Sempra Energy
NYSE:SRE
Earnings Call Analysis
Q4-2023 Analysis
Sempra Energy
Sempra Energy capped off the year 2023 with robust financial returns and strategic advancements, exceeded the upper end of their earnings guidance with an adjusted EPS of $4.61. The company increased its capital investment plan by about 20% to a staggering $48 billion, earmarking more than 90% of these funds for regulated transmission and distribution (T&D) investments, highlighting the scale of growth opportunities within their markets. Alongside this, Sempra narrowed their 2024 EPS guidance to a range between $4.60 and $4.90 and projected a new 2025 EPS guidance range from $4.90 to $5.25, suggesting around a 7% growth from the midpoint of their previous guidance. Sempra also affirmed their projected long-term EPS growth rate of 6% to 8% and announced a dividend increase for the 14th consecutive year, to $2.48 per share.
California remains a source of constructive regulatory outcomes for Sempra, with several positive movements including an approval from the California Public Utilities Commission (CPUC) to increase the authorized rate of return (ROE) at SDG&E and SoCalGas by 70 basis points effective January 1, 2024. In Texas, Sempra's subsidiary Oncor saw a successful legislative session with bills passed to support grid resiliency and provide expedited recovery for approved expenditures, showing the state's commitment to a resilient energy grid amid strong economic growth. Oncor's operational achievements included a 7% improvement in their nonstorm reliability performance and record-breaking interconnection requests in 2023, indicative of Texas' dynamic growth and rising electric vehicle (EV) penetration.
Sempra is squarely focused on modernizing the T&D infrastructure to integrate renewable energy and cleaner fuel sources, driven by regulatory alignment and fast-growing geographical markets. The company announced a significant five-year capital plan that forecasts a consistent 7% compound annual growth rate (CAGR) in rate base from 2023 to 2028. This capital infusion is meant to ensure the safety and reliability of energy networks while facilitating the energy transition pivoting towards renewables and clean molecules such as renewable natural gas (RNG) and hydrogen.
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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 it over to Glen Donovan. Please go ahead.
Good morning, and welcome to Sempra's Fourth Quarter 2023 Earnings Call. The live webcast of this teleconference and slide presentation are available on our website under our 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 President and Chief Financial Officer; Trevor Mihalik, Executive Vice President and Group President, Sempra California; Allen Nye, Chief Executive Officer of Oncor; Justin Bird, Executive Vice President and Chief Executive Officer of Sempra Infrastructure; Peter Wall, Senior Vice President, Controller and Chief Accounting Officer; and other members of our senior management team.
Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statements we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K filed with the SEC. Earnings per common share amounts in our presentation are shown on a diluted basis and we'll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures.
We also encourage you to review our 10-K for the year ended December 31, 2023. Please note that all share and per share amounts reflect the 2-for-1 split of our common in the form of a 100% stock dividend that we announced in the second quarter call and distributed in August.
I'd also like to mention that the forward-looking statements contained in this presentation speak only of today, February 27, 2024, 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 Slide 5, and let me hand the call over to Jeff.
Thank you, Glen, and thank you all for joining us today. Over the last several months, we spent time with investors and the research community soliciting feedback on ways to make today's call more informative. In response to your feedback, we'll be providing more information today from more executives. I'll start off by summarizing our recent business accomplishments and our corporate strategy and will be followed by the leaders of each of our business platforms who will likewise summarize their accomplishments business model and expected capital deployment. Karen will close out today's presentation with a review of our Q4 and full year financial results and outline our new 2024 to 2028 capital plan. We'll also be sure to save time at the end to take your questions.
Now turning to '23. It was a strong year of operating and financial performance for our company and in large measures a credit to our corporate strategy and our success in simplifying our business model. At Sempra, we're focused on making disciplined investments in large and growing economic markets that are looking to modernize their energy networks and connect communities to safer, more reliable and cleaner energy. Over the last 5 years, this strategy has allowed us to build significant scale into our business for the benefit of customers and shareholders. As we previewed on our third quarter call in November, I'm excited to announce that our capital plan has increased by 20% to a new company record of $48 billion with more than 90% allocated to regulated transmission and distribution investments. Trevor, Allen and Justin will go into more detail later in today's presentation. but the overall scope and size of our capital plan really speaks to the robust markets we operate in and the magnitude of growth opportunities that are in front of our company.
Turning to our 2023 financial results. We delivered adjusted EPS of $4.61 exceeding the high end of our guidance and providing support to narrow our full year 2024 EPS guidance range to $4.60 to $4.90. This morning, we're also announcing full year 2025 EPS guidance range of $4.90 to $5.25, which represents approximately 7% growth from the midpoint of the prior guidance range. Based upon the continued growth we're seeing across our 3 T&D growth platforms, we're affirming our projected long-term EPS growth rate of 6% to 8%. Finally, we're also pleased to announce the Board of Directors approved increasing our dividend for the 14th consecutive year to $2.48 per share. Please turn to the next slide.
For the past several years, the United States has experienced significant economic uncertainty due to higher inflation, supplying disruptions and higher interest rates. Against this backdrop, Sempra delivered strong financial performance in 2023 with record adjusted earnings and record adjusted earnings per share. Also, over the last several years, our investment strategy has consistently prioritized making investments in energy networks in California and Texas, and this has allowed us to grow our rate base in those markets at the end of 2023 and to just over $50 billion. Looking forward, 1 of the primary benefits of rolling out an expanded capital plan is that it provides unique visibility to the strength of our long-term earnings growth. Also, it's important to note that our equity offering last November was successful in mitigating future equity needs associated with our new plan.
On the regulatory front, we've made several advances highlighting the constructive nature of the jurisdictions where we operate and our ability to work effectively with key stakeholders. In California, the cost of capital mechanism triggered. As a result, SDG&E and SoCalGas increased their authorized ROEs last month. We also reached a proposed settlement with certain intervenors for a portion of our pending rate cases, which we view constructively.
