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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Sempra Energy First Quarter Earnings Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Ms. Nelly Molina. Please go ahead.
Good morning, everyone, and welcome to our first quarter 2021 earnings call for Sempra Energy. A live webcast of this teleconference and a slide presentation is available on our Web site under the Investors section. On the line with us today, we have several members of our management team, including Jeff Martin, Chairman and Chief Executive Officer; Trevor Mihalik, Executive Vice President and Chief Financial Officer; Justin Bird, Chief Executive Officer of Sempra LNG; Allen Nye, Chief Executive Officer of Oncor; Kevin Sagara, Group President; Lisa Larroque Alexander, Senior Vice President and Chief Sustainability Officer; and Peter Wall, Senior Vice President, Controller and Chief Accounting Officer.
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-K and 10-Q filed with the SEC. All of the earnings per share amounts in our presentation are shown on a diluted basis and will be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. I'd also like to mention that the forward-looking statements contained in this presentation speak only as of today, May 5, 2021, and the company does not assume any obligation to update or revise any of these forward-looking statements in the future. Lastly, because the offer period for our IEnova exchange offer is open, we're limited in what we can say about the exchange offer, and we will be unable to respond to questions about this transaction.
With that, please turn to Slide 4 and let me hand the call over to Jeff.
Thank you, Nelly. I'm pleased with our first quarter results and I think it sets us up well for the balance of 2021. You'll recall we shifted our market focus back to North America several years ago and have been consistently investing new capital in our utility platforms in California and Texas. This strategic focus, together with strong operational execution, are continuing to drive improvements in our financial performance. A second part of our strategy is focused on consolidating our unregulated investments under Sempra Infrastructure and we're making great progress there as well. Just last month, we announced our agreement to sell 20% equity interest in that business to KKR, and it's an important step for two reasons: First, bringing in a new strategic partner allows Sempra Infrastructure to strengthen its own balance sheet while also positioning the business to self fund its future growth; and second, this transaction sends a clear market signal about the value and expected growth of our Infrastructure platform. Turning now to the company's financial results. Earlier this morning, we reported first quarter 2021 adjusted earnings per share of $2.95. We're also affirming our 2021 adjusted EPS guidance range.
Now please turn to the next slide, where I'll turn the call over to Trevor to provide both business and financial updates.
Thanks, Jeff. We've had several positive developments at our operating companies this past quarter. At our California Utilities, we received a proposed decision for 2022 and 2023 attrition rates, which if approved, will provide greater support for safety and reliability initiatives as well as improved visibility into future earnings. Moving to Texas. In 2020, Oncor experienced its highest organic premise growth ever and we're excited to see the growth continue this year. In the first quarter alone, Oncor connected approximately 19,000 new premises, greater than the connections in the first quarter of 2020. Again, validating the underlying strength of economic and demographic growth in the region.
Now shifting to our Infrastructure business. At Sempra LNG, we have begun engineering construction of ECA Phase 1 and continue to progress our LNG development projects. At Cameron Phase 2, we continue to work with our Cameron partners on the technical design of the project and to advance commercial discussions. At Port Arthur LNG, we continue to work with partners and customers to focus on options to reduce the project's greenhouse gas profile and continue improving its competitive position in the global energy transition. At this time, given this work and the continued impacts of the pandemic on the global energy markets, it is more likely that final investment decision at Port Arthur will move to next year. We will keep you updated as things progress.
Moving to our Mexican business. We continue to advance our pipeline of development projects, focused on diversifying its energy supplies and improving the country's energy security. In March, we expanded the renewable energy platform by finalizing the acquisition of the remaining 50% equity interest in ESJ and placing the Border Solar project into operation. Also, as Jeff mentioned earlier, we're making great progress on Sempra Infrastructure and the associated series of transactions. Just last week, we received the necessary regulatory approvals to launch the IEnova exchange offer. As that process moves forward, it's important to note that it does not have a minimum requirement to close.
With that, please turn to the next slide for a short update on additional details of the pending sale announcement in Sempra Infrastructure. With the announced sale of 20% equity interest in Sempra Infrastructure to KKR, we've gained a strategic partner to help fund future growth. The $3.37 billion in proceeds is expected to be used to fund growth at our US utilities and to strengthen our balance sheet, and also establishes an implied enterprise value of approximately $25.2 billion. Equally important, we're pleased to be partnering with an investment firm that has a shared vision for growth in North America. Lastly, we expect to close the transaction in the middle of this year, subject to customary closing conditions and certain approvals from third parties and regulatory agencies. Please turn to the next slide where I will review the financial results. Earlier this morning, we reported first quarter 2021 GAAP earnings of $874 million or $2.87 per share. This compares to first quarter 2020 GAAP earnings of $760 million or $2.53 per share. On an adjusted basis, first quarter 2021 earnings were $900 million or $2.95 per share. This compares to our first quarter 2020 adjusted earnings of $741 million or $2.47 per share.
