Sempra (SRE) Earnings Call Transcript & Summary

Good day, and welcome to Sempra's Second Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Louise Bick. Please go ahead.

Good morning, and welcome to Sempra's second quarter 2026 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 Jeff Martin, Chairman and Chief Executive Officer; Karen Sedgwick, Executive Vice President and Chief Financial Officer. Justin Bird, Executive Vice President of Sempra and Chief Executive Officer of Sempra Infrastructure. Caroline Winn, Executive Vice President of Sempra; Allen Nye, Chief Executive Officer of Oncor; [ Diane Wills, ] 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 statements we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 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 June 30, 2026. I'd also like to mention that forward-looking statements contained in this presentation speak only as of today, August 6, 2026, 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. Finally, we've established a new corporate update page within the Sempra Investors website to post industrial updates, while complying with our disclosure obligations under SEC Regulation FD. We encourage you to subscribe to the e-mail alerts so you remained informed of any developments. With that, please turn to Slide 3, and let me hand the call over to Jeff.

Thank you for joining us today. Our operating businesses are executing well, and our employees are aligned around our mission of building America's leading utility growth business. The strength of our execution can be seen in year-to-date financial results with double-digit gains in adjusted EPS and positive contributions from all three growth segments. Karen will cover our financial results in more detail later on the call, but on this first slide, I thought it would be helpful to cover our key priorities for the third quarter. The first is the pending sale of a 45% equity stake in SI Partners. The transaction is expected to close later in the quarter and directly supports our corporate strategy by simplifying our business model, recycling capital into our regulated utilities displacing the need for common equity in our current base capital plan and deconsolidating close to $9 billion of debt from Sempra's balance sheet. Second, our capital recycling program also extends to Mexico, for Sempra Infrastructure is making solid progress on the sale of Ecogas. They recently received a critical regulatory approval, which puts the transaction on track to close later this month. Finally, in addition to the update, Sempra Infrastructure provided last week, they remain focused on the commissioning process at ECA LNG Phase 1, which remains a key priority as they continue to move that project toward full commercial operations. Sempra Infrastructure is also pleased with the continued progress at Port Arthur LNG Phase 1 and 2, which remain on time and on budget. Please turn to the next slide. Texas is continuing to experience unprecedented growth in electricity demand as evidenced by ERCOT's new all-time peak load of 91 gigawatts that was reached last month. Importantly, with forecast of significant low growth in the future, Oncor is well positioned to participate in what we believe is a multi-decade investment opportunity focused on modernizing and extending the electric grid. Oncor's current capital plan accounts for major investment drivers such as new high-voltage transmission projects and other system upgrades. You'll recall that Oncor is executing on a 5-year base capital plan of $47.5 billion, with $10 billion of incremental capital opportunities through 2030. Through the first half of the year, Oncor has made a lot of progress in firming up these incremental opportunities, specifically the $4 billion of North and Central Texas transmission upgrades that were recently endorsed by ERCOT. Oncor's other incremental capital opportunities include an additional $3 billion of non-Permian basin reliability plan projects endorsed by ERCOT in 2025 and $3 billion of investment that forms a part of the system resiliency plan filing that Oncor is expected to make next year. As we look ahead, we also expect a new set of capital opportunities. As an example, this slide highlights that any additional investments to serve load from the batch zero process fall outside of Oncor's $10 billion incremental capital opportunity. Please turn to the next slide where we'll discuss preliminary expectations related to ERCOT's batch zero process. The PUCT recently approved ERCOT's batch zero process, which establishes a system-wide approach for selecting and sequencing large load customer interconnection requests. Although the time line for the batch process is uncertain, 44 gigawatts of large load requests are expected to be eligible as base or studied load in Oncor's transmission system. By classification, this includes 27 gigawatts of base load defined as not requiring additional interconnection studies or allocation and 17 gigawatts of studied load, which will be evaluated and assigned through a new system-wide reliability analysis. To put the magnitude of these figures in context, 44 gigawatts of additional demand would represent a 140% increase to Oncor's current system peak load of 31 gigawatts. Importantly, this projected load meets all the PUCT eligibility requirements. Oncor holds nearly $6 billion in collateral from large load customers, including over $2 billion for the 44 gigawatt of batch zero submissions shown here. Of the 44 gigawatts, it's important to note that approximately 8 gigawatts is already connected to the system and continuing to ramp toward full utilization. This demonstrates that demand growth in Texas is not just a projection, but is actively occurring on Encore's network. ERCOT will now study how the projects included in the batch 0 process impact the existing transmission system and provide the initial results of that study. If ERCOT were to determine additional transmission is required to be built by Oncor, the capital expenditures for those projects would be incremental to Oncor's base capital plan and incremental CapEx opportunities. Looking ahead, Oncor expects to update its 5-year plan on our fourth quarter call, because ERCOT's current time line for identifying additional transmission projects is expected to extend beyond February of next year, we don't expect the roll forward plan to include new capital investments associated with batch zero. The key takeaway here is that we have a growing confidence in Oncor's execution of its base capital plan and incremental capital opportunities and believe there is increasing momentum behind Oncor's long-term growth separate and apart from how data center growth materializes in the state. Now please turn to the next slide where Karen will walk through our financial results.

