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    SEMPRA (SRE)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$70.91Last close (Feb 26, 2024)
    Post-Earnings Price$71.53Open (Feb 27, 2024)
    Price Change
    $0.62(+0.87%)

    What went well

    • Sempra increased its 5-year capital plan by 20% to $48 billion, with over half of the $8 billion increase coming from Texas, which is experiencing significant growth. This higher capital investment is expected to drive rate base growth of approximately 10% across their utilities, stronger than previously forecasted.
    • Sempra is confident in achieving or outperforming its projected long-term EPS growth rate of 6% to 8%, supported by strong utility growth and historical EPS growth of 7% to 10% over long periods.
    • Oncor (Sempra's Texas utility) is experiencing record-breaking growth, with 73,000 new premises added last year, a 14% increase year-over-year, and significant increases in transmission interconnections. Over 70% of Oncor's CapEx is pure growth capital, with about 97% subject to recovery through trackers, and over 60% allocated to transmission, positioning Sempra to benefit from strong growth in Texas.

    What went wrong

    • Potential delays and uncertainties in the permitting process for the Port Arthur LNG Phase 2 project, which could affect project timelines and completion dates.
    • Despite increasing the capital plan by 20%, the company only reaffirms its long-term EPS growth rate of 6% to 8%, which may indicate lower returns on increased capital investments.
    • Increases in benchmark yields and uncertainties related to the cost of capital process at the CPUC may pose risks to future earnings if actual outcomes differ from expectations.

    Q&A Summary

    1. Increased CapEx Funding
      Q: Can SRE fund increased CapEx without issuing more equity?
      A: Jeffery Martin stated that SRE expects to fund its increased capital plan without issuing additional equity. In Q3 last year, they sized their equity offering of roughly $1.3 billion to support future financing needs. Together with operating cash flows and net debt, they are in a position to comfortably support the new capital program beyond $48 billion without more equity issuance.

    2. Growth Rate Expectations
      Q: Does increased CapEx impact EPS growth guidance?
      A: Jeffery Martin indicated that the rate base growth across both utilities will be approximately 10%, slightly stronger than forecasted a year ago. Despite the capital plan increasing by 20%, they are confident in delivering the 6% to 8% long-term EPS growth rate, with potential to outperform the high end of that range.

    3. LNG Project Updates
      Q: When is FID expected for Cameron LNG Phase 2?
      A: Justin Bird explained that they anticipate taking FID on Cameron LNG Phase 2 as early as the first half of 2025. They are focusing on optimizing costs and securing long lead-time equipment to ensure maximum value for the project.

    4. Texas Growth Outlook
      Q: Is the 2% premise growth estimate in Texas conservative?
      A: Allen Nye highlighted that premise growth is very strong, with 73,000 new premises last year, a 14% increase year-over-year. They continue to see record-breaking growth across the system, suggesting that the 2% annual premise growth planning could be conservative.

    5. California Regulatory Process
      Q: How is SRE framing the GRC process into '24, '25 plans?
      A: Jeffery Martin stated that SRE focuses on making investments aligned with public policy and supporting customers. They make reasonable assumptions based on prior cases at the CPUC, but are not specifically taking the recent settlements into account in their planning assumptions.

    6. Cost of Capital Mechanism
      Q: Thoughts on CPUC cost of capital process impact?
      A: Jeffery Martin noted that the decision last December allowed them to have more confidence to narrow their 2024 EPS guidance range. California continues to be a constructive regulatory jurisdiction with mechanisms like the cost of capital adjustment that account for market conditions.

    7. Transmission Project Update
      Q: When is the update on the transmission project selection?
      A: Trevor Mihalik mentioned that they expect a decision on project selection in late April, with 120 days for negotiations to finalize the outcome.

    8. LNG Permit Extensions
      Q: Is there a timeline for DOE non-FTA export permit?
      A: Jeffery Martin stated there is no standard timeline for the DOE non-FTA export permit extensions. They are pleased that DOE confirmed extensions are a separate process, and the filing for Port Arthur Phase 2 is pending. They are working through other development milestones concurrently.

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