Sempra (SRE) Q2 2026 Earnings Call Transcript

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

Louise Bick: Good morning, and welcome to Sempra's second quarter 2026 earnings call. A live webcast of this teleconference and slide presentation are available on our website under the Events and Presentations section. We have several members of our management team with us today. Including Jeff Martin, Chairman and Chief Executive Officer; Karen L. Sedgwick, Executive Vice President and Chief Financial Officer; Justin Christopher Bird, Executive Vice President of Sempra and chief executive officer of Sempra Infrastructure. Caroline Nguyen, executive vice president of Sempra Alan Nye, chief executive officer of Encore Diane Wold, Vice President, Controller, and Chief Accounting Officer and other members of our senior management team. Before starting, I would like to remind everyone that we will be discussing forward looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. Actual results may differ materially from those projected in any forward looking statement we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10 Q filed with the SEC. Earnings per common share amounts in our presentation are shown on a diluted basis, and we will be discussing certain non GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We also encourage you to review our 10 Q for the quarter ended June 30, 2026. I would also like to mention that forward looking statements contained in this presentation speak only as of today, 08/06/2026, and it is important to note that the company does not assume any obligation to update or revise any of these forward looking statements in the future. Finally, we have established a new corporate update page within the SEMPRA Investors website to post investor updates complying with our disclosure obligations under SEC Regulation FD. We encourage you to subscribe to the email alerts so you remain informed of any developments. With that, please turn to slide 3 and let me hand the call over to Jeff.

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

Karen L. Sedgwick: Thanks, Jeff. Earlier today, Sempra reported second quarter 2026 GAAP earnings of $796 million or $1.21 per share. This compares to second quarter 2025 GAAP earnings of $461 million or $0.71 per share. On an adjusted basis, second quarter earnings were $762 million or $1.16 per share. This is a notable increase compared to our second quarter 2025 earnings of $583 million or $0.89 per share. As Jeff noted, we are very pleased with our performance for the first half of the year and think we are well positioned to deliver another year of strong financial results. Please turn to the next slide. Next, let's go over the second quarter of 2026 earnings variances compared to the same period last year. At Sempra Texas, we had $138 million of higher equity earnings from new base rates including interim rates. The UTM, higher invested capital and customer growth, partially offset by higher depreciation, interest expense, and O&M. Due to the timing of Oncor's comprehensive base rate settlement, approved in April 2026, our second quarter earnings include the favorable impact of approximately $50 million related to the first quarter of 2026. This amount reflects the difference between the newly approved rates and the rates previously in effect during that period. Turning to Sempra California. We had $24 million of increased earnings, primarily from higher CPUC based operating margin net of operating expenses, and higher electric transmission margin, partially offset by lower AFUDC equity. Sempra California also had $11 million of lower earnings from higher net interest expense and other, partially offset by higher income tax benefits. At Sempra Infrastructure, earnings increased by $26 million primarily from lower depreciation due to assets held for sale, lower O&M and other, partially offset by higher income tax expense. At Sempra Parent, results were effectively in line with the prior period. Please turn to the next slide. With strong year to date results, and progress against our key initiatives, we are affirming our full year 2026 adjusted EPS guidance range of $4.80 to $5.30 and 2027 EPS guidance range of $5.10 to $5.70. We are also affirming our projected long-term EPS growth rate of 7% to 9%. As we look ahead, our focus remains on execution. Including closing the SI Partners transaction, strengthening the balance sheet post close, and continuing to advance our record $65 billion capital plan. This capital plan is centered on utility growth with investments increasingly directed towards Sempra Texas. The growth we see there is supported by robust economic activity, increasing electricity demand, and the need to modernize and expand the electricity network across the state. I would also note that we are considering our improving confidence in Oncor's $10 billion of incremental capital opportunities, we see Texas continuing to become an even larger part of our business. With a goal for it to comprise over 60% of Sempra's total rate base in 2023. Together, this investment outlook supports our confidence in Sempra's long term growth. With 1 of the highest projected long-term EPS growth rates in the sector, we think Sempra continues to offer investors a compelling mix of current yield, durable earnings growth, and long-term capital appreciation. Now let's open it up for your questions.

