Sempra (SRE) — Q2 2023 Earnings Call Transcript

Thank you all for joining us today. Earlier this summer, Sempra celebrated its 25th anniversary. While the company was founded in 1998, our operational roots at San Diego Gas & Electric and SoCalGas date back to the late 1800s. Over that time, we've embraced a strong commitment to serving others, delivering energy with purpose and bettering our communities. Today, we have 3 premium growth platforms located in what we believe are the most attractive markets in North America. And looking forward to the next 25 years, we're really excited about the opportunities in front of us to modernize and expand our energy network so that we can deliver increasingly clean, affordable, and reliable energy to our customers. This year, we also published our 15th corporate sustainability report, emphasizing how our sustainable business practices help mitigate risk and unlock new opportunities as we continue executing on our record $40 billion 5-year capital plan, which, you'll recall, only includes Sempra's proportionate share of the capital. Today, Sempra has multiple tailwinds supporting our growth and income equity story, and we're confident in our ability to continue delivering high-quality earnings and dividend growth to our shareholders. That brings me back to the quarter. Earlier this morning, we reported second quarter 2023 adjusted earnings per share of $1.88 and year-to-date 2023 adjusted earnings per share of $4.80. As you'll recall, we discussed the company's 2023 and 2024 guidance on our first quarter call in May. And based on the strength of our results across the first half of the year, we're pleased to affirm both our 2023 and 2024 guidance ranges and our projected long-term EPS growth rate of 6% to 8%. Also, just yesterday, Sempra's Board approved a 2-for-1 stock split with the distribution date on August 21. The split does not impact our reported results for the second quarter, but it's important to note that in the third quarter, our historical and future financial results will reflect the post-split share count. For the last several years, we've had one of the highest stock prices in the S&P 500 Utility Index. So with the planned split, we believe it will increase our trading volume and provide more accessibility for a broader group of investors to join us on our mission to be North America's premier energy infrastructure company. Please turn to the next slide. When Sempra began its journey in 1998, we had a relatively modest rate base of roughly $5 billion. And across the last 2.5 decades, we've been successful in transforming the size and scale of Sempra's overall portfolio while also simplifying our business model. Today, we own $45 billion of rate base and over $80 billion of assets with an investment focus on what we believe is the higher-value, lower-risk portion of the energy value chain or transmission and distribution assets. I'd also note that Sempra's businesses are located in contiguous markets in the southwestern tier of North America and really benefit from strong economic growth across the region. Our strategy focuses on investing in regulated utilities that are decoupled from direct commodity exposure and long-term contracted energy infrastructure while avoiding the volatility associated with commodities and the uncertainties facing legacy generation facilities. In other words, our core value proposition focuses on investing in the transmission and distribution backbone of North America and helping to efficiently move energy from producers to customers. Finally, our T&D utility investments benefit from constructive regulatory mechanisms with competitive returns on equity and the timely return of capital. Sempra Infrastructure's business is underpinned by long-term contracts with world-class counterparties that are expected to provide steady recurring cash flows. Taken together, our 3 platforms provide great visibility to high-quality, long-term earnings growth which is aligned with our overall mission to continue building out the premier energy infrastructure company in North America. Please turn to the next slide, where Trevor will walk you through both our business and financial results.