Turning to Texas. Oncor successfully completed its base rate review last spring, Also, several important pieces of legislation were passed that support new investments in transmission and distribution that benefit customers and the continued growth of the state's economy. Also at Sempra Infrastructure, we declared positive FID on Port Arthur LNG Phase 1, secured financing and began construction. We continue to make steady progress on our development projects. While the pause on non-FTE export permits has impacted the sector, we're confident in the commercial value of our projects, and we'll continue to develop these critical infrastructure assets on a reasonable time in. Justin will address this topic further in his section. Please turn to the next slide.
Sempra is building critical new infrastructure designed to support economic and population growth while providing attractive financial returns to our owners. Through 2050, global GDP is expected to more than double, much of which will come from emerging economies, driving the need for incremental energy resources. Going forward, we strongly believe renewables, natural gas and cleaner molecules will be critical in meeting rising energy demand as we transition to an energy future with lower carbon intensity.
As an example, United States natural gas production set a record during 2023 for the third consecutive year, fueled by strong domestic demand and record LNG exports all while still achieving lower carbon emissions over the past several decades as renewables and cleaner burning natural gas replace coal as a fuel empower generation. Please turn to the next slide.
As we modernize our energy grids, the IEA estimates that $11 trillion are expected to be spent in the North American energy sector through 2050, with over $5 trillion focused on T&D investments. Please turn to the next slide.
As we've outlined in the past, we've been disciplined in maintaining our focus on what we believe is the higher value, lower risk portion of the energy value chain. In the T&D segment, we made disciplined investments with the view toward producing high-quality recurring cash flows from regulated utilities and long-term contracted assets that generally grow with inflation. Please turn to the next slide.
As you can see here, our strategy, combined with disciplined capital allocation has allowed us to successfully meet or exceed our EPS guidance range for the last 6 years. Over this same time period, our adjusted EPS has compounded annually at approximately 10% since 2018, which is top decile amongst our peers. Please turn to the next slide.
Improving our corporate strategy has allowed us to build significant scale into our business for the benefit of our customers and shareholders, and that's been demonstrated by the consistency of our financial performance. It's also noteworthy that we've accomplished this across different market cycles that have included a global pandemic, supply chain shortages, high inflation, rising interest rates and geopolitical unrest. In short, our disciplined execution has consistently delivered total shareholder returns at levels that are well above our peer group. Please turn to next slide.
Before I hand the call to Trevor, I'd like to reiterate our key investment highlights. We own high-quality T&D growth platforms located in California and Texas, some of North America's most attractive economic markets that also benefit from constructive regulation. We exercised a disciplined approach to capital allocation and are excited to launch our new 5-year capital plan of $48 billion. We believe this sets out a clear road map for our future growth and supports our expected long-term EPS growth rate of 6% to 8%.
In conclusion, we're proud of our recent accomplishments and the growing strength of our business franchise. Across our management team, there's a lot of excitement about the opportunities that are ahead of us. Now please turn to the next slide where Trevor will walk you through the business updates at Sempra, California.
Thanks, Jeff. Let me start by highlighting the financial results at Sempra California. Earnings for the full year 2023 were $1.75 billion, benefiting from $4.6 billion of capital investments, focused safety, reliability and wildfire mitigation. These investments increased rate base by 11% over 2022. We have long emphasized California's constructive regulatory compact, including forward-looking rate cases, access to the cost of capital mechanism and an established wildfire fund. And this year, we had several positive regulatory outcomes that reinforced our conviction and supports attracting capital to the state.
As Jeff mentioned, last fall, the cost of capital mechanism triggered and the CPUC approved increasing our authorized ROE at SDG&E and SoCalGas by 70 basis points. This increase was effective January 1, 2024. In October, we reached settlements for important capital and O&M portions of our rate case requests with certain intervenors. And while these settlements are subject to CPUC approval, we're encouraged by that progress. And we anticipate receiving a proposed decision on our GRC in the quarter. As a reminder, once finalized, rates will be retroactive to January 1, 2024.
Separately, in addition to the recently awarded transmission projects by CAISO, SDG&E has advanced their competitive bid for the Imperial Valley to the north of [ Songs ] transmission line and expect an update in late April. We're also extremely proud of the recent recognition of our electric business. SDG&E was again awarded Best in the West for electric reliability for the 18th consecutive year and recognized for their industry leadership in wildfire mitigation predictive modeling technology.
The CPUC also recently increased the authorized storage capacity, Aliso Canyon by over 50%. This demonstrates the commission's recognition of the importance of energy infrastructure and the critical role SoCalGas plays supporting reliability and affordability and of both natural gas and electricity in California. And finally, ARCHES, which is one of SoCalGas' strategic partners, was selected to receive DOE funding to help develop a regional hydrogen hub. This is important because Los Angeles is one of the nation's largest manufacturing hubs and cleaner molecules are expected to play a pivotal role in helping hard to electrify sector lower their emissions. Please turn to the next slide.
Now let's turn to some of the key trends that are supporting growth at Sempra California. We operate in the largest U.S. market, representing nearly 15% of National G. California is also among the top 3 states for job growth, with nearly 1 million jobs created over the past 5 years. We are also well aligned with the state policy that promotes building and economy based on sustainable energy. Earlier this month, the CPUC made further commitments to renewables, mandating the construction of 56 gigawatts of new clean energy by 2035, including over 15 gigawatts of energy storage. California also remains home to the largest source of solar power and the highest penetration rate of electric vehicles of any state in the country. Just in San Diego County, there are now over 140,000 EVs, and that number is expected to increase significantly in the coming years.
It is also noteworthy that San Diego County leads the state with 23% of our customers having installed rooftop solar systems. These systems are often accompanied by a battery and as battery storage solutions become more cost effective, the need to reliably integrate these technologies on our network is expected to increase.
Turning to Los Angeles. The manufacturing sector generates over $80 billion in annual GDP. For customers that require high heat content molecules, RNG and hydrogen will be increasingly important for affordable, reliable and safe operations. When you pair California's economic growth with its ambitious clean energy goals, the need for significant T&D investment is critical to help ensure reliability and affordability. The key takeaway here is that our investment strategy and the rate case filings are closely aligned with public policy and the direction the state is going. Please turn to the next slide.