Please turn to the next slide. The variance in the first quarter 2021 adjusted earnings compared to the same period last year was affected by the following key items: $73 million of lower losses at parent and other, primarily due to net investment gains, lower net interest expense, lower retained operating costs and lower preferred dividends; $62 million of higher equity earnings from Cameron LNG JV, primarily due to Phase 1 commencing full commercial operations in August of 2020; $35 million of higher CPUC base operating margin at SoCalGas, net of operating expenses; and $30 million of higher equity earnings at Sempra Texas Utilities, primarily due to increased revenues from rate updates to reflect invested capital and customer growth and higher consumption due to weather. This was partially offset by $56 million of lower earnings due to the sales of our Peruvian and Chilean businesses in April and June of 2020, respectively. Please turn to the next slide. We're pleased to report a successful quarter, both operationally and financially, and we are affirming our full year 2021 adjusted EPS guidance range.
And with that, this concludes our prepared remarks. However, before moving to the Q&A, I'd like to remind you that we will not be discussing the exchange offer. We'll stop now and take your questions.
[Operator Instructions] And we'll go first to Shar Pourreza with Guggenheim Partners.
Just a couple of quick ones here. Jeff, now that the SIP is fully announced the transaction, can you maybe talk a little bit about proceed, expectations? The $3.4 billion is a big number. So curious to maybe get a sense for the regions and the businesses for reinvestment. I mean, obviously, Texas is a logical option with the economic growth. Do you have a plan for regulated versus LNG? Is it delevering, buybacks? So I'm curious there.
This is a conversation that we've had a lot over the last 90-plus days. And I will tell you that I think as you think back over the last two or three years, you've seen us really focus on funding our utilities, right? So we've got a $32 billion five year capital program. It's a very large capital project. Close to $29 billion of that is dedicated to our utilities. So as we think about how we would use those proceeds, certainly, we want to make sure that we're funding growth in our utilities. And there will be opportunities for us to look at paying down parent debt and continue to strengthen our balance sheet. We've made great progress also over the last three years of improving our equity layer. So what I would say is when we get to our analyst conference, so right now, we're targeting June 29, we'll look forward to reviewing our 2021 guidance by that time to see if there's any adjustments that are needed. We will also, for the first time, Shar, issue our 2022 guidance. And in terms of our use of proceeds and expected average accretion over three or four years, we'll announce that related to Sempra Infrastructure, and that number will be included in the guidance that we provide at that time.
You actually just answered two of my questions in one, so that was pretty good, Jeff. And then let me just ask one last one. Just on the stake of Oncor, the 20% or roughly the minority position you guys don't own with TTI. Any sense if acquiring that remaining stake will kind of ever be a near term driver? Are there any discussions happening at all there? Just how to think about that.
We do a very periodic strategic review with our Board. And I think you've heard us talk a lot about this long term secular trend toward electrification and how we've continued to reorient our portfolio toward transmission and distribution. So as you think about the outages in California last summer and some of the things that Texas has gone through, we really think the best risk adjusted returns near term and long term for our investors is to continue to take a leadership position in owning more energy grids. So as you think about renewables over the next 20 or 30 years potentially doubling across the country, we really think this grid position is going to be very important. So you're right in your assessment. We find Oncor to be a very attractive investment. It has a wonderful management team. We think it has a really important leadership position in the Texas market. We have good relationships with GIC and TTI. As you know, as a matter of convention, we tend not to talk about M&A type of opportunities, but I do feel comfortable confirming that I think our T&D thesis has been validated several times over the last couple of years, and that will be a continuing priority for our management team.
And then maybe just a follow-up. Just there could be opportunities in Texas to look at other systems that may be coming about as a result of other utilities looking to delever or simplify their story or whatever. If you were to look at inorganic opportunities, do you need a closure of Oncor to grow inorganically in Texas, or should we assume these are mutually exclusive events if an opportunity does come about?
Yes, I would go back and say that one of the things that Trevor and I talk about a lot, Shar, is really the importance of really thoughtful execution around our current capital program. And I think over long periods of time, we were reviewing our total shareholder return over the last two decades, so just over 1,000%. It all goes back to being a really prudent, thoughtful allocator of capital. So we're very much focused on the sheer volume of opportunities we're seeing organically. We do always look at a lot of range of things from an acquisition standpoint, particularly projects more so than large companies, so we don't rule those type of things out. But our focus is on delivering a very, very big program that's right in front of us.
We'll go next to Steve Fleishman with Wolfe Research.
So just maybe first on Texas and maybe this question is for Allen. Just curious thoughts on just now that we're a few months further from the Uri event, what did that all mean for your business in terms of future changes or investment opportunities that might come up? And anything that we should be watching from the legislative session that could impact your wires business?
Just for the benefit of the larger audience, Allen Nye, the CEO of Oncor, is on the phone with us. And I'll just make a quick contextual comment, Steve, before passing to Allen, which is really proud of how our team responded during the crisis in February. I mentioned this in the comment to Shar, but I think the importance of T&D in Texas, as the state thinks about adding new generation, as it thinks about meeting its growth prospects, I think, will become increasingly important. One observation I'll note before I hand it off is, there's a lot of conversations around PUC reform or market reform, or increased capital spending around weatherization. I think one of the takeaways, Steve, is this was a really remarkable weather event, really, really highly uncommon. And it's very much focused on the supply side and making sure that weatherization is a real priority from the generation assets, Steve, all the way up the value chain going toward the wellhead. So I think this is probably, in the long run, going to be more about how we prepare the supply side, including the fuel side more so than expected market reforms. But I think we've talked with Allen and we think we're probably not going to try to front run the state in terms of what the expected outcomes are, but we have a lot of confidence we'll get to a good outcome from the legislature. But Allen, perhaps you could comment more on the different buckets that you expect conversations to occur in the legislature and at the PUC, if you could.
