- - Sempra (SRE) Q3 2025 Earnings Call Transcript

Motley Fool Transcribing, The Motley FoolNovember 6, 2025 at 2:47 AM

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Wednesday, Nov. 5, 2025, at 12 p.m. ET

CALL PARTICIPANTS -

Chairman and Chief Executive Officer — Jeffrey Walker Martin

Executive Vice President and Chief Financial Officer — Karen L. Sedgwick

Executive Vice President of Sempra and Chief Executive Officer of Sempra Infrastructure — Justin Christopher Bird

Executive Vice President of Sempra — Caroline A. Winn

Chief Executive Officer of Encore — E. Allen Nye

Chief Executive Officer of Encore (incoming position) — Ellen Buck

Executive Vice President of Encore and Chief Financial Officer — Don J. Clevenger

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TAKEAWAYS -

Adjusted EPS -- $1.11 for the third quarter 2025, up from $0.89 for the third quarter 2024, reflecting year-over-year growth.

GAAP Earnings -- $77 million or $0.12 per share for Q3 2025, down from $638 million or $1.00 per share for Q3 2024, primarily due to a $514 million nonrecurring tax expense from classifying Sempra Infrastructure Partners as held for sale in Q3 2025 results.

Full-Year Adjusted EPS Guidance -- Maintained at $4.30 to $4.70 for 2025 and $4.80 to $5.30 for 2026, with management stating, "we believe we can finish in the upper half of that range."

Capital Deployment -- Nearly $9 billion invested year-to-date, on pace to meet or exceed the $13 billion investment target, with the majority directed to U.S. utilities.

Sempra Infrastructure Partners Transaction -- Announced sale of 45% stake for $10 billion, expected to add an average of $0.20 in annual EPS accretion over five years beginning in 2027 (non-GAAP), deconsolidate debt, and "fortify our balance sheet."

Status of ECOGAS Divestiture -- Final bids for the asset are expected before year-end; management targets closure by 2026.

Encore Capital Plan -- Base capital plan for Encore (Sempra Texas) projected to rise by at least 30% over the current $36 billion plan, driven by Texas 765 kV transmission expansion and acceleration of Permian projects.

Encore Capital Opportunity Range -- Sempra projects Encore's total capital opportunity at $55 billion-$60 billion through 2030 (including upside not baked into the base plan).

Encore Growth Indicators -- Oncor's active large customer and industrial queue (LC & IQ) increased over 10% sequentially, with premise count increasing by 16,000 and nearly 660 circuit miles of T&D lines built, rebuilt, or upgraded.

Equity Financing Outlook -- CEO Martin said, "the proceeds from the SI transaction are expected to eliminate 100% of the common equity that was previously in the 2025 to 2029 financing plan," indicating no equity required through 2027 based on current capital projections and balance sheet plans.

California Wildfire Fund Legislation -- Enactment of SB 254 constitutes a "significant derisking event," according to Karen L. Sedgwick, requiring an even split of funding between IOUs and customers, and strengthening caps on wildfire reimbursement exposure.

Port Arthur LNG and ECA LNG Projects -- Port Arthur LNG Phase 1 remains on schedule for COD in 2027 with over one-third of piping complete; ECA LNG Phase 1 is over 95% complete, with first LNG production expected in spring 2026.

Encore ROE Update -- CEO Martin attributed Encore's prior regulatory under-earning to lag and test-year timing, noting recent mechanisms should yield "material improvement" according to Jeffrey Walker Martin in capital efficiency and potential to earn closer to its 9.7% authorized ROE following the rate review and 2024 test year update.

Sempra (NYSE:SRE) disclosed a major rebalancing toward regulated utility growth, emphasizing accelerated Texas infrastructure investment and streamlined capital allocation driven by the pending $10 billion Sempra Infrastructure Partners stake sale. Executives expect Encore's capital plan for 2025 to 2029 to substantially surpass prior projections, fueled by the Texas 765 kV transmission buildout and increasing industrial demand, with associated capital needs now forecast to be up 30% from the previous $36 billion base for the 2025 to 2029 capital plan. Adjusted EPS outperformance year-to-date and execution on planned asset divestitures have allowed management to confirm 2025-2026 earnings guidance and assert confidence in remaining within upper range targets. California stability has been bolstered by new wildfire fund legislation shifting exposure and cost allocation, while LNG infrastructure projects and the ECOGAS sale process remain advancing on committed timetables.

Management highlights the "fortress" balance sheet strategy and states that proceeds from the SI transaction are expected to eliminate common equity needs in the 2025 to 2029 financing plan, though equity may be issued if necessary.

The enacted Texas unified tracker mechanism is already driving improved capital recovery for Oncor, reducing regulatory lag impact and improving earnings profile.

New interim FEA (facilities extension agreement) process has led to $2.7 billion in customer collateral and a 60% increase in active large load interconnection requests from third quarter 2024 to third quarter 2025, highlighting the scale of potential future growth.

California operations remain an important complement for credit support and risk diversification, with management highlighting their strategic necessity within the achieved capital plan structure.

INDUSTRY GLOSSARY -

Unified Tracker Mechanism (UTM): A regulatory mechanism adopted in Texas enabling utilities to align recovery of capital investments with incurred costs, reducing regulatory lag.

FID (Final Investment Decision): Board or management approval to proceed with a major capital project, enabling binding commitments for construction and financing.

COD (Commercial Operation Date): The official date when a new infrastructure project, such as a power plant or LNG facility, commences full operations and delivers contracted service.