Thanks, Jeff. As we close the first half of the year, we're pleased with our financial results, which highlight the strength of our business model. For background, Sempra was formed via the merger of the parent companies of SDG&E and SoCalGas. And it's exciting to see how that foundation has allowed us to build a much larger and more successful company over time. Today, we have a leading position with $24 billion of rate base within our Sempra California platform and serve nearly 26 million consumers. As electrification continues to increase, we're seeing significant load growth. Since 2022, SDG&E has experienced load growth of approximately 3%. This is the result of economic expansion and the trend of more business and consumer activity switching to electricity. For example, the Port of San Diego recently unveiled the arrival of 2 all-electric cranes, which are the first of their kind to be unveiled in North America. The port also approved an electrification project, enabling cruise ships to plug into the grid while at berth as opposed to running their diesel engines, thereby significantly reducing emissions. The Port of San Diego is also expecting to receive the first all-electric tugboat to support further emission reductions across their operations. As these trends continue, we see opportunities for increased investment in infrastructure to support continued decarbonization in the region. Another great example is the ongoing electrification of transportation. California is leading the nation in electric vehicles, and SDG&E now has over 110,000 EVs in its service territory as of the first quarter, an increase of almost 35% compared to last year. At Sempra, our employees have also been leaders in promoting electrification. Back in 2015, we set an internal goal to have 500 employees using electric vehicles as a primary means of transportation. We're pleased to report that we have recently exceeded the 1,000-employee mark, making us one of the first companies in Southern California to reach this milestone. And as electrification and customer adoption increases, we expect this to drive increased load growth in our service territory. Further, with an increasingly complex grid, significant modernization is required to maintain safety and reliability. SDG&E's recent commissioning of 171 megawatts of utility-owned energy storage assets is another great example of utilizing technology to store and dispatch clean energy while reducing reliance on conventional gas-fired power plants. To help ensure California can meet its reliability and clean energy goals, CAISO approved the 2022 to 2023 transmission plan in May, awarding SDG&E an estimated $500 million of new development projects. Also, in June, CAISO initiated a comprehensive bidding process with over $2 billion of additional projects located within SDG&E service territory. At Sempra, we're one of the largest owners and operators of transmission assets in North America, and we believe SDG&E is well positioned to compete favorably. The company has a long track record of operating success here in Southern California, and we certainly believe our leadership and credibility in wildfire mitigation will also inform the quality and competitive nature of our bid. Also in June, SDG&E announced that 80% of San Diego County customers are now receiving their electricity supplies from third-party providers. This is consistent with SDG&E's strategy of focusing more narrowly on modernizing the grid to efficiently move cleaner sources of energy to customers or what we refer to as an energy delivery model, much like Oncor in Texas. Turning to SoCalGas. The company released an expanded Clean Fuels analysis, indicating the need to plan and account for increased levels of clean, firm, dispatchable generation. Results highlight the potential reliability benefits of electric resource diversity and the value of hydrogen generation. The report also contemplates how cleaner fuels can be delivered safely and affordably through SoCalGas' existing and potentially new energy networks to help support electrification and decarbonization. In connection with California's new Renewable Gas Procurement Standard, known as SB 1440, SoCalGas recently issued a new request for proposal for biomethane supply in the form of RNG and/or biosynthetic natural gas. At the end of 2022, RNG represented 5% of core gas deliveries at SoCalGas, and the mandated procurement through SB 1440 is expected to support the adoption of RNG in the state and, in turn, help SoCalGas meet its goal of 20% RNG in core customer deliveries by 2030. This is a prime example of how SoCalGas is using its existing energy network to help the state decarbonize in a safe and affordable manner. Finally, our California GRCs are well underway. Our application in those cases are centered around delivering cleaner energy safely and reliably and in alignment with California's decarbonization goals. Recently, SDG&E and SoCalGas participated in evidentiary hearings with interveners and submitted updated testimony, and the regulatory process continues to advance in a constructive manner. The next key milestone is opening briefs, which are scheduled to be filed in mid-August. We continue to expect a proposed decision in the second quarter of 2024, with rates retroactive to the beginning of that year. Please turn to the next slide. Turning to Texas. I first want to acknowledge the excessive heat that customers are currently enduring across the state while also recognizing the strong performance of the grid under some of the challenging conditions. Oncor's innovative and dedicated employees are the driving force maintaining reliable electric service despite challenging external factors, and they go to work each day with this commitment to excellence.

When we acquired just over 80% in Oncor 5 years ago, it had $11 billion of rate base, and Sempra made a regulatory commitment to support a minimum $7.4 billion 5-year capital plan. That same capital spend grew to be nearly $12 billion over that same period, and Oncor has nearly doubled its rate base to $21 billion as of the end of 2022. Over the past 5 years, Oncor's system has grown substantially, having added approximately 7,000 miles of transmission and distribution lines. Earlier this year, Oncor increased its 2023 to 2027 capital plan to $19 billion. With continued strong economic growth and the recent positive legislation, we now certainly anticipate upside when we roll forward the new 5-year capital plan. We have long talked about the incredible macroeconomic growth in Texas and how it continues to drive additional capital investments. To put Oncor's customer base into perspective, the Dallas-Fort Worth Metroplex alone has a larger population than 38 states. Since June of this year, ERCOT set 6 new records for peak demand. And it's also noteworthy that over the past 7 years, there has been a 17% increase in ERCOT's peak demand. Specifically for Oncor, both C&I and residential customer demand continues to grow. A great example of this incremental C&I demand is the roughly $60 billion of chip manufacturing facilities that have begun construction in the cities of Sherman and Taylor over the past 18 months. These large manufacturing sites are expected to drive demand and require the build-out of significant new electrical infrastructure in the surrounding communities. Finally, we also want to provide an update on a series of positive legislative outcomes that could add significant long-term value for Oncor and its customers by attracting additional capital to meet the state's growth and resiliency needs. Please turn to the next slide.