Obviously, we had a very traumatic event here in the state. And I think it's getting an appropriate and a corresponding response from both the legislature and the regulators. We're obviously in the middle of session, getting towards the end. But as of now, we have over 180 bills dealing with issues associated with the winter event. To Jeff's point, we're not seeing things that are likely to have significant market redesign type implementation. But generally, we see the current legislative session kind of falling into six categories: market governance and oversight; winterization; communications, both within the market and the customers; obviously, gas and electric coordination; customer and market protection; and securitization. And while we don't see overall market redesign occurring, we think there's significant momentum behind any number of those issues, and we're likely could see legislation path addressing each of those concerns or issues, rather. But frankly, it's too early to tell. We've got session going through May 31 and the possibility of additional special sessions.
Similarly, the PUC has addressed eight areas of inquiry. They basically overlap many of the categories coming out of the legislature. Those areas of inquiry could obviously change as we get new commissioners appointed to the commission. So overall, probably not wholesale market change, likely action on each of those topics that I addressed. Many of them, some of them could impact us. Some of them could require additional investment on our system. As I said when I testified before the legislature, I believe and I think the evidence shows that our system performed very well and we did what we had to do. But obviously, there are things we can improve on and the things that we intend to improve on. And depending on what comes out of the legislative session, we'll make the necessary investment to achieve those ends.
And I guess, one follow-up on that is just the renewables build out in the state. Are you seeing any either delay or acceleration in renewables and batteries coming out of this event?
On the generation side, we've seen an uptick in requests in Q1 over Q1 of last year. Last year, we were -- end of the year, we were around 180 overall generation interconnection requests. As of Q1 2021, we're at 194. So we've seen that uptick. I can't tell you what it's related to or what it's not. I know there's a lot of legislative action, [SB3], in particular, that can have potential implications to renewables. But so far, those are the numbers that we have on generation for first quarter of this year. And obviously, much as you would expect when you look at the Q, much of those are renewable solar and wind.
And then one question, Jeff, on LNG. Just seems like market conditions remain pretty robust, obviously more at least spot market conditions. How is that impacting your discussions on new contracts and moving forward with your growth projects, and just how are you feeling overall there?
We continue to be very optimistic about our development portfolio. Steve, you recall on our Q4 call, we commented on some of the spot prices, I think, which set records actually at JKM, at least at that marker in January. We were talking about looking back at LNG trade last year and for the first part of this year. It has been one of the bright spots in the overall global energy markets. I think in part, it's attributable to this robust demand response we're seeing in Asia and low inventories in Europe. The consultants we work with think that by 2030, you could see the market climb to about 550 million tons per annum, and today, it's right around 365 million. So we're pretty optimistic about where we're at in terms of our development portfolio and particularly being able to access Asia.
We talked about, at least Trevor did in his prepared remarks, Port Arthur. Obviously, this is a really large project for the United States and obviously for our company. We expect that we will probably move that FID decision into next year. But one of the things that's interesting is we're trying to improve our portfolio. I'll look at things like carbon capture and move into electric drive supported by renewables. I think the greening up of the value chain here in North America is something that the sell side and the buy side should follow, because I expect it will make America increasingly competitive over time. I would mention that ECA Phase 1 are going very well. In fact, our EPC contractor actually mobilized last month to begin some of the site preparation work, and that's one that we'll look to make updates on going forward. Then at Cameron Phase 2 probably has had the most activity. We're working with our Cameron partners through the funding of the pre feed work. This will also help us advance and optimize the overall technical design on that project, which we remain quite bullish on.
After pre feed, the next steps, Steve, will be the engineering work for feed and moving forward with the EPC contract. And we're also making great progress on the commercial conversations with both Mitsui, Mitsubishi and Total. So that's advancing quite nicely. So I think as we look at it, we think the thesis that we've laid out to Wall Street about this supply demand gap in the middle of the decade continues to be validated. We've talked about this now for three or four years. So I think our portfolio will be well positioned going forward. And I think as you see, the higher coal use right now in Asia, particularly this year as compared to prior years, I think the importance of LNG as part of the clean energy transition is increasing in importance.
We'll go next to Durgesh Chopra with Evercore ISI.
Jeff, just big picture. Wanted to get your thoughts on sort of how are you thinking about, a couple of years out, Sempra's profile regulated versus nonregulated? And specifically, given sort of the valuation marker on the private side for the gas assets, is there opportunity for you to kind of wind down or liquidate a larger portion of SIP moving forward?
As we've thought about it, you look back over the last three years, I think we've shown a real willingness, as a management team with our Board, to make changes to the portfolio all through the lens of trying to see if we can improve our financial performance. And we found opportunities where we're a seller when other people value our assets at a level higher than we value them. And you've likewise seen us be a buyer, particularly around our T&D thesis where we feel like that we can pick something up at a fair price in a market that's strategic to us. And as you think about those activities and being thoughtful about our capital allocation, we've been able to grow our adjusted earnings per share at about 14% CAGR. So we feel very good about the portfolio. In fact, we did a look back to our portfolio over the last 2 decades, and we've been able to grow our total shareholder return at just over 1,000% versus the S&P 500 is right around 400% total shareholder return and the S&P utilities at right around 314%. So we've been able to, over two decades, outperform our sector by 3x type of performance. I think it's this idea that you can put together a portfolio.
