Oncor Electric Delivery Company LLC (SRE) Q4 FY2025 Earnings Call Transcript & Summary

Good day, and welcome to Sempra's Fourth 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 Fourth 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 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; 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 filed with the SEC. Earnings per common share amounts in the 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-K for the year ended December 31, 2025. I'd also like to mention that forward-looking statements contained in this presentation speak only as of today, February 26, 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. With that, please turn to Slide 5, and let me hand the call over to Jeff.

Thank you all for joining us today. Our success in 2025 reflects how well we performed against our priorities. In that regard, we introduced 5 value creation initiatives last year designed to simplify Sempra's business model, mitigate risk and improve financial strength. The first value creation initiative was to prioritize utility investments with improved returns. During the year, we deployed $13 billion in CapEx, Sempra California increased CPUC base operating margin and Oncor improved capital efficiency through the implementation of the unified tracker mechanism. Together, these factors contributed to Sempra achieving record adjusted EPS of $4.69 at the high end of our 2025 adjusted EPS guidance range while establishing a strong foundation for continued growth through 2030. We continue to see compelling investment opportunities in Oncor's service territory with historic levels of transmission expansion continuing to advance. In order to support this build-out, we're excited to introduce a new record capital plan of $65 billion for 2026 to 2030, representing a 17% increase to last year's plan. Karen will speak to this later in the call, including details about $9 billion of upside opportunities that we're tracking within the plan period. The second initiative was to highlight value in our LNG franchise. In September, we announced the sale of a 45% stake in SI Partners for $10 billion, implying over a $22 billion equity value. We're pleased to recognize the significant value created on behalf of our shareholders at an attractive multiple, and we continue to expect to close that transaction in the second or third quarter of 2026, subject to closing conditions. Sempra Infrastructure also made progress during the year on several LNG projects by declaring FID on Port Arthur LNG Phase 2 and reaching mechanical completion at ECA LNG Phase 1. Also, Port Arthur LNG Phase 2 construction continues to proceed on schedule, and we're excited by the prospect of all these projects driving the growth profile of that business well into the next decade. Our third priority was to simplify the business and reduce portfolio risk, including the sale of non-core assets in Mexico. In December, SI Partners entered into an agreement to sell Ecogas for the equivalent of approximately USD 500 million. We believe the implied 12.7x EBITDA multiple provides further support for the overall value of Sempra Infrastructure's portfolio, and we look forward to completing that sale in the second or third quarter of 2026, subject to closing conditions. Our fourth initiative was to execute Fit for 2025, which focused on reducing our cost structure to meet our future business needs and included modernizing our workforce to improve organizational efficiency. We have more work to do in this area, and it will continue to be a focus in 2026. Lastly, we wanted to elevate community safety and operational excellence across the enterprise, which culminated in California Legislature passing SB 254, which strengthened the long-term stability of the state's wildfire fund and called for further reductions to wildfire risk exposures through the natural catastrophe resiliency study to be published in April 2026 and SDGE being recognized as best in the West in electric customer reliability for the 20th consecutive year. Now please turn to the next slide where Karen will walk through our financial results.