LC & IQ (Large Customer and Industrial Queue): A pipeline of active service requests from large, typically industrial, customers seeking interconnection to the utility grid.

Interim FEA (Facilities Extension Agreement): A contract between a utility and customer providing preliminary rights and financial commitments for new load interconnections, often prior to completion of required regulatory studies.

SB 254: California legislation that modifies the state's wildfire fund cost structure, risk allocation, and reimbursement caps, impacting investor-owned utilities' liabilities.

Full Conference Call Transcript

Louise Bick: Good morning, and welcome to Sempra's third quarter 2025 earnings call. A live webcast of this teleconference and slide presentation are available on our website under the Events and Presentations section. We have several members of our management team with us today including Jeffrey Walker Martin, Chairman and Chief Executive Officer; Karen L. Sedgwick, Executive Vice President and Chief Financial Officer; Justin Christopher Bird, Executive Vice President of Sempra and Chief Executive Officer of Sempra Infrastructure; Caroline A. Winn, Executive Vice President of Sempra; E. Allen Nye, Chief Executive Officer of Encore; 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-Ks 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 reconciliation to GAAP measures. We'll also encourage you to review our 10-Q for the quarter ended 09/30/2025.

I'd also like to mention that forward-looking statements contained in this presentation speak only as of today, November 5, 2025, 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 four, and let me hand the call over to Jeff.

Jeffrey Walker Martin: Thank you all for joining us today. Before discussing today's financial results, I want to spend a moment reviewing how we position our portfolio to deliver significant value to our owners through the end of the decade. Today, our company is situated at the intersection of several important secular trends. Including the ongoing electrification of America's energy systems, AI deployment, and the growing need to deliver energy safely and reliably.

In order to capitalize on these trends, we've worked closely with our board of directors to update our corporate strategy to focus on lower risk and higher value transmission and distribution investments growing our position as a leader in large economic markets, shifting our capital allocation to fund the growing needs of our US utility, and doing so with a sharp focus on Texas. Which is a market that we believe offers the best long-term value proposition for our owners. Next, let me turn to our financial results. Earlier this morning, we reported third quarter 2025 adjusted EPS of $1.11, which compares favorably with the prior period's results of 89¢.

Also, with the strength of our year-to-date results, we're affirming full-year 2025 adjusted EPS guidance range of $4.30 to $4.70 while also affirming our 2026 EPS guidance range of $4.80 to $5.30. And finally, we're affirming our projected long-term EPS growth rate as shown on this slide. Please turn to the next slide where I'll provide an update on our 2025 value creation initiatives. You recall that earlier this year, we announced a company-wide campaign focused on five initiatives to create value for owners. First, we set a goal of investing approximately $13 billion this year with the vast majority being allocated to our US utilities.

Through the first three quarters, I'm pleased to report that we've successfully deployed nearly $9 billion of capital and remain on track to meet or exceed our year-end goal of $13 billion. Moreover, at Sempra Texas, we're benefiting from improving returns, primarily attributable to increased capital efficiency at Encore, which is associated with the newly implemented unified tracker mechanism. Moving to the second initiative, we're pleased with our recent announcement to sell a 45% stake in Sempra Infrastructure Partners for $10 billion. We view that transaction as a major catalyst in unlocking Sempra Infrastructure's franchise value while also benefiting Sempra in numerous ways including number one, improving our business growth profile as the mix of regulated earnings significantly increases.

Number two, unlocking reinvestment capital for our US utilities. Number three, adding an average of 20¢ to EPS accretion over the five-year period starting in 2027 and number four, fortifying our balance sheet deconsolidating Sempra Infrastructure Partners debt, and paving the way for improved credit metrics. In parallel, the ongoing sales process for ECOGAS continues, to generate a lot of interest from a number of prospective buyers and we're expecting to receive final bids before the end of the year. Both transactions are expected to close by 2026. The last initiative shown here at the bottom of the slide is aimed at improving community safety and driving operational excellence across the organization.

This includes efforts to improve the regulatory environment, with a view toward reducing enterprise risk. A great example is California SB 254 which strengthened the long-term stability of the state's wildfire fund while also improving claims liquidity. The key takeaway on this slide is that progress on these initiatives is translated into improved financial and operational results. And I could not be more proud of our employees who have embraced our commitment to both modernize and scale our organization improve our call structure, and better serve all of Sempra's stakeholders. Please turn to the next slide where Karen will walk through business updates.

Karen L. Sedgwick: Thanks, Jeff. At Sempra, California, SB 254 was enacted. Which is a significant derisking event for the California electric utilities. Jeff mentioned it earlier, but the bill calls for an even split of funding between the California IOUs and their customers. With no upfront contributions. Importantly, 4.3%. For what amounts to just under $13 million per year through 2045. With additional future contingent contributions being required only if needed. Constituents account also strengthens the cap on reimbursement in the event of a finding of imprudence. It's also important to note that any contributions made by IOU shareholders to the continuation account may be also counted as prepaid credits against potential reimbursement amounts in the future.

Taken together, we believe these measures which are outlined on slide 15 in the appendix, significantly strengthen the financial safeguards for electric utilities, an important achievement for all of California. As we approach year-end, we're tracking several regulatory matters in California that we hope to wrap up. Including track two of the GRC, the 206 proceeding at FERC, and the CPUC's cost of capital proceeding. Moving to Sempra Infrastructure. We previously announced a definitive sales agreement that's expected to reduce our ownership percentage to 25%. We'll be accretive to EPS forecasts and credit. And following the close of the transaction, we expect to maintain a solid cushion above our FFO to debt threshold.