And if you're really thoughtful and disciplined about capital allocation, you're always taking what the market gives you. And right now, we think we want to focus on growing our utility platform, both in Texas and California. We think we have a leadership position in both markets. So I think in the near term, our focus will be on growing our utilities and try to meet and fund the most capital efficient way that $32 billion capital program. At the end of the day, we're very excited about our partnership with KKR, but this was also an opportunity for us to source the lowest cost of capital to fund our capital program. So we're actually quite bullish on both of these platforms and look forward to growing them into the future.
Maybe can I just quickly ask you for an update on the San Diego franchise agreement, where does that stand?
This is something that is obviously a big priority to us. The city issued a new invitation to bid back in March. And Kevin, if you have other comments, feel free to supplement my comments. San Diego Gas Electric responded, providing a proposal on April 16th. Again, they were the only bidder in the process, and they are currently in [bilateral] negotiations with the city, and it's probably not appropriate given the state of those negotiations to characterize where we're at in that process. I would go back though and mention a couple of things that Kevin and I have mentioned on prior calls, which is we continue to believe there's a very strong alignment of interest between what the city is trying to accomplish for its citizens and what we're trying to accomplish for our customers. We feel very constructive about the process and we certainly look forward to continue and engage with the new mayor, Todd Gloria and the city council. Kevin, would you like to make any additional comments?
No, I think you've covered it, Jeff.
We'll go next to Julien Dumoulin-Smith with Bank of America.
So if I can go back to perhaps where we started at the top of the Q&A here. Can you elaborate a little bit on the comments on balance sheet strength? How are you thinking about debt paydown? Is this just relative to the lost cash flow from the sale, or are you thinking about proportionately deleveraging from where you are today? I just want to clarify the comments that you made in the prepared remarks, as well as any tax leakage you might be willing to share.
I think that on prior calls, you may recall that we mentioned that we did not expect to have any cash tax consequences associated with the transaction because of the buildup of NOLs we have the kind of the 2024, 2025 time frame. I think the most important takeaway from my earlier remarks is that we're going to be in a position at our analyst conference, Julien, to provide our 2022 guidance, and I think that's the appropriate thing to focus on. The use of proceeds for this transaction will be important. I've talked about the importance of making sure that we can fund our capital program. There's nothing unique or nuanced about the balance sheet issue. I think you've seen us go from an equity layer that was closer to 40%, 41%, 42% in Q2 of 2018, and we finished this year, last year, on December 31 with a balance sheet that had an equity layer at about 51%. So we really have improved our balance sheet and thickened our equity layer. But as we look at paying down debt, we'll look at our various maturities, we'll look at our make whole payments, we'll get to the right economic decision, and we'll balance that with other offensive opportunities to fund our capital programs. So we feel good about the Sempra Infrastructure transaction. It was premised on sourcing lowest cost of capital, right, finding a partner that has a shared vision for growth and it's going to be accretive.
Actually, Jeff, if I can follow up on that last comment here. I think I heard you say three to four years of incremental accretion is the expectation for disclosure. Are you thinking about providing something on a consolidated EPS CAGR, like some of the prior Analyst Days here, or is it just going to be very narrow in terms of what the incremental accretion from the sell down is?
Yes, I would just go back and say that one of the things we're excited about is going to the analyst conference to review, number one, 2021 and to publish, for the first time, 2022. And if you harken back to the Oncor transaction, what we tend to do is make sure, number one, that any accretion associated with this transaction is included in the guidance that we expect to present, that has not been the case to date in terms of the guidance we put out for 2021. And we tend to look at the overall impact of accretion over multiple years. I think in the Oncor case, we provided three to four year average accretion, that would be our expectation would be to adhere to that convention in June when we're all together.
And perhaps provide updates on organic capital spending at the utilities as well…
That's exactly right.
We'll go next to Jeremy Tonet with JPMorgan.
When you were talking about the LNG, I think you were mentioning carbon capture there and just wanted to follow up on that a bit. Just want to see if you thought the current 45Qs as the written right now are sufficient to provide economics to go forward with those type of projects right now or if more support is needed. And also, there was -- Shell collaborated with their LNG provider to deliver carbon neutral LNG into Europe. And I'm just wondering if you see this as like a bigger trend in the industry and I guess how Sempra thinks about that in general.
Look, I will start by saying that we've long talked about the competitive advantages of North America relative to other places like Australia or Qatar or Iran, or Russia. And I think when you think about the fact that we have ample resources for natural gas in the United States, low price volatility, you've got certainty of construction here relative to other jurisdictions and you've got deep capital markets. We have always said, and I think most forecasters agree, the United States will lead the world in LNG exports for the next two or three years. As you think about other competitive advantages, I mentioned this at Port Arthur but also at Cameron specifically, we're looking at opportunities to make sure that we can green up the value chain so we have the most competitive form of LNG possible. And I think what you talked about at Shell, that will become increasingly common. But I think the United States, in particular, will take its existing advantages and will become more advantaged relative to our competitors because of the very things you referenced in. And perhaps, Justin, who is our CEO of our LNG business, can talk a little bit about how you're thinking about the role of both renewables and carbon sequestration in your LNG program. Justin?