Sempra California is modernizing the T&D infrastructure necessary to integrate more renewables and clean molecules to serve the growing energy needs of customers while facilitating California's energy transition. As this slide shows, our utilities play a central role in connecting new cleaner sources of energy to a diverse and growing set of customers. We continue to prioritize safety and reliability with a strong focus on maintaining an efficient cost structure. We currently have the lowest bills relative to our peers in the state and are in line with the national average. We will always be focused on providing the best possible service while ensuring customer affordability is a top priority. Please turn to the next slide.
Turning to our 5-year capital plan. We're announcing over $24 billion of investments. On the electric side, we are pursuing safe and reliable infrastructure investments, integrating renewable energy, incorporating battery storage, supporting EV infrastructure and hardening the system against event risks. On our natural gas system, we will continue to modernize our gas network, reduce carbon emissions and make investments in energy infrastructure that support the delivery of cleaner molecules. We expect these investments show our rate base at an approximate 7% CAGR from 2023 to 2028. We're excited about the growth prospects at Sempra California. And we feel fortunate to have the opportunity to deliver safe and reliable energy in a market with a constructive regulatory environment.
Please turn to the next slide, where Alan will discuss Oncor's accomplishments in Texas.
Thank you, Trevor. Oncor delivered strong financial performance in 2023, deploying $3.8 billion of capital and growing rate base by 12% over the prior year. We were pleased to complete our base rate review at the PUCT and emerge with a constructive outcome, where all prior T&D investments by Oncor were deemed prudent and approved. 2023 also marked one of the most successful Texas legislative sessions for our industry in recent history. Several bills that were passed during the 88th Texas legislative session demonstrates the state's commitment to supporting a safer, smarter, more resilient and more reliable electric grid to power continued growth across the state. Oncor has historically worked closely with the Texas legislature and as many stakeholders to achieve productive outcomes. But this session in particular, was incredibly constructive.
First, the legislature increased our allowed distribution cost recovery tracker filings to twice a year reducing Oncor's regulatory lag on critical investments. Additionally, the legislature passed HB 2555, which encourages utilities to make their systems more resilient, and provides expedited recovery for approved capital and O&M expenditures. The PUCT finalized rules to implement HB 2555 last month. We expect to file our first system resiliency plan or SRP, within the next several months. The PUCT has allowed 6 months to review the SRP and if approved, we would expect to begin implementation by year-end.
Distribution capital approved in the SRP will be recovered through our DCRF tracker filings. Regulatory lag that normally accrues between the time of in-service and the implementation of rates will be offset by a regulatory asset that will be recovered in our next DCRF. Similarly, O&M expense approved as part of the SRP will be offset by a regulatory asset that will be included for recovery and a subsequent DCRF. Use of this new mechanism should reduce the regulatory lag normally associated with these types of expenditures. We look forward to using the capital and O&M that gets approved under our SRP plan to improve the resiliency of our system, harden the system against storms, extreme weather and wildfire risk and generally improve our customers' experience, while at the same time, improving recovery of the expenditures.
From an operational perspective, Oncor continue to execute at a high level. In 2023, we built, rebuilt or upgraded approximately 3,200 miles of T&D lines, while also increasing the number of premises we serve by 73,000. In West Texas alone, we built, rebuilt or upgraded over 650 miles of T&D lines and 8 new switching and substations. The Texas grid performed very well through record demand peaks over the last 12 months.
Oncor's reliability performance as measured by our nonstorm [ SADI ] score, improved by approximately 7% in 2023 compared to the previous year. Finally, in 2023, we set company records for active transmission interconnection requests, and new transmission interconnection requests in the queue. Active generation and retail interconnection requests increased 25% year-over-year. New interconnection requests increased 19% year-over-year. Please turn to the next slide.
These interconnection requests are driven by the dynamic economic growth that we continue to see in Texas. The Texas Miracle continues and is demonstrated by the continued strong growth both in population and diverse commercial and industrial businesses moving to the state. Oncor serves some of the country's fastest-growing metro areas, including 4 of the 15 fastest-growing cities. From a sheer scale perspective, Texas GDP is second only to California and continues to grow at a robust pace, growing at approximately 8% during the third quarter. Faster than the nation as a whole for the fifth quarter in a row. Texas continues to see electric vehicle penetration as well. Over a recent 12-month period, the DFW Metroplex had the largest increase in EV registrations out of any major metro area in Texas with 63% growth. Please turn to the next slide.
Oncor has also seen significant growth in commercial and industrial customers, representing electric loads that are larger than traditional commercial projects. Data center development continues to be robust across our service territory, including new sites that have the potential to support hyperscale computing and generative artificial intelligence services. These projects represent the potential for thousands of megawatts of new electric load often hundreds of megawatts for just 1 project.
Similarly, electrification of the oil and gas industry in West Texas continues at an impressive pace. A Permian Basin reliability plan update published by ERCOT earlier this month projects that within 15 years, total demand in West Texas could increase fourfold from its current 6.5 gigawatts to 26 gigawatts. This growth is expected to support oil and gas production as well as general electrification. Oncor will be at the forefront and expanding our system to meet the requirements of these customers.
Finally, as the population continues to expand both organically and from relocations, we still expect total premise growth to continue at approximately 2% annually. Each of these developments creates new opportunities to expand the Oncor Energy system. We are positioning ourselves to meet these demands through hiring, supply chain procurement and system planning and looking forward to continuing to serve our customers in the ERCOT market. Please turn to the next slide.
On Sempra's Q3 call, we discussed this growth and announced our intention to increase our capital plan. We are pleased to announce that Oncor's 5-year capital plan for 2024 through 2028 is projected to be $24.2 billion which is a 26% increase over our previous 5-year capital plan of $19.2 billion. The vast majority of this capital plan is to serve customer growth, although the maintenance needs of our system continue to grow steadily well. This plan does not include the amount of capital expenditures that we expect to request in the upcoming SRP filing that I mentioned earlier. We expect to file that plan in the first half of this year, and the proposed spin will be subject to PUCT review and approval.