Thank you, Jeff. Earlier today, Sempra reported fourth quarter 2025 GAAP earnings of $352 million or $0.54 per share. This compares to fourth quarter 2024 GAAP earnings of $665 million or $1.04 per share. The full year 2025 GAAP earnings were $1.796 billion or $2.75 per share. This compares to 2024 GAAP earnings of $2.817 billion or $4.42 per share. On an adjusted basis, fourth quarter 2025 earnings were $841 million or $1.28 per share. This compares to our fourth quarter 2024 earnings of $960 million or $1.50 per share. Full year 2025 adjusted earnings were $3.066 billion or $4.69 per share. This compares favorably to our previous full year 2024 adjusted earnings of $2.969 billion or $4.65 per share. We're pleased with our execution as adjusted EPS for the year came in at the high end of our previously announced 2025 adjusted EPS guidance range. Please turn to the next slide. Variances in the full year 2025 adjusted earnings compared to the same period last year can be summarized as follows: at Sempra Texas, we had $80 million of higher equity earnings from the UTM, higher invested capital and customer growth, partially offset by higher interest expense, depreciation and O&M. Turning to Sempra California. We had $213 million, primarily from lower income tax benefits and higher net interest expense. As a reminder, fourth quarter 2024 and full year 2024 results were impacted by the recognition of 2 years' worth of income tax benefits from last year's GRC final decision. Sempra California also had $148 million of higher CPUC base operating margin, net of operating expenses, regulatory disallowances and a lower cost of capital. At Sempra Infrastructure, we had $123 million, primarily from higher asset and supply optimization, higher transportation results and lower depreciation on assets held for sale, which were partially offset by lower income tax benefits. At Sempra Parent, the $41 million of higher losses is from higher net interest expense, partially offset by higher income tax benefit, higher investment gains and other. Please turn to Slide 9. To start, I'd like to extend our appreciation to our current shareholders for supporting our mission. And as we look to build upon the momentum established in 2025, Jeff has laid out a series of priorities for 2026 and I'm pleased to note that we've already hit several important milestones. Oncor has successfully reached a comprehensive settlement in its base rate review. The settlement contemplates improvements to the authorized equity layer, ROE and cost of debt. If approved by the PUCT, this outcome will better align Oncor's cost structure to the current environment and is also expected to improve Oncor's financial strength and credit metrics during this period of exceptionally high growth. A final order is expected in the first half of this year. And importantly, Oncor expects to earn very close to its authorized ROE over the 2026 to 2030 time frame. At Sempra Infrastructure, Port Arthur LNG Phase 1 remains on schedule for achieving COD at or near the end of 2027. And finally, in California, I'd like to note we continue to be engaged in efforts to improve public policy to support SB 254 follow-on legislative efforts. We look forward to updating you on these priorities on our next earnings call. With that, please turn to the next slide. We're excited to announce our 2026 to 2030 capital plan totaling $65 billion, an increase of $9 billion over last year's plan. In support of our mission, 95% of Sempra's overall capital program is targeted for utility investments. The capital plan is primarily driven by strong growth at Sempra Texas, most notably from the acceleration of the Permian Basin Reliability Plan. And as the remaining 765 kV strategic transmission expansion plan continues to advance, we've taken a conservative approach in developing Oncor's base plan by only adding major transmission projects with existing regulatory approvals and those that are part of the Permian plan. As a reminder, Oncor is expected to build more than half of the total of ERCOT's estimated $32 billion to $35 billion in required transmission investment. Consequently, nearly 70% of Oncor's planned CapEx is dedicated towards transmission. Also within the plan period, we're tracking significant incremental capital opportunities at Oncor, currently estimated at $10 billion or $8 billion based on Sempra's proportionate ownership share. This upside opportunity primarily includes the non-Permian plan portion of the 765 kV step, additional transmission upgrades currently pending ERCOT approval and potential system resiliency plan updates. Further, Oncor accounted for certain LC&I interconnections in the incremental CapEx category. Even though these projects may not have currently met all development milestones to be included in our base capital plan, there's a high likelihood these projects come into the plan in the future. Keep in mind too, that Oncor's service territory has some of the highest concentration of AI-related and data center growth, which represents additional potential investment opportunities. Please turn to the next slide. Driven by our expanded capital program, we project overall rate base to increase from $57 billion in 2025 to $97 billion in 2030, an impressive 11% 5-year CAGR. Our disciplined capital allocation strategy is designed to produce attractive returns with improving cash flows and distributions to help efficiently fund the exceptional growth we're seeing in Texas. Sempra Texas rate base is projected to grow at a remarkable 18% CAGR over the plan period, while California rate base is projected to grow more modestly as we continue to prudently invest in improvements to safety and reliability. In combination, these investments will help grow our overall regulated footprint as we expect Sempra Texas to surpass Sempra California as the majority of our rate base by 2030. Please turn to the next slide. With over $50 billion provided by operational cash flows and expected transaction proceeds, we've eliminated the need for new common equity issuances to fund the base capital plan. Due largely to our accomplishments in 2025, operating cash flows have increased by about $5 billion from last year's plan and are expected to be the predominant funding source for our capital campaign. As always, we'll continue to seek the most efficient and lowest cost financing available to fund the capital plan and other future growth, and we're well positioned in that regard. For example, we anticipate an additional $2.2 billion of cash generated from the Sempra Infrastructure Partners transaction beyond the 2030 planning period. We'll also retain a 25% residual stake in Sempra Infrastructure Partners with an implied equity value of approximately $5.5 billion, which provides further flexibility. Across the plan period, we remain dedicated to providing investors with an attractive total return complemented by a growing dividend while retaining funding flexibility over the longer term to support our strong expected earnings growth. Please turn to the next slide. We're committed to maintaining a strong balance sheet and investment-grade credit ratings, and the pending SI Partners transaction remains a key driver in helping us meet our goals in this area. After closing, we expect regulated earnings to comprise approximately 95% of our business in 2027 and beyond as we transition to a more pure-play utility holding company. We also have the opportunity to deconsolidate SI Partners debt and have held constructive discussions with the rating agencies about the potential to lower downgrade thresholds once we complete our capital recycling program. After we close the transaction, we're targeting at least 50 to 150 basis points of cushion on average above our FFO to debt thresholds over the plan period. Please turn to the next slide. Simplifying our portfolio and concentrating our focus on utility investments continues to strengthen our visibility into future financial performance. The growth we see through 2030 and beyond really stems from the work and accomplishments from this past year. As Jeff highlighted earlier, those efforts are driving meaningful improvements across the businesses, including improving financial returns, growing earnings and cash flows, recycling capital to fund our record capital plan while also strengthening the balance sheet. In combination, these improvements have positioned us to launch a record capital plan without the need for common equity issuances and gives us the increasing confidence to be able to provide a robust 2030 earnings per share outlook. Today, Sempra is affirming our full year 2026 adjusted earnings per share guidance range of $4.80 to $5.30, introducing our full year 2027 EPS guidance range of $5.10 to $5.70 and issuing a 2030 EPS outlook of $6.70 to $7.50. With today's update, we believe we have one of the highest projected growth rates in the sector, and our 2030 outlook shows that our strong long-term growth expectations continue through the end of the decade. For additional context on our guidance, please refer to Slide 17. And now I'm going to hand it back to Jeff to wrap up on our next slide.