Yes, Jeremy, I think on the 45Q question, yes, we do think that will play an important part as we look at carbon capture around our LNG and I guess, broader within the company. And in terms of what we're doing at our LNG projects, we are always looking for ways to reduce our emissions both on site and then from the gas coming in as well as the power that's coming into the project. So as Jeff mentioned earlier, as we look to potential electric drives, trying to increase the percentage of renewable power that would drive those as well as other ways to capture and reduce methane on our site, I think those are important drivers as we look to keep greening our facilities and frankly, the supply that comes into them.
You made reference to the Cheniere-Shell deal. I think you will start to see more of that in the LNG marketplace. We are working with our customers and potential customers as to how we will track the emissions associated with that LNG, and then as to ways that the emissions with that LNG can be offset. So I do think you will see that play an important role as the market continues to grow. But as Jeff mentioned in his earlier remarks, I think what excites us most about LNG is the continued growth you see in the LNG around the world, frankly, as the rest of the world and us move toward energy transition and cleaner energy. Natural gas is clean, affordable. We're seeing it supplement domestic gas resources around the world. We're seeing it provide support for renewables and supporting electrification. So we think LNG will play a critical role and particularly, American LNG in the global energy transition.
Maybe pivoting a bit here, talking about RNG. I think you cite 20% RNG by 2030 here for your assets. And I was just wondering what line of sight that you might have to that number? And are there supporting policies or regulatory incentives that would need to be put in place to hit this or just kind of any other thoughts on the trajectory of the path there would be helpful?
I'll make some comments and then ask if Kevin Sagara can supplement my views. But we've made some pretty bold commitments around going to Scope 1, 2 and 3 emissions at net zero by 2045 in our gas utility. And many of you know, we own the largest gas utility here in North America, I think we've taken a leadership position in our commitments there. And to your point, we have made a commitment to be at 20% renewable natural gas by 2030. I think we're at about the 5% level today. And what's interesting is you get carbon offset credits if you can use renewable natural gas for marine purposes as well as for transportation purposes. And I think there's an opportunity to extend those type of offsets to pipeline utilization.
We also think there's an opportunity here in California to see us move towards something that looks a lot more like the renewable portfolio standard that was used in 2007 to launch our renewable investments across the state. But we do think capturing biogas from landfill and from dairies has a huge impact on taking uncombusted methane out of the environment. So we're actually going to try to be a leader in that area. And this is something that we'd be even taking inquiries from some of our European partners about the progress and leadership that SoCalGas has shown. But Kevin, you want to comment on any of the regulatory issues or other issues around renewable natural gas?
Just as Jeff mentioned, we have a commitment at the gas company to have 5% of our core loads served by RNG by next year, and we're well on our way to meeting that. I think we're almost there right now. And then the larger commitment of 20% by 2030, I think for that one, we need some more regulatory incentives. Something like Jeff mentioned around an RPS standard would be very helpful ultimately. But this is an issue that we're going to have to tackle in the state. Methane is about 80 times, or you've seen maybe even more times worse, more times the net worse for the atmosphere and for the climate than CO2. And so there's going to be a need to be a regulatory construct in the end to drive kind of emitters of methane to capture that and use it or burn it, or put it back into the ground. So we're going to see more of that. But like you mentioned, I think an RPS standard will be very helpful in helping us reach our goal.
Maybe just if I could squeeze the last one in with the Biden plan out there, early days. But just anything you see, I guess, that could help you on the transmission side or maybe aim any of your kind of growth in Texas or any thoughts there that you could share?
No, I would just probably say that we're committed to work with this administration. Obviously, there's a little bit of a bid ask spread between both parties about the size of the infrastructure plan. But the area that there does seem to be a consensus beyond the normal bridges, roads and airports is around issues like telecom and number two, in expansion of the transmission system. So these are very, very hard to site and build. These are long lead time projects that can take up to a decade to complete. And it's one of the reasons I think that we feel so constructive about the transmission and distribution positions we have in Texas and California because we think the lion's share of these upgrades that will be extended will come from the existing owners of the existing rights way and existing land positions and infrastructure. So we've had a team on the ground in Washington led by Trevor and Lisa Alexander in the last two weeks, meeting with policymakers on this point. And I do think -- we expect to see some support in the infrastructure bill for transmission.
We'll go next to Stephen Byrd with Morgan Stanley.
A lot's been covered but I wanted to maybe go back to your investor event in June and just make sure I'm thinking about all the key focus topics. I heard a couple through Q&A like '22 guidance and a discussion of CapEx opportunities. But are there sort of other focused topics or sort of key messages you wanted to reinforce at that big event?
No, I think we've had a fair amount of optimization in our portfolio over the last three years. And I think what we're going to try to accomplish at the analyst conference is make sure that we present a very clear runway of growth. You recall, one of the things that's new this year is that we've continued to make strides in reporting higher quality earnings, so we've backed out FX and mark to market and inflation from our results. You saw that in our recast comparison for last year. Secondly, you're going to hear us talk about the growth that we expect in our California and utility platforms in Texas and how we expect to fund that going forward. There will be a lot of focus, in Trevor's presentation in June, around our approach to funding our capital program. And I would also mention we expect Steve to have spotlights on technology and innovation in all of our business unit presentations.