With today's updated plan, we anticipate Oncor's rate base to grow at an annual average rate of 11% from 2023 to 2028. While historically, our earnings growth rate fell below our rate base growth due to regulatory lag. The -- of enhanced recovery mechanisms arising from the legislative session should move our long-term earnings growth rate closer to our rate base growth rate.
Please turn to the next slide where I'll turn the call to Justin to update you on Sempra Infrastructure.
Thanks, Allen. We're also excited about the opportunities in Texas. Sempra Infrastructure is advancing the approximately $13 billion Port Arthur LNG Phase 1 project in Texas. This investment, along with Oncor's capital plan, certainly makes Sempra among the largest investors in the state. At Sempra Infrastructure, we're advancing construction on 5 projects, all of which are on time and on budget. And our strategy differentiates us from others in the space. We have a dual coast LNG export strategy, a robust energy network portfolio and power transmission infrastructure to move more renewable power across the border, all with the goal of delivering cleaner molecules and cleaner electrons to our customers and partners.
We've achieved several noteworthy milestones in 2023, declaring positive FID on Port Arthur LNG Phase I was a major success, and we secured all required project level debt and equity contributions. Financially, we executed well relative to 2022's strong results, our ability to maintain momentum through 2023 and is another indication of our attainable business model. Sempra Infrastructure's 2023 adjusted earnings were $764 million. I'd also like to specifically call out the progress at ECA LNG Phase 1 as it approaches its summer 2025 COD. We are excited to bring one of the first North American Pacific Coast export projects to market.
At ECA LNG Phase 1, we've now exceeded 700 cargoes since production began in May of 2019, and we couldn't be more pleased with the high-quality operations from this critical infrastructure asset. On the development growth pipeline, our priorities remain focused on advancing commercial discussions for offtake volume and equity ownership at Port Arthur Phase 2 and assessing Cameron LNG Phase 2 EPC opportunities. At Cameron LNG Phase 2, we've been working with Bechtel on value engineering. And at this stage, we feel it's best to continue those efforts while evaluating other potential EPC contractors. We're continuing to work closely with Bechtel on Port Arthur Phase 1 and potentially Phase 2, but we and the Cameron partners want to take some additional time to help ensure a cost-effective build plan. and conduct additional value engineering and analysis to improve the overall value of the project to our customers.
At Port Arthur LNG Phase II, we received FERC approval in September. And earlier this month, FERC staff issued an environmental assessment finding no adverse impact as a result of the Port Arthur Louisiana Connector pipeline amendment. I also want to mention that we continue to make significant progress toward an FID on [ Cimarron ] Wind. Recall, this is a 300-megawatt wind project located near our existing ESJ and ESJ 2 wind projects that would directly interconnect with the California market.
Finally, I wanted to highlight a hydrogen hub project, we are participating in called High Velocity that is expected to receive $1.2 billion from DOE funding to pursue development. We are also actively engaged with a group of Japanese utilities on a collaboration to produce e-natural gas using renewable hydrogen and CO2 as inputs. Projects like these demonstrate Sempra Infrastructure's innovative entrepreneurial culture as we seek opportunities to provide cleaner and more secure energy for customers. Please turn to the next slide.
Turning to macro trends impacting Sempra Infrastructure. Global energy demand continues to increase. On sustainability, Sempra Infrastructure plays a critical role in providing cleaner alternative solutions to head carbon fuels like coal and oil, natural gas and particularly LNG, can effectively replace less sustainable energy sources today. In fact, industry sources estimate that global LNG demand, in particular, will grow approximately 50% by 2045. There is an additional tailwind associated with emerging market growth as their share of global GDP increases relative to advancing economies. This drives overall energy consumption because developing economies tend to be more energy intensive as they modernize and improve quality of life. Sempra Infrastructure also develops renewables and associated infrastructure that provide cleaner sources of energy and contribute to a broader decarbonization efforts in North America.
The final macro driver is the need for energy security, energy dense, reliable and affordable energy is a key ingredient to building advanced economies. The key question is where that incremental energy production will be sourced. Recently, the DOE announced a pause on granting non-FDA LNG export permits to reevaluate the impact granting these permits would have on domestic energy costs and to consider whether climate factors impact the public interest. LNG's climate role is important which is why even before the regulatory development, we started work on several initiatives designed to minimize our environmental impact and help reduce emissions across our portfolio.
One example being the conversion of e-Drives at Cameron LNG Phase 2. We're also developing carbon capture and sequestration infrastructure associated with our LNG projects. Long term, we are confident in the commercial, economic and environmental value of our export facilities, and we'll continue to work hard on behalf of our customers and investors to advance these projects. With that said, this permitting pause only applies to projects that haven't yet received their non-FDA export permits, such as Port Arthur Phase 2. This pause does not impact on any of our assets in operation or under construction. As a reminder, Cameron Train 4 has a non-FDA export permit and the DOE stated in hearings earlier this month that the pause would not impact in service date extension requests for projects with existing permits.
Per Sempra's planning and development projects such as Port Arthur Phase 2 and Cameron Phase 2 have not reached FID and are not included in our capital plan or guidance. So any potential delay would not impact our current earnings growth visibility or our existing capital plan. We can't speculate on the ultimate outcome of this policy but we'd like to reiterate the compelling environmental value proposition that natural gas and LNG provide. The United States has decreased carbon emissions 17% below 2005 levels despite increasing GDP by more than double in that time. A major reason for that progress is natural gas replacing coal and energy production. We believe a lasting policy of limiting LNG exports would unfortunately hurt the global climate interests because prospective buyers could be forced to rely on more carbon-intensive fuels, including coal and fuel oil.
We remain as enthusiastic as ever about the merits of our LNG projects as well as our ability to appropriately navigate the regulatory landscape to advance each one. Further, we are optimistic that normal permitting conditions will resume after all relevant variables have been carefully evaluated by the administration. Please turn to the next slide.
