Sempra (SRE) — Q2 2021 Earnings Call Transcript

Thank you, Nelly. I want to start today by thanking those who attended our virtual Investor Day this past June, and also mention that the team and I really enjoyed getting back on the road this past month and seeing many of you in person. As we discussed at our Investor Day, we've simplified our business model, narrowed our investment strategy to attractive markets, and improved capital discipline, all with the goal of offering a competitive value proposition, including consistent and attractive returns, strong earnings visibility and EPS growth, and a sustainable and growing dividend. Additionally, at the Investor Day, Allen and I highlighted the robust growth that Oncor continues to see all across its service territory. As a result, Oncor is increasing its capital plan, which Trevor describes in further detail later in today's presentation. Shifting now to the quarter, I'm pleased with our financial results, and I think it's a testament to the affirmative steps we've taken to simplify our business model and focus our capital investments on top-tier infrastructure growth platforms. We're reporting strong earnings and affirming both our increased 2021 adjusted EPS guidance range and our 2022 EPS guidance range. I'm excited about the progress we've made so far this year, and I'm proud of the broad support we're seeing all across our operating businesses. Now, please turn to the next slide, where I'll turn the call over to Trevor to provide both business and financial updates.

Thanks, Jeff. To begin, we have had several positive developments at our operating companies this past quarter. At SDG&E in July, we received CPUC approval for our 2021 Wildfire Mitigation Plan Update, building on the utility’s long-standing commitment to advance fire hardening and public safety. SoCalGas began flowing renewable natural gas at two additional biomethane projects in support of their goal to provide 20% RNG to core customers by 2030 to help the state reach its de-carbonization goals. In Texas, Oncor has provided visibility to their 2022 to 2026 projected capital plan, which has increased to approximately $14 billion over the five-year period. Additionally, Oncor did receive PUCT approval to extend its rate case filing deadline to June 1, 2022. At Sempra Infrastructure, we completed the exchange offer for IEnova's shares, resulting in a 96.4% ownership interest, and we plan to launch a cash tender offer for the remaining 3.6% interest. We're also advancing the sale of the non-controlling interest in Sempra Infrastructure Partners to KKR. And while I may have been a bit optimistic at Investor Day, we now expect to close the transaction around the end of the third quarter, subject to the Mexican Competition Commission completing its economic and market analysis and issuing the regulatory approval. With that, please turn to the next slide for more details around Oncor's capital plan update. Oncor continues to operate in one of the fastest-growing states with strong macro fundamentals. As a result, Oncor is announcing its 2022 to 2026 projected capital plan of approximately $14 billion, nearly a $2 billion increase over the 2021 to 2025 capital plan. Furthermore, Oncor is increasing its 2021 to 2022 Capital plan by approximately $425 million, consistent with what Allen outlined at the Investor Day and is largely incorporated in the new $14 billion five-year capital plan. Oncor's robust capital plan supports the economic development seen throughout its service territory, increases in generation interconnection requests, strong premise growth, and investments in grid resiliency. A good example of this robust growth can be seen in new relocations, expansions, and electric service to Oncor's system, which are on pace to exceed 2020 values by 70% and to exceed 2019 values by 170%. Please turn to the next slide where I will review the financial results. Earlier this morning, we reported second quarter 2021 GAAP earnings of $424 million or $1.37 per share. This compares to second quarter 2020 GAAP earnings of $2.239 billion or $7.61 per share. On an adjusted basis, second quarter 2021 earnings were $504 million or $1.63 per share. This compares to our second quarter 2020 adjusted earnings of $501 million or $1.71 per share. On a year-to-date basis, 2021 GAAP earnings were $1.298 billion or $4.24 per share. This compares to year-to-date 2020 GAAP earnings of $2.999 billion or $9.91 per share. Adjusted year-to-date 2021 earnings were $1.404 billion or $4.58 per share. This compares to our year-to-date 2020 adjusted earnings of $1.242 billion or $4.20 per share. Please turn to the next slide. The variance in the second quarter 2021 adjusted earnings compared to the same period last year was affected by the following key items: $126 million from a CPUC decision that resulted in the release of a regulatory liability at the California utilities in 2020 related to prior year’s forecasting differences that are not subject to tracking in the income tax expense memorandum account, and $22 million of lower earnings due to the sale of our Peruvian and Chilean businesses in April and June of 2020 respectively. This was more than offset by $38 million higher equity earnings from the Cameron LNG JV, primarily due to Phase 1 achieving full commercial operations in August of 2020. $35 million of lower losses at Parents and Other, primarily due to lower preferred dividends and lower net interest expense, $34 million of higher income tax benefits from forecasted flow-through items at SDG&E and SoCalGas, and $22 million income tax benefit in 2021 from the re-measurement of certain deferred income taxes at Sempra LNG. Please turn to the next slide. We are pleased with our strong operational and financial performance this quarter and are focused on continuing to execute throughout the remainder of the year. And with that, this concludes our prepared remarks. Now, I will stop, and we can take your questions.