Thanks, Jeff. Earlier today, Sempra reported second quarter 2026 GAAP earnings of $796 million or $1.21 per share. This compares to second quarter 2025 GAAP earnings of $461 million or $0.71 per share. On an adjusted basis, second quarter earnings were $762 million or $1.16 per share. This is a notable increase compared to our second quarter 2025 earnings of $583 million or $0.89 per share. As Jeff noted, we're very pleased with our performance in the first half of the year, and think we're well positioned to deliver another year of strong financial results. Please turn to the next slide. Next, let's go over the second quarter of 2026 adjusted earnings variances compared to the same period last year. At Sempra Texas, we had $138 million of higher equity earnings from new base rates, including interim rates, the UTM, higher invested capital and customer growth, partially offset by higher depreciation, interest expense and O&M. Due to the timing of Oncor's comprehensive base rate settlement approved in April 2026, our second quarter earnings includes a favorable impact of approximately $50 million related to the first quarter of 2026. This amount reflects the difference between the newly approved rates and the rates previously in effect during that period. Turning to Sempra California. We had $24 million of increased earnings, primarily from higher CPUC base operating margin, net of operating expenses and higher electric transmission margin, partially offset by lower AFUDC equity. Sempra California also had $11 million of lower earnings from higher net interest expense and other, partially offset by higher income tax benefits. At Sempra Infrastructure earnings increased by $26 million, primarily from lower depreciation due to assets held for sale, lower O&M and other, partially offset by higher income tax expense. At Sempra Parent, results were effectively in line with the prior period. Please turn to the next slide. With strong year-to-date results and progress against our key initiatives, we're affirming our full year 2026 adjusted EPS guidance range of $4.80 to $5.30, and 2027 EPS guidance range of $5.10 to $5.70. We're also affirming our projected long-term EPS growth rate of 7% to 9%. As we look ahead, our focus remains on execution, including closing the SI Partners transaction, strengthening the balance sheet post close and continuing to advance our record $65 billion capital plan. This capital plan is centered on utility growth with investments increasingly directed towards Sempra Texas. The growth we see there is supported by robust economic activity, increasing electricity demand and the need to modernize and expand the electricity network across the state. I'd also note that with considering our improving confidence in Oncor's $10 billion of incremental capital opportunities, we see Texas continuing to become an even larger part of our business, with a goal for it to comprise over 60% of Sempra's total rate base in 2030. Taken together, this investment outlook supports our confidence in Sempra's long-term growth. With one of the highest predicted long-term EPS growth rates in the sector, we think Sempra continues to offer investors a compelling mix of current yield, durable earnings growth and long-term capital appreciation. Now let's open it up for your questions.