On this slide, we highlight some key projects under construction in the Pacific and Gulf Coast. These projects strengthen our competitive advantage as a strategically located supplier to both Asia and Europe. The beauty of greenfield development is that it unlocks highly compelling brownfield expansion opportunities. We have begun procurement and engineering activities at Port Arthur, Louisiana pipeline. A pipeline connecting Port Arthur LNG to [ feed gas and gulf ].
We've also begun procurement and engineering at Louisiana storage, a salt dome natural gas storage facility. These assets will contribute to the larger Port Arthur Energy Hub and demonstrate Sempra Infrastructure's expertise in developing comprehensive energy projects. Meanwhile, construction across the Sempra Infrastructure platforms continues to progress well. At Port Arthur LNG Phase 1, the next milestone will be to structural steel. At ECA LNG Phase 1, we are targeting 90% completion of structural steel. And at the GRO expansion, we have initiated construction and are targeting completion of the construction of the [ Mexicali ] segment later this year. To reiterate, Sempra Infrastructure is playing a key role in securing energy needs and contributing to decarbonization efforts for customers around the globe. Please turn to the next slide.
Looking further out, we are developing an enviable portfolio of projects, and this slide showcases some of our more significant pursuits. For a full list of development assets, please refer to the appendix. I would also note that a number of these projects are brownfield investment opportunities made possible by our initial greenfield investments at Cameron and Port Arthur. Please turn to the next slide.
To conclude, we have $4.4 billion of capital deployment opportunities anchored on providing our long-term customers with cleaner and secure energy. And as a reminder, this number only includes projects which have reached a positive FID. Major 2024 investment allocations are slotted for the Port Arthur Energy Hub as Phase 1 construction progresses ECA [ LNG ] Phase 1, as we closed in on COD, the GRO pipeline expansion project and the Louisiana storage development.
Now please turn to the next slide, and let me turn it over to Karen, who will take us through the financial update.
Thank you, Justin. I'm excited to share our year-end results and give you more details on our financial plan. Earlier today, Sempra reports fourth quarter 2023 GAAP earnings of $737 million or $1.16 per share. This compares to fourth quarter 2022 GAAP earnings of $438 million or $0.69 per share. On a [ non-GAAP ] basis, fourth quarter 2023 earnings were $719 million or $1.13 per share. This compares to our fourth quarter 2022 earnings of $743 million or $1.17 per share. Full year 2023 GAAP earnings were $3.30 billion, or $4.79 per share. This compares to 2022 GAAP earnings of $2.94 billion or $3.31 per share.
On an adjusted basis, Full year 2023 earnings were [ $2.920 ] billion or $4.61 per share. This compares to our previous full year 2022 adjusted earnings of [ $2.95 ] billion or $4.61 per share. This year's results demonstrate the combined strength of our 3 growth performs and sets us up for improved growth in 2024. Please turn to the next slide.
Now I will summarize the variance of full year 2023 adjusted earnings compared to the same period for last year. At Sempra, California, we had $69 million of higher net interest expense, partially offset by net tax benefits, offset by $51 million of higher electric transmission and CPUC-based operating margin and $52 million of higher regulatory interest income and regulatory awards. At Sempra Texas, we had $2 million of higher equity earnings attributable to increased invested capital, partially offset by higher interest and operating expenses. I'd note that earnings in 2022 and 2023 were impacted by the lack of capital trackers that can't be filed during the rate case.
At Sempra Infrastructure, we had $85 million of higher earnings attributable to noncontrolling interests. $10 million of higher taxes, partially offset by lower interest expense given increased capitalized interest, offset by $49 million of higher transportation tariffs, higher asset supply optimization, partially offset by lower equity earnings from Cameron LNG.
For Port Arthur, while our ownership stake is approximately 20%, we consolidate the project accounting purposes. thus capitalizing interest based on the projects in progress construction. As construction advances, you're seeing the impact of higher capitalized interest versus previous years. Ultimately, these capitalized costs will be amortized back as higher depreciation after the plant moves into commercial operations. At Sempra Parent, there were $15 million of higher investment gains, partially offset by higher net interest expense and lower income tax benefits. Turn to the next slide.
Turning to new investments. As Jeff noted earlier, we're announcing a company record $48 billion capital plan with over 90% of the planned investment allocated to our regulated utilities. This represents an impressive 20% increase over the previous plan and will ultimately serve as the foundation for our company's growth over the coming years. About $24.1 billion, roughly half of the capital plan is marked for investment at Sempra California's 2 utilities, which together have a weighted average ROE of approximately 10.5%.
At Sempra Texas, $19.5 billion includes our proportionate share of [ One's ] planned CapEx, where recent legislative development should help Oncor reduce regulatory lag and improve its ability to help lessen the gap between authorized and actual rates of return. The remaining $4.4 billion are primarily associated with Sempra Infrastructure's LNG projects under construction and their associated infrastructure. Please turn to the next slide.
With this record capital plan, I would like to illustrate some of the key sources and uses. As you know, Sempra raised equity in November 2023 and to support our future investment needs to mitigate the financing risk associated with the capital plan. As a result, we are in a strong financial position and anticipate our reliable internal operating cash flows and regulatory authorized debt will provide the vast majority of our financing needs. We are a growing business, we'll maintain balance sheet strength, all of which delivering attractive total shareholder returns over the long term. Along those lines, Sempra will continue to target a 50% to 60% dividend payout ratio, providing plenty of reinvestment flexibility. Please turn to the next slide.
Moving to the utilities. Our strong earnings trajectory is underpinned by long-term rate base growth. California and Texas rate base is expected to grow at 7% and 11%, respectively, from 2023 to 2028. Our rate base is split approximately evenly between California and Texas, where we benefit from constructive regulatory jurisdictions and strong macroeconomic growth. On a combined basis, we anticipate just over 9% annual growth through 2028, and this gives us added confidence in our projected 6% to 8% long-term EPS growth rate. Please turn to the next slide.