Among other benefits, lower equity stake will also improve our regulated earnings mix while allowing Sempra to deconsolidate Sempra Infrastructure's debt from our GAAP financials. In our LNG business, Port Arthur LNG phase one continues to make notable headway train one expected to reach COD in 2027. We're on schedule and on budget. With over one-third of piping installation complete on train one. Recently, we also completed the tank a roof air raise. Which is another important milestone for the project. Earlier in the quarter, you'll recall that we also reached FID at Port Arthur phase two, and issued a full notice to proceed under our fixed price EPC contract with Bechtel.

This is important because it gives us the opportunity to leverage continuous construction at the site and reduce project risk. To date, we've placed all high-value orders for long lead plant equipment, and also completed the project's first permanent piles for tank c and train three. I'll also add that the value proposition of Sempra Infrastructure's LNG franchise continues to grow. As the European Council recently backed the EU's proposal to end deliveries of pipeline gas and LNG from Russia by 2027. Moving to ECA LNG phase one, the project is over 95% complete and pre-commissioning activities are ongoing. Certain systems have moved into the commissioning phase. And we're currently working on repairing an auxiliary turbine designed to increase efficiency.

Based on progress at the site, we continue to expect first LNG production in the spring 2026 with commissioning cargoes expected to commence thereafter. At Cimarron Wind, construction continues to advance with the overall project being approximately 95% complete. And just last week, Cineron achieved initial synchronization of approximately one-third the turbines that are now online and operational. And importantly, the project remains on target to achieve COD in 2026. Finally, at Sempra, Texas, Encore's base rate review continues to make considerable progress. In September, settlement on interim rates was approved. That allows Encore to apply the final approved rate back to 01/01/2026. If the case is not finalized by that date.

And through October, Encore is evaluated intervener arguments, submitted rebuttal testimony, and is actively engaged in settlement discussions with all parties. Next, the procedural schedule calls for a hearing on the merits to begin the week of November 17. The completion of the base rate review an 2024 test year together with the opportunity to improve capital efficiency with the UTM, Encore will be better positioned to support customer growth across its service territory. And at the September, we continue to see strong growth in Oncor's core markets. Oncor's active LC and IQ has increased over 10% from the prior quarter. Further, premise count increased by 16,000.

And Encore also built rebuilt, or upgraded nearly 660 circuit miles of T and D lines during the quarter. As customer growth continues to accelerate, and the transmission expansion plans advance, Encore anticipates a substantial increase to its 2026 to 2030 capital plan. Please turn to the next slide. Turning to the Texas 765 transmission expansion, We believe this remains a key growth driver that's underappreciated by the market. ERCOT estimates $32 billion to $35 billion to complete full build out. And as a reminder, we estimate Oncor's portion of these projects will surpass 50% of the total investment. With Permian projects expected to come online by 2030 and non-Permian projects being completed in the 2030 to 2034 time frame.

As a result, Encore is now forecasting an increase of over 30% to its projected 2026 to 2030 capital plan. And while we're still early in our fall planning process, Onpour continues to see substantial upside opportunities to its base plan forecast. That's why at Sempra, prioritizing the Texas market within our portfolio, and assuming a constructive rate case outcome, you should expect us to allocate a significantly greater share of investment capital to Sempra Texas in our roll forward plan. Please turn to the next slide where I'll review the third quarter financial results. Earlier today, Sempra reported third quarter 2025 GAAP earnings of $77 million or $0.12 per share.

This compares to third quarter 2024 GAAP earnings of $638 million or $1 per share. Note that third quarter 2025 GAAP earnings include a $514 million tax expense related to classifying Sempra Infrastructure Partners as held for sale. Which is nonrecurring in nature. On an adjusted basis, we're pleased with our strong year-to-date execution. As third quarter 2025 earnings were $728 million or $1.11 per share. This compares favorably to our third quarter 2024 adjusted earnings of $566 million or 89¢ per share. We believe this sets us up well for the remainder of the year as well as next year, where we're anticipating strong year-over-year growth for the midpoint of our 2025 guidance.

We're continuing to expect several regulatory decisions in the next several months, and don't wanna get ahead of the CPUC. Ultimately, the resolution of these matters will be helpful in determining where our full-year financial results come in. Please turn to the next slide. Variances in the third quarter 2025 adjusted earnings as compared to the same period last year can be summarized as follows. At Semper, California, we had $76 million primarily from higher income tax benefits. Partially offset by higher net interest expense. This included $32 million associated with the to accelerate deductions for self-developed software expenses. Authorized under o b three. As well as return to provision impacts and timing of flow-through tax benefits in the quarter.

We're also pleased that Cumber California had $47 million from higher CPUC base operating margin, net of operating expenses. Partially offset by lower cost of capital. Turning to Sempra, Texas. We had $45 million of higher equity earnings from higher invested capital Encore's system resiliency plan, and unified tracker mechanism. Partially offset by higher operating and interest expenses. At Semper Infrastructure, we had $26 million primarily from higher asset optimization, partially offset by lower transportation results lower tax benefits, and other. At the parent, the $32 million decrease is primarily due to higher net interest expense lower investment gains and other, partially offset by higher income tax benefits from o b three. Please turn to the next slide.

To conclude our prepared remarks, we continue to execute on our 2025 value creation initiatives. And also have delivered solid third quarter and year-to-date financial results. Further, the Sempra Infrastructure Partners transaction is a significant positive catalyst for our company and reinforces our mission of building America's leading utility growth business. To accomplish that, we're targeting strong rate base growth in Texas and California, with a view toward posting improved and more durable earnings and cash flows in the future.