Thank you, Karen. Allow me to conclude our prepared remarks today by outlining Sempra's value proposition and key investment highlights. First, we're launching a record $65 billion capital plan that projects 11% annualized growth in rate base across the plan period with visibility into another $9 billion of potential upside opportunities. Second, we're aiming to provide investors improved returns at lower risk in markets with constructive regulation, targeting long-term 95% regulated utilities earnings. Third, our capital allocation is increasingly directed toward Texas, where we expect to drive nearly 60% of our rate base by the end of the decade. Fourth, we've been successful in creating a clear path to fortressing our balance sheet and improving our credit metrics. With an efficient sourcing of capital, we now have no need for common equity issuances to fund the base capital plan. And finally, we're committed to returning capital to shareholders and are targeting annual dividend growth of 2% to 4% over the plan period. To summarize, we believe Sempra offers investors an attractive combination of current yield, durable earnings growth and long-term capital appreciation. We're pleased with our 2025 performance and view it as a foundational year that sets us up for long-term success. Now I'd like to open the line for your questions.

This concludes the prepared remarks. We will now open the line to take your questions. [Operator Instructions] And our first question will come from Shar Pourreza from Wells Fargo.

Maybe just starting off on the '23 guide that you introduced today. The range obviously seems to indicate about that 7% to 9% CAGR you reiterate today from the '26 base. Can you just help us -- can you just help maybe elaborate what moves you into the top half of that 2030 range? Does that variability include any of the $9 billion upside opportunities that you continue to highlight? Or could that be accretive to, let's just say, the $750 million you've got out there?

Sure. I appreciate the question, Shar. You'll recall that we set an expectation for our future growth last year of having a long-term growth rate of about 7% to 9%. And I think a couple of the key takeaways from the call today are that with all the accomplishments I noted in my prepared remarks back in 2025, we're now seeing the quality and the certainty of our future earnings and cash flows improve. In large measure, that's what's given us increased confidence to be more transparent about our expectations for 2030, and that's why we were confident today to go ahead and issue the outlook that you're referencing. The larger items that can impact the long-term outlook are regulatory matters. I think we've talked about this before, but our 2028 GRC in California. This is something we've been working on in terms of regulatory strategy over the last 6 months, and Caroline and her team should be in a great position to make that filing in May of this year. Second, we'll be working hard to do exactly what you just referenced, which is in the roll-forward capital plan, make sure that we're really addressing that $9 billion of future upside. I think there's been some calls or questions earlier today about whether that $9 billion is in the plan or outside the plan. And to be very clear, it's certainly outside the plan. And one thing that I think that would be helpful guidance for you, Shar, is recall at this time last year, we had about $12 billion upside opportunity that we noted, and we were able to move roughly $9 billion or $10 billion of that into the current plan. So I think we've got a track record of identifying stuff that's doable. We feel very good about that $9 billion, and that's the type of capital that can move us well into the upper end of that 2030 guidance. In terms of key takeaways from my perspective about the outlook, quality and certainty of future earnings and cash flows have improved. And how are we going to evaluate our expected growth. It's trending in line or above our long-term guidance of 7% to 9%.

Got it. That's perfect. And then just maybe diving a little bit deeper on California. I guess what's embedded in the earnings growth in '27, just given the smaller contribution versus prior years? Is there incremental ROE lag that you continue to anticipate? And does a potential reconsideration of attrition year revenues potentially drive that higher? It just seems like, Jeff, just California continues to be somewhat further deemphasized as you think about capital allocation within the company. So just give a little bit of a sense on that mix.

Yes, a couple of things here is really what you're seeing is that really reflects the impact of the approved attrition from the last GRC as you move from 2026 into 2027. It's also why Caroline and her team are really working aggressively about improving efficiencies and modernizing that business. And that's good for affordability, too, right? So I think we have opportunities there to continue to drive value in California. She also has a basket of regulatory items that she'll be pursuing both this year into 2027, which could have an impact. So we feel like there's continued opportunity, both Shar, in 2026 and 2027 for improvements. But I think we're comfortable with the guidance we have out there for Sempra California at this point.

Super helpful. Congrats on the execution today. It's pretty noteworthy. Appreciate it.

Our next question comes from Steve Fleishman from Wolfe.

So just maybe I appreciate given '26, '27, 2030. But because there was definitely shaping in '26 higher, '27 lower growth prior year, could you give us some sense of just the shaping of the '28 to '30? Is it a little more linear just given that it's driven by the rate base growth and the UTM? Or just any color on that, if possible?