[Operator Instructions] And our first question will come from Shar Pourreza from Wells Fargo.

It's actually Constantine here for Shar. Just starting off in Texas, the obvious question around the data center pause, rhetoric or not. Do you see a threat of pushing for generation or even behind the meter solutions instead of transmission build, how does that impact time lines here, especially as you highlight the batch zero opportunities going into next year?

Thanks, Constantine. I'll address the data center focus first. I think one of the key things that we wanted to approach this call was in the message that our long-term view at Oncor has improved over the last quarter. So we continue to think there's a great opportunity here for our base capital plan to move forward as well as upside capital. And one of the key points in our prepared materials was anything related to the batch process would really be upside beyond that. One of the things I think that we're focused on in this environment is that public policy and a lot of the recent discussions have been focused on protecting Texas families from the new costs associated with expanding the grid to meet new load customers, as you indicated, data centers. And I think in this area, the governor and the PUC both have shown a lot of leadership and I think that's important. I would also not Constantine that Sempra were signatories to the President's Ratepayer Protection Plan. And together with Oncor, we're supportive of the framework that the PUCT is now moving forward with. And I think this is very important relative to your question. And that's to ensure that data centers, number one, cover the full cost of interconnection. And number two, the lower residential bills by having a portion of their tariff allocated to rate payer subsidies. And you're seeing this model play out across other jurisdictions as well. So overall, I think broader stakeholder involvement in the process sets the foundation for a more durable framework. And I think this is a very important point for our stakeholders. The process that's underway now in Austin, receiving more input and more inclusivity of the process, that's designed to create a more durable framework for participants in the market like Oncor to deploy capital in content. When you put that together, with the improving regulatory compact that we received through the UTM legislation last year and the improvements in the recent base rate review that's obviously key drivers in the improved financial performance you're seeing at Oncor.

Excellent. Maybe just a quick follow-up there. So the quick return to normal kind of help the Oncor CapEx update at year-end. Any way to think about that upside to the upside kind of converting closer to plan by that time frame?

I mean I think one of the things that were kind of sitting the message here is that there's a lot of flexibility in that base capital plan around how [ Don Clevenger and Allen ] move capital around. And obviously, there's been some positive steps to firm up the $10 billion of incremental opportunity. So I think that investors can take away from this call that we expect that the roll forward capital plan at Oncor will go up. And I would expect that there's a fair amount of flexibility about how they sequence projects. I think the near-term focus of the team and Allen want to make sure that we're really engaged in the ongoing process, particularly I think that will also be helpful to them, firming up their plans this fall, and we expect to come back to you on the fourth quarter call with a robust discussion around Oncor. And clearly, and Karen made this point, this is becoming a much bigger part of Sempra. And I think as you think about the KKR transaction Constantine, putting that in context, it's all about our pivot to become a pure-play utility and allocate capital to the markets where we think investors will assign the highest value. And certainly, we believe that's Texas. I think the story in Texas continues to get better. Some of these near-term issues need to be dealt with, and that's obviously going to be a priority for Allen's team.

Excellent. And maybe just a quick housekeeping item on the earlier announced [ ECA ] delays. How are you thinking about some of the near-term offset going into year-end? And any sequential read-through of the USI transaction, or are those two separate tracks?

Yes. Thank you for that question. And we put out a press release just over a week ago that gave kind of a comprehensive update on Sempra Infrastructure. I think there's a couple of key points here to your question. First off, the two very large projects at [ Purate, ] both Phase 1 and Phase 2 are on time and on budget. They're proceeding very well. Obviously, anytime you have a commissioning process like you have at [ ECA, ] there's a fair amount of complexity to that. I continue to feel quite constructive about the work that's underway to commission that project. But Justin, you'll recall Justin is the CEO of Sempra Infrastructure, Constantine. It would be helpful if you can provide some additional details about what you found in the root calls analysis? And how you think about the time line going forward this fall.