Hi, everyone.

Good morning, Shar.

Jeff, could you talk a little about the visibility into 2022? You and Trevor have reiterated guidance. There is additional capital expenditure coming into Texas, which includes some contemporary instrument recovery. Can you discuss the other moving pieces or changes in assumptions for 2022, such as the cost of capital or anything else that could impact you within the range or contribute incrementally to it?

Right I would start, Shar, by indicating that we're very pleased with our first half results. To be able to produce $4.58 of adjusted EPS from the first half, I think is an extraordinary outcome. And that does cause us to be fairly bullish against our increased guidance for 2021, and we certainly think there will be some pull-through of that strength into 2022. I think it's a function of the growth that we're seeing in front of all three platforms. I think there's a portfolio of opportunities here in California and in Texas in the Sempra Infrastructure, which really highlights why we need to perform and execute well. I could not be more pleased. We obviously did this transaction back in March 2018 with Oncor. We forecasted internally with our Board that there would be increased capital opportunities. We were pleased at the time that they had a $7.4 billion commitment to their regulator about their capital program. In November 2017, they launched a great CIS program. What we were not prepared for was the quality of that management team. So, Allen Nye is on the call with today Don Clevenger, who is the CFO; Matt Henry, the General Counsel; and Jim Greer, the COO. They are exceeding our expectations by prioritizing what we think is most important at Sempra, which is the strength of operations and safety. More to your point on what we can expect next year, you did raise cost of capital. We talked a little bit about that at the analyst conference. And in our assumptions for 2022, we indicated that we did not expect in those assumptions to include any type of triggering at SDG&E or SoCalGas, though we did mention, Shar, that there is a trigger to occur which looks more likely now, it would probably be limited only to SDG&E and within the confines of that business. Kevin Sagara and his team think that they can limit the impact to that forward guidance to roughly $0.05 to $0.10 cents. So, I would just summarize by saying the first half of this year causes great optimism for our performance even against the increased guidance we provided for this year. I will be disappointed if we're not back in front of our investors taking an increased view of what our performance might be in 2021. We do expect some of that pull-through to continue into 2022. We're obviously not prepared to revise the guidance for 2022 yet largely because this cost of capital mechanism is still out there. But we think at least at SDG&E, it's well managed to something around $0.05 to $0.10 of impact.

I think that message is clear. Thank you for that, Jeff. Regarding LNG, you outlined a clear path at the Analyst Day. Since then, some contracts have shifted from Port Arthur. Do you expect Cameron Train 4 to be nearly fully subscribed with the existing MOUs and the Polish Oil? Also, can you explain whether the economics of Cameron 4 are improved compared to Port Arthur? Is there a way to enhance Port Arthur's competitiveness to potentially regain off-take interest at that location? Thank you.

Sure. Let me take a step back and take a little broader view, and I'll come right back to your question. We talked a little bit at Investor Day about our focus right now is on making sure that ECA Phase 1 is delivered on time and on budget. We have that coming into our planning period in the second half of 2024, and that's proceeding quite well. We've been managing the COVID environment down there and the work environment, and we remain optimistic about continuing to meet that deadline. Secondly, I think we have been consistent, really, over the last 18 months about continuing to have a more bullish view on Cameron Expansion. We're working closely with Mitsui, Mitsubishi, and Total. We will be continuing to have those conversations throughout the fall. We do think that project will have superior returns, which is one of the questions you are indicating. And that's largely because at a high level, you can always expect the economics of Brownfield Projects to be generally superior to Greenfield Projects. And the key for Greenfield Projects like Port Arthur is it's much more advantageous to do that project at multiple phases at scale, which makes it increasingly more economic. But right now, bringing online Train 4 at Cameron is a top priority for Justin and Faisel on the team. And being able to do that, Shar, at the same time that you debottleneck trains 1, 2, and 3, really adds to its cost advantage. And you mentioned Port Arthur; that continues to be a remarkably well-situated site. The team is going to ground right now to make it more competitive, and we've outlined some of the steps we're taking to reduce the emissions profile. And I think the recent announcement regarding the Polish Oil & Gas Company really is a reflection of the strength number one of that customer relationship and their confidence in our ability to deliver them into a project that meets their long-term needs. So, I think that relationship is in good stead. I certainly think ECA 1 is going well. We continue to be quite bullish on Cameron Expansion, and Port Arthur is probably a longer-term opportunity, but we have more work to be done there.