Yes. Steve, I appreciate the question. I'll give you a couple of thoughts here. Over time, we try to get a lot of input from the investment community and from the sell side about how we can be more transparent about what we think we can accomplish in the future. And this includes surveying the other 31 companies in the S&P 500 Utility Index. So as you know, because you follow the sector, some folks have 1-year guidance, some people have 2-year guidance. A few companies have 3-year guidance. Some companies pull their guidance when you're facing a rate case. And I think what we wanted to do is there was a lot of really helpful improvements in 2025, right? We've improved our capital plan. We've improved our capital efficiency. We've improved and have a clear path to improving our balance sheet. And I think what's taken place is we're moving from a set of cash flows that were slightly higher beta, Steve, to cash flows now, which are more certain, and it's really a tribute to the work that Allen and Don Clevenger done in Texas over the last 12 months. So this has allowed us to give a lot more visibility into 2030. And on top of that, obviously, you can look at all the interim growth rates that you might expect. We're still kind of guiding to this longer term beyond the plan period, 7% to 9% growth. So look, it's never going to be a straight line as we've talked about before but this is a very robust growth story. It's backed up by what I think is a solid dividend story. And I think you're going to continue to see us find new ways to deploy capital and to officially finance it.

Okay. And then my other question is the $9 billion of upside at Oncor Texas, maybe you gave the pieces there. Could you maybe give a little sense of time line when we'll know the likelihood of that happening? And maybe any color just on growth?

This is an interesting question because it kind of goes to your prior question. If you look at the way we've laid out in our slide presentation, the bar chart for our base capital plan, Steve, and if you look at where that $9 billion of upside capital can layer in, it's really a '28, '29 and '30 story. So I think we feel very good about the shape of '26 and '27 in that capital plan. But the upside opportunity that you were acquiring about really layers in nicely around growth in '28, '29 and '30. And certainly, Steve, that could shape really the longer-term growth profile as you think about a CAGR through 2030. What I would do on your current question is refer you to Slide 22. And perhaps, Allen, it would be helpful, if you don't mind for context, go ahead and highlight what you've pushed into your base capital plan and to Steve's point, how you think about spending in the upside base.

Yes, you bet. Thanks for the question, Steve. So starting from the top, I think you all know our prior plan was $36 billion in base capital and $12 billion in incremental opportunities. What we announced today was $47.5 billion in base capital plan and $10 billion in additional incremental opportunities. So it's about $11.5 billion increase to the base plan as is shown on the slide that both Jeff and Karen have referenced, divided into 4 main categories: Permian plan projects at about $6 billion, new transmission projects, about $2 billion, distribution upgrades about $2 billion and the Delaware Basin transmission projects is about $1 billion. Now with regards to the incremental bucket, we think we have a really high-quality group of potential projects here that total up to about $10 billion. And I'll give you a little more color on these opportunities that are listed on Slide 22. But for the first one, the ERCOT non-Permian projects and the 765 step plan, that's about a $3 billion opportunity. Additional transmission upgrades that are referenced as a second bullet. Those are transmission upgrades that are presently in the stakeholder process or for which we are waiting ERCOT approval. That is about another $2.5 billion. The system resiliency plan updates for '28 to '30 is approximately $2.7 billion. And then the additional LC&I interconnections is approximately $1.2 billion. So we feel very solid about our base plan. We think it's heavily derisked. It's primarily transmission that's either gone through the ERCOT or the PUC process. About 70% of that base is transmission. It's not contingent on things like data center development and we have a high degree of confidence in the base number. With regards to incremental, we think and we believe that part of potentially all is very realistic or possible in the next 5 years. So some of the things that could drive the -- a shift from the incremental bucket to the base plan. And I think it's consistent with what Jeff said and kind of the outer years of the plan are things such as ERCOT releasing additional transmission projects that we've applied for or in a regional transmission plan. If we were to achieve CCNs for some of these projects that are listed in the incremental bucket, especially for non-Permian Basin 765 projects, that could shift from incremental to base. We're targeting an SRP filing in 2027. So when we make that filing, some of those dollars can obviously move into base. And then things like the Batch Zero process that's ongoing at ERCOT and the PUC right now or ERCOT's regional transmission plan. If there's additional projects for us that are presently incremental, those would move potentially some dollars into the base as well. That's kind of where we are. I feel very good about both the base and incremental.

The only thing I would add, Steve, to your question is I made reference to Slide 10 before, but you can graphically see that with a lot of confidence across our management team and Allen outlined, I think we have the opportunity to go back and do exactly what we did last year is add this opportunity capital into the plan, primarily in '28, '29 and '30. And obviously, you can see that's going to have a fairly dramatic improvement to the projected long-term growth rate.

Our next question comes from Nicholas Campanella from Barclays.