Several bills were recently enacted in Texas, that are designed to provide enhanced recovery mechanisms for utilities and reduce regulatory lag. Together, these bills are expected to improve realized ROE and facilitate additional investment to support Texas' growth. We believe that the improved regulatory legislation, coupled with an incredible economic growth story, positions Oncor as one of the premier regulated T&D utilities in the country. Starting with SB 1015, Oncor is now able to file a distribution capital tracker twice a year as opposed to only once. Similar to the existing regulatory mechanism for transmission investments, this should reduce regulatory lag and reflect Oncor's distribution investments in a more timely manner. This should improve both earnings and cash flows and is critical in markets like Texas, which is experiencing increased demand requiring rapid capital deployment. Moving to HB 2555. This bill is designed to allow utilities to file a plan to harden and make its transmission and distribution systems more resilient to potential disruptions. Of note, the bill provides a separate regulatory mechanism for recovery of commission-approved resiliency investments. The PUCT is currently drafting new rules to specify actual implementation, which we expect to be completed by the end of the year. The rulemaking will lay out the procedural steps and timelines between future filings and the actual rate implementation. SB 1076, the Permitting Efficiency Bill, helps address the transmission grid's expansion needs by shortening the time to approve CCN applications from 12 months to 6 months. Finally, HB 5066 directs ERCOT and the PUCT to develop plans for transmission projects to serve high-growth areas of Texas, including the electrification efforts in the Permian Basin, and could provide incremental investment opportunities for Oncor. Together, these constructive legislative outcomes enhance Oncor's ability to better serve customers and support system growth. Please turn to the next slide, where I will turn the call over to Justin to provide an update on Sempra Infrastructure and Port Arthur.

Thank you, Trevor. Sempra Infrastructure was formed 2 years ago to streamline our business and bring together decades of energy infrastructure development and operating expertise under a single platform. Our increased scale positions us to capture new opportunities, create portfolio synergies and support the growth of North American energy markets. There are 3 key trends that support these opportunities: decarbonization; energy security; and reshoring of manufacturing to North America, all of which give us confidence in the long-term growth profile of our business. Trade between the U.S. and Mexico continues to grow as a result of a strong reshoring trend. For example, a recent Reuters article identified more than $9 billion of capital that has flowed into Mexico from overseas manufacturers in the last 9 months. And recently, Mexico surpassed Canada to become the largest trading partner of the U.S. Given our position as a leading player in North American energy infrastructure, we are well positioned to support growing cross-border trade with Mexico. More recently, we received several positive regulatory approvals across a number of our assets in Mexico, including in our energy networks and clean power segments. Moving to projects under construction. Our teams have been busy with over 10 million accumulated hours worked without a lost-time incident. We expect these projects will come online over time, with GRO expansion and ECA targeting COD in the second half of 2024 and the summer of 2025, respectively. And finally, Port Arthur Phase 1 is also advancing as expected and continues to target commercial operations of Train 1 and Train 2 in '27 and '28, respectively. Turning to LNG development at Cameron Phase 2. We're at a stage in the competitive feed process where we have selected Bechtel to move forward to complete the remaining work. We are aligned with our partners to invest additional time upfront to reduce construction risks and project costs. We expect this process to continue through the fall, positioning us to take FID next year after satisfactorily finalizing the additional FEED work, securing project financing and any required regulatory approvals. The selection of Bechtel is a significant milestone, and we're implementing a strategy similar to what we did at Port Arthur to reduce overall cost and risk to deliver another world-class LNG project. Also, we are pleased with the marketing and development at Port Arthur LNG Phase 2 and are particularly encouraged by recent comments made by the FERC Chairman in support of energy infrastructure projects needed for reliability. Looking ahead, we're also expecting that Sempra Infrastructure Partners will finalize its project-level ownership stake in Port Arthur LNG Phase 1 at 28%. This is within the previously shared target range of 20% to 30%, and we expect the transaction with KKR to close in the third quarter. Based on this updated ownership forecast for the project, Sempra Infrastructure Partners equity requirement is anticipated to be approximately $1.74 billion, and its proportionate share of EBITDA is estimated to be $460 million, which excludes certain upside economics such as Sempra Infrastructure's right to common facility payments from future phases.