Perfect. That's very clear. Thanks so much, Jeff. Congrats.

Thanks. Thanks, Shar.

Hi. Good morning. Thanks for having me here. Just want to start off if you might be able to talk a bit about timing considerations that went into the choice to raising Oncor Capex now versus at the Analyst Day or waiting until 3Q? And then could you help us think through what some of the limitations might be to add even more Capital just given all the opportunities down there in Texas?

There are several questions here, so let me address them one by one, and then I'll pass it to Allen for further details. First, regarding the growth we're discussing and the changes to the capital program, it primarily revolves around strong premise growth, active transmission interconnection requests mainly related to renewables and some baseload generation, and new T&D investments. As for the timing of revising our plan, we held a Board meeting with Oncor last week. Allen did a great job of bringing back to the Board not only the approval of next year's plan for 2022 but also reviewing the long-term opportunities to meet growth needs in Texas. We are quite optimistic about those opportunities. I want to emphasize that the increased expectations from Allen's team, detailed in a press release, do not affect our forecast for incremental capital in the range of $775 million to $1.27 billion. We have reevaluated the needs of that business and our customers for the next five years. As we approach the fall planning cycle, we plan to update our Board in October or November. My goal is to provide the most transparent update to the market regarding our view. Allen, I know you have already addressed several of these points, but if you could elaborate on the growth you're observing across your system and your governance approach with the Board last week, it would be great.

Thank you, Jeff, and thank you, Jeremy. I believe Jeff covered much of this already, but I’d like to add a few details. The timing of our actions is exactly as Jeff explained. At our Investor Day, I indicated the necessity of approaching our board in July to revise our expectations for 2022 to ensure we have the necessary resources and equipment to execute effectively next year. Following that, we adjusted our 2022 plan from the previously stated 2.4 to 2.5, increasing it to 2.8. We also saw the opportunity to adjust our 2021 expectation from 2.4 to 2.5. Since we are now addressing both '21 and '22, we could discuss this growth with our board. We have been focusing heavily on Capex at Oncor due to the opportunities we are witnessing. As Jeff and Trevor noted earlier, we experienced our highest organic growth rate in the company’s history last year, and we are on track for strong performance this year, with both quarterly results surpassing those of last year. The points of interconnection for transmission on both the retail and generation sides have exceeded the end-of-year figures from last year and those of the same quarters last year. Economic development is another key area; requests for information, which involve discussions about specific project locations with potential builders, have risen by approximately 72% year-over-year. When discussing growth, we always bring up West Texas, which continues to show strength. The latest trend involves the electrification of fields and growing ESG considerations. We've seen an increase here, with a peak in our Culberson Loop transmission system hitting 760 megawatts in July compared to 678 last year, marking an all-time high. Furthermore, we observed another peak in the Far West Texas weather zone in June, indicating growth across our entire system, which informs our Capex discussions. During our investor meeting, I mentioned that we would address 2022 with our board in July. Having also adjusted our 2021 expectations upwards, we felt this was a good time to share our management team's projections for the outer years. As you can find in our documents, we are looking at an expectation of 2.7 to 3.0 for the outer four years of the plan. We will hold our traditional October meeting to review these figures with shareholders, independent directors, and our board, at which point we will have a clearer idea. It may be around 14 billion or something different. We feel very confident about the 14 billion figure right now, but we'll confirm in October and make an announcement thereafter. Additionally, we have increased our 5-year expectation by about 1.8 billion. The incremental capital we discussed in earlier meetings and investor calls is in the range of 775 to 1,275, as referenced in our Investor Day materials. This capital remains available. Occasionally, new projects fall into our Capex plans from this incremental bucket, while some Capex comes from outside of it. As a result, our current expectation has risen to around 14 billion over five years. There are still significant opportunities to invest in our system, which are reflected in that incremental Capex bucket we previously discussed. I welcome any questions, and thank you very much.