I just wanted to follow up on one of the prior answers, just trying to understand the $9 billion of capital putting you into kind of the upper end of the guidance of -- I think that would be $750 million. Just what's kind of the offset that's keeping you at the high end of the range? Or is that just being conservative? Because I do recognize on the prior fourth quarter call, we kind of talked about trending and striving to be above the 7% to 9%. Then you had the $0.20 of Oncor accretion, the UTM, a very large capital acceleration at Oncor. So I guess just what is that kind of offset that's not really like accelerating you beyond that $750 million high end?

Yes. Well, it's obviously a high-class problem when I'm answering questions like this, Nick. I certainly appreciate you teeing that up. But I would say that what's really been dramatic year-over-year, and this is really a credit to the work that's taken place in our planning group with Karen, is that we've been able to increase our projection of internally generated cash flows by just over $5 billion. That's a really big deal. We're continuing to improve the credit quality in California, which is important. And even though we've moderated the growth a little bit in California, you've seen continued increase in the growth at Oncor, and we're projecting, obviously, not only higher cash flows and earnings there, but a lot higher rate base growth at the 18% level across the 5-year plan. So to your point, I feel very good about what Allen just outlined. We have a real opportunity to flex up into the higher end of that 2030 outlook. We're pleased to be able to be one of the few companies in our sector that have that type of certainty of future performance, and we're pleased to announce it on today's call. But as you've seen the improvement from last year, what a difference a year makes, right? We've been really working hard to be able to give this type of visibility to our shareholders. And I think to your point, we're going to try to do it again this year. And I think Karen laid out the '26 value creation initiatives. The only caveat I would share with you to the heart of your question is we want to get the settlement finalized in Texas. We're confident we can do that. And secondly, we have a very big transaction at Sempra Infrastructure, and we want to get that done. So as we continue to take execution risk off the table, we'll look for opportunities to continue to update about how we think about the future.

I appreciate it. And then just you said in your prepared, and I think this is kind of the mantra of how you're operating as always, but you're always going to seek the lowest cost financing to fund CapEx. So just thoughts on the remaining 25% in terms of maybe using something to fund the $9 billion or other strategic actions to limit common equity or otherwise?

I appreciate that, Nick. And obviously, the central theme here is we're continuing to build a great business. And to do that, we've got a robust growth story, and I think we've got a solid financing plan in place for the base capital plan. I think the heart of your question is, how do we think about continuing to efficiently finance these upside opportunities like some of the ones that Allen talked about today. I think we're in great shape. I'd start with this. Remember, it always starts with improving your operating cash flows. We talked about making this a priority over the last 12 months. And obviously, I've referenced this $5 billion of projected new internally generated cash flows, which is absolutely instrumental in our current capital plan. Second, it's important to remember that we have $2.2 billion, Nick, of additional proceeds that are owed to us as part of the Sempra Infrastructure transaction that currently fall outside of the plan period. So that's something that's important for investors to track. And finally, we have a demonstrated track record. We've actually got a slide in the appendix of our materials about being committed to capital recycling. Recall, too, that we still have a 25% interest in Sempra Infrastructure. So as you referenced, that too remains a potential funding opportunity. And as I outline these opportunities, remember, we've said this many times in the past, we're going to compete capital. And as these large capital programs come forward, utility company by utility company, people continue to be focused on the capital program but it's just as important that you're focused on sourcing capital efficiently. And that's really been the big story for us over the last 12 months. I think the key takeaway for us is we'll work hard in this fall planning process with Karen's team to make sure as we roll the plan forward as we've done in the past, we'll continue to bring forward what we think is going to be a best-in-class efficient financing plan.

And our next question will come from Julien Dumoulin-Smith from Jefferies.

Jeff, what a difference the year makes incredible outcome here...

Thank you.

Absolutely. Absolutely. Let me come back to what Nick was pressing on a second ago. When you think about the moving pieces in the $710 million midpoint here for FY '30, he was pressing on the sell-down of SIP. What else really would move the needle, right? You talked about the $9 billion. We talked about the SIP. What else would really drive you within that range here? And if I can lead you in a certain direction here, how do you think about California in that vein, whether that's a strategic decision or frankly, whether that's just finding other avenues to accelerate in as much as it hasn't really changed here year-over-year for the CapEx plan, for instance?

Well, let me go back to about 12 months ago, we were facing an opportunity for a rate case in Texas that had 4 or 5 years of uncertainty for us. We were in the beginning of the rate case in California. And now 12 months later, think about this, with the settlement that we have in hand in Texas and with the efforts to kind of finalize that this spring, we're going to have certainty from the regulatory side with that new 2024 test year all the way through 2030 with no expectation of filing a new rate case there probably until the April, May time frame of 2030. Likewise, in California, we've got this year and next year certainty from the last rate case. So as you think about 2030, we've got to do a good job of executing on the 2028 GRC. So what you really think about is let's get the settlement approved in Texas. Let's get the SI transaction closed. Let's spend time with the rating agencies to make sure we're really thoughtful about fortress in our balance sheet. And then we've got a great strategy in place to improve in California. So if some of those risk factors to execution come off the table, you should expect this management team to look for opportunities to provide more visibility. And let me come back to the point that you're making around California. California has really high equity layers. Over the last 2 decades, Julien, it's been a top decile regulatory environment. I think there's a lot of positives going on in California today. This really is probably another re-rating opportunity for all the investor-owned utilities in the state. What we have going on right with the study bill right now, I think, is quite positive. And the other thing you got to remember is we have very high FFO to debt. And by moderating the growth a little bit, we're still going to meet all of our safety and reliability needs and the cash flow generation from California is really important. So at no time in our history have California and Texas been more complementary, and it's happening at just the right time. Texas has the leading growth story in the country. It was the leading growth story last year, and it's even better now. And one of the things you should count on, Julien, is we're going to work really hard to continue to improve that growth story. So I think Sempra as a whole has a great plan in place. And I think the key takeaway from me as the CEO is we're really earnest about building a better business.

