of what we've been talking about in terms of our strategy and the value being focused on T&D platform that really privileges U.S.

utility growth, right? So we're very pleased with the progress we've made over the last four years and be able to grow our earnings per share over that four-year period at about 11% rate and fund these record capital plans while returning capital to shareholders. So we've got a pretty virtuous model going for us right now.

One of the things I would ask you to think about is we have a very rigorous strategy discussion with our Board we met earlier this week. Strategy is discussed at every single regular meeting of the Sempra Board through the lens of how we can push more and more value back to our shareholders.

And I think you can tell from the last three or four years, we're not going to be bashful. If we see an opportunity to unlock the balance sheet and buyback more shares or adjust our dividend policy, we're going to do that. But I think right now the key takeaway from this call is we have a record capital campaign.

We've gone from 2017 when I was the CFO of having a $16 billion five-year plan, Steve, it's 20 billion higher in over a four-year period of time. So our number one opportunity is to make sure that we're funding as a first priority, what we think is a very attractive capital program and continue to look for opportunities to unlock value.

And I think we've demonstrated a willingness to do that..

Great. Just last question on the balance sheet. I appreciate the FFO to debt metric and the like.

Just have the -- have you gotten any comment from the rating agencies on the updated plan and how they are thinking about it?.

Thank you, Steve. I'll pass that to Trevor for commentary..

Thanks, Jeff. Yes, Steve, we have gone and highlighted the plan with the rating agencies and gotten some of their feedback. We will do it in a bigger way in subsequent weeks here. But they understand where we are on things.

And again, we feel very good about the 18% FFO to debt that we ended the year at and continue to strengthen the balance sheet, that is a priority of mine and continued to fund the capex plan..

I would also mention, Steve, and we've talked about strengthening the balance sheet, probably every year for the last four years, and I think you're seeing that benefit. So you think about the high watermark in the second quarter of 2018 when we finished the completion of the Oncor acquisition, our debt-to-capitalization was about 57%.

So we've really sickened our equity layer today. At the end of the year of 2021 it was 47%. So you're seeing us Fortress the balance sheet with a view towards supporting more growth for our shareholders and the return of capital in the form of both dividends and share repurchases..

Great, great. Thank you for the thorough update. Thank you..

Thank you, Steve.

We'll take our next question from Michael Lapides with Goldman Sachs. Please go ahead..

Hi Michael..

Hey, Jeff. Congrats on a good end-of-year call and a great start for 2022. Lots of exciting things going on. Curious, a couple of questions on the core utilities. One of which is that if I look at your rate base and your net income guidance. Your net income growth rate that the California utilities are mid-single-digit range.

I think I just invented a word [Indiscernible]. Mid-single digits for '22 and '23, but rate base growth is double-digit both of those years from '22 and '23 and then at Oncor, it's kind of the opposite. The net income growth is low double-digit in '22, but the rate base for it kind of in that 8% to 9% range.

Can you just remind us what's driving the big spread between rate-based growth and net income growth, albeit it's a little different in California, [Indiscernible]?.

Let me just start with a little bit of context. I think one of the things we're excited about and you've seen us dedicated our focus to improve the quality and scale of our us utilities that's reflected in our rate base numbers, Michael. But California rate base projections are clipping along at about 9% CAGR.

And that Allen's organization, Oncor is growing at roughly 8%. And on average, you put those two together and they're growing about 8.5%. I'll take your point, which you would expect earnings to roughly over long periods of time to reflect that type of rate-based CAGR. In California, you recall that we're going into a rate case cycle.

That first year where rates are in effect, you usually see a large step-up and it's that portion of the new rate base that's coming into that cycle. And at Texas, you have a little bit of a lag in terms of how they're mechanisms work.

But I think the larger point you're making is you don't have visibility to year three or four or five from a growth standpoint. But that differentiation you're seeing should basically come together closer to the overall rate base growth over the five-year period..

Got it. Okay. And then this is a busy regulatory year. I mean, you got a file rate cases in California. And I think you have to file in taxes. Is there any scenario where hopefully more so on the Texas side, you could get an incremental one-year delay? There are a bunch of other utilities like into deep taxes and others filing in Texas this year.

Do you have -- do you feel you have the need to file in Texas or is this some filing but that you're kind of required to make..

Yeah. Let me make a couple of contextual comments and I'll pass it to my partner, Allen and I here in just a second. But you remember here in California, we're going to follow our cases later this year, both for SDG&E and SoCalGas. Those cases will flow into 2023 with a view that those rates will be effective on January 1, 2024.