I would just mention that I appreciate that color, Allen. And for your benefit, Jeremy, remember we as a management team and our Board of Directors underwrote a transaction in the fall of 2017 and we closed it March of 2018, based on the belief that they had made a regulatory commitment to spend roughly $7.4 billion over five years, or roughly $1.48 billion a year on average. And now we're outlining something that looks like on the back end of the plan, that could be looking more like $3 billion a year. That's an almost doubling of the average output in terms of Capex at that Company, so we're very pleased with the growth in the state. And I think Allen and his team have a great plan to meet that growth in a way which is the most cost-effective for ratepayers.

Got it. That was very helpful. Thank you for the thorough answer there. Maybe if I could just pivot to RNG here, if that's okay. Just want to see if you could provide some color on how California customer demand for RNG has been trending over time. And do you see any kind of policy or regulatory items that you're watching that could support the 20% goal for 2030? And then maybe, even though RNG has negative carbon attributes, how do you see competing for customers versus the electrification? Do you see customers choosing one path or the other?

Look, I think if we're going to meet our long-term climate goals as a nation, we need an all-of-the-above strategy. Electrification is going to be a long-term secular trend. We certainly have the opportunity to play that in a big way, just as Allen described. In Texas, we expect to be a leader in that market in connecting renewable grid solutions to our load centers. Here in California, we did something that no one else has done across this country. We made a commitment that we would deliver roughly 20% of all of the natural gas delivered on the SoCalGas system, not 2030 using renewable natural gas. You may have seen the press release in the last week or so. We just connected two new biomethane plants to our systems. So whether it's a transportation opportunity, whether it's a maritime opportunity, or an opportunity to basically deliver renewable natural gas across our network; it's a priority. We have set a goal of being at the 5% level next year. We remain on track to hit that goal. Scott Drew and his team are doing an excellent job at SoCalGas to transform that business. And by doing so, as you know, exogenous methane in the environment has an 80 times higher detriment than gas, which is combusted in the ordinary course. And there have been some exciting developments in terms of how the Commission and the other stakeholders in the state view RNG. I thought maybe Kevin Sagara, as our Group President for California, could talk about the recent report that came out of the PUC regarding this.

Thank you, Jeremy, for that question. We've had a great run so far with the low carbon fuel standard in this state, creating a good amount of demand for RNG. The legislature passed SB-1440, and recently, the PUC staff issued a report recommending essentially an RPS for RNG for the California Utilities. The levels are based on the state's statutory obligation to divert organic waste from landfills. By 2025, the utilities are expected to procure biomethane from organic sources to meet at least 75% of the state's obligation to divert these wastes, which amounts to about 5.5% of core load. By 2030, this requirement increases to about 12.3% of core load. You asked about creating more demand, and this presents a good opportunity. We haven't yet started on that stack of work, but we are hopeful that we will soon.

That's why I think we are glad you asked the question because it really is a priority for our Company. And I think that Scott Drew and the team continue to innovate at SoCalGas. We have opportunity to be a leader in RNG. We've also made some commitments, as you've seen Jeremy, to be a leader in hydrogen.

Got it. Super helpful. If I could slip in one last quick one here, just given some of the resource adequacy concerns that have come up this summer in California, what's your latest thinking on some of the Capital opportunities that might present themselves here?

Yes. This is a great opportunity to go back and talk about our base business model. We're a T&D Company. So one of the things that has privileged our commitment to California and our commitment to Texas is we've moved away from being an owner and operator of electric generation, either fossil or renewable, with the exception of Mexico. And likewise, we don't have a lot of exposure because we're decoupled on whether consumers consume more or less, so we very much like that sweet spot of building that long-term growing bond portfolio and not being exposed to those issues. In terms of capital opportunities, there has been a new announcement in the state where they're looking for 11.5 gigawatts of new capacity additions in terms of generation, energy efficiency, and long-duration storage. And we certainly think long-duration storage, in particular, is a unique opportunity where we've developed a capability there at San Diego Gas Electric, and that will be a continued opportunity. But in the near term, the state is really being aggressive about making sure we find more ways of supporting our resource adequacy. And I think one of the great challenges, Jeremy, is traditionally during some of the highest demand times of the year, we're importing about 25% of the state's power needs from outside of California, and it always makes us subject to what's taking place in those other jurisdictions and what their demand needs are. Over a long period of time, California's got to take steps, and it could take 5 to 7 years to get ahead of these demand needs through new capacity additions.