And as we've indicated, we think there are significant incremental capital investment opportunities to do just that, Over both the near and long term, which is why we feel confident in announcing that Encore's roll forward capital plan is expected to increase by at least 30% over its current $36 billion base capital plan. Looking forward, we expect to officially announce Sempra's 2026 to 2030 capital plan on our fourth quarter call in February. Subject to the completion of Encore's pending base rate review. Thank you for joining us, and I'd now like to open up the line for your questions. Thank you. This concludes the prepared remarks. We will now open the line to take your questions.

Please limit your questions to one question and one follow-up. If you would like to ask a question, please signal by pressing star 11 on your telephone keypad. Please make sure your mute function is turned off. We will pause for just a moment to allow everyone to signal for questions. And our first question will come from Nicholas Joseph Campanella from Barclays. Your line is open.

Nicholas Joseph Campanella: Good morning, Nick.

Jeffrey Walker Martin: Hey.

Nicholas Joseph Campanella: Good morning. Thanks for taking my questions. No worries.

Jeffrey Walker Martin: So look, you've done a lot to derisk the balance sheet with the transaction that you announced five weeks ago. Obviously, you're talking about this higher CapEx outlook at Encore. Just with the proceeds that are kind of coming in on a staggered basis, 2026 and 2027, just how are you kind of viewing balance sheet capacity for this increase And is it fair to say there should be no equity through 2027? Or just how are you kind of thinking about that? Thank you.

Jeffrey Walker Martin: Yeah. Thank you, Nick. Let me take the equity question first, and then I'll pass it over to Karen to give more color on the balance sheet. But I would just start on the equity side and just say we're in great shape on this front, right? As you indicated, the proceeds from the SI transaction are expected to eliminate 100% of the common equity that was previously in the 2025 to 2029 financing plan. It also sets us up well. We look to roll the plan forward to 2030, which we expect to discuss in February.

But with the proceeds that you talked about being staggered and coming into us in 2020 and 2027, I think one of the key takeaways is we're in a great position to fortify our balance sheet with which Karen will talk about momentarily. We have more work to be done this fall, but Karen and I are committed to maintaining a strong balance sheet to officially fund growth. As we have in the past, Nick, we'll use all the tools we have available to grow the business in a thoughtful way. Now let me turn to the balance sheet briefly.

Karen L. Sedgwick: One of the things our management team does from time to time we spend time discussing how we create a competitive advantage in every market cycle. And in today's market cycle, of the things that we've identified with our board of directors is the importance of maintaining balance sheet strength. And that was a central part of the thesis that was behind the SI transaction and why we're taking a series of steps over the next twelve months to fortress our balance sheet to support the strong growth in our utilities. That is one of the key takeaways today.

We're seeing remarkable growth in our utilities, particularly in Texas, and we expect that not just to end, Nick, in 2030, but to extend well into the middle part of the next decade. And that's why privilege in the balance sheet is so important. And with that, Karen, perhaps you could talk about how you're thinking about next steps.

Karen L. Sedgwick: Sure. Thanks. And hey, Nick. Yes, I think you're looking about as correct, Nick. We've been working closely with the rating agencies. They're giving us time to complete the SI transaction. And as we update our five-year plan, we'll look to incorporate the benefits of that transaction. So as a reminder, we expect to get EPS accretion there, deconsolidate SI's debt improvements to our overall credit. And I'll remind you that we expect to receive improved credit profiles from each of the agencies. So this includes improving our view of our risk profile, our business risk and improved downgrade threshold.

So I mentioned in our prepared remarks, we plan to build a solid cushion on our balance sheet, and we'll provide more specifics when we roll out the financial plan next year. But in the interim, we feel really good about where we are in the strategy we've laid out.

Nicholas Joseph Campanella: Thank you, Karen. For those thoughts. And then maybe just switching gears to Texas, just I see the schedule here. Going through April 26. Hearings are about a week and a half out. Just since we're past testimonies now, is settlement less likely? This something that you're kind of still actively working towards? Can you talk to that quickly?

Jeffrey Walker Martin: Sure. Alan and his team are doing a great job, I think, for the overall audience, I'd refer everyone to Slide 13 for the procedural references that Nick is referring to. And Alan, perhaps it might be best if you just briefly talk about where you're at in the proceeding and what you think the next steps are. Thanks Jeff. Where we are, I think, is accurately portrayed on Slide 13 as you all both mentioned. Interveners and staff have both filed their testimony now. Staff testimony didn't get us all the way to where we need to be. But we thought it was very constructive.

We did file our rebuttal last Friday We continue to engage in settlement discussions with the parties. And we will continue to engage in settlement discussions with the parties. At the same time, we've got a hearing set for the first or for November 17, the week of, and we're preparing to go to hearing that week if necessary. We're really confident in the strength of our case. I'll remind you that we do have an order on interim rates which becomes effective 01/01/2026. So we'll continue to talk. We'll continue to see what we can get done on the settlement. Front.

And if we're successful, we'll obviously let everyone know and if we have to go to hearing, we'll be ready to go. We expect an order, as you said, at the second quarter 2026. Thank you, Alan.

Nicholas Joseph Campanella: Thanks a lot.

Jeffrey Walker Martin: Appreciate it, Nick.

Operator: Thank you. Our next question will come from Shar Pourreza from Wells Fargo. Your line is open.