In Texas, Allen has prepared his team for his rate case filing. But Allen, I'll let you speak to how you're prepared for that case, how you think about the timing of that case relative to some of Michael's comments..

Sure, Jeff. Thanks, Michael. Yes. Just initially, let me say, when we extended our rate-case deadline filing last year, we got a deadline set of on or before June 1 of this year. So right now, we're required to make the filing on or before June 1. I'll tell you, probably looking at call it mid-May for a filing.

We're putting together what we think is a very strong case, we have obviously very aware of what other utilities have done down there recently and what the outcomes have been. I feel strongly, I've said it before, rate cases are very company-specific, very fact-specific. They relate in a large way to the way you've run your company over time.

Your relationships with your constituents and the PUC. And we feel very good about all those connections in the history of how we perform with these rate cases.

So I'm not going to front run my lawyers and my experts, my witnesses, and I can't really get into what we think we're going to file, obviously, ROE and Cap structure are always big in these cases, and that'll be a focus of our cases as well.

And then just the only other thing I would add, I think somebody said in the opening comments, I think everyone is where -- we do have the lowest rates of any IOU in Texas. And if you're going in for a rate case, that's a good place to be. So all-in-all, right now we're looking at mid-May, we don't think there's going to be another extension.

There's obviously a lot going on at the commission right now, but we feel good about where we are and that's our current plans..

Got it. Thank you, Allen. Thank Jeff..

Thank you, Michael..

We will take our next question from Ryan Levine with Citi, please go ahead..

Hey, everybody..

Hey, Ryan..

Hey.

What's included in the $1 billion to $1.1 billion of Energy Networks potential project? And how is the contracting in developed environment today in light of the commodity and political backdrop to comparison with previous quarters?.

Thank you, Ryan for that question. You recall that we announced a recent MOU with CFE.

And one of the things that the country is trying to address is, as they went through their reforms from 2013, they've essentially overbuilt their pipeline network at the time with a view toward building a lot more natural gas-fired generation to replace a lot of their oil-fired plants, so their older plants. Some of that pipeline capacity is unused.

So one of the things that's important in that MOU is that our partnership with CSE is designed to basically utilize some of their pipeline system to support the Vista Pacifico project, which reduces the cost that they are bearing for that capacity.

And secondly, there's a work around planned where they've agreed to help us put the Sonora pipeline back into service network, involve additional capital. And we've got our opportunities here, particularly in Baja.

One of the things that Tonya always reminds us up is Baja California and Baja Sur is literally disconnected from a gas and electrical standpoint from Mainland Mexico.

So this situation where San Diego Gas, Electric sits and this North Baja position that we picked up in terms of our power position in renewables, as well as our pipeline position, we think there will be continued opportunities there and in the future for pipelines to be built to support growth in Baja..

Thank you for that.

And then in terms of your guidance, what are the components of the parent costs reduction between 2022 and 2023 that you're guiding towards?.

So I will tell you that we're managing a number of things. The biggest obvious issue in our parent costs is how we manage our overall interest cost. And the second thing, when we talked about that in the prepared remarks about some of our preferred equity going away year-over-year. But we also have been managing down our overall SG&A for the parent.

I don't know if -- Trevor, if you want to add any additional remarks on our parent costs year-over-year?.

Yeah. No, Jeff. I think you pretty much touched on it. The higher parent losses were primarily due to less interest savings driven by a higher capital plan..

Okay.

And then last question for me in terms of battery outlook, recognizing the recent regulatory filings, do you see any upside to the spending in California? And are you looking at any electric batteries for Mexico?.

Yes. We definitely have a Volta project very much adjacent to TDM in Mexico. You may remember that when TDM was built back in the 2000 period, they had plans for a second combined cycle plant to be built adjacent to TDM. That project has now been dedicated to batteries and Justin's teams evaluating a 500 megawatt battery project out of that location.

I'll turn it over to Kevin. We actually are quite bullish on batteries here at San Diego Gas & Electric, and maybe Kevin you can contextualize that opportunity for the utility..

Yeah. Thank you. Hey, Ryan. So we were happy to see the PUC approved earlier this month. Our advice letter around three new energy storage projects that total ed of about a 160 megawatts, that's about $300 million -- $380 million capital investment. There were three different projects there, all lithium-ion.

I think we're going to see more and more of this. We are seeing with the Cal ISO study that came out, there's a big need for a lot more resources like this and I think we're going to see a tremendous amount of energy storage still to get built. And what will get our fair share of that like we did here. Thank you..

[Indiscernible] next question from Julien Dumoulin-Smith with Bank of America. Please go ahead..

Hi, Julien Dumoulin..

Hey, good morning, team. Congratulations on the continued results..