Given the strength of our 2023 results, we've narrowed our 2024 earnings guidance estimates and are now projecting EPS guidance for the year, ranging from $4.60 to $4.90. Also, we're announcing 2025 earned per share guidance with a range of $4.90 to $5.25. This equates to a projected EPS midpoint is about 7% higher than 2024 guidance. Now let's break down a few of the assumptions embedded in these figures.
At Sempra, California, this already includes the cost of capital trigger. As for the GRC, we're assuming outcomes that are in the range of historical rate case decisions, and continue to work constructively with the CPUC and interveners through the proceeding to achieve an outcome that allows us to continue to deliver safe, reliable and sustainable energy for our customers.
Turning to Texas. We said in the prior call, the guidance took into effect Oncor's second DCRF. Subject to PUCT approval, the system resiliency plan will apply to 2025 through 2027. And due to timing differences between filing and construction of projects, we'd expect minimal financial impact in 2025.
At Sempra Infrastructure, there are a few things to highlight. 2022 and 2023 benefited from an attractive commodity price environment. And in 2023, we received the cumulative benefit of new tariffs on select Mexico pipeline. Due to the conservative nature of our project development process, we secured rights on the gas pipeline connecting ECA well in advance of COD. This allowed us to better optimize results during this period, but we would expect this impact to moderate as we go forward, particularly with the lower forward curve for natural gas.
And now with the magnitude of large projects currently under construction, we have better visibility to certain noncapitalized costs that have now been added to our 2024 plan. And we have ECA LNG Phase I, expected come online in the summer of '25, with full year operations expected in 2026.
And finally, regarding the share count. The main driver of the increase is our recent equity offering. As we've discussed, the green shoe of just over 2 million shares settled immediately in November of 2023. Over the course of this year, we're assuming weighted average diluted shares will increase by $4 million, which reflects the dividend reinvestment program equity-based plans and the drawdown of our forward settlement, which we now assume will occur in the second half of 2024. About 2025 reflects those shares outstanding for the interior year, increasing our share count to approximately 654 million shares. Please turn to the next slide.
In addition to our new 5-year plan, we've added this slide in an effort to be more responsive to input from our many investors. Here, it shows the various categories of investments that we're tracking or developing that fall outside of our current plan. It totals over $10 billion, and many of these opportunities could form part of our future capital campaign. Please turn to the next slide.
You've heard this from our other executives today, but it is important to note that we're excited by the investment opportunities in front of us. We are owners and operators of top [ TV ] utility platforms located in North America as the largest economies. Moreover, our utilities benefit from constructive regulation that support significant investment and help ensure safe, reliable, resilient and increasingly sustainable energy for our customers. Over time, our key priorities remain largely the same. We will invest in our high-quality T&D energy infrastructure to improve customer service, maintain a prudent balance sheet and provide compelling returns to shareholders. A record $48 billion capital plan focused on our regulated utilities will be the primary foundation for our increasing rate base, growth in earnings power and gives us confidence in achieving our projected long-term EPS growth rate of 6% to 8%.
We thank you for joining us. We continue to build North America's premier energy infrastructure company. And we're as enthusiastic as ever about our opportunity to continue delivering attractive risk-adjusted returns. I've had the opportunity to meet with many of you over the last month, and I'll be out on the road with the IR team in March. And hope to connect with those of you I haven't had a chance to meet yet.
With that, I'd now like to open the call for some of 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 Constantine Lednev from Guggenheim Partners.
Congrats on a great quarter. The first 1 would be on the 2025 earnings growth in California, that's pointing to around [ 5% ]. How are you currently framing the GRC process into the '24, '25 planning assumptions, especially there's some visibility around partial settlement issues in the process?
Yes, Constantine, here's the way I would think about it is the way we framed our rate case is we always focus on making investments that are aligned with public policy and to directly support our customers. In terms of assumptions, we take the time to look at prior cases. We've been through at the CPUC. And then we tend to make reasonable assumptions from a range of potential outcomes. Our challenge is and where we're at in the regulatory process, that's probably all we're prepared to share in terms of assumptions at this time. But you did make a great point, which is just last fall, we've settled with certain intervenors about of the rate case for the Southern California Gas Company and about 1/3 of the case for SDG&E. And we view that quite constructively. So we're looking forward to a proposed decision in the second quarter and a final decision in the second half of the year.
Okay. And does that imply that you're taking into account any of the settlements into your planning [ meters ]? Or is that still the outcome?
No, I wouldn't think about the settlement itself impact and how we think about our assumptions. I just think it is an alignment with some of the intervenors around the way we're thinking about meeting the public policy initiatives for the state.
Okay. Perfect. And then maybe shifting to your thoughts on cost of capital process at the CPUC, especially Phase 2, reply comments posted yesterday and benchmark yields are clearly pointing to a sustained increase, but how do you just book and the assumptions on the 5-year total end?
Yes. Here's the way I would think about it. Now we'll also see if Trevor would like to add something. As you'll recall, when this issue was first addressed last year, we had indicated to the [ immediate ] community that we expected the cost of capital mechanism to trigger and had it included in our EPS guidance. And now with the decision last December, which we think was fairly clear, it allowed us Constantine to have a little bit more confidence to narrow our 2024 EPS guidance range. And as you know, that has the benefit of actually raising the midpoint of our guidance for this year.
Broadly, I think California continues to be a very constructive regulatory jurisdiction. I always point to the fact that we have forward-looking rate cases here. Reasonable returns on equity to attract the capital that's needed, a strong framework. It's actually quite unique for addressing climate-related event risk. And finally, more and more people are starting to understand and value the cost of capital mechanism that accounts for market conditions. But Trevor, would you like to add anything in terms of the cost of capital?
Yes, Jeff. No, I think you largely covered it. I would just add that I think we are really in good shape here on this. And I think the energy division's disposition letter was pretty clear on this. So again, we feel we're in good shape.
Just 1 quick follow-up, embedded within kind of that ROE outcome. Do you have any O&M kind of funding or system reinvestment embedded in plan?
Help me understand your question again, please?
Just with the tailwinds from ROE outcome. Are you embedding any kind of reinvestment in O&M from that tailwind going into '24?
