Prepared remarks
Good morning, and welcome to Sempra’s first quarter 2025 earnings call. The live webcast of this teleconference and slide presentation are available on our website under our events and presentations section. We have several members of our management team with us today, including Jeff Martin, Chairman and Chief Executive Officer; Karen Sedgwick, Executive Vice President and Chief Financial Officer; Justin Bird, Executive Vice President and Chief Executive Officer of Sempra Infrastructure; Allen Nye, Chief Executive Officer of Oncor; Don Clevenger, Chief Financial Officer of Oncor; Caroline Winn, Chief Executive Officer of SDG&E; Peter Wall, Senior Vice President, Controller and Chief Accounting Officer and other members of our senior management team. Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected in any forward-looking statement we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K and 10-Q filed with the SEC. Earnings per common share amounts in our presentation are shown on a diluted basis, and we'll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We also encourage you to review our 10-Q for the quarter ended March 31st, 2025. I'd also like to mention that forward-looking statements contained in this presentation speak only of today, May 8th, 2025, and it's important to note that the company does not assume any obligation to update or revise any of these forward-looking statements in the future. With that, please turn to Slide 3, and let me hand the call over to Jeff.
Thank you all for joining us today. Earlier this morning, we reported first quarter 2025 adjusted EPS of $1.44, which compares favorably to the prior period's results of $1.34. In addition, we're pleased to affirm our full year 2025 adjusted EPS guidance range of $4.34 to $4.70, and we're also affirming our 2026 EPS guidance of $4.80 to $5.30. You'll also recall that we've issued a projected long-term EPS CAGR of 7% to 9% for 2025 through 2029, and have guided to the high end or above that range. As we've discussed, this projection is a compound annual growth rate for the five-year planning period, and does not imply linear growth year to year. Now let's turn to our plan of execution for the remainder of the year. Today, our first quarter results reflect a positive step toward the execution of five value creation initiatives. First, we plan to invest roughly $13 billion this year in energy infrastructure, with over $10 billion targeted for our U.S. utilities.
Just as important, we have initiatives underway that are intended to improve the regulatory compact in both Texas and California. Second, we continue to review opportunities to realign our portfolio to support the growth and expansion of our Texas and California utilities, while also maintaining a strong balance sheet. As a result, we announced our intention to sell a minority interest in Sempra Infrastructure Partners. Given the robust demand today for energy infrastructure assets, we expect to complete a transaction that highlights the continued growth in the value of that business. Third, we're continuing our strategy of selling non-core assets and recycling capital to finance our future growth. That's why we recently announced our plans to divest Ecogas, a regulated natural gas distribution utility in Northern Mexico. In combination, these actions are designed to advance our company's broader efforts to simplify the business and reduce reliance on future issuances of common equity to fund the company's five-year capital plan.
With the close of these transactions and the anticipated growth of our utilities, we expect our regulated businesses will account for a much larger percentage of Sempra's earnings on an annualized basis. It's also important to note that we expect these combined transactions to be accretive to the company's earnings per share forecast and credit enhancing. We also continue to execute on our Fit For 2025 campaign that we launched in the summer of 2024. The goal of this initiative is to reduce the company's cost structure to align with our future business needs. These efforts are also focused on new technology adoption, including the use of artificial intelligence to improve productivity and customer service. Taken together, these efforts are expected to help support improvements in the affordability of our services and our financial performance. And finally, we'll continue our foundational work of delivering safe and reliable energy for our customers through operational excellence.
We're an established leader today in wildfire science and mitigation, and we'll look to build on those competitive advantages here in California as well as at Oncor. The key takeaway is we have an exceptional opportunity to grow and competitively differentiate our company through the end of the decade. To deliver on that opportunity, we understand the importance of executing well in the near term. Our first quarter financial results are an important first step, and as a management team, we have a plan of execution in place for the balance of 2025 that we believe will make our company stronger and more valuable. With that, please turn to Slide 4, where Karen will walk through business and financial updates.