Thanks..

Absolutely. Just with respect to Ryan's last question, maybe I'll start with the strategic one here. As you think about the Sempra Infrastructure side, you all have done a lot in the gas-based. You also, obviously located in California, principally.

Renewable natural gas was mentioned in your comments here, how do you think about leaning into opportunities that might avail themselves specifically as some of those opportunities become perhaps more right, if you will, across the Western U.S.?.

I'll give you a couple of thoughts and maybe Kevin, you can follow me. But I think one of the things, and I actually had the opportunity to follow Edison's call yesterday too, that you're seeing is there is no longer a conversation about whether there's going to be a clean energy transition, Julien.

The conversation now is about how fast it can happen and what the different mix of technologies in fuels will be.

And I think in California, one of the areas that we're fairly prideful about our leadership position is we see a marketplace here where there there's a big and growing role for electrification in the form of green kilowatt, but there's also big role for green molecule.

So I think this decision you saw yesterday very much validates the adjacencies in the existing value of SoCalGas system. They just completed 4% of the core deliveries last year from renewable natural gas and this new mandate will up that number to about 12.5% by 2030. And that ruling came after SoCalGas had already committed to get to 20% by 2030.

So I think the role of renewable natural gas, our recent announcement around the Angeles Link for hydrogen. These are going to be big opportunities. I think our footprint to your point, it's going give us a lot of opportunities, both on the regulated and unregulated side. And Kevin, you've long been a leader in our innovation at the company.

Maybe you can provide some color around how you're thinking about renewable natural gas and hydrogen..

Yeah, I think we've spoken about this before to Julien, which is just around this idea that clean molecules have a big role to play in this energy transition and I think obviously, you saw what we announced with Angeles Link. We got some favorable feedback from various stakeholders around the state around that project.

And you see this decision by the CPUC authorizing this renewable natural gas standard for the utilities, which is an acknowledgment that, hey, the gas companies’ infrastructure are going to have a big role to play in this clean energy transition within the state, helping the state reach its aggressive decarbonization goal.

So we view this as all of like a positive step and it's demonstrating that there is a role in the state for clean fuels along with a lot of electrification..

Got it. Excellent guys, I'm curious to see when it becomes more material. Maybe if I can just talk on numbers here. As you think about this new CAGR that you've all laid out, can you talk a little bit about the funds ability between buybacks and used deployment just in share repurchase versus today, going to an LNG FID or the debottlenecking.

Obviously, there's several different scenarios that could play out here.

Can you talk about how maybe capital going into an LNG FID could potentially effectively delay so that earnings recognition in the 27, but ultimately be accretive to your CAGR as I understand it? So maybe what's assumed in the form of buybacks and then ultimately, what is that incremental opportunity if you can kind of define it relative to the CAGR?.

Well, let me take a shot at it. And if I don't answer it accurately, please come back and we'll try to make sure I get a more fulsome answer. But I would start with the fact that you've seen our capital program grow from about $16 billion over five years in 2017 to $36 billion.

So the cornerstone of our program going forward is the fact that all three of our platforms have very strong growth.

And against that backdrop, we understand that we're accompanied where we need to privilege the dividend, right? So our investors expect us to return capital in a very competitive way with our dividend and what you've seen us do in the summer of 2020, Julien, and now most recently in the last 90 days, it put a billion dollars of share repurchases to work.

And again, as someone mentioned earlier, flexing the balance sheet a little bit, between now and the end of 2023, to put another billion at work. So when we think about that return of capital, it's really a two-pronged opportunity, of dividend, juxtapose beside the share repurchases.

Now, to your point, as you go forward in the plan, there are a variety of things that could cause our plan to get bigger when you think about LNG, I've made this comment earlier in my prepared remarks.

But we certainly think what's unique about Sempra Infrastructure is we've given them a mandate to be self-funded, right? So they are in a position where with an investment-grade balance sheet that can source the capital markets, they can source debt, they can raise money at the project level. They've demonstrated a willingness to do that.

So think about Cameron as example. We originally owned about 50% of that project. And through our sell-down at Sempra Infrastructure to 70% level today, our look through equity participation at Cameron today is roughly 35%.

So we have a lot of flexibility under Faisel's leadership and Justin's leadership to make sure that we're very disciplined before we spend dollars on the LNG business. But their job is to risk adjust those cash flows in a way that makes sure these accretive opportunities for the Sempra shareholder..

Got it. Excellent.

So just on buyback commitment, that's assumed in the plan, there is no specific number per se?.