So it's very interesting. We had a conversation with Fatih Birol from the IEA not too long ago who met with our Board. And he made the point to us that for the world to reach net zero by 2050, it's the view of the International Energy Agency that 50% of the required technology, and that includes new fuels, do not exist today. So we think that industry controls the tools of decarbonization, and the research and development and innovation that's needed needs to come from industry. So you'll expect to hear us not just talk about sustainability but our role in taking a leadership position in our industry about what we're going to do in each business unit to improve sustainability and focus on innovation.
And maybe just on innovation and following up on the questions around California and natural gas. I mean, you all have been leaders in innovation in terms of thinking about renewable natural gas, how to pivot your business model to achieve a variety of goals. I was just curious, though, as you talk with the CPUC and talk with California legislators on the more negative end of the spectrum in terms of just any new developments that you see in terms of wanting, from a variety of folks, to move away from conventional methane more quickly or changes, pushes towards electrification. Anything else that you're sort of seeing in terms of your dialog with policymakers?
I might ask Kevin to supplement these comments. But I would tell you that I think we benefited from positive and progressive regulation in the state for a long period of time. And there's no question that electrification will be a dominant near term and long term secular trend. But what's interesting to me is there's this growing convergence around the role of not just electric infrastructure but natural gas infrastructure because natural gas is what's allowing us to find that efficient frontier. I hosted a guest in our Center of Excellence here yesterday and we were looking at our real time board. And I think we were at right around 82% renewable penetration on SDG&E's system at a point in time yesterday afternoon. And that's only possible because you've made those investments in a resilient grid backed up by batteries, and you've got all the peaking and necessary load support from your natural gas side. So this was one of the lessons learned from our blackouts in California last summer.
So I think there is this kind of convergence that over long periods of time to continue to push cleaner forms of energy, natural gas has a role, and we're still using a lot of natural gas, obviously, in power production. So there will always be points of differences. There will be robust dialogs. There will be conflict of discussions around energy policy. But over long periods of time, I think the state has done a great job. And you'll recall, in the most recent GRC, the PUC approved the largest capital spending program in the history of SoCalGas, and it's really a flexion of their commitment to safety and reliability and I think the long term importance of that system. And Kevin, would you like to make any more comments about natural gas generally in the state?
Yes, I'll just echo really what you said about, it's really clean electrons and clean molecules working in tandem. I think that's becoming clear as we progress on this continuum of the energy transition, Stephen. It's not really binary, it's not electrification and then forget about natural gas or forget about hydrogen, or forget about other clean forms of molecules. It's really some combination of both, because you can't really decarbonize the industrial sectors, the heavy duty transportation sectors without the clean molecules. And really, what you need to make the clean molecules is more renewable energy. You need more clean electrons, which means more investment in the transmission grids. And so it's really these two systems working together, which is going to result in achieving this net zero GHG emissions by 2045 goal that both the state has, but both of our utilities have announced their alignment with as well. So that's the key takeaway, I think.
We'll go next to Michael Lapides with Goldman Sachs.
You brought up the very long term kind of share price and total return outperformance of Sempra over the last 20 years. And it's interesting, just curious, if I just look at a more recent, even though like over the last year, maybe even last two years relative to the main sector index, the shares have actually underperformed. And I'm just curious because you've made lots of great transactions to simplify the business and to monetize some of the valuable assets you own. Do you worry there's a need to diversify further away from California? Meaning do you worry and does the Board have a concern that California Utilities, whether it's due to wildfire risk, whether it's due to the move away from natural gas, whether it's earnings risk due to the cost of capital mechanism kicking in and low interest rates. Do you kind of worry that relative to the rest of the sector, that California Utilities are kind of, I guess, use the term discount stocks?
Well, I would start by saying that -- and you've followed this for a long time, Michael, that we tend to take a long term view around how we try to create value. And we don't have knee jerk reactions to short term changes in the marketplace. And I know that's not what you're implying but we are always tying ourselves to that long term view. And you'll recall, I went back and looked, at the end of 2017, 88% of our earnings were North America and 12% were in South America, and we had roughly 70% of our earnings composition came from California. And today, that's just less than 50%. So there has been a trend in terms of how we've managed Sempra Infrastructure Partners and how we've managed our growth in Texas, namely through the acquisition of an 80% interest in Oncor. And then as you recall, we also bought InfraREIT, which was a public company.
And then you've seen at Allen's capital program went from what was about $7.4 billion commitment in his November of 2017 for five year capital program to today is closer to $12.2 billion. So we're now forecasting $55 billion of utility rate base by the end of 2025 and at least based upon current returns is on a weighted ROE basis of about 10.1. But I think you're on a good point. We're going to continue to manage this portfolio and we're going to continue to grow at, number one, weighted toward utilities. And number two, if there's opportunities to expand, we have a huge leadership presence in California. We like the state. We think we have the chance to take some of the economies of learning here around sustainability, and that influences why we're a better stakeholder and investor in other parts of our business. Yes, we'll continue to look for opportunities to expand outside of California. And frankly, Mike, when you look back on the last three years, you've seen us execute that way.
And then one follow up, kind of a more detailed one on LNG expansion and growth projects. Just curious, you've got, if I remember correctly, almost 7 million tons per year largely contracted at Port Arthur, the 5 million tons with Aramco and 2 million. How much more do you think you need take the project FID? Do you need the full [10 million] to take an FID, would you need something a little bit less than that to make it economic to do so? And do you think kind of the contracting market this year isn't robust enough just to get another 1 million or 2 million tons contracted?