Thank you, Jeff. Let me start by saying our three growth platforms are off to a solid start for the year. Let's start with Texas. Last year, ERCOT projected peak load growth to increase to 150 gigawatts by 2030. To meet this demand, ERCOT is proposing a regional transmission plan that would overlay a new high-voltage backbone across the state's transmission grid. Both the 345 kV and the 765 kV investments are under consideration. Together with the Permian plan, ERCOT estimates these investments will total between $32 billion and $35 billion. That includes approximately $14 billion to $15 billion for the Permian plan, with the import transmission path being constructed at the 765 kV level, and $18 billion to $20 billion for the remaining transmission buildout. As a major owner of existing endpoints across Texas, we believe Oncor is well-positioned to construct a significant portion of the required transmission infrastructure that's been identified by ERCOT.
Oncor is still assessing the impact of these developments and expects to have a better sense of the projected investment opportunity once the associated CCNs are filed. Oncor has begun seeking approvals for the remainder of the Permian plan and expects to continue making the required CCN filings, including for the import path through 2026. We're also currently monitoring the legislative session in Texas, including potential legislation that, if passed, might have beneficial impacts on the regulatory framework supporting T&D investments in Texas. In the meantime, Oncor is continuing to prepare to file its comprehensive base rate review and currently anticipates filing in the second quarter. Moving to Sempra California, I'd like to start by discussing an update on the regulatory front. Every three years, California Utilities submit a new cost of capital application to the CPUC, which sets authorized rates for return for their investments in critical infrastructure.
In March, SDG&E and SoCalGas, along with other large California IOUs filed their respective cost of capital applications for the years 2026 through 2028 and seek to update SDG&E and SoCalGas's respective rates of return to align with current market conditions. SDG&E requested a 54% common equity layer and 11.25% return on equity. At SoCalGas, the company requested a 52% common equity layer and 11% return on equity. Please see Slide 11 in the appendix for a breakout of additional details. We expect a decision from the CPUC by the end of the year with the newly authorized rates of return effective at the start of 2026. As a reminder, this would be subject to the cost of capital adjustment mechanism, otherwise known as the CCM, which would apply in the years 2027 and 2028. As it relates to the FERC-TO6 filing, SDG&E's current authorized rate is 10.1%, and you'll recall that SDG&E requested a base ROE of 11.75%, which excludes the 50-basis point CAISO adder currently in the appeals process.
New interim rates are scheduled to be implemented June 1st, subject to refund. The settlement process is ongoing and expected to be resolved in the second half of this year. Also in the first quarter, the CPUC approved an expansion of Westside Canal battery storage, adding 100 megawatts of energy storage capacity to the existing 131-megawatt facility. This expansion should be fully operational this summer and represents a significant investment in the region's energy infrastructure, supporting local communities by providing more reliable and clean power, and positioning the region as a leader in sustainable energy solutions.
You bet. Thanks, Ross. The Texas Miracle, as I've mentioned previously, is still going strong. From a general perspective, premise growth has increased by 3% compared to the first quarter of last year, with 19,000 new premises added. New transmission Point of Interconnections requests are up 66% year-to-date compared to last year, and total active requests have risen by 35%. Our large customer queue continues to expand rapidly, now up 30% from last quarter's 152. In West Texas, the weather zone in Far West Texas has increased by 3%. The Culberson transmission loop has seen a 41% rise over last year's peak, while the Stanton transmission loop is up about 9%, at 8.8% over last year's peak. These metrics are what I typically discuss during these calls. In addition, we have various developments, including the recently announced import pass with 765 kV, which is significant. The remaining components of the 765 plan under consideration by ERCOT and the PUC are also important.