Excellent. Jeff, let me put that to a final point. Do you think you come back subsequent to getting this settlement resolved, some degree of California visibility with the next step here, whether it's Track 3 or the next study phase and do something of an Analyst Day or a full look? Or do you think, look, you've given us an incredible FY '30 to begin with enough for now. I just want to understand on how you're thinking about cadence of updates, et cetera?

Well, look, there's no question that we have the opportunity today relative to the last 12 months to provide more visibility and more transparency. We think that's always good for the investment community. And I think one of the things that we've been pursuing in the last 12 months is this continued effort to simplify your business, Julien. And I think you and I have had this conversation through the years that when you can simplify your business, take risks and challenges away from your investors, that always leads to a re-rating story. So if there's an opportunity for us to come back and maybe have an Analyst Day, I think that's really a great idea. We'll take that on Board, and that's something we'll think about as we move through the year.

Our next question comes from David Arcaro from Morgan Stanley.

Maybe digging into the data center pipeline, the LC&I pipeline in Texas. I was wondering, have you seen slippages, challenges in all of those data centers just physically getting built and online? We've been hearing more about supply chain challenges with labor, certain equipment transformers, et cetera. Curious what you're seeing on the ground and what can actually get built?

Yes. I think we've got a slide that Allen's team has put together on Slide 23, which I'll ask Allen to comment on in a second. But let me do a couple of things before I pass it to Allen. As we've laid out the $65 billion base capital plan, one of the points we've made on the call, David, is it's really centered around highlighting how much growth we're seeing in Texas. And what's really remarkable to me, having been in this industry for close to 30 years is really built on the back of transmission. So transmission is the key enabler for generation to come on the system as well as large load customers and to serve residential class. And I think what I've never seen before, and this is probably one of the most valuable pieces of infrastructure in the energy value chain is Oncor's capital plan is about 70% geared to transmission. So the large load growth is important. I know as we go from one earnings call to another earnings call, there's a big focus on data centers. The great news is we're going to try to serve that growth, but that's really upside to our current plan. Let me stop there, Allen, and see if you could give a little bit more color on what you're seeing relative to Slide 23 and how you're thinking about making sure that we serve not just the data centers, but many of the other large customers that are really in the queue side on your system.

Yes. Thanks, Jeff. Thanks, David. So I'll tell you, as a guy who talks to many, many data center developers in and around our system, I've said for many quarters now, the Oncor queue, last quarter, it was at 226 gigawatts with 210 gigawatts of data. This quarter is at 273 gigawatts with 255 gigawatts in data. So the first part of the answer is data centers are continuing to show up looking for service on our system. The variance in the quality or the likelihood of those data centers varies by party. And I've explained this on calls many times. You have ones that are very serious and are likely to make and you have ones that are significantly less serious and are chasing a gold rush. And there's many factors that go into the likelihood. I can't predict whether or not they'll make, but you can generally tell where the serious parties are. We are trying to work the data center and the large load customer angle in a number of ways. Obviously, we are working very heavily in the Batch Zero process. ERCOT is working very hard to come up with cross criteria in the process. They're going through the stakeholder process now with the idea that they'll try to get something to the Board by June. There's actually a workshop this morning. I think it's too early to tell the outcome, obviously, of what's going to happen there. So more to come on Batch Zero as that develops. But we at Oncor are working multiple avenues and not just the Batch Zero process. I'll give you a few examples. We have a number of projects right now that have been pending at ERCOT for a while, and we continue to work those projects through the ERCOT process, independent of the Batch Zero process that's being developed right now. So a couple of examples. We have a South Dallas project that's nearing completion at ERCOT, we believe, that would provide for 4 gigawatts of load serving capacity in the Dallas -- South Dallas area. And that would all be brownfield projects. It could be completed relatively quickly once approved. So that's potential opportunity there. We have in addition to the South Dallas project, we have about projects related to about 10 additional gigs elsewhere on our system that all those projects are presently moving through the RPG process. In addition, another avenue that we're working on. We are presently developing a list of loads. For ERCOT's 2026 RTP projection, TDUs are due to file by April 1. Customers would need to meet a number of RTP '26 criteria that align generally with the SB6 requirements for customers to: one, demonstrate financial commitment; two, provide proof of site control; three, fund ERCOT study cost upfront; four, disclose intended generation sources; and five, identify any other active projects that could impact system reliability. So as we sit here today, we have at least 38 gigawatts that meet these standards, but we are continuing to actively work with our customers between now and April 1. And I strongly believe we'll have more than 38 gigawatts by the time we get to April 1, reminding you, obviously, that my entire -- our entire system right now has a current peak of about 31 gigawatts. Finally, we are, as been mentioned on this call and many times before, constructing more than half of the Permian Basin reliability plan and the STEP 765 plan. And those transmission projects would obviously provide for additional load additions on our system as well. Yes. So there's been a lot of focus on Batch Zero. It's very important. We'll continue to be heavily involved, but we're working multiple avenues to try and address the need of our large load customers, and we'll continue to do so.