Got it. Makes sense. I'll leave it there. Thank you very much.

Appreciate you joining the call.

Hey, good morning, Jeff. Thank you for taking my question. I have a question.

No worries.

I have a clarification and then a follow-up question. I know you've discussed Oncor before, but can you confirm if the capital expenditures for 2021 to 2025 are closer to 12.6 billion or 12.7 billion with the additional 400 million? Is that the correct way to interpret it, or is it still at 12.2 billion?

That's the right way to think about it.

Got it. Okay. Perfect. Regarding the SIP closing, you have a cash tender offer for the remaining 4% that you don’t currently own in Mexico. Do you need to reach 100% ownership to finalize the SIP? I'm curious if this represents a procedural delay in the SIP or if owning 100% of Mexico is a prerequisite to complete the transaction with KKR.

I view this as two distinct ideas. First, our long-term objective is to take the IEnova business platform private. Currently, about 3.6% of it is still held by public investors. We are planning to initiate a cash tender offer in the next week or two, aiming to eliminate that public float and delist the business. If any shares remain, we will address that through a different process. Regarding the closing, the main factor is not the tender offer, but rather a few conditions related to regulatory approvals. We believe that the Competition Commission in Mexico is the key factor delaying the closing. Once their review is complete, we expect to finalize the transaction around the end of Q3.

Got it. That's super helpful. Thank you, guys.

Thanks a lot for joining us.

Hey, guys. Thank you for taking my question. Just curious.

Hi, Mike.

Hi, Jeff. Commodity inputs are up a ton. How are you thinking about what this means for the construction cost per ton of any new LNG trains, whether it's Cameron 4 or somewhere else, that haven't already gone FID and don't have the lump-sum contracts? And therefore, what that means really for the economics of North American LNG versus LNG coming from other sources around the world?

Right. So, look, I think you're asking a great question. I think input cost to all infrastructure businesses are being impacted. You're also seeing it in other commodity costs as well. We probably have a multi-pronged strategy here. I would tell you at ECA Phase 1 obviously we've got an EPC wrapped contract. We feel good about the contract at ECA, but that would be a near-term focus for us. In terms of input costs for future projects, that goes through our whole feed and pre-feed process to make sure we get to the right number. But I think it does go back to this issue, Michael, that Greenfield Projects which tend to have a little bit of a higher per-unit costs in Brownfield Projects. This will continue to put pressure on that dichotomy. But keep in mind that all the other projects in the world are subject to those same cost pressures. At the same time that you're seeing cost pressures around construction, you're still seeing a lot higher LNG stock prices around the world. Most people who are observing this industry think it will be the most dominant fuel used in the world by the early part of the next decade. And the only way that's going to occur is, is you are going to see a massive build-out of continued LNG development, and the U.S. should expect to take its fair share.

Got it. Thank you, Jeff. Much appreciated. Hey, one for Allen. Just curious. What's the latest on being able to push out the rate case? And I guess a follow-on with the higher Capex budget, how do you think about what that means for regulatory lag?

Yeah, you bet Michael. The answer is yes. We received approval on July 29 by the Public Utility Commission to move our rate case filing deadline to 06/01/2022 of next year. So we're off the calendar for this year, and we're on the clock for 06/01/2022. Second question with regard to lag, and was lag associated with this additional investment; is that right?

If you increase Capex, does that mean that the trackers for distribution and transmission could encompass much of that? I'm interested in understanding the comparison between forward-looking and historical trackers, and also how other areas of the income statement might influence regulatory lag.

Let me respond this way. Approximately 97% of everything in our current 5-year plan is eligible for trackers. These trackers, as we mentioned, reduce the lag on the transmission side, with the interim key cost tracker reducing lag to about 5 months. The distribution cost tracker, while beneficial, is not as effective and has a lag of about 15 months. Therefore, about 97% of what we've discussed this morning, which totals roughly 14 billion over five years, has investment lag that aligns with the timeframes I just described.

Got it. Thank you, Allen. Much appreciated.

Yes, sir. Thank you.

And I would just mention the following for the audiences that volume growth, which they are experiencing in Texas can also offset some of that lag in the regulatory model.

Hi. Thank you for taking my question. It's actually Sangeeta for Sophie.

What's the question?