We've previously stated that we have no financial preference between 765 and 345 kV; however, operationally, we believe that 765 makes more sense for a growing state like ours. Building larger capacity now while using fewer rights-of-way enhances our operational capabilities. It also allows for more flexible generation siting wherever there’s a 765 connection instead of needing to construct 345 lines directly to generation sites. We think there are operational advantages to 765, as we've communicated to the legislature and PUC, and we were pleased with that announcement. We're waiting to see the developments with the eastern half of the 765 plan and the decisions that will come from the PUC and legislature. As previously stated, we see potential in both plans, especially given the number of endpoints we have, which is now over 1,300. The application of the 1938 bill, which established the ERCOT criteria for determining ownership of transmission lines through endpoints, gives us confidence in the growth in Texas. We feel optimistic about the direction ERCOT and the PUC are taking with these two major transmission plans, and we expect to play a significant role in both.
Questions and answers
So, just a couple of questions to touch on, and maybe I'm just tired because I'm 42. I'm usually pretty steep. But just to walk through the SIP process from here, I think KKR would be due on May 12th. And then we've got, if I've got it right, 10 business days for ADIA. And then you would have 30 days to respond to either one of those, which would kind of put us late June, early July. And that's the sort of contextualization for why you're talking about an update on the second quarter call. Am I thinking about that correctly?
Yeah, the only thing I would clarify is to think about that sequentially. So, once KKR provides their written offer, if they were to bid, then Sempra has a 30-day process to deliberate that and or respond. After that process, then ADIA would have their 10 days, followed by Sempra’s 30 days to respond to that. So, I think we feel comfortable that, Q2 call will be the appropriate time to update it. And look, we certainly realize that people like more details. So, I think, Ross, the best thing to do is just let the process play itself out. I think Q2 will be the appropriate time for an update.
Hey, Jeff. Thanks so much for taking the questions. Maybe to start on the LNG front, just to follow up on some of the comments in the prepared remarks, you talked about some of the macro uncertainty potentially impacting project development on Port Arthur 2. Could you just help us frame that potential impact? Is that more just a potential kind of slippage or is that anything we should think about from a structural shift in views on that project?
Yeah, thanks, Jeff. Hi, Carly. As Karen said in the prepared remarks, we are continuing to target FID in 2025. We're very pleased with the strong commercial interest in that project and the progress we're making on the development front. Those include commercial negotiations, receiving our final permits, and financing the projects. Karen mentioned some of the recent macroeconomic uncertainties, and I think for us it's important to emphasize we're committed to managing cost risks and maintaining discipline to achieve our targeted returns. And that, Carly, will take precedent over the timing of any announcements. I also just want to remind folks of the point Karen and Jeff have made, the priorities reflected in Sempra’s capital program are focused on growing regulated utilities, and that means we'll only take FID on a project like Port Arthur Phase 2 when we're comfortable it will deliver strong shareholder value.
Hi, Jeff, Karen, Allen. So I wanted to maybe focus for a minute on Texas and just the pending Unified Tracker bill. And maybe you could talk a little bit about how that would interact, if at all, with your rate case filing and kind of what the benefits of the bill would be relative to status quo.
Sure. Let me provide a couple of broader comments, and then we'll come back and talk about the legislative session and specifically UTM. I would think about the rate case separately. I mean, the way to think about it is they've got an authorized ROE today, Steve, of 9.7%. And there's two things that can impact lower earned ROEs. One is when you've got a higher cost structure that can be resolved in the base rate review. And secondly, just ordinary regulatory lag based on how their capital tracker mechanisms work. So I think what Allen and team will try to focus on is continuing to strengthen their balance sheet by addressing both sides of that. But I'll make a quick comment, and I'll pass it over to Allen, which is I talked about early on our value creation initiatives. And the first one, Steve, is this idea of investing about $13 billion this year. The second component of that is we're committed to actually improving our financial returns. And that means whether it's legislative sessions in Texas or California or base rate reviews or regulatory filings, we're very, very focused on improving our regulatory compact.