Thank you, Allen. The only thing I would add, David, is as you follow the opportunity for data centers and large load customers all across the country, hear about different jurisdictions where these things are going forward. We're very confident at Sempra that the largest opportunity in the United States for data centers on Texas. And in the Texas region, the largest opportunity sits in the footprint at Oncor. And you can see that on Slide 23, where they now have upwards of 273 gigawatts that are kind of in the queue. So we remain optimistic that this AI process moving forward, the commitment to data centers is very important all across the country. And we're going to be very aggressive supporting the governor and the economic agenda in Texas to make sure we can be accommodative of all customers through the lens of also making sure that we can manage cost for our residential and other customer classes.

Yes. Excellent. Really helpful context. Separately, I was just curious if you could touch on how do your credit metrics maybe trend through the plan here through 2030? Are there peaks and troughs that you need to manage as you go?

Sure. I mean, obviously, this was an issue that was front and center last year. We've got a lot of work that we've done in the last 12 months to make sure that we've got a clear path to not only a stronger balance sheet. I think you can see in one of our slides, we've talked about guiding toward improving our holdco to total debt ratios driving down our debt-to-equity ratio to 49% or below. And Karen, you've done a lot of work on the balance sheet. Do you want to provide a quick update generally about how we're thinking about it?

Sure. Absolutely. Thanks, Jeff. Yes, maintaining the balance sheet really is a priority for us together with those investment-grade credit ratings. The SI partner transaction is key to this. So the proceeds are going to support our balance sheet, eliminate the need for common equity in our base plan. After closing, we're aiming for our regulated earnings to comprise approximately 95% of our total earnings composition. As a reminder, that's really important with the rating agencies. So in addition to that, we're going to be able to deconsolidate Sempra Infrastructure's debt. And we've had really constructive discussions with the rating agencies about what this means for our downgrade threshold. So we'll be meeting with them and getting updates from them. So over the last 12 months, we've also improved our cash flows for our 5-year plan by $5 billion. So again, adding to those credit metrics. So our target of 50 to 150 basis points, we feel really good about that. And I think we'll fine-tune that later this fall once we close the SI transaction and have an opportunity to go meet with the rating agencies, go through all of that. I think the key takeaway here is over the period, I feel really good about where they are. They're not going to fluctuate, they're going to fluctuate a little bit, but there's not a lot. It's pretty solid once we get past this transaction, and it's only going to get better when we start improving those cash flows.

And then David, the only thing I'd say, I've made this comment earlier in the call, our focus right now is making sure we get a great outcome for the base rate review in Texas, which we're expecting this spring. We're also focused with Justin's help on making sure that we successfully close that SI transaction. And then over the next 3, 4, 5 months, there'll be a lot of work done closely with the rating agencies. We've made this a priority. And I think Karen's team want to make sure we gave a little bit of guidance about how much cushion we want to put on the balance sheet. But this will be an evolving conversation where we can provide more details to you as we get further along in our plan execution.

Our next question will come from Anthony Crowdell from Mizuho.

Jeff, just two quick ones, more housekeeping. On Slide 12, that $6 billion chart, you talked about the $2.2 billion of cash expected after the plan period. Do you have to do some bridge financing or something to meet the needs through 2030? How do you handle that? And I have another follow-up.

Yes. Currently, in the current base capital plan, we've got our financing lined up. So we're not going to need to basically go into that type of financing approach. There are opportunities, obviously. And I think as people think about Anthony, future capital increases. Those are the type of things we look at as you get into that 2032, '23 time frame, you have the opportunity to monetize that $2.2 billion. One other thing I would mention is when there are capital recycling opportunities in our company or even at SI, those proceeds could be helpful in returning more capital out of SI earlier in the plan instead of waiting to that 2032, 2033 time frame.

Great. And you may have answered this with Steve's question earlier. Slide 10, you talked about $9 billion of CapEx opportunities. And then Slide 21, on Texas, you -- or Slide 22, I'm sorry, you talk about $10 billion of CapEx opportunities. Is just some of the Oncor opportunities outside the 5-year plan?

No, it's just -- I'm sorry for that confusion. It's just our relative ownership, right? They're talking about their 100% opportunity. And when you see it on Slide 10, that's really our 80.25% interest of what they're projecting.