The way I would think about it is when we put our plan together, which was all part of the current rate case, so the 2024 plan would be impacted by how the outcome of the rate case is. And when we think about '24 and '25, we had to take a reasonable set of assumptions based upon prior cases, and that's embedded in our forecast.
And our next question will come from Nick Campanella from Barclays.
I hope everyone is doing well. Thanks for everything today. So I guess just you're going to file this SRP. It sounds like CapEx is biased yet again higher on the other side of that. Probably a second half event. But just how are you kind of describing your capital needs and how you would fund increased CapEx, equity debt, et cetera?
Yes. I will start, Nick, by reminding everyone that on our Q3 call last year, we shared our expectation that our capital plan would go up between 10% and 20%. And in that same month, you'll recall that we sized our equity offering of roughly $1.3 billion to support our future financing needs. Slide 33, Nick goes through kind of the sources and uses and picks up last fall's equity issuance and the ongoing DRIP. I think to your point, the key takeaway for us is we're in great shape. Together with our operating cash flows and net debt, we're in a very position to comfortably support our new capital program without the need for any additional equity.
Right. And then I'm sorry, but just on top of -- as you raise CapEx, I think, again, if this SRP filing is not included in the current CapEx plan, there an incremental funding need on top of that and just how to think about that? Is there a capacity, I guess, to raise additional CapEx without equity here? Should we just kind of be doing some equity going forward? Sorry about that.
When we sized our equity needs last fall, we made sure that we did that with a margin around what we were trying to accomplish in terms of financing our future growth. So we have the capability of funding growth beyond $48 billion without raising additional equity. The challenge you get into is when you look at the slide that we've provided it shows other opportunities. There's an additional $10 billion out there. So it's not just SRP. We've got the [ ones ] which are coming down the pipe. But I think the great news is we've got a record capital plan, that capital plan is roughly $3 billion larger than our current market capitalization, and we were thoughtful last fall to take the equity overhang off of our stock and make sure that we had a margin of error to fully fund our capital plan with additional growth.
Very clear. I appreciate that. And then I guess just turning to the Sempra Infrastructure earnings guidance. Absolutely appreciate there's a step-up 2024 versus '25 because of ECA. Are you assuming just kind of like a midyear COD there? And just I'm just trying to get a sense of what the normalized run rate for ECA is when that kind of comes online if you can isolate that and -- are there any other kind of drivers to point to in terms of the strength for '25 versus '24?
Yes. I will just give you 2 things to focus on and Karen, you can add if you like to. But what I would mention is you're going to see a little bit higher development expenses not [ Cap I ] in 2024. And I would use a half year convention for 2025, and that's the best way to think about your going forward run rate.
Yes. I would just add that as you would expect, our financial projections include the incremental revenues associated with the SPA contracts. The commissioning volumes ramped after substantial completion facility and the contributions from the GRO pipeline. So bringing on the first phase of the Pacific Coast LNG facility is really an exciting opportunity and differentiates temporary infrastructure with a dual coast business model that will serve global energy demand.
Our next question comes from David Arcaro from Morgan Stanley.
I wonder if you could maybe elaborate a little bit on the value engineering time frame on Cameron. I'm curious if there's any way you could bracket how long you've extended that process for?
Yes. I thought what might be helpful here, David, is if you could, Justin do 2 things, if you've got a moment, go ahead and talk about, if you would, just a brief update on the construction at both ECA and Port Arthur. And then come back to the development question he's asking specifically how we're trying to create additional value around the Cameron opportunity.
Yes. Thank you, Jeff. We're excited to share that on ECA Phase 1 and Port Arthur Phase 1, we're seeing both projects remain track for construction, ECA Phase 1 for COD in the summer of [ 2024 ]. And for Port Arthur Train 1, 2027 and Train 2 in 2028.
Moving along to the development projects. You'll recall that as part of our commitment to deliver superior risk-adjusted returns. I always talk about the reverse Field of Dreams model, which is when they come, I'll build it. And along those same lines, I always say that we'll only move forward with our projects when we have the right cost and risk structure and long-term contracted cash flows that support a strong return for our shareholders. So going to the heart of your question on Phase 2, we're seeing significant commercial demand for low-cost brownfield LNG assets, particularly those that have permits in hand. And we believe that Cameron will be one of the most technologically advanced LNG facilities in the world. And have one of the lowest emission profiles as we've shifted to electric drives, we're working on a green [ Port Arthur ] tariff and we'll have carbon sequestration.
As you recall, it's fully permitted, and we're working towards an FID. The 4 work streams that I've always talked about continue to make progress, but we still have some work to be done. So to our current efforts with respect to the Cameron partners are focused on optimizing costs, ensuring maximum value for the project. And for example, we're exploring procurement or reservation of long lead and critical path equipment. We are anticipating taking an FID on Cameron 2 as early as the first half of next year. So that's the first half of 2025.
Shifting to Port Arthur. We received our FERC permit last September and are now awaiting the DOE non-FTA export permit. We're continuing to work with Bechtel on an EPC agreement that can optimize efficiencies with the Phase 1 construction schedule. And we're continuing our marketing efforts for offtake in equity and having financing discussions with potential lenders.
We also have our other Pacific Coast LNG opportunities, [ Peka ] and Vista Pacifico. Both of these are in the early stages of development, but we see clear opportunities and excitement around these projects. So just as a reminder, we are planning to mention none of these projects have yet received positive FID. They're not included in our plan and represents upside to the plan in future earnings.
So David, I would just conclude that with that additional securing long lead time items and additional value engineering, we're focusing on trying to take FID on that project in this half of next year.
Perfect. Yes, very comprehensive. I'll leave it there and hand it over.
Thank you. Our next question will come from Carly Davenport from Goldman Sachs.
Maybe just to start, as we think about the 5-year capital plan increasing by the 20%, you reiterated the long-term growth rate 6% to 8%. But just curious, given the magnitude of that increase, how we should think about the rate base earnings growth relative to that range over the current planning period?