Shar Pourreza: Hey guys, this is actually Shar in for Jude. How are you doing? Hey, Shar. Congratulations on the new assignment. I appreciate it. Thanks, Jeff. Appreciate the support there. Just real quick on the SiP transaction, Karen, I guess, where do we stand on leakage there? I mean, I know, obviously, got a you're looking at sort of a tax efficient way to do this. I think you're still assuming around 20%. So what's the status there, I guess?

Jeffrey Walker Martin: Yeah, I think that's a good number. We're still looking at that. Obviously there's some complexity there, the assets we have in Mexico, international implications, both state and federal, but 20% is still a good number for you to guide yourself to.

Shar Pourreza: Okay. Perfect, Jeff. And then just, I guess, the 30% increase just curious what's included in there. How much of that is awarded seven sixty five kV? Versus base system needs increasing? And how does that increase kind of stack up against that $12 billion of prior upsides you called out in 4Q? So just any visibility there would be great.

Jeffrey Walker Martin: Sure. Shah, I really appreciate this question because I think been one where there's been a lot of ambiguity and a lot of questions we've taken as part of the call. We tried to discuss this in our prepared remarks, let me go through and provide a couple of reminders think that will be helpful to the listening audience. When Encore rolled out their 2025 to 2029 capital plan last February we indicated a base plan of $36 billion and you're exactly right.

There was a defined set of upsides there of about $12 billion With the updates we've had over the last several months, both from ERCOT as well as the PUCT, on the seven sixty five kilobytes transmission expansion, and early indications within the fall planning process, Encore is very comfortable increasing their expectations of base cap for plan to increase by about 30%. And here's the key distinction. That's primarily being driven by the state's acceleration of the Permian plan that now needs to be completed early. It has to be done now, Shar, by 2030. The other key thing to note is that Encore also has line of sight to additional upside.

Remember the upside was previously about $12 billion We're now targeting something that's substantially similar. So Shar, you put that together, the base plan increase and expected upside Encore will have a $55 billion to $60 billion capital opportunity through 2030. And I might just add for context, in our 2025 to 2029 plan for Sempra, we currently sit at $56 billion So if you just take the midpoint of that expectation, the roll forward base plan and upside is bigger than Sempra's current five-year plan. So key takeaway from this call is, yes, we've had great financial results. I feel great about 2025 and the pull through into 2026. But we've made a commitment to back Texas. Right?

And to do that, with our board of directors, we launched a capital recycling program because we wanted to load our balance sheet so we were in a position to officially fund the growth we're seeing in the future. And I think Alan and his team have come forward with some very solid numbers we look forward to giving you more specifics on that in February.

Shar Pourreza: Perfect. Thanks, Jeff. Appreciate that. It sounds like a pretty good Thanks.

Jeffrey Walker Martin: Thanks, Chuck.

Operator: Thank you. Our next question will come from David Keith Arcaro from Morgan Stanley. Your line is open.

David Keith Arcaro: Good morning, David. Hey, good morning. Thanks so much for taking my questions. I guess I was curious now on the as you look at that ENCORE low growth pipeline, can continues to chuckle on and grow quarter by quarter. I guess I was just wondering if you could characterize, like, what is the maximum amount of new load that you could connect, you know, for if we're thinking about kind of the 2030 time frame? Are you full on, you know, data center activity. I mean, how much could that actually increase as you look at the pipeline and to feather it in or weave it in? To even further enhance. Load growth from here.

Karen L. Sedgwick: Yeah. Let me do a couple things here, and I'll I'll provide some color, Alan, and I'll pass it to you to kinda walk through kinda summing up the numbers. But let me just start with what we've discussed in the past, David. We've indicated that the state of Texas has a peak of about 86 gigawatts. Okay? That's a historical record. Today, Encore system peaks at about 31 gigawatts, And on the last quarterly call, Encore indicated that they had line of sight at least to approximately 39 gigawatts. So between now and the end of the decade, they are very confident they're gonna double their load.

What's interesting about the CapEx increase that they're now forecasting it's really less about that. It's more about the acceleration of the transmission plan. So the key takeaway is don't need to associate Encore's growth as it's been announced today. With what might or might not happen relative to load growth. It is principally being driven by the state's desire to accelerate supporting the oil and gas industry and getting an expanded transmission grid in place in the Western Part Of Texas. Now that being said, the team has done a great job of tracking what those new opportunities are.

And the way to think about your question as Alan goes through it is, what we're gonna talk about in terms of potential load growth and how much to your language could be feathered onto the system, it's really driving our growing confidence in this story continuing well into the middle part of the next decade. So with that, Alan, maybe you could kinda talk about the different buckets of where you see growth are and really to David's point, where this quarter over quarter growth is coming from.

E. Allen Nye: Yes. Thanks, Jeff. Thanks, David. Growth range is incredibly strong. I think you've heard that in multiple times this morning. From kind of the slow growth on the transmission side, these large industrial commercial customers, I think it's Karen said, we have over 600 active requests now. That's up 60% since the same time last year, third quarter over third quarter. Two ten gigawatts a day now versus 186 last quarter, an increase of about thirteen percent and sixteen gigawatts of other non data LC and I customers. What's different this time and what Jeff was alluding to is we typically go through a process with these customers where we come up with a high confidence load number.

And I talked about this the last couple of quarters, but we've had, as Jeff said, around 39 gigawatts of what we call high confidence load And that's made up of, in the past, nine gigawatts of signed FEA or interconnection agreements and 29 gigawatts that we submit in an officer letter to ERCOT if those customers meet kind of six criteria that we lay out for them. And but we don't sign those FEAs until studies are complete and ERCOT has approved the interconnection.