Sure. Yeah, thanks for the question, Steve. There's a number of bills that continue to make progress through the legislature. And we're obviously tracking everything from UTM to interim rates to wildfire and capital structures. And there's still a lot of time left, even though it's only a month. And there's still a lot of time for material changes to be made to all these bills. But we'll continue monitoring closely, working with all the constituents, and we'll have a better update on what actually gets through on the Q2 call. Specifically with regards to House Bill 5247 or the UTM bill. It's the most impactful potential bill for us, given our large and growing capital plan. It'd give us a way to moderate the impacts of regulatory lag and improve our credit quality. We've had broad support from stakeholders, and we really are appreciative of those parties who have worked with us on this bill. And while there are other bills that are out there that we'll continue to monitor work on, this one is potentially the most important to us.
Thanks, Jeff. As Karen mentioned, we are continuing to target FID in 2025. We're pleased with the strong commercial interest in that project and the progress we're making on the development front.
Great. Thanks so much for that. That was really helpful. And then maybe just a clarification on some of the comments in the prepared remarks around the tariff exposure.
Yeah, I would say right from the top, I think this remains a fluid environment for all industries, but I think we're in good shape here, and any type of impact from tariffs falls well within our established guidance. Let me go through a couple of things that might be helpful. At our utilities, Carly, we remain focused on minimizing tax tariff exposure for our customers. The majority of our equipment is sourced domestically, and that limits the direct impact on planned capital expenditures to around 2% or 3%. To reduce that impact even further, our utilities are taking steps to diversify the supplier pool and are exploring new supply sources with reduced exposure. Second, they're adding higher levels of domestically produced equipment and materials. And finally, they're continuing to stock higher levels of inventory for critical materials, and I think Karen talked about that in her prepared remarks.
Hey, Jeff. Good morning to you. Thank you for giving me time. Hey, just wanted to quickly follow up on Julian's question related to Moody's. Is it your understanding, or at least in your conversation with the team, both Moody's and S&P, who have you on negative outlook, that they'll be patient here?
Yeah, we've had great conversations with the rating agencies. We have laid out the plan, and I think they understand the 12 to 18 month time frame we've talked about. So we're committed to our ratings. And we've had good conversations with them on this front. So we think we have the time to complete these transactions. And as Jeff mentioned, our time frame could be shorter than that.
Hey, good afternoon, team. Jeff, just one quick one. I think it may follow up on Nick Campanella's train of thought. When you look out towards the end of your forecast period, four or five years, we have the Oncor CapEx spending. You've sold down the piece of SIP. You keep talking about the growth is going to be mainly focused on the regulated utility side of Sempra. What's the mix of regulated utility earnings to, say, your infrastructure earnings towards the end of your plan?
Yeah. I really appreciate the opportunity to clarify this. Look, I think we have been very clear over a long period of time that we're continuing to build this business with a view toward taking risk away from the portfolio and allocating capital disproportionately to our regulated investments. What we've done with our board of directors is target a mix where our regulated earnings and cash flows will be at the level of 90% or greater. And that you'll see us have a lower ownership inside of SI accordingly. This transaction really just accelerates our movement to that. So, at some point in our five-year plan, we're quite confident that we'll be at 90% or better in terms of an earnings mix from our regulated utilities.
Hey, thanks so much for sneaking me in. Apologies if I didn't quite catch it, but I was wondering, Oncor, just what are the gigawatts of the LC&I pipeline currently and how much of that is data centers? And I'd also just be curious your current view on what you would consider advanced stage, more like realistic to hit the market.
You bet. Thanks, David. The direct answer to your question is we presently have 156 gigawatts of data centers in the queue and another 22 gigawatts of load from kind of more traditional diverse industrial sectors. So that is whatever 178 total of large C&I in the queue, of which 156 is data centers.
Yeah. So think about that, David, just to kind of put that in context is their high confidence level of interconnections more than doubles their existing peak load. And they've got actually a backlog that's 5x of their current peak load. So I think the goal here really is to make sure that we are building the critical infrastructure that continues to support the economic growth in the state.