So I think what we're saying is that we have identified programmatically that we're going to spend another $1 billion around share repurchases between now and 2023, and beyond that will be opportunistic based upon what's in front of us and what we think creates the best, kind of adjusted Total shareholder return for our investors?.

Yes, absolutely a lot of moving pieces here, thank you again and congrats once more. I'll speak to you guys soon..

Thank you, Julian. Appreciate it..

We will take our next question from Craig Shere with Tuohy Brothers. Please go ahead..

Hi. Congratulations on another good quarter and the ongoing growth..

Thank you Craig..

Jeff, you mentioned the stressed and uncharted global energy markets and the related opportunities on slide 34 for more Sempra Infrastructure projects. Now, up to $9 billion of incremental accretive projects, it's certainly nothing small. But that seems to ignore Port Arthur and ECA Phase 2.

I realize for various reasons, some of these additional projects may be more towards the end of the decade, but in a perfect storm of global energy and security, there may be quite an appetite for multiple large-scale projects that while mainly not FID exactly the same time, maybe they can overlap in construction of our one or two years and be quite a bit to digest in terms of their overall size.

So the first part of my question is, in a perfect storm where the world needs help, would you be willing to take on that much? And if we're looking at perhaps $20 billion of SIP, growth capex two decades then. And I notice this is -- was asked in a different manner. But what I'm trying to get at is it got to be that big.

Does that necessarily augur for additional structural change?.

Yeah. It's a really interesting set a question and I want to compliment you because you have long been a follower of the LNG markets and we've always appreciated our dialogue with you and your firm about this.

But you used twice this reference to a perfect storm and we don't take too much confidence or happiness in the fact that we've been predicting this for over five or 10 years. This need for what needs to happen in the middle of decades and we certain no one forecasted what's currently taking place.

And I think perfect storm is the right characterization of it. Look, there's no question that there is a commitment globally to clean energy transition, but there's a growing recognition that that transition, Craig, has to happen in an orderly way.

As you think about both developing markets and OECD nations, there is a strong and growing role, a very important role for natural gas, and LNG is really going to be the feedstock that allows both Europe and Asia to make that transition with order in a way which is affordable.

It is the natural partner to renewable, so I think we're in a very fortuitous position. I think you're really describing for us a high-class problem, so we do have a unique set of assets both from the West Coast, and the Gulf that can be responsive.

Now we can't suggest this point be responsive in the short-term, but over the long term, we have a very bullish view of what can happen in our portfolio.

Maybe Faisel, who is the CFO of that business, maybe you can think about to Craig's question, Faisel, how you think about that opportunity and how it could be flexed and how big it could be for our company..

Yes, Craig, I think that would the awesome if we could do all these projects all the same time. But obviously, you have to be disciplined about how we do it. So if we think about over the long run how we're going to source that capital.

So at Sempra Infrastructure, obviously when ECA Phase 1 comes online, we're going to have a step-up in cash flows there. So we have very strong internally generated cash flows to fund growth projects in the future. The second part of it too is we have our partners now in KKR and ADIA, they can also be a source of capital for big projects like that.

And thirdly, we can pull capital at the project level. So similar to what we've done at Cameron, we can do that with other projects too. So I'd say, as we think about the future of funding these projects, we feel very good about how we can source the capital into that growth..

And I'll just maybe Craig as a final comment say, in the perfect storm you're describing, I think there will be a lot of alignment, around government agencies and support across our industry to pull projects forward as necessary. If we can to be helpful to improve the energy security of our allies..

One would hope our studies would be so integrated..

We're in agreement..

Thank you..

Thank you very much..

We move to our next question from Sunil Sibal with Seaport Global Securities. Please go ahead..

Hi. Good morning, folks. And --.

Good morning..

-- thanks for all the clarity. Actually, I had a couple of follow-ups on the LNG discussion. It seems like the European utilities over the last few years have been evolved to taking on long-term commitments, the 20-year contracts or so.

Considering that the changes we are seeing currently, has that kind of discussions opened up again? I was just curious on that..

Yes. Sure. A couple of things have taken place. One is European utilities are doing several things. They are taken on longer-term contracts. Number one, you're seeing other companies make more investments in pipeline, what they call future ready pipelines for hydrogen, which is probably further along than we are in the United States.

But Justin talked about really the improvement in how he's envisioning the long-term contracting environment and maybe Justin and you can just recap that in terms of the nature of the conversation you're having with counterparties currently?.

Yeah. Thank you, Jeff. Yes, Sunil, I think you had been seeing some reluctance on the European utilities to really go out on long-dated contracts. I think a lot of that was driven by uncertainty around the taxonomy, as well as carbon tax related questions.