It's actually Sangeeta for Sophie.

Just a couple follow-ups on the Texas Capex. Should we think of inflation as being any factor in the increase in the front-end of the Capex? And then, as a follow-up, my question is, does the recent Texas legislation build into your Capex at any point or do you see upside from that?

So what I would try to do is I'll answer the first part of the question and pass it onto you, Allen, for the legislative question. But the way to think about it, Sangeeta, is that Allen and his team, particularly Jim Greer, deserve a lot of credit because as they've been looking at meeting the needs for 2021 and planning to meet both the hard costs and soft costs needs for 2022. This is one of the reasons that the timing of these conversations with the board was moved forward. In other words, there are some inflationary and competitive pressures to access the equipment and materials they need to meet their growth needs in the state. And they deserve a lot of credit for being proactive to go ahead and secure and lap those resources well in advance. But I don't think beyond that it's had any influence in terms of how we're thinking about the recast over 5 years. But Allen, maybe you could talk about the various bills that are continuing to pend in the legislature and how you might think about forward Capex related to those bills.

Thank you, Jeff. I agree regarding the inflation response. In terms of legislation, there are two key points to consider. First, what has been passed and signed by the Governor during the regular session has largely been transferred to the Public Utility Commission and ERCOT. Currently, there are over 30 rulemakings taking place at the Public Utility Commission that will outline the implementation of this legislation. Additionally, there are several bills currently being introduced in the special session. Regarding the special session, the governor did not include electric issues in the agenda, which defines the topics the legislature can discuss. We are keeping an eye on the developments regarding these bills related to the electric industry, but we don’t expect them to advance without changes to the agenda, which we believe are unlikely. Our main focus is on the ongoing activities at the PUC, where the rulemakings are taking place. During the Investor call, I mentioned that there are numerous bills and rulemakings, many concerning PUC and ERCOT issues, along with coordination between agencies and industry stakeholders. There are also general costs associated with weatherization. It's too early to predict the outcomes of these rulemakings as they are just starting. Any results from them would be additional to what we currently have in our capital expenditure plan. I also highlighted another bill during the investor call that, while unrelated to winter storm Uri, introduces an economic benefit test to the transmission approval process at ERCOT. This could potentially help us advance more economic projects through ERCOT, but we will need to wait and see how everything plays out before we can confirm the impact. That's my response, thank you.

And Sangeeta, I just want to make sure we answered both of your questions. Did that answer for you?

Yes. Yes, if I can just add a follow-up, I share a different question. Now that we know that the Texas GRC is pushed to 2022 and otherwise their regulatory calendar kind of looks light through the end of the year, how would you characterize the puts and takes that could lead you to the high end of your 2021 guidance versus the low end?

Well, I would just make a couple of comments. One was the movement of the Texas rate case was assumed in our planning numbers that we provided at the Investor Day. I made some comments earlier on this call that I could not be more pleased with the strength of our financial performance in the first 6 months to be able to post $4.58 of adjusted EPS. I think that really bodes well for the second half of this year. And I do expect, Sangeeta, some pull-through into 2022. And I mentioned one of the offsetting considerations was the cost of capital we talked about earlier.

Right. Okay. That answers my questions. Thanks so much.

Wonderful. Thank you for joining us.

Good morning, guys. Thank you for taking the call.

Good morning.

This might be a question for Allen. And I'm not putting the cart before the horse, but traditionally, T&D companies in Texas have been viewed as a smaller risk, and the capital structures have reflected this. Over the last couple of years, we've obviously seen with the impact of the area and increased hurricane risk, and now we've got a new PUCT coming in. Has there been any discussion potentially about thinking the equity layer as the one way to beef up the credit in anticipation of maybe more widespread system hardening?

And Allen, I'll make a quick comment and turn it over to you, and I appreciate that question. I would just make one comment, which is we as a management team have spent a lot of time in the last 3 years really trying to distinguish what we think is a unique benefit of T&D investments relative to other businesses that are either weather-exposed or consumer-volume exposed or exposed to stranded cost risk with generation. So as you think about in California, the blackouts that happened last summer, you think about how we operated through the pandemic here in California and in Texas, and you think about Storm Uri, which you referenced. All we've really done is raise our guidance and exceed our guidance. This is the strength of having a T&D model that we think gives us unique visibility to consistent financial performance. So I just want to make that point because we talk very consistently about the value of the model that we're pursuing and why we think it deserves a higher valuation, and I think it really is very much true with the T&D business in Texas. Allen, feel free to go ahead and add some additional color around how you think about your equity layer.