Please turn to the next slide. At Port Arthur, we're developing a flagship energy hub that showcases the value of Sempra Infrastructure's world-class integrated capabilities. Sempra Infrastructure can leverage development and operational expertise across its portfolio to enhance the total value of Port Arthur. With 13 million tonnes per annum already under construction, Phase 2 is expected to double that capacity. Further, we're leveraging the integrated capabilities of our business segments by developing the proposed Louisiana Connector pipeline, gas storage facilities, Titan Carbon Sequestration facility and an early-stage hydrogen project in the Port Arthur region. This comprehensive development approach supports the sustained growth of our energy infrastructure portfolio and is expected to help us capture a larger piece of the economics from the Port Arthur footprint. At Port Arthur Phase 1, construction is well underway, with more than 2.7 million hours worked without a lost-time incident. Many of you are likely aware that our recent FERC request, which would enable Bechtel to expand staffing and work schedules to include 24-hour shifts, this provides for better optimization of construction activities, focusing on safety and allows for certain tasks to be completed at night, such as material deliveries and next-day site preparation. We also believe it will improve workflows and streamline schedules, so it's a mutually beneficial situation from our perspective. With that, please turn to the next slide, where Trevor will discuss Sempra's financial results. Thanks, Justin. Turning to Sempra's financial results. Earlier this morning, we reported second quarter 2023 GAAP earnings of $603 million or $1.91 per share. This compares to second quarter 2022 GAAP earnings of $559 million or $1.77 per share. On an adjusted basis, second quarter 2023 earnings were $594 million or $1.88 per share. This compares to our second quarter 2022 earnings of $626 million or $1.98 per share. Please turn to the next slide. The variance in the second quarter 2023 adjusted earnings compared to the same period last year can be summarized by the following. At Sempra California, $32 million of higher CPUC base operating margin at SDG&E and higher amounts earned under certain CPUC regulatory incentive mechanisms and $14 million of higher CPUC net interest income earned on regulatory balances and higher tax benefits on flow-through items at SoCalGas, partially offset by net higher interest expense. At Sempra Texas, $26 million of lower equity earnings from higher expenses and lower weather-driven consumption, offset by new base rates and customer growth. At Sempra Infrastructure, $40 million of higher earnings attributable to NCI, including the 10% sale of a minority interest in Sempra Infrastructure Partners to ADIA and higher development expense. This was partially offset by $33 million of higher equity earnings, primarily from transportation tariffs, partially offset by lower asset optimization revenues, primarily from lower LNG diversion fees, and lower generation at TdM from a scheduled major maintenance. At Sempra Parent and Other, there were $45 million of higher costs, primarily driven by lower tax benefits and increased net interest expense, partially offset by net investment gains. Please turn to the next slide. Over the past 25 years, Sempra has transformed from a regional Southern California utility to a leading North American energy infrastructure company and is positioned at the intersection of multiple macroeconomic growth trends. Along each step of the way, we've exhibited strong financial stewardship, overseeing meaningful earnings growth and return significant capital to owners in the form of dividends and share repurchases. Looking ahead, we're focused on reaching a constructive outcome on our California rate cases, executing our record capital plan, demonstrating financial discipline and materially advancing critical infrastructure projects across our growth platforms. We've had a great start to the year that highlights our compelling growth story. And with that, this concludes our prepared remarks, and we will now stop, open the line and take your questions.

To begin with your comments about Oncor, it's clear that while you have some assumptions in place, the Texas legislation serves as significant support. We just observed a competitor increase their capital expenditures while also emphasizing further opportunities. Could you clarify how and when we can expect to see the added benefits integrated into your plan? Specifically, when might we start noticing more of the capital expenditure advantages, especially considering you now have the capacity to achieve the allowed returns? Should we anticipate updates as we near your usual guidance update cycle later this year regarding Texas?

Yes. Thank you for the question. And I certainly agree with you. This has been a very constructive legislative cycle in Texas, and I would start at the very beginning by really expressing our appreciation to Allen and his team. They deserve a lot of credit. They had been doing an exceptional job on the ground there. They're clearly seeing a lot more growth on the system, Shar, and I'll have Allen speak to some of that growth in a second. But we would look forward to refreshing the Oncor plan this fall and providing future updates from Sempra's perspective in February. I do think you may find it helpful though, and I want to mention, as a rule of thumb, the DCRF legislation is expected to improve Oncor earnings in our estimation, around $70 million to $90 million on a full year basis, which falls within our current guidance. But as I mentioned, we'll be updating for 2025 on our February call. Also, it may be helpful that as a ballpark reference, every incremental $100 million of capital added to the plant in Texas is expected to add approximately $0.01 of accretion to Sempra on a pre-split basis. But Allen, it might be helpful to Shar, if you just provide a little bit of visibility into the growth that you're seeing on the system and your future expectations.

Yes, Jeff. Growth remains exceptionally strong, reaching record levels across our system and on all metrics we track. To highlight, premise growth has increased by about 10.5% quarter-over-quarter. In Q2, we connected around 21,000 new premises compared to 19,000 in the same quarter last year. The transmission points of interconnection, or POIs, are showing remarkable strength, with 92 new requests in Q2, bringing our total queue to $720 million, a 37% increase from the same quarter last year. Separating retail from generation, retail requests for transmission points of interconnection have risen about 22% compared to last year, while generation requests have surged by 50% over the past 12 months, effectively doubling since 2020. We are experiencing significant growth in our transmission system. West Texas continues to perform well, with the Far West Texas weather zone peak increasing by about 11.5% over the 2022 peak, and the peak on our Culberson transmission loop system reflecting a 21% year-over-year growth. Additionally, new project requests from our economic development team were up 36%, and requests for information rose by 32%. These factors will ultimately contribute to our overall numbers. We are very satisfied with the ongoing economic expansion in Texas and the strong growth within our system. As Trevor mentioned, in 2017, when the Sempra transaction with Oncor was announced, our rate base was $11.5 billion, rising to about $20.8 billion by the end of 2022. This year, we are carrying out approximately $3.6 billion in capital expenditures. Looking ahead, we have a $19 billion capital expenditure plan for the next five years. We recently added $200 million in July, which has been approved by our Board and is new capital, not pulled forward. As we approach our October and first-quarter Board meetings, we will refresh our capital expenditure plan. Trevor indicated that there may be potential upside if the current growth continues alongside the implementation of a resiliency plan under HB 2555, which is currently under rulemaking by the Public Utility Commission. As Trevor noted, we have effectively doubled our rate base since the Sempra transaction announcement. Looking ahead, we believe there is a feasible pathway to potentially double our rate base again in the next five to six years, benefiting our customers, strengthening the grid, and providing advantages to the ERCOT market. All these developments depend on the resiliency rulemaking and sustained strong growth supported by necessary Board actions. Texas has a compelling story, and we are proud to be part of it. Thank you for your question.