Well, I think what we try to do in our unregulated business is make sure that we exercise our capital allocation strategy to produce cash flows that have substantially similar risk reward to our utilities. So Port Arthur is an opportunity where we've got seven today. I don't see any scenario that we would probably take FID without having it fully contracted. I would mention, one of the things that was attractive, Michael, about the Sempra Infrastructure Partners portfolio is, you're hard pressed to find someone that owns a business like that, that has average contract tenure across LNG and our contracts in Mexico at 21 years. So all the lessons from last decade and the decade before about merchant positions and commodity exposure and exposure to generation, we paid our tuition back in those decades. And I think what we're focused on right now is aggressively growing our California and Texas utility platform.
And inside of Sempra Infrastructure Partners, there's no question, we have an industry leading development platform. But we think that we have competitive positions that will allow us to fully contract those businesses before they go forward. And I'll make one last point. You may remember that we announced early on the MOUs, Michael, for ECA Phase 1 and that was fully tied up by MOUs before we progress to SPAs. We're in that exact same position today with Cameron expansion. So even though we're bullish long term about Port Arthur, that can be a remarkable project. We're even more bullish about Cameron expansion. So that's one that Justin and the team will be speaking more about at our analyst conference.
We'll go next to Ryan Levine with Citi.
A couple of questions. One, in terms of the SIP entity on a go forward basis, given your assets in Louisiana, curious if there's any efforts to develop hydrogen related infrastructure, specifically around your LA storage in Hackberry?
I think we've talked about on prior calls, hydrogen is a very important development all across the Sempra family of companies. When we get to the analyst conference, Ryan, we would definitely have some spotlight discussions around our progress, both in our utilities and outside of our utilities on hydrogen. But perhaps I could turn it over to Justin to talk about as you think about creating more competitive projects, how are you thinking about hydrogen either at Port Arthur or Cameron?
I think we are looking at hydrogen opportunities at all of our LNG facilities, particularly those in the Gulf Coast. I think the other thing, and you mentioned Hackberry storage, the other thing that's interesting, Ryan, is we're also looking at carbon sequestration. So how can we not only take the carbon from our own liquefaction facilities, but is there a way to develop a facility that can take carbon from some of the adjacent industries in that area, whether they be LNG or other things to help reduce CO2 there. So I think we are very excited about these opportunities. We are thinking along the same lines as you, Ryan. And I think, as Jeff mentioned, when we talk about innovation at the Analyst Day, this is one of the areas that I think you'll see us focus on.
Maybe switching gears, as COVID related restrictions continue to ease, how are you expecting O&M costs to trend in the back half of the year? And are there any meaningful opportunities you have to reduce some of your overall costs across the businesses?
It's interesting because of our geographic exposure to Mexico, obviously, Texas, here in California and Louisiana, you can imagine, Ryan, that each jurisdiction has been a little bit impacted differently. We've been a little bit further behind in California. For example, we have not even begun to have or authorized discretionary business travel. We also have not really had a return to the office program across Sempra yet. So we're still working more in a virtual mode, except for our central workforce, which is in the field. But things that we're looking at, you may recall, over the last three years, we've had these programs we call the Janus program, where we try to take costs, particularly out of the parent company. We've had a consistent process in '18, '19 and '20 of reducing costs at the parent company.
At our California utilities, they're also being thought. But one area that we're going to track well into the future, Ryan, is our real estate needs. We have a lot of office space, storage facilities all across Southern California. I know Allen has looked at this in Texas. And once we get back to a more normalized return to work profile, I think this will be an opportunity to look at our fleet vehicle program. We'll look at our real estate costs. All these also impact our ongoing O&M, entertainment and travel costs as well. And Trevor, would you like to add anything to that in terms of how you're thinking about it?
Ryan, I would just point you to the appendix where we kind of lay out where we had lower parent costs, and that was really $15 million of lower operating costs at the parent. So you can see where we're looking to try to find efficiencies across the board and hope to continue to do so.
And last question for me. In terms of the federal legislation that's being discussed in Washington, you highlighted additional investment opportunity around transmission. Curious your view around the necessary permits there to be able to execute on some of those opportunities. And if there's any assistance or policy that may be supportive of facilitating that further transmission method.
I think it's one of the things that's kind of plagued kind of the policy environment about how you address issues like this. You've obviously seen it in the pipeline industry as well. But particularly because transmission and pipelines involve interstate commerce, that's one of the reasons that the federal government has such an important role here in terms of policy making. But a lot of those land and those rights issues fall to the state. So I think this is something they're going to continue to grapple with. We found no silver bullet in the last couple of decades in this area. What I would say is the ability to develop, whether it's generation spurs, 230 kV lines, 500 kV lines, it's a little bit different by jurisdiction, whether you're in Louisiana, or you're in Texas or Mexico relative to California. You may remember the last large scale transmission line we built here was the Sunrise power line, and it took up almost $1.9 billion to build 90 miles. So it is a very costly, challenging permitting project, particularly in California. And that's one of the reasons, Ryan, that we have a thesis that when you talk about transmission and distribution and the importance of grids towards accepting more renewables, it will fall largely to upgrading existing facilities and making sure that more renewable clusters can access existing infrastructure.
We'll go next to Anthony Crowdell with Mizuho.