In order to try and get more visibility into this massive queue that we're talking about, we've kind of done something different over the last few months, and that is in addition to doing typical FEA process, our interconnection agreement process, we've instituted what we call the interim FBA process. And the interim FEA process is not a full FEA. The studies aren't done. ERCOT has not approved the interconnection. What these interim FEAs do is the customer's collateral ize them. They give us about $6.5 million when we sign these things.

The customer also provides us additional information that allows us to then begin or proceed with the studies we need to do that ultimately need to approved by ERCOT. Very, very strong uptake, very, very strong interest, in this interim FEA process. To date, we've signed up about 19 gigawatts pursuant to this interim FDA process. I can tell you that interest in signing these is very high. The number will change by the next time we talk about it. Now, a couple of caveats. It's not clear. How ERCOT will view these interim FEAs versus the FEAs themselves.

And obviously, with the SB6 rulemakings going on, it may alter the criteria that we ultimately need to use for this process. But I can tell you this, in addition to the numbers I've already told you, I think I've mentioned on past calls that when I got this job, had about $200 million of collateral that we were holding and that had moved up to about $2 billion as of last quarter related to these activities. As of now, that collateral that we hold is up around $2.7 billion That gives you a general indication of the uptake on this new process that we're using.

David Keith Arcaro: Excellent. Yeah. All makes sense now. Thank you for that update. And then pivoting maybe a little bit, you know, with strong earnings this quarter, and now year to date, curious if you could comment how that positions you in terms of achieving the 2025 guidance. And maybe, as you as you look forward to 2026, are you seeing opportunities for, you know, expenses to be pulled forward or other initiatives to give you a head start on that 2026 earnings outlook?

Jeffrey Walker Martin: Yes, David, thank you for that question. I mentioned this in my prepared remarks I'm just so pleased with the work of our team, and we spent a lot of time trying to make sure that we've got a common set of business objectives across our 22,000 employees and that's certainly showing up in the strong financial performance we've seen thus far for the year.

So for 2025, I'd mention we're tracking several regulatory matters and we're pleased to be running well ahead of our financial plan for the year That's why earlier today, David, we were confirming our twenty five twenty five guidance I would also mention that we believe we can finish in the upper half of that range. Turning to 2026, we also affirmed that guidance Obviously, it's going be a stub year because we expect to close the SI transaction sometime between Q2 and Q3. But I would just mention we're in the middle of our fall planning process right now and still tracking several key items.

Obviously, the SI closing with KKR as well as the base rate review that Alan just folks on a few minutes ago. So our goal at this point is to review both 2026 and 2027 guidance with the Street at our February call. Together with rounding out our full year results for 2025. So I think the summary point here is I'm really excited about the progress we've made in 2025. We feel great about 2026 and we're excited to get back in front of folks in February and provide guidance for 2027.

David Keith Arcaro: Okay. Great. Thank you. Much appreciated.

Jeffrey Walker Martin: Thank you, David.

Operator: Thank you. Your line is open. Our next question will come from Carly S. Davenport from Goldman Sachs.

Carly S. Davenport: Hey, team. Thanks so much for taking the questions. Hi, Carla. Hey, Jess. Maybe just on the transmission expansion in that you've referenced. One of your peers came out this morning with plans to expand manufacturing for transformers and breakers Just kind of curious what you're seeing from an equipment and supply chain standpoint and how you feel about execution on a growing capital plan?

Jeffrey Walker Martin: Yeah. I mean, I really wanna give credit to, Alan and his team here in Alan, I'll let you talk about it in a second. Going back to the pre COVID days, and being part of the boardroom and seeing Alan lay out kind of his 11 plan for growing that business. The supply chain has been front and center. In fact, Carly, in September, we took the central board of directors to Dallas and the number one issue we wanted to talk about was their ability to deliver on their growth plans and the strength of their supply chain. We also had to benefit Carly to have Governor Abbott come join the Sempra board in a private three-hour dinner.

As we continue to do diligence the growth case in Texas. And one of the things we did was we took the entire board on a field visit to their Midlothian supply center, and this is an Amazon-like supply center Hopefully, we can start hosting some investors there in the future. But they have a hub and spoke model across North Texas. And that Midlothian Center, which is about forty-five minutes from Downtown Dallas, really is a state-of-the-art twenty-first-century digitally driven warehouse center that not only supports supply chain across the five-year plan, it is the center of their storm recovery system. So we came away from that incredibly impressed with the work that's gone into it.

Alan, maybe you can provide a little bit more detail around what you've done to feel good about delivering on your five-year plan.

E. Allen Nye: Hey, Ben. Yeah, thanks for the question, Carly. I think Jeff did a pretty good job describing it. We started about eight years ago fortuitously. Redoing our supply chain, redoing our logistics, adding the Middle Oatheon facility, expanding the number of vendors for each type of product that we need, and that has paid incredible dividends for us moving forward. I've said on past earnings calls that we had with regards to the prior plan, our current plan, everything we need to accomplish that five-year plan Nothing about that has changed. Look, every day you've got to stay vigilant on Our people work very hard to stay very close to our vendors and our suppliers.

You've got to deal with challenges. It doesn't mean I have every piece of equipment in a lay down yard somewhere, but it means I've got in some way line of sight either a contract or a commitment or an agreement for everything we need. We'll stay vigilant on all that. We'll keep working on it. But we're extremely confident we made a commitment to the state to complete the Permian plan 2030 and we have every intention of doing so together with all the other activities we have on our system.