So Shar, I'll just make the kind of concluding comment here that we've guided to $70 million to $90 million of incremental earnings associated with the DCRF legislation. We talked about the accretion associated with the $100 million of capital in Texas. And to highlight, I think a couple of key things from Allen's comments. We've effectively doubled the rate base from 2017 to 2022. And I think Allen highlighted this, but there's more work to be done this fall with our planning team, but we have a real opportunity to more than double their rate base a second time in the next 5 to 6 years. So we've got some more planning work to be done. But we look forward to working with the Oncor Board and finalizing his roll-forward 5-year capital plan and certainly coming back and updating how we think about that from Sempra's perspective in February.

Got it. Perfect. And lastly, Jeff, for me is, obviously, appreciate the stock split strategy to create some more liquidity. Obviously, the hope there is that it could eventually improve the valuation of the stock further. Are there sort of any other thoughts on strategy and optimization? I mean, Mexico has shown some desire to re-nationalize some energy industries. So has there been any interest in the legacy assets, especially as fuel storage and terminals were considered kind of a security need? Or does the SIP ownership structure kind of prohibit any capital rotation decisions?

Yes. Thank you, Shar. I'll kind of address both of those questions. I think the thought process behind the stock split is that we currently have the highest stock price in the S&P 500 Utility Index. As we celebrate our 25th anniversary, this is the first time that we've announced a stock split for the company. We certainly, to your point, think it will improve trading volumes and make the stock more accessible to a broader group of investors. So we view it just generally as a positive. And I think it really reflects management's bullish view on our future business prospects. Turning to your issue of strategy, and I'll come back to Mexico. Our Board reviews our strategy at every Board meeting. It's been a top focus of our management team for the last 5 years. And it's allowed us to simplify our business model and improve our visibility to future growth. When you think about the updates that Allen just provided and some of the things from our prepared remarks, we feel great about our growth and income story. And we have more work to do, as I indicated, with Allen's team to continue to think about the growth prospects in his business. Turning to Mexico. This kind of goes to the issue of what our prioritization is. And Justin mentioned this in his prepared remarks, but by combining Mexico with LNG, we created a business of larger scale with what are effectively midstream assets with approximately 17 to 18 years' tenure in that overall contract portfolio. So it's a really high-quality portfolio of cash flows. But as we look to finance our future, there's no question that we're going to continue to prioritize the growth in our utilities. We've demonstrated a willingness to sell down in the capital structure to SI. And I think we've done that quite efficiently in the past 2 years. Opportunities like you identified and continue to capital recycle, that's right in our wheelhouse. So we'll continue to look for assets that are less core to our future strategy, and that will always be something that we'll take a hard look at with Trevor and his team. So we feel good about our strategy going forward, and we appreciate the question.

Just maybe just looking at your year-to-date performance, just wanted to get your thoughts on how that's tracking versus your expectations? I mean the EPS guidance range is still pretty wide. But clearly, you've exceeded my expectations, and I believe, Street estimates. So just how is the year shaping up versus your guidance range?

Sure, appreciate the question. You'll recall that in 2022, we really had a banner year. We reported around $9.21 of adjusted EPS. Reporting $4.80 for this year, we think, is a very strong number. So we think we've had a strong first half, a good first quarter. We feel great about our guidance. Honestly, one of the things that we're focused on as a management team in Kevin's business is making sure that we execute very well around our rate cases here in the State of California. We mentioned on the call that we expect to finalize that in the middle of next summer, with rates retroactive to January 1. So I think we feel very good about where we're at this year. I think it also signals strength to our guidance for next year.

Got it. Very strongly positioned, it sounds like. Okay. Then maybe just turning to California, and you mentioned the rate cases. But the CAISO opportunity, $500 million, is that incremental? Or is that embedded in the current CapEx plan? And then you also highlighted $2 billion worth of projects, which are going to be competitively bid on. Maybe just talk to us as to how we see that embedded into your CapEx plans, just the timeline and next steps there.