And our next question will come from Carly Davenport from Goldman Sachs.

Maybe just a follow-up on Allen's comments before on Batch Zero and large load and ERCOT. I guess, are there any outcomes that you could see from that process or even from large load forecast revisions that could pose downside risk to the ERCOT mandated transmission spend that you have in the current plan?

Yes. I'll pass it to Allen in a second, but I would -- here's the way I would frame it for you. And I tried to address this a little bit earlier, Carly. But I think what we've tried to build is kind of this bulletproof base capital plan, right? We've got a plan to spend $65 billion. We put a lot of thought into making sure that we efficiently finance it by competing capital sources inside of Sempra. And I think we're pretty much shielded from those types of outcomes, primarily because 70% of Allen's capital is allocated toward transmission, which is really a remarkable percentage. And even as you think about Carly, affordability, remember, he's roughly 37% of the marketplace. So every dollar spent in transmission only goes to his customer base at the $0.30 level. So Allen, I think, tried to explain that as he thinks about his growth, this Batch Zero process is 1 of 4 or 5 legs on the stool that he's managing. But Allen, maybe you can provide just a little more color in your mind about how concerned you are about the batch process and whether you think there's downside.

Yes. Thanks, Jeff. Thanks, Carly. Very simply, I would just say this. The upside, downside related to Batch Zero is under Category 4 of the incremental capital opportunities on Page 22 in the deck. So what comes out of Batch Zero or other ERCOT transmission plans are not presently included in what we have in the base plan.

Got it. Okay. That's really clear. And then maybe just one other clarification on Texas. Does the current plan contemplate not going back in for a rate case until 2030? I'm just curious if there are any items that could change that you believe could drive you to go in sooner?

Yes. Look, I think the goal here is we're focused on getting the current settlement approved. And by moving to a 2024 test year, it really updates our overall cost. And by the way, importantly, Carly, because that really covers that gap where there was a big -- a lot of inflation between '21 and '24. So our expectation would be that the next base rate review filing would not be until spring of 2030. But obviously, they've always got the opportunity to go back in early if they need to. But we feel great about putting a lot more regulatory certainty around this capital program. So we feel great about it and getting that settlement approved here in the spring.

And we have time for one last question today. And our last question will come from Aidan Kelly from JPMorgan.

Aidan, we appreciate you joining the call and really appreciate your recent initiation of coverage.

Just wanted to come back to the Texas load pipeline again. I'm curious if you could share any thoughts on what form of commitments are being made there. I guess any insight on the amount that are like LOAs versus not?

Yes. Well, look, a couple of things I'll highlight before I pass it to Allen. But on Slide 23, it kind of highlights the pipeline of folks that are trying to attach to the system. Number two, there is a process that Allen follows about making sure that they have either security deposits placed for high certainty load and he's got various mechanisms, which I'll ask him to describe in a second. But one of the things that intrigued me, which came out on today's call is you're talking about Oncor system peaking at 31 gigawatts and Allen's high confidence of go-forward attachments to its system of over 38 gigawatts. And I think that number will prove to be on the light side. So the overall demand growth that's expected to take place in the high certainty category is really encouraging. But maybe, Allen, you could talk about the really, I think, unique steps you've taken to firm up who's in the high certainty category and the kind of the interim contracting process you've entered into.

Yes. Sure, Jeff. So this has evolved over time. If you go back to last year, I was reporting on what we call high confidence load. At that time, I think we had about 9 gigawatts of formally signed facilities extension agreements, and I think we had another 27.5 or so of what we included at that time in an officer letter, which ERCOT is no longer doing. They've switched the process now. We did initially also go down the path of entering interim FEAs or interim facility extension agreements. Those required about a $6.5 million collateral from the customer. All these processes are overlapping now into what's going on in Batch Zero and the development of the list of loads for the ERCOT 2026 regional transmission project or projection rather. And the factors that are included for load going into that April 1 filing are the 5 factors that I list before that add up to the approximate 38 gigawatts that we have as of today. Again, it will be higher by April 1. I don't know if that answers your question, but I think that's what we've got. We have one more factor I'll tell you. I think when I got this job, we had about I don't know, $200 million worth of collateral that we were holding from customers in 2018. Today, the collateral that we have from not only these large load customers but also from other customers, but it's around $3.5 billion as we sit here today, which gives you a magnitude of the interest of the parties that we're dealing with.

Is that helpful, Aidan?

Yes super helpful. Really appreciate the insight.

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.

Well, look, I'd like to thank everyone for joining us today. We certainly appreciate you making the time to participate. I would also want to highlight that this is a very exciting time for our company and meeting with investors remains a top priority for our management team, and that's exactly why we expect to be particularly active in March and April and throughout this year with trips planned to various conferences, including in the next 45 days, trips to the Midwest, Northeast and Europe. If there are any follow-up items, please reach out to our IR team with your questions. Very much appreciate your participation and this concludes our call.

Thank you for your participation. You may now disconnect.