Yes. Hi, Constantine. So as you recall, after we exported the first cargo out of [ ECA ] in July, we shut down the plant for planned maintenance and inspections. And during that time, we discovered damage to equipment connected to the plant's mixed refrigerant compressors and we are working with our EPC contractor and the OEM, the original equipment vendor on the root cause and our mediation plan. Given where we are, we expect the project to reach substantial completion into the fourth quarter of 2026 with sales under our long-term sale and purchase agreements commencing shortly thereafter. So we don't anticipate additional delay after that at [ ECA. ] And again, [ ECA ] is not the -- sorry, the substantial completion of [ ECA ] is not a condition precedent under the SI transaction.

[Operator Instructions] And our next question will come from Steve Fleishman from Wolfe.

The -- maybe you could just talk to some of the recent political commentary on the 765 kV approval process and thoughts on any risk of that changing, or just where does that -- where do you think that goes from here? Any color on that?

Sure. Let me take -- make a couple of points here. As I mentioned this on to Constantine's question, Steve, but we continue to think the long-term picture at Oncor is intact and improving. Obviously, to your point, there's been some important recent developments. And I'll make two quick points here. I think the theme is we remain constructive. The most important thing that we're hearing out of [ Austin ] is to make sure that we're spending enough time to fully integrate the voices and concerns from landowners, and we want to make sure, obviously, that, that process is inclusive. That's been a clear directive from the governor's office, and I think that's also something that PUCT is working hard to ensure happens. The key theme that I think you're hearing people focus on, Steve, is, if it takes a little bit more time in the process stage to get to what we think is a durable framework that allows us to invest capital with more certainty. We think this process will be time well spent. I would also note that recent Senate hearings, it's very clear that there's two priorities being focused on. One is protecting landowner interest. And secondly, also making sure that Texas has the infrastructure needed to support its continued growth. And I think you saw some of that echoed by the lieutenant governor. And obviously, we want to make sure that the PUCT process, and Allen and his team will participate. I know it's been a very high focus for Allen is making sure that we're being inclusive of all the different voices that have a stake in the outcome here. And if I could, Allen, maybe you could provide a little bit more commentary on where you see the 765 process going from here?

Yes, sure, Jeff. Thanks, Steve. I think the way we're thinking about the 765 issue right now is, obviously, there was a hearing on the 29 that lasted like 15 hours, followed by the statements issued by Chairman [indiscernible] and Lieutenant Governor [ Mattrick. ] And as Jeff said, overall, there's kind of 2 key themes that we're seeing. One, I think, state leaders, something appropriately responding to the landowner concerns. And two, I believe clear affirmation that Texas needs a reliable grid and more investment. So that's a balance that we've been working hard on to strike across all four of our Permian import projects. Just to give you some examples, we mail noticed over 12,000 landowners more than required by the PUC rules. We may have noticed over 11 -- I'm sorry, 1,000 elected officials. We filed 529 unique routes. We added 110 link segments in direct response to public feedback, and we had 16 days of hearings. At this point, the -- so State Office of Administrative Hearings, judges have issued PFDs in 3 of our 4 dockets. We expect the fourth to come sometime in mid-August, those post orders now go to the PUC. The PDC can accept them, they can deny them, they can modify them, or they can request more evidence. We're hopeful that given the significant reliability needs in the Permian, the PDC can reach a timely resolution of those dockets. But whatever they decide, we're committed to, and we look forward to working collaboratively with our regulators, the impacted landowners. Obviously, our state officials to advance a reliable grid that meets the needs of Texas and our customers while protecting landowner rights. So as Jeff said, we remain constructive.

Okay. And one follow-up or I guess an unrelated follow-up. Just any sense on how things are developing on the California wildfire liability legislation and related, obviously, issues and just your confidence on something constructive getting done there.

