Q3 2024 Earnings Summary
- Oncor's growth is incremental to Sempra's $48 billion capital plan, suggesting potential for additional capital investments and increased returns.
- Port Arthur Phase 2 is advancing with increasing interest, including a 20-year agreement with Aramco for 5 million tons per annum and 25% equity participation, highlighting strong growth prospects in the LNG business.
- Sempra has visibility to exceed the high end of its 6% to 8% EPS growth target, with a robust pipeline of opportunities that could lead to above-average sector growth.
- Incremental Capital Expenditure at Oncor Beyond Existing $48 Billion Plan: Sempra's growth at Oncor is expected to be incremental to the $48 billion capital plan, indicating higher capital needs that could strain financial resources.
- Potential Dilution from $3 Billion At-The-Market Equity Program: Sempra is considering issuing up to $3 billion in equity through an ATM program to fund increased capital expenditures, which could dilute existing shareholders' value.
- Uncertainty Around Future Funding and Equity Issuance Timing: Management is not prepared to specify when they would need to use the ATM equity program, creating uncertainty around future funding needs and potential dilution.
| Metric | YoY Change | Reason |
|---|---|---|
Sempra Infrastructure Earnings (SRE) | **-14% ** | Lower net gains from commodity derivatives in the current period and higher LNG development costs reduced earnings compared to the prior year, while foreign currency and inflation effects also contributed to volatility ( , ). Additionally, changes in transportation revenues and non-capitalized project expenses weighed on performance. Looking ahead, ongoing foreign currency fluctuations and changes in natural gas prices could influence future margins ( , , , ). |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS | FY 2024 | Reaffirmed, exact range not specified | Affirmed, exact range not specified | no change |
Adjusted EPS | FY 2025 | Reaffirmed, exact range not specified | Affirmed, exact range not specified | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Continued expansion of Oncor in Texas driven by data center and AI-related demand | Previously emphasized in Q2, Q1, Q4 with robust data center and AI demand as key load drivers. | Significant growth driven by 82 GW of pending data center/AI load, exceeding California’s entire peak demand. | Ongoing. Demand continues to rise; remains a core growth theme. |
Significantly increasing capital expenditure plans and potential equity funding through a $3B ATM program | No mention in Q2, Q1, or Q4. | Sempra announced a 40%-50% higher 5-year Oncor capex plan and a new $3B ATM program to finance it. | New topic introduced in Q3 2024. |
Progress of LNG projects (Port Arthur Phase 2, ECA Phase 1) including new partnerships and final investment decisions | Consistently discussed in prior calls, with incremental updates on commercial progress and timeline. | Port Arthur Phase 2 advancing with Saudi Aramco as anchor partner; ECA Phase 1 on track for spring 2026. | Recurring updates across all periods. |
Regulatory and permitting uncertainties (DOE non-FTA export permits, CPUC GRC, PUCT approvals) | Key focus in Q2, Q1, Q4 with similar updates on CPUC and PUCT processes. | Awaiting DOE non-FTA for Port Arthur Phase 2; CPUC GRC decision pending; PUCT to decide on Permian voltage level in 2025. | Continued regulatory focus. |
Overinvestment risk due to uncertain materialization of large interconnection requests | Not mentioned in Q2, Q1, or Q4. | Not mentioned. | Not discussed in any period. |
Ongoing confidence in achieving or exceeding the 6%-8% EPS growth range | Consistently reiterated across Q2, Q1, Q4. | Confidence reaffirmed by Jeff Martin to meet or surpass 6%-8% EPS growth. | Maintained optimism across periods. |
Supply chain and labor challenges affecting project timelines and costs | Discussed primarily in Q2 (ECA delays due to labor) and Q1 (proactive supply chain steps), not in Q4. | No mention in Q3. | Mentioned sporadically; absent in Q3 and Q4. |
Shift in sentiment regarding financing needs from 'no additional equity' to announcing an ATM program | Absent from Q2, Q1, and Q4. | Introduced $3B ATM program, diverging from prior “no equity” stance. | New approach to equity funding in Q3 2024. |
No longer prominent discussion of renewable projects like the Cimarron Wind expansion | Prominently discussed in Q1, briefly in Q2 and Q4; overall diminishing references. | Not mentioned. | Declining emphasis. |
Major transmission opportunities in Texas that could shape Sempra's future growth trajectory | Consistently cited in Q2, Q1, Q4 as a key driver for future growth. | Significant potential from Permian plan, ERCOT expansions, AI/data center needs. | Consistent major growth theme. |
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$3B ATM Equity Issuance and Funding Needs
Q: Is the $3B ATM enough to fund all expected CapEx increases?