Yes, sure. Thanks, Jeff. I agree. Look, I think our equity layer is lower than, maybe the national average. Things that are going on in other parts of the country. It's something we always look at when we're putting together a rate case. We're probably about, even with CenterPoint API right now. But now, we've got a little time going into June of next year. Some will spend a lot of time on, figure out what we can accomplish. We have a long history, as I've said many times on these calls, of working with all the constituents in our cases. And that was demonstrated again by the support we got for looking this rate case off. And we'll see what we can accomplish. Yeah, Uri, things like that certainly impact our thoughts and our analysis, but yeah, maybe cart-pulling the horse a little bit right now, seeing as we won't go until June of next year. Thanks.

Okay. Great. Thanks, guys. Appreciate the thoughts.

Thanks, James.

Hi. Good morning. Thanks for taking the time.

Good morning.

I want to follow up after the significant Oncor Capex increase that you've talked all about. How should we think about the potential for share repurchases and just overall thoughts on the balance sheet targets that you've previously articulated?

I'll start with share repurchases. If you recall, Paul, last summer we did an accelerated share repurchase program where we put to work about $500 million. I think the weighted average cost of that program was right around $123 plus or minus. The Board also supported a new authorization of $2 billion. And the way we've long thought about this is, we're really stewards of capital for you, our owners. And whatever creates the best path for owners, that's what we're going to do. So we have a current outstanding authorization, as I mentioned. We actively review this as an opportunity from time to time, and we expect to be opportunistic in our approach. It's something that we continue to evaluate and it's something that we will use as we have in the past, opportunistically. In terms of the balance sheet, Trevor, you made some comments in terms of how you think about how we ended last year in terms of FFO to debt and how you've grown the equity layer.

Yes, sure. Thanks, Jeff. Paul, as you know, last year we ended right around 70% on the FFO to debt, and we're still tracking around that plus or minus 1% and feel good about where we are on the metrics. We also talked about our debt to equity layer, and we're also at the end of the second quarter at sub 50% right now. And again, we have the proceeds that will be coming in from the Sempra Infrastructure Partners transaction that we will be really utilizing to continue to shore up the balance sheet, and as Jeff says, looking at opportunities to deploy that in the most effective way for our shareholders. And we couldn't be more pleased about the opportunities around organic growth, share repurchases, or other opportunities to create shareholder value.

Okay, great. To follow up on Jeremy's question about the resource adequacy concerns we've observed in the West, are you identifying any opportunities to potentially enhance or accelerate within the plant? I believe there was $2 billion in clean power investments you mentioned at the Analyst Day.

Yeah. We talked about a couple of things. On Jeremy's question, I was speaking more to what the investor utility opportunity was. Obviously, there are opportunities there around energy efficiency, primarily at SDG&E, the big focus on long-duration battery storage, which is desperately needed in the state. And the state has circled at about an 11.5 gigawatt opportunity for new resources. What you're referring to is on the unregulated cyber business in Sempra Infrastructure. You'll recall that Justin Bird is leading three separate P&L's with Tonya and the team, one of which is clean power. So we do have about three gigawatts of development opportunities on the border. And we did preview a very interesting project, by the way, at the Investor Day, which is our battery storage projects. You may recall we have a combined cycle plant on the border. We've got two underutilized transmission systems that dispatch directly into the California Independent System Operator. And that thermal plant also has a second plant that was targeted 15 years ago for construction. We've got all the transmission in place and that's been redesignated as a 500 megawatt opportunity for battery storage. So our goal is to be able to dispatch out of Northern Mexico with both wind and solar resources backed up and supported with its own resource adequacy from its battery production. You are making a great point. That is an opportunity we're going to be active to pursue.

Okay. Thank you again for the time.

Thank you very much.

Just a quick couple of comments here. As I know, it's a busy time of the year as people head into the summer vacation period, particularly on Wall Street but we look forward to seeing some of you in person at the Wolfe Conference in September. Steve always runs a great conference and we're looking forward to being back on the road. Additionally, I would mention that we're going to do some virtual conferences with Goldman and Citi, as well as some NDRs this summer in Asia. I hope everyone has a great rest of your summer and thank you again for joining us, and feel free, per custom, to reach out to our IR team with additional questions. This concludes today's call.