Sempra 2026 Q2 Earnings Call

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, Dyan Wold, Vice President, Controller, and Chief Accounting Officer, and other members of our senior management team. Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statement we make today.

The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-Q filed with the SEC. Earnings per common share amounts in our presentation are shown on a diluted basis. 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 30th, 2026. I'd also like to mention that forward-looking statements contained in this presentation speak only as of today, August 6th, 2026. 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 updates page within the Sempra Investors website to post investor updates while complying with our disclosure obligations under SEC Regulation FD.

We encourage you to subscribe to the email alerts so you remain informed of any developments. With that, please turn to slide three. 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 in the call, but on this first slide, I thought it'd 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.

Our capital recycling program also extends to Mexico, where 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. 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.

With forecasts of significant load 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 five-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's 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 a system resiliency plan filing that Oncor is expected to make next year. We also expect a new set of capital opportunities. 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 timeline for the batch process is uncertain, 44 GW of large load requests are expected to be eligible as base or studied load in Oncor's transmission system. By classification, this includes 27 GW of base load, defined as not requiring additional interconnection studies or allocation, and 17 GW 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 GW of additional demand would represent a 140% increase to Oncor's current system peak load of 31 GW. 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 GW of Batch Zero submissions shown here.

Of the 44 GW, it's important to note that approximately eight GW 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 Oncor's network. ERCOT will now study how the projects included in the Batch Zero 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 five-year plan on our fourth quarter call. ERCOT's current timeline 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's increasing momentum behind Oncor's long-term growth, separate and apart from how data center growth materializes in the state. 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 for 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. 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-$5.30, and 2027 EPS guidance range of $5.10-$5.70. We're also affirming our projected long-term EPS growth rate of 7%-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.