Sure. I appreciate that question. We actually think, very similar to Texas, there's a very strong underlying growth story in California. We highlighted in our prepared remarks, but SDG&E has seen year-over-year demand growth of about 3%. I've been at the company since 2004. We've never seen that type of growth. And it really is a reflection of the electrification that's taken place in the state. On your issue of whether the $500 million of incremental transmission projects are in our 5-year plan, just remember, our current plan goes through 2027. We're going to roll that plan forward next February. This is really the CAISO's efforts to lock in the needed transmission, the need for the next 10 years. So most of these projects will be outside of our current 5-year plan and be picked up in future periods. But I thought, Kevin, it might be helpful to give your perspective on the transmission opportunities here in the state and specifically the larger numbers that Durgesh just spoke to.

Thanks, Durgesh. Stepping back for a second, as Jeff's talking about it, clearly, the grids all across the country need significant upgrades as we move towards more electrification. In California, we've estimated that electric demand will more than double by 2045, with commensurate investments in grids. And as you mentioned, we're seeing that kind of load growth in San Diego already, with a lot of adoption around electric vehicles. So we're really excited about this recent announcement for the CAISO to add $7 billion. This is just like an incremental $7 billion of transmission opportunities. And as Trevor mentioned, $0.5 billion has already been directly awarded to SDG&E, and we're going to bid on those $2 billion to $3 billion of other projects. And I'd note that across the Sempra family of companies, we're one of the largest owners and operators of high-voltage electric transmission in the country and really well positioned to be successful here in California as California continues this path of aggressive, aggressive investments to enhance and facilitate electrification.

Got it. Just a quick follow-up. Is there a timeline on that? The $2 billion worth of projects that you mentioned, over what time frame is that going to be awarded?

I anticipate that there will be a short list announced around December, with awards expected early next year. I believe there will be more updates on this process as CAISO moves forward. I feel optimistic about our position and believe we will be very competitive.

All right. If I can focus first on the LNG side, if you don't mind. I just wanted to understand a little bit of the push out in the timeline on the Cameron side. Clearly, this has been, in some senses, articulated previously. But as you think about getting clarity on timeline today on when to move forward, are you kind of waiting for inflation to moderate? Are you waiting for certain milestones to be achieved here with your new partner, with Bechtel? Or are there other considerations? Just to kind of understand the shift to '24 now, but also the input parameters to narrow that in a little bit more precise.

Sure. I'll make a few comments. I'll pass it to Justin maybe to provide a larger overview of his LNG development program. But I would just start by saying, Julien, the best way to think about it is we were on a call very similar to this in August of last year where we were talking about the potential for Port Arthur Phase 1 to leapfrog Cameron. And we were not, at that time, prepared to make an FID estimate for Port Arthur, but we felt good about the progress. We're probably in a similar position today. We've got more work to be done on both of our brownfield projects, Cameron expansion as well as Port Arthur 2, but we're making significant progress. We're very excited to have selected Bechtel. Bechtel is doing a wonderful job, and he's been on site at Port Arthur for probably close to 5 years at this point. So I think that's a big step forward for us to have Bechtel in-house working with us on finalizing cost and design work. And Justin, maybe you could do 2 things, update us on the overall LNG portfolio for Julien's benefit and maybe provide additional details about how you're thinking about timing.

Great. Well, thank you, Julien. Let me take a step back, as Jeff mentioned, again, our core strategy is to build an LNG infrastructure business. And that would be a business that offers customers LNG volumes from both the Pacific and Gulf Coast. As you think about where we are to date, Cameron Phase 1 is producing in excess of 100% of its expected volumes. ECA Phase 1 and Port Arthur Phase 1 are under construction, and both are proceeding safely and on schedule. And as you look at our LNG development projects, look, we're very excited about the opportunity set in front of us. At Cameron Phase 2, as Jeff mentioned, the selection of Bechtel is a major milestone. What we're doing with Bechtel is similar to what we did at Port Arthur. We and our Cameron partners will continue to conduct value engineering work through the fall as we finalize the EPC arrangements. And again, you have to remember that the goal is to optimize the design so we can optimize the overall cost structure and timing of COD. These efforts should position us for an FID next year, subject to definitive commercial arrangements and any needed regulatory extensions. So as you think about that timing, we're going to press forward on the EPC arrangements. I guess I would echo what Jeff said, we were in this position last year on Port Arthur 1, and we'll try to do the same thing. Looking at Port Arthur Phase 2, very optimistic. We continue to advance commercial discussions with potential customers, importantly, many of whom are also interested in project equity. At the same time, we're advancing engineering construction with Bechtel, regulatory and financing. Julien, as I kind of think about the business and where we are today, I think the key takeaway is we have made significant progress on our LNG strategy and are very bullish on both Port Arthur Phase 2 and Cameron Phase 2 moving forward next year.

And then I would just conclude, Julien, by saying that we're going to finalize costs around Cameron expansion. We're going to complete the commercial arrangements and continue to progress our permits and look to take FID next year on Cameron. The most important thing I'd always remind folks is, it's never really a race. It's about putting all the risk in a box and optimizing the project to produce the best returns for our investors. And we've demonstrated the ability to do that. And we've got a great team on it. So we feel good about our progress on both Port Arthur Phase 2 and Cameron expansion.