So I think some of that overhang is still there, but I will say we're seeing a significant uptick in interest, particularly given, some of the things that we've described it, as Jeff described in the global markets. The forwards clearly currently affected by what's happening in the Ukraine.

But we're still seeing significant interest in the 10 million tons that I'm talking about marketing in Europe and Asia, all of it on a 20-year basis..

Thank you, Justin..

Thanks for that. And then one clarification on the one MTPA that mention for the Cameron debottlenecking.

Is that capacity all spoken for between your partners in that project?.

So yeah, that capacity would go to the current off-takers. And so basically represent in a sense, captive customers for the marginal earnings that would come out of those additional volumes..

Got it. And then last question on that, I think you mentioned improvement in return profile on these projects. Could you give us a sense of directionally what kind of improvements that you are seeing? And I presume that contract construct with regards to the nature of the contract it's pretty much similar to what we did for Cameron..

Yeah. I'll pass this to Faisel, but I think one of the things we're referring to here is the nature of scarcity that you see in the marketplace, and the growing recognition that you're seeing about the growing role of natural gas. This calls in two things to happen. Number 1, increase openness by customers to enter into long-dated contracts.

And Number 2, greater competition for the capacity that we're looking to market both in the Gulf and the West Coast, and Faisel, you want to add anything in that in terms of what we're seeing,.

I mean, Trevor is also laid this out in his capital allocation framework, but it's targeting those mid to high teens equity levered IRR is what we look at..

Got it. Thanks for that..

Thanks, Sunil..

And we'll take our next question from Nicholas Campanella with Credit Suisse. Please go ahead..

Hi, Nicholas Campanella..

Hey, team. Hey, long time no talks. I guess, just on the California utilities and in terms of what's assumed in the broader six to eight CAGR here. I know we talked about the GRC cycle coming up. You also have cost of capital coming.

Are you just kind of assuming status quo through 25/26, or how should we think about that?.

Couple of things for you in terms of the five-year plan. Two of those years are under the old rate case and then three of the four or five years will be covered by the rates case that goes into effect on January 1, 2024. In terms of cost of capital, we're obviously following the proceeding very closely.

I think our current range for 2022 is contemplated whether the trigger mechanism applies or doesn't apply, it's contemplated in the range we viewed as having between $0.5 and $0.10 impact either way.

And then in terms of the GRC assumption, as we think about forecasting in future periods, you recall [Indiscernible] convention has been to use substantially similar attrition mechanisms from the past. So if you look at the attrition mechanisms that PG&E and Edison recently got.

And our average attrition mechanism across both utilities over the last five years. That's a good proxy for our expectation in the plan going forward..

Great. Thanks a lot. And just one more cleanup question here on LNG or sorry, SIP EBITDA, you gave '22, we have earnings guidance for '22 and '23. Is there any reason why '23 wouldn't track similar to how you framed the change in earnings, from an EBITDA perspective, just trying to think about EBITDA at SIP for’23? Thanks..

So the earnings for -- the earnings you see in our guidance range for '22 and '23, assumes the proportional amount of earnings, the NCI's in there. For example, in '22, you're seeing roughly 25% interest to our non-controlling shareholders. And then in '23, you're seeing 30% non-controlling interest. That's why you see a little bit of a change there.

But on a gross basis, the EBITDA is basically fairly straightforward..

But let me just say this, the reason we just put '22 in there, there was nothing with regards to why we didn't put '23. It's largely the same..

Yeah. Just wanted to confirm that. Thanks for the time. Really appreciate it..

Thank you..

And that concludes today's question-and-answer session at this time. I will turn the conference back to Jeff Martin for any additional or closing remarks..

Sure. In closing I wanted to make sure we took the time to summarize some of the highlights from today's call. We've nearly tripled our U.S. rate base in four years to $41 billion. That includes current authorized blended ROE. Today they're slightly higher than 10%. We posted record adjusted EPS results print in a number today of about $8.43.

This was the 12th consecutive year that we've been able to raise our dividend. And today, we announced our long-term EPS growth rate of 6% to 8%. And by the way, over the last 10 years, we delivered a 7% to 8% annual CAGR in terms of EPS growth.

I would also note that we're really benefiting from a simplified business model with three T&D platforms with scale and the biggest economic markets in North America and all of these results are being backed by shareholder-friendly repurchases; $1 billion in the summer of 2020 and another approximate $1 billion through 2023.

We appreciate everyone joining the call. Trevor and Justin and our IR team will be attending the Credit Suisse Conference next week in Vail and also the Morgan Stanley Conference next week in New York. We hope we have the chance to see many of you there in person at both of those events. This concludes our call..

Thank you for your participation. You may now disconnect..