Yes. Thanks for asking that question, Steve. I mean I think one of the things that really resonates with me is the central focus for policymakers in the state, I think, are focused on the right thing. The key theme here is livability. And I think people recognize when you think about the white paper from the utilities, the feedback from the CPUC the report that was provided by the earthquake Authority. I think it really recognizes, Steve, that the status quo doesn't work, and if we're going to get at this issue of livability, you've got to be willing to address a larger ecosystem of related considerations. And I'll offer a few to you, one of which is there's a big focus in this legislative session on ensuring that housing is more accessible and more affordable that we take steps to create a more vibrant insurance marketplace that there are steps taken an active considerations to put new safeguards in place to mitigate risk to our families and kind of addressing that entire ecosystem, I think there's a lot of focus on making sure that providers of utility services remain financially strong. So the focus, Steve, here needs to be on good public policy for the state of California and getting at the heart of the livability issue. And if you look at some of the reports that have come out from both Moody's and S&P, they clearly are focused on making sure that some type of legislation comes out that avoids utilities move into a higher rate environment and continues to allow California to be economically competitive. So I would conclude by saying I think Governor [ Newsom ] and the leadership of both houses deserve a ton of credit. They're very much actively working on this issue. This is clearly, Steve, not an easy task, but I continue to believe that the right people are focused on the right set of issues, and I continue to believe that we'll see solid progress during this legislative session. I'll stop there and see if you want to ask additional questions.

Our next question will come from David Arcaro from Morgan Stanley.

One thing I wanted to get a little bit of elaboration on was your large load pipeline in ERCOT, let me see. So I guess, as I'm just thinking about -- you've updated the the overall interconnection queue here to 298 gigawatts at Oncor. I think last quarter, you had mentioned 127 gigawatts of advanced pipeline. And now you've got the, obviously, drilling down further into the batch zero at 44 gigawatts. So I guess I'm just looking for a little bit of help to understand the relationship there. Is there still a very big advanced pipeline of realistic data centers, when could those come in? And how do you kind of frame that up in the context of batch zero?

Thank you for the question. I'll make a couple of comments and pass it to Allen. But the way I would think about it is all across the United States, it doesn't matter whether you're in PJM, or you're in the call is you're in ERCOT. We, as a nation, are struggling with ways to address issues around being short or net short dispatchable generation. We're addressing ways that we can see large load customers come on to the system and ways that we can meet that growth and make sure that we can allocate costs to protect the residential consumer. So frame this, David, as a starting point, is a national issue. What I think is exciting is there is a clear signal that Texas is open for business. One of the things that there's strong alignment on across the legislature and the executive branch is they want to continue to advance the Texas Miracle. And that comes back to the batch process that's being led by ERCOT. Think about a situation where you've got close to 500 gigawatts of generation on the sideline, waiting to come on the system and similarly over 400 gigawatts of large load customers. That batch process is intended to sequence generation with large loads. So over time, it will be a sequencing effect that's intended to balance what we think is going to be remarkable load growth. Now here's the issue, getting the process right is really important, it's complex. And you've seen a lot of different voices participate in the process. I think the long-term story for Oncor will continue to get better. This state is focused on the right issues. And I heard someone I had a conversation recently with the CEO of the U.S. Chamber, who made a comment, David, that really resonated with me, is you may not be able to solve all the problems in this country with higher economic growth, but you can't solve any problems without it. And I think Texas recognizes that. And I think there's a lot of goodwill being spent, making sure that we have the right framework to allow folks to invest the capital needed to meet the needs of stakeholders. If you could, Allen, you mind walking through kind of where you're at with your queue and how you see it unfolding.