Right. And you said still anticipated to sell down the equity potentially in future expansion. Just considering the backdrop of LNG transactions of late, I figured you just clarify that last comment, too.

No. I mean this goes back to kind of how we tend to finance things. I mean, obviously, as we've talked about before several times, Julien, we're going to maximize our operating cash flows. We've got a lot of flexibility in our overall capital structure to finance things. But you see us at a 50% ownership level in Cameron today. You've seen us now at a 28% ownership position for Sempra Infrastructure Partners in Port Arthur Phase 1. One of the unique things is we have the opportunity to optimize the capital structure so that we really improve the returns for our shareholders. So certainly, I think that's a pattern or practice you would expect us to continue.

Just want to pick up after what Julien was putting down there with regards to Port Arthur 2. More specifically, on the FERC and the lack of the boat there for the expansion, any current sense on timing on your end? And do you see this kind of impacting commercial discussions?

No, we don't. We do think it's important for that FERC certificate to be issued. We certainly think that will be issued in the next month or two. So we remain optimistic about that.

Got it. That's helpful there. And then maybe drawing a bit more of a fine point, as a follow-up, we've seen Cove Point transacted at a much lower multiple than it did in 2019. And just wondering if this is a sign of value in the LNG space changing? Or just any thoughts on the value of that transaction?

Look, I think at Cove Point, what you saw take place was the transaction from minority interest. It was not a transaction related to a controlling interest. I think the thing I would fall back on, Jeremy, is when you look at what's taking place in the LNG marketplace today, in the world, has a global capacity of just below 400 million tonnes per annum. That marketplace will grow by more than 50% by the end of the decade and likely double by the middle of the century. So the way we think about it is there is a need today for more LNG. That need will grow as countries around the world look for natural gas to balance out their commitment to cleaner fuels like renewables. We think the United States continues to have a competitive advantage, and we'll take market share. We are the world leader today in 2023. When you think about the competitive price of natural gas in the United States, the depth of our capital markets, and the constructive regulation, this is less about Cove Point or NextDecade or Sempra. This is about the United States taking a leadership position in the world. We think this business will continue to get much bigger. It's grown at about an 8% CAGR from '17 to 2021, and we continue to expect to see strong growth in the LNG marketplace. I think Sempra is well positioned as any company in North America to be a big part of it.

Got it. That's very helpful there. And wondering if there's any more commentary you're able to provide as far as commercial discussions or concerns between Asian versus European buyers or portfolio buyers otherwise? Just trying to get a flavor for kind of how that is progressing at this point?

We're having commercial negotiations on Port Arthur Phase 2 as well as on some of the offtake arrangements around Cameron expansion. Many of the same type of customers you would expect in Europe and in Asia are part of those conversations. It is a very vibrant market today, and there's lots of conversations taking place by our marketing team. So we remain optimistic about future announcements in that area.

Got it. Quick last question, can you provide more details on the latest Port Arthur CCS announcement? Is this project specifically for Port Arthur and Sempra? Also, what is the addressable market you are targeting there?

Yes. I would say that we've named this project Titan. It's some recent port space that we've been able to acquire. It is a very competitive process in Louisiana and Texas to have these types of facilities. Titan has been dedicated to serve the needs of Port Arthur Phase 1 and future phases at Port Arthur. We also expect that it will serve other third-party interests in the region.

Just wanted to go back to Texas very quickly. You had mentioned the Resiliency Bill. Could you just give us some details from a timing perspective in terms of when you're able to file for that? And kind of how long the approval process is expected to take until you can begin to recover investments under it?

Sure. It's a really good question. And I will tell you, it is a very, very important development in Texas. We think it will be something that we will participate in once the rulemaking is set. But Allen, perhaps you could talk about the bill itself, when you think the rulemaking will be over and when you expect you'll put your first 3-year filing in front of the Commission.

Yes, absolutely, Jeff. Let me walk you through the timeline for HB 2555, the Resiliency Bill. The bill took effect on June 13 of this year and mandates that rulemaking must be completed within 180 days. This sets a statutory deadline for the rule on December 10 of this year, depending on the outcomes of the rulemaking process. Following that, we anticipate that utilities like ours will be able to file. Once plans are filed with the Commission, they must be approved, modified, or rejected within 180 days. For our part, we aim to submit a plan in the first quarter of 2024 and hope to have it approved in the latter half of '24. That’s the current situation.

That's really helpful. Could you share how the general rate cases in California have been progressing so far? Have you received any initial feedback, and has there been anything surprising in the process?