If I could follow up on Michael's question earlier. I mean, the company makes a compelling argument for the growth of the Sempra’s LNG platform and also the diversification of utility earnings from California. Recently, we have seen really high multiples on LDC transactions, similar to what CenterPoint has just announced and also maybe a transaction like Duke selling a slice of its Indiana utility. Is that something Sempra would consider selling a portion of its regulated utilities as a low source of capital or cost of capital to either fund LNG expansion, or organic or inorganic utility expansion?
I appreciate the question. We spend a lot of time thinking of opportunities to continue to improve our portfolio. We certainly wouldn't take any option off the table. But I would call your attention to the fact that if we're trading at 16 or 17 times now, we just announced the transaction a couple of weeks ago at a 21 PE effectively. So raising $3.37 billion at something close to a 13 to 13.4 times EBITDA and 21 PE, that was the cheapest source of capital for us to fund our $32 billion capital program. So I can guarantee that we will be thoughtful in this area. But right now, we have a tremendous amount of growth in front of our utility platform in California and in Texas. And right now, our focus is on making sure we can meet our organic capital program with the lowest cost forms of capital and we'll provide updates as we go forward.
And then just lastly to that, I mean, what limits the growth? It seems that as you highlighted, the company has done a great job of sourcing capital, finding projects. What limits that growth? Is it bill intact, is it finding more projects? Just because it looks like the company is hitting on all cylinders, whether it's sourcing capital. You talked about how Allen's projected CapEx has just really hockey sticked up since 2017. Just what are the limitations there?
Well, I think the most important thing is that you align your capital programs with the regulatory priorities of your local commission. So here in California, there's a big emphasis around safety and resiliency, and reliability. In Texas, Allen's challenge is a little bit more different. He's got really enormous growth challenges in terms of making infrastructure investments to accommodate growth. I participated in the Board call with Allen and Trevor recently at Oncor. And in the far west region, they saw something close to 5% to 5.3% quarter-over-quarter electricity growth. So I think the challenge will be different by jurisdiction. I would say this, one thing that intrigues us is, we spend a lot of time not just investing in our high performing culture but building a business system that allows us to effectively manage our businesses, manage risk effectively, invest in our culture and be good allocators of capital. And I think we have the real opportunity to build a bigger platform of scale.
I think it was one of the outcomes from the pandemic last year was this belief that it's important to be larger and a market leader in every market. So when you think about our position in California, you think about our position with Allen's business in Texas and you think about Sempra Infrastructure Partner, we've added scale at all three of those growth platforms. And what we want to do is continue to assert those advantages in those markets to meet the needs of our regulators and our customers. And I think we'll find opportunities around that along the way, but we feel very good about how our business and our portfolio is set up, we believe, to provide differential growth around the dividend and earnings going forward.
We'll go next to Jonathan Arnold with Vertical.
Just a couple of quick ones. And I apologize if I missed this earlier, but do you anticipate starting to report SIP as an entity anytime soon or guiding to EBITDA reporting that, or do we stay sort of within the current reporting segments and earnings focus as the main currency?
Well, I would tell you that we've spent time talking about this. You've heard us on this call talk about our three growth platforms. And perhaps, Trevor, you could talk about the process we've put in place going forward as we think about our segments and also our focus on EBITDA or adjusted EBITDA going forward.
So Jonathan, as you've seen, we do have this platform that is the combination of two businesses. At some point, I think we would like to get to Sempra Infrastructure Partners as a segment. That probably would not happen on an interim basis during the quarter, we would do it on an annual basis when we get to an end of a year period. Right now, I think there is an overlap between Mexico, given the LNG assets that they have in Mexico and the LNG business. But as we're putting this together and working through the structure, both internally here and as with KKR, we will be making that determination as to what the reportable segments would be on a prospective basis.
And I would also follow on that, Jonathan, to say that we will be expecting to report adjusted EBITDA for Sempra Infrastructure.
So you'll start that, but the segments may come later perhaps?
That's right. I think you can see, at least until we get the transaction closing through a period, we will still be reporting on the Mexican business and the LNG business. But then as we put the management team in place and as we manage that business prospectively, it would be managed as a single unit then at some point in the future.
And then just one other thing, like when you announced the SIP stake sale in the 8-K, you talked about these priority distribution rights that KKR was getting based on deviations on project cash flows. And I think there was something in there, too, about a priority distribution if SIP did not take FID on certain projects by a certain time. Just any incremental insight you can give us to materiality and what these sort of time frames and projects would be.
What I would say is that we want to make sure that we're transparent in all those 8-K filings. We obviously have done a great amount of work about how we structure these partnerships. And it's not uncommon to have different distributions around different issues within a business or member loans. I would tell you, from our perspective, we do not view these as rising to any level of materiality in terms of the overall business. So I would say, I would characterize them as ordinary course and adequately disclosed based on how we think about it.
At this time, there are no further questions. I will turn the call back to Jeff Martin for additional or closing remarks.
Yes. I just wanted to close by thanking everyone for attending. I know there was a lot of other calls today so we appreciate you spending time with the Sempra team. We also look forward to providing you with further updates at our upcoming Virtual 2021 Investor Day, which we expect to be held on June 29th. So please take a moment at the end of today's call just to mark that date on your calendar. It's something we always look forward to. Thank you again for joining us and feel free to reach out to our IR team with any additional questions per custom. This concludes today's call.
This does conclude today's conference. Thank you for your participation. You may now disconnect.