Jeffrey Walker Martin: Alan, you did one of the things you guys did, which I thought was really helpful was how you went out in the marketplace both in Asia and Europe to get taken care of the seven sixty five equipment well before it became something that crystallized for the state. Can you briefly update the audience on that?

E. Allen Nye: Yeah. We did exactly what Jeff was talking about. I mean, we've been very blessed in that our Board and our shareholders have given us authority in advance of actually approval of plans, of financial plans, five-year plans and one-year plans, to go out and make commitments in order to be in a position to actually execute and we did exactly what Jeff is talking about with regards to the seven sixty five Step Plan.

Carly S. Davenport: Great. Thank you so much for the color. Super helpful. And then maybe just shifting gears a bit on just on California. Curious as sort of the phase two process kicks off, how you of envision Sempra's involvement there, and perhaps any perspective that you'd share on the potential what the potential solutions could look like.

Jeffrey Walker Martin: Sure. I would just start by saying that, CEPRA has been very engaged in Sacramento on trying to find ways to improve public policy to support public safety. I gotta give a lot of credit, Carly, to governor Newsom. Has been out front, in kind of leading this effort. He's made it a priority. It goes well, just serving electric customers. It's about making sure the state of California continues to take steps that are progressive and thoughtful to reduce risk, you know, from a public safety standpoint. We have Caroline Nguyen with us today. She heads up, you may recall, both San Diego Gas, Electric and SoCal Gas.

And she has been front and center on the next steps on the study bill and perhaps Caroline, you could share your thoughts on the study bill.

Caroline A. Winn: Yeah, I'd be happy to. Hi, Carly. Earlier this week, the utility submitted a series of abstracts which a way to think about the abstracts is their problem identification statements that really frame the issues and will inform the white papers due next month. Maybe I'll just note four areas of focus. One, we believe a shared risk model through new cost sharing approaches needs to be looked at. Number two, new insurance and funding structures number three, enhancing the process for paying claims quickly and fairly for wildfire victims, and fourth, maintaining affordability and accountability. Now these abstracts will form the foundation of as I mentioned, the joint white papers next month on December 12.

And will help inform the comprehensive report prepared by the California Earthquake Authority next April. I think the key takeaway here is that we believe that wildfire resiliency must be a shared responsibility between utilities, insurers, government, and communities and we're constructive on the effort to identify new models that will address wildfire risk across the state for decades to come.

Jeffrey Walker Martin: Thank you, Caroline. The only thing I would add, Carly, too is tell folks this, but California is the fourth largest economy in the world. Right? This is the home of technology and innovation. This is just really a leadership opportunity here at the state level, and I think from Sempra's perspective, we're prepared to roll our sleeves up and do our part. But we're comfortable that we'll find a way between now and the next legislative session to take the next step to continue to derisk the state.

Carly S. Davenport: Really comprehensive. Thank you very much.

Jeffrey Walker Martin: Thank you, Carly.

Operator: Thank you. Our next question will come from Sophie Karp from KBCM. Your line is open.

Sophie Karp: Hi, Sophie. Hi. Hello. Good morning. Thank you for taking my question. On California, I guess, as you continue to emphasize Texas, more in your capital planning, you see a lot of growth there. Could there be a more decisive step to deemphasize California, maybe through some strategic options for your California utilities?

Jeffrey Walker Martin: Well, look. I thank you, and you're asking a great question. One of the things we've done with our board of directors is take a step back and say, where can we allocate capital over the next five years to create the most equity value, the most long-term value for our shareholders by 2030. And I think our analysis points to making sure that we load capital in areas where we have the best risk reward. And right now, we think that's Texas. But look, these things change from time to time. One of the things we're working on in the Texas market as you recall, they have a relatively thin equity layer compared to other jurisdictions.

And California is actually a very good complement because it allows Encore to have its principal shareholder have a strong balance sheet, which we think is important support its growth. We continue to have the largest natural gas utility in the Western Hemisphere, is here in California. That tends to have a 23% or 24% FFO to debt quality It's very important for the overall credit stack within Sempra. We're a leader in our electric business here in California. So we're going to be thoughtful about allocating capital to make sure we minimize bill impacts.

We have found religion, and we're working very, very hard to take costs out of the system in California make sure that as we grow the business, it minimizes impacts on customers. But look, we have a strong leadership position in the state of California, and very few companies in The United States have the leadership position we have in America's two biggest economies. So California will always be important part of Sempra, but it's really a very nice complement from the diversity of the investments here the credit quality matched up with what we're trying to grow in Texas.

Sophie Karp: Very helpful. Thank you. That's all I had.

Jeffrey Walker Martin: Thank you, Sophie.

Karen L. Sedgwick: Thank you.

Operator: And we have time for one last question today. And our last question will come from Julien Dumoulin-Smith from Jefferies LLC. Your line is open.

Julien Dumoulin-Smith: Hi, Julian. Hey. Save the best for last. There we go. Thank you guys very much for the time. I appreciate it. Not very Let me let me try to wrap this up. So a couple of questions here. First on Encore, kudos. If I heard you right, dollars 55 billion to 60 billion well in excess of 30%. What's your confidence on being able to on this? What's your confidence being able to earn the ROEs at that level? Just you know, given that cadence of spend is pretty historic? I get the recent legislation. And then related, just coming back to where we started the call on equity needs.

At what point do you start to think about equity as being part of because I would suspect that we're gonna talk about this in a renewed fashion. Just given the magnitude that we're discussing here. If you don't mind.