A: Sempra has introduced a $3 billion ATM program as an additional financing tool to support anticipated capital increases, primarily at Oncor. The company feels very comfortable with $3 billion and does not expect it to be higher. -
Oncor's Significant CapEx Growth
Q: What is driving Oncor's 40-50% CapEx increase?
A: Oncor is experiencing remarkable growth, planning to increase capital expenditures by 40–50% due to strong demand across all customer categories, especially in transmission investments and AI-related data centers. Potential load additions from large customers total 103 GW, with 82 GW related to data centers—more than 3× Oncor's current peak load of 31 GW. -
California Regulatory Impact on CapEx
Q: Does the proposed decision in California affect CapEx plans?
A: While some aspects of the proposed decision are constructive, Sempra sees opportunities to improve it, particularly in funding for safety, reliability, and affordability programs. The company continues to collaborate with regulators and might adjust CapEx accordingly, aiming for an outcome that is constructive for all stakeholders. -
LNG Business and Port Arthur Phase 2 Progress
Q: Are there changes to LNG outlook or Port Arthur Phase 2 timing due to administration changes?
A: Sempra continues to advance Port Arthur Phase 2, with increasing interest and momentum. Key milestones include a 20-year agreement with Aramco for 5 Mtpa and 25% equity, and an EPC agreement with Bechtel. Awaiting a DOE non-FTA export permit expected in the first half of next year, with growing confidence in obtaining necessary permits despite any administration changes. -
Equity Funding Timing and Needs
Q: When will the $3B equity be raised, and is more equity needed?
A: Sempra views the $3 billion ATM as another financing alternative and will provide detailed funding plans, including timing and sources, during the February call. The company does not expect to need more than the $3 billion and is comfortable with that amount. -
Texas Legislative Session Impact
Q: Could the upcoming Texas legislative session impact growth?
A: Sempra does not expect significant impacts from the Texas legislative session. Oncor is in an excellent position and is confident in handling any utility issues that may arise, with nothing overly concerning at this time. -
Exposure to AI-Related Demand Growth at Oncor
Q: How is AI demand affecting Oncor's growth prospects?
A: Oncor has 82 GW of pending interconnection requests related to AI data centers, representing a substantial growth opportunity. This exposure to AI is considered an understated investment thesis for Sempra, contributing to Oncor's robust growth. -
Transmission Infrastructure Plans
Q: Will Oncor invest in 765 kV transmission lines?
A: Oncor's Permian plan currently assumes a 345 kV build-out, but the PUCT will determine by May whether it will be upgraded to 765 kV, which could significantly impact investment levels. -
Earnings Growth Expectations
Q: Is Sempra expecting EPS growth above the 6–8% range?
A: Sempra is comfortable with a 6–8% EPS growth rate but acknowledges having a field of vision to more opportunities. The company aims to deliver at or above the high end of that range, considering the significant growth period for the utility sector. -
LNG Permit Confidence Despite Elections
Q: Are there concerns about LNG permit delays after elections?
A: Sempra maintains confidence in obtaining necessary LNG permits, emphasizing that energy infrastructure has bipartisan support. The company expects to receive permits for Port Arthur Phase 2 in the first half of next year.
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