Sure. I'll make a couple of comments, and I'll pass it to Kevin if he wants to add anything. But the GRC hearings concluded in July, and opening briefs will be filed in the middle of this month, with the proposed decisions I indicated in the second quarter of 2024. I think the most important thing, Carly, is the state is very focused on safety, reliability, and decarbonization, and that's exactly how we lined up our rate cases. So I think we're in good shape. Kevin, would you like to add anything else about how this unfolds?

I mean just process-wise, Carly, I just would mention that we also just updated our filings for inputs from inflation factors, labor rates, medical insurance costs, and the like. So we just updated them. We're going to have a refile this fall and look forward to a proposed decision in the first part of mid-next year.

I'll keep it short. So I guess, Port Arthur, good to see you finalize 28% here. Just what's causing you to fall higher in the range that you kind of gave to us? And then when we think about the puts and takes around the funding plan and what was outlined in the first quarter call, now that you've kind of solidified this 28%, should we still think about no kind of external equity financing at the holdco?

Sure. I would just say that we had originally targeted between 20% and 30% ownership. Obviously, our goal is to own as much of the project as we can. So we are very pleased to guide up to the 28% range. Previously, on calls, we had talked about notionally just giving out information at the 25% level. But our goal all along was to make sure that we could land as high in the range as possible. I think we're well set on financing. I'll pass it over to Faisel Khan, who's the CFO of Sempra Infrastructure, and maybe you can just update us on how he expects the Denali capital process to go forward and your funding for Port Arthur Phase 1.

Yes. Thanks, Jeff. So as is always talked about, we have this sort of flexible capital structure. So first, with our project financing at Port Arthur, it's roughly $7 billion in capital for the project. Then, of course, we have our partners, ConocoPhillips and now KKR as equity partners as well. And then we also have, moving up the capital structure, you get into Sempra Infrastructure Partners, where you have ADIA and KKR as well. So again, plenty of capital to be drawn on from all of our partners; sort of having that flexible capital structure in place enables us to maximize returns for the project up to Sempra.

Got it. And then I know everyone is very focused on Train 4 for Cameron. But can you just give us a sense of how debottlenecking for 1 through 3 is progressing? And whether you remain on track to increase that capacity before Train 4?

Sure. Justin, you can take that.

Yes. Yes, Nick, we're still doing some of that engineering work. I'd say it's very positive. And as just as you recall, the debottlenecking won't be binary. So what we'll likely do, as we continue to take trains down for routine maintenance, we will do the debottlenecking activities during those trains, and we'll expect to see additional volumes. So again, debottlenecking is moving forward very positively.

I wanted to follow up on Oncor and the points you raised about the $70 million to $90 million on DCRF and the sensitivity regarding investment. When do you expect to see the benefits of DCRF? Will it be implemented in 2024?

Yes, it's a good question. We expect to make our second DCRF filing for this year in September. The pickup for DCRF, which might be a little bit this year, will primarily be in 2024. So it will be a full run rate benefit in 2024, Steve.

Okay. But you said it falls within your guidance because your guidance range is pretty wide, I guess.

That's correct. We will review that with our Board as part of our fall financing exercise. Additionally, we will be updating and issuing our 2025 guidance on the February call.

Okay. Regarding the capital at Oncor, will your update in the fall cover the usual matters, or will it also address the reliability aspect, which may not be fully finalized by that time? Or might that information be provided later?

Yes. I think this goes back to Carly's question. We're going to do our normal roll-forward 5-year planning process led by Don Clevenger at Oncor. The Oncor Board will be deeply involved with that, as will the ownership both of TTI and Sempra. We obviously have seen the capital plan grow from $15 billion to $19 billion just year-over-year, and we certainly think it's going to obviously grow again, as we've already indicated. The key issue for you on this new rulemaking, which Allen indicated, will not be finalized until, at the earliest, December 10 of this year. And Allen will be coming back to the Board with an add-on related to resiliency. So the work that we're doing that will be finalized in the fall is the normal roll-forward 5-year capital plan. But once we have the rulemaking in place, Allen and his team will hustle to put together the appropriate analysis for the Oncor Board, and that will lead to the filing that we made with the Commission. I think, as Allen indicated, we expect to have feedback from the Commission in the second half of the year. Allen, do you want to add to that?

No, Jeff. I think that's exactly right.

Look, as we close out today's call, I wanted to note that we're pleased with our financial results, both for the quarter and for the first half of the year. I certainly believe we continue to make great progress on our LNG story, and we're making progress at Phase 2 at both Cameron and Port Arthur and are also pleased to guide to the higher ownership percentage of 28% at Port Arthur Phase 1. And as you can tell from today's call, Texas continues to be one of the leading growth stories in the country. The improved regulatory compact there is a very strong signal, in my opinion, for continued investment. Finally, as we celebrate our 25th anniversary, we're pleased to announce our 2-for-1 stock split. We appreciate everyone making time to join us this morning. We have several IR events this month in Wisconsin and Las Vegas and hope to see many of you there. This concludes our call, and feel free to follow up with our IR team. Thank you.