Jeffrey Walker Martin: Well, let's do a couple things. I'm gonna I'm gonna start with talking about the 55 billion to $60 billion Just remember, that's the roll forward of the base capital plan of $36 billion and we're going to increase that by about 30%, Julien, and you can do the back to envelope. That's the 10 billion and $11 billion And we're expecting a comparable number that will remain there on the upside. The upside we've talked about before is still there. It's a very similar number. And that's how I got to this potential capital deployment, which we think is a real opportunity, by the way, between 55 billion and $60 billion We're very excited about it.

The great news was, as I indicated earlier, we planned for this. Right? We led a capital recycling program to fortress our balance sheet so we could fund this thing efficiently. Turning to your second question, which was on the ROE topic. You recall that they currently have an authorized ROE of 9.7% and Julian, they have been under earning that for two principal reasons over the last several years. Number one, there was this regulatory lag The majority of that is resolved as part of the Unified Tracker mechanism. You've heard us referenced several times today we're starting to see material improvement in capital efficiency.

So part of that under earning is being taken away by the UTM And then secondly, part of that under earning is associated with having a 2021 test year. Obviously, when the base rate review is resolved, their new test year will be 2024. So the state, because it has a backwards test year, don't really expect them to earn at the 9.7% level And certainly, they're not authorized to ever earn over that like we are in California. I think you're gonna see a material improvement when we resolve both of those matters. That's one of the reasons Sempra has been more willing to aggressively fund this business as part of our long-term plan.

And then I think if I could tackle your third implied question, was on capital, and balance sheet. Look, there's nothing wrong with issuing equity, right? If you are thoughtful about using all the tools in your toolbox, if you look at Sempra, you recall from prior presentations, we've raised $15 billion from equity sales at, Sempra Infrastructure since 2021.

We're not reticent to find the most cost-effective way to fund growth And at the same time, Julien, the great secret at Sempra is since 2017, we've gone from about $14 billion of rate base to a number that's over $60 billion and we're going to drive that well over 90 billion or 100 billion by the end of the decade. We are growing a remarkable utility within Sempra. So we will use equities. We need it, but the great news is we took equity off the table in the prior plan. We're gonna load the balance sheet. We're gonna maintain cushion.

And what we're gonna expect to do is to go forward in that plan depending upon how our capital rolls out. We would certainly issue equity if we thought it was necessary.

Julien Dumoulin-Smith: But remember, we're going to compete that against all the other options we have inside of Sempra, If you followed us for a long period of time, I think that's been our track record.

Julien Dumoulin-Smith: That's excellent. And let me put a cap on this. I mean, been a phenomenal year, Jeff, in terms of turnaround here. I mean, truly. The seven to nine. Right? You put this all together. Clearly, this wasn't contemplated when you articulated that '79 earlier. offset How do you think about the various pieces that go into this? Right? Clearly, there's a little bit of equity or some other permutation that'll dilute the upside here. But what are the other puts and takes? Because, otherwise, it seems pretty meaningful relative to what you said previously.

Jeffrey Walker Martin: Yeah. Well, you remember, I talked about that seven to nine We didn't put it in right at the time, but I said it orally on the February call or the Q4 call. I think one of the things we've discussed as a management team before this call, Julien, is we remain bullish on our growth prospects, and that's why we came out today and obviously reaffirmed the long-term growth rate. But I would also kind of highlight some of the points you're making in terms of puts and takes. Let's start with Encore. I talked about seeing improved capital efficiency there. And that's having a positive impact on their returns. And, obviously, we're gonna increase their capital program.

Go over to simpler infrastructure, We've improved the runway, Julian, of their growth by basically taking FID on Port Arthur. Arthur phase two, of the things that Justin feels really great about is he's got five or six very significant construction projects give us great EBITDA growth through the end of the decade. And now with Port Arthur Phase two, got great visibility into the early part of next decade. And then we've talked about, and Karen did a good job in her prepared remarks, talking about the KKR transaction. Obviously, we think it's going be accretive to credit and EPS. While allow us to deconsolidate debt at SI. And again, it goes back to balance sheet.

See our balance sheet as a strategic resource to grow this business in the future. So I think our takeaway would be the team's done a great job, as you highlighted, kindly, by the way, this year of stacking a series of positive catalysts in front of our company. And to your point, it really gives us more support what we think is a great long-term outlook.

Julien Dumoulin-Smith: Excellent. Well, maybe with that, we'll leave it. Very curious to see what you guys to say. Take care. All the best, and we'll talk to you soon enough. Alright. Thanks a lot, Julian.

Operator: Thank you. That concludes today's question and answer session. At this time, I'd like to turn the conference back to Jeff Martin for any additional closing remarks.

Jeffrey Walker Martin: Well, I'd like to just start by thanking everyone for joining us today. I know there were a number competing calls this morning, so we appreciate everyone making the time to join us. Think as a final point, many of you likely saw Encore's recent eight announcing the retirement of Jim Greer. We want to make sure we take a moment and recognize his many years of service and major contributions to the growth and success of Encore in his role of COO Jim Greer made a lasting mark on the state of Texas. I also think congratulations is in order for Ellen Buck who will be succeeding Jim.

Ellen is an absolutely outstanding leader, and we look forward to supporting her future success. And finally, I'd like to congratulate our friend, Don J. Clevenger, a well-deserved promotion to Executive Vice President he continues in his role of Encore CFO. If there are any follow-up items, please reach out to our IR team with your and we look forward to seeing many of you at EEI in Florida next week. This concludes our call.

Operator: Thank you for your participation. You may now disconnect.

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