Yes. Sure, Jeff. Thanks, David. I think you got the numbers right. I mean we had 44 gigawatts in our service territory that's presently in the batch zero process. You referenced the [ 127.5 ] from the last call. The relationship between those two numbers, the [ 127.5 ] was what we had in our RTP submission versus the 44 in the batch zero. The delta there is that the batch zero rules were finalized in June. There are different set of rules than the RTP submission rules. Batch required things like finalization of studies, posting financial security of 50,000 megawatt, attestations of site control and contracting resources, things like that. So that's the difference between the 127.5 and the 44. Regarding your question about, is there are a lot still out there, obviously, you also referenced the 298. Total overall queue, I think, we were at 283 last time. And then I will break you to think in our earnings release, we talked about some of our growth numbers. But the answer to your question is yes, is there more out there. Total active requests year-to-date for transmission POIs is up 15%. LC&I minus data centers, new requests are up 8% quarter over same quarter last year and active were up about 22% quarter '26 -- second quarter '26 versus second quarter '25. So we continue to have really strong growth, really strong interest. And yes, there is more out there.

Excellent, yes. I appreciate that. And then relatedly, I just wanted to clarify the additional batch zero capital investment opportunities in terms of when you could frame that up and quantify it. Is that something that comes after April of 2027 next year? Is it something we could get midyear in terms of the timing just as ERCOT goes through the batch process?

Thank you, David. I think you got the time line correct. We obviously will look to update Sempra's roll forward 5-year plan as well as Oncor's on the Q4 call. And I think in my prepared remarks, we talked about the fact that we think that visibility into additional capital that we required to support the batch process as it moves forward in the information we get after that. I think we'll have to revisit how we can continue to be as transparent as possible following Q4, but we're excited to bring those additional numbers to you at the right time.

And our next question comes from Nicholas Campanella from Barclays.

I just wanted to ask if we could be a little bit more clear just on the batch process, just the actual next steps. To my understanding, there's a good cause exception requested the PUCT, and do you guys think that, that gets acknowledged and then we just kind of keep moving along with the prior schedule? Or are we kind of on pause until we get past November election and any thoughts from Oncor if we could see additional legislation in the next session around those two would be helpful.

Yes. I'll make a couple of comments, and Allen, I appreciate if you do as well. I think one of the things we've made clear on this call, and I know you're on top of this, Nick, but is we've laid out a path here, we think we feel good about the base capital plan at Oncor. We've got improving confidence in the additional capital opportunities. And certainly, we think there will be a big backlog of new capital opportunities that fall outside of both of those two first buckets. As this goes forward, I mean we're seeing strong leadership, I think, from Governor Abbott. The PUCT has obviously taken up the issue as well. And I think as it goes forward, we'll have more visibility to it in the next few months. But Allen, maybe talk about what your expectations are for the process being firmed up and whether you think there'll be potential legislation would be helpful.

Yes, you bet. Hi, Nick. I think the way we're thinking about it is, obviously, Governor Abbott issued his letter on August 3, calling for the comprehensive verification and audit of all the data centers before they can interconnect. The immediate impact is I think exactly the way you described it, ERCOT previously was going to notify TDSPs on August 7 of the loads that could potentially be in batch zero and now ERCOT apparently intends to consult with the PUC on next step and seek approval for a good cause exception related to the batch zero time line process at the August 20 PUC open meeting. So you've really been focused on August 20 as being the next big event where we may learn more about what's going to go on. The only other thing I would say is, it's also our perspective that these projects that we're going to make it into batch zero were always subject to a validation process to ensure that they met the criteria of the new rules. And with the comprehensive audit moving to the front end, effectively reordering the prior process, we think it will benefit the process by allowing more participation on the front end and lead potentially to a more durable framework on the back end. That's probably what we know right now.

Yes, I think that's a really good point, too, is the way this is being structured, it's almost like a reordering of existing process. And I think it's designed, I think, thoughtfully by the governor, to make sure that there's more input on the front end. So if we get to a more durable framework on the back end, Nick, I think that's a win for everyone in the process.

That makes a lot of sense. And thanks for sharing those thoughts. And then I guess just coming back to the questions on California legislation. I know that there's been a wide discussion that this is a wider than -- more than utilities type problem for the state, right? And everyone has to bring something to the table. Just how do we kind of think about you guys are drawing the line on maybe trading things like future contributions to Phase 2 fund.