Well, it's interesting you asked that the rate base growth across both of our utilities will be approximately 10%, which is a little bit stronger than we forecasted a year ago. At the end of the planning period, those 2 platforms will have $78 billion of rate base. And we really view that really as the focus of the capital plan as we indicated, it captures over 90% of that $48 billion. What is of note is that there's an $8 billion increase over the prior plan and over half of that the growth that we're seeing in Texas, which is really the strongest part of our story.
But we tend to think that the most important thing is we have been messaging around a 6% to 8% growth rate for several years now. I think this type of visibility causes us to have additional confidence in that number. And one of the things I think that you and I have discussed before, if you look at Slide 10, at the last 5 or 6 years or go back over 10 years or 15 or 20, Sempra is one of those few companies that's able to perform earnings per share growth in that 7% to 10% range over long periods of time. we're certainly forecasting the 6% to 8% on a go-forward basis. But the key takeaway from this plan is we have a lot of confidence in our ability to deliver that. I think as you've noted in your prior research, I've often indicated that I will be disappointed if we don't outperform the high end of that range.
That's super helpful. And then maybe just a follow-up on Texas. I think you mentioned in the slides planning for a 2% annual premise growth. Do you think that could be conservative just based on what you've seen recently and the different growth opportunities that you've been in Texas?
Yes. I mentioned that over half of our planning increase came from Texas, and I wouldn't mind having Allen kind of walk us through where the system where the growth is showing up. The story in Texas, I think, which is quite unique. It's not just -- it's the diversity of the growth in Texas, not just on the premise side, and it's also the amount of it, Carly, that's allocated to transmission. I don't think there's another growth story in the United States that is majority of the CapEx is related to transmission. And the reason that's important is Allen's team has the lowest transmission distribution bills in the state and transmission projects because it fits all rate payers in the state gets socialized across all the different jurisdictions. But Allen, to Carly's point, maybe you could talk about premise growth more broadly, the growth that showed up on the system.
Yes, sure. Thanks, Jeff. And Carly, really great question given what we're seeing on our system. And as Jeff said and as I said in my opening remarks, we continue to see really very strong record-breaking growth across our system.
As I mentioned in my opening remarks, premise growth is very strong, 73,000 last year, a 14% increase year-over-year. from a transmission perspective, transmission points of interconnection, very large customers, connecting transmission voltage. We set new year-end records for new and active points of interconnection in '23. Total interconnections were up 25% year-over-year. New interconnections are up 19% year-over-year. And then we always break it down into retail and generation.
Retail is up 13%, but I want to pause here on the 13%. So we go from 250 at the end of '22 to [ 2.2 ] at the end '23. But something to Jeff's point, that's significant about our growth is not only the numbers but kind of the magnitude and the diversity of the customers. And so in these retail numbers of the 282 retail point of interconnection requests we presently have, 46 of those are between 300 megawatts and 2,600 megawatts individually in size.
We actually have about 28 that are between 300 and 600 megawatts a piece, and we have about 18 that are between 600 and 2.6 gig. So very long -- very strong growth numerically, just in the increase of the numbers, but also what we're seeing is the size of the customers.
On the generation interconnection side, we see an increase of 34% year-over-year. West Texas, we're always talking about West Texas continues to be a very strong story for us with the Far West Texas weather zone peak increasing by 16.6% year-over-year. The 2 transmission circuits or rather loops that we used to serve that part of the state. The Culberson Loops saw a peak that was almost 18% above the prior year's peak. And stand -- increased about 20 -- just under 24%.
So really, really incredibly strong growth across our system, breakdown of CapEx, yes, breakdown of our 4.2. It's on Slide 48 of the appendix. Just to break it down a little further. We've got about $5.1 billion in distribution expansion, about [ 13.5 ] in transmission expansion, which is a point Jeff made a moment ago, about $4.2 billion in maintenance capital and then about $1.4 billion in tech.
And I think to Jeff's point, 3 things here just to conclude. One, 70%, a little over 70% actually of all this CapEx is pure growth capital. About 97% of this 5-year plan is subject to recovery through our trackers. And then to Jeff's point specifically, a little over 60% of all this capital we're talking about is transmission which obviously benefits everyone in the state. And therefore, it's across state which helps us both the growth capital as well as the fact the heavy emphasis on transmission really allows us to stay where we want to be, which is among the low-cost providers in the state.
We now have time for 1 more question and it will be from Ryan Levine from Citi.
Two questions. One on transmission. In the prepared remarks as mentioned, we should expect an update in late April for our -- the project that you're pursuing. Should we expect an outcome there? Or just further update as there's a range of potential scenarios that could play out in the coming weeks.
Thank you for that question, Ryan. I'll let Trevor respond.
Sure, Jeff. Ryan. Yes, I think we'll get a decision on who's going to get selected in late April, and then there's 120 days for negotiations to happen for a final outcome. So I would say expect something over the next 4 months.
Okay. And then on LNG, appreciate the clarification around the non-FTA permit extension or new applications. In terms of on FTA permit extensions, is there a historical time line around how long that typically takes? And is the pause for new applications potentially accelerate the time line for extensions as there's allocation of resource issues.
No. We have used the extension process for different projects in the past. And I would say there's not a standard time line for that. I think we were just pleased to see the DOE confirm that it was a separate process for extensions rather than for new filings. The filing that we've made for Port Arthur Phase 2 is pending. We just have to wait through this process of the calls. But I think one of the points Ryan, that Justin made in his discussion was we have a whole series of development milestones that we're pursuing for Port Arthur Phase 2. We think it's a very attractive commercially viable project. And I think those milestones we've worked through concurrently with the ultimate permitting process. So whether it ends up being a delay for the project where it's actually completed, consistent with the time line for other milestones remains to be seen.
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.
I wanted to briefly thank everyone for joining us today. I know there are several competing calls and even conferences this morning. So we appreciate everyone making the time to join us. If there are any follow-up items, please reach out to our IR team with any questions. Thank you again, and this concludes our call.
Thank you for your participation. You may now disconnect.