Operator: Thank you. This concludes the prepared remarks. We will now open the line to take your questions. Please limit your questions to 1 question and 1 follow-up. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. Please make sure your mute function is turned off. We will pause for just a moment to allow everyone to signal for questions. And our first question will come from Shahriar Pourreza from Wells Fargo. Your line is open.

Analyst: Hi. Good morning, team. it is actually Constantine here for Shahriar. Really appreciate the time today. Hey, Jeff. Thanks. Starting off in Texas, the obvious question around the data center pause. Rhetoric or not, You see a thread of pushing for generation or even behind the meter solution over transmission build. How does that impact timelines here, especially as you highlight the batch zero opportunities going into next year?

Jeffrey Walker Martin: Thanks, Constantine. I will address the data center focus first. I think 1 of the key things that we wanted to approach this call was to send a message that our long term view at Oncor has improved over the last quarter. So we continue to think there is a great opportunity here for our base capital plan to move forward as well as upside capital. And 1 of the key points in our prepared materials was anything related to the batch process would really be upside beyond that. 1 of the things I think that we are focused on in this environment is that public policy and a lot of the recent discussions have been focused on protecting Texas families from the new cost associated with expanding the grid to meet new load customers, as you indicated, data centers. And I think in this area, the governor and the PUC both have shown a lot of leadership, and I think that is important. I would also note, Constantine, that Sempra and we are signatories to the President's rate payer for protection plan. And together with Encore, we are supportive of the framework that the PUCT is now moving forward with. And I think this is very important relative to your question, and that is to ensure that data centers, number 1, cover the full cost of interconnection, and number 2, the lower residential bills by having a portion of their tariff allocated to ratepayer subsidies. And you are seeing this model play out across other jurisdictions as well. So overall, I think broader stakeholder involvement in the process sets the foundation for a more durable framework. I think this is a very important point for our stakeholders. The process is underway now. Justin, We are receiving more input and more inclusivity of the process. that is designed to create a more durable framework for participants in the market like Encore to deploy capital And, Constantine, when you put that together, with the improving regulatory compact that we have received through the UTM legislation last year and the improvements in the recent base rate review that is obviously a key driver in the improved financial performance you are seeing at Oncor. Excellent. Thanks for that. Maybe there is a quick follow-up there. So the quick return to normal help the Encore CapEx update at year end? Of any way to think about that upside to the upside kind of converting closer to plan by that time frame? I mean, I think 1 of the things that we are kind of sending the message here is that there is a lot of flexibility in that base capital plan around how Don Clevenger and Alan move capital around. And obviously, there is been some positive steps to firm up the $10 billion of incremental opportunity. So I think that investors can take away from this call that we expect that the roll forward capital plan at Oncor will go up. And I would expect that there is a fair amount of flexibility about how they sequence projects I think the near term focus of the team and Alan was to make sure that we are really engaged in the ongoing process particularly at the PUCT. I think that will also be helpful to them, firming up their plans this fall, and we expect to come back to you on the fourth quarter call with a robust discussion around Oncor. And, clearly, Karen made this point, this is becoming a much bigger part of Sempra. And I think as you think about the KKR transaction, Constantine, putting that in context, it is all about our pivot to become a pure play utility and allocate capital to markets where we think investors will assign the highest value and certainly, we believe that is Texas. So I think the story in Texas continues to get better. Some of these near term issues need to be dealt with, and that is obviously going to be a priority for Alan's team. Excellent. And maybe just a quick housekeeping item on the earlier announced ECA delays. How are you thinking about some of the near term offsets going into year end? And any potential breakthroughs of the transaction, or are those 2 separate tracks? Yeah. Thank you for that question. And we put out, a press release just over a week ago that gave kind of a comprehensive update on Sempra infrastructure. I think there is a couple of key points here to your question. First off, the 2 very large projects at Port Arthur, both phase 1 and phase 2. Are on time and on budget. They are proceeding very well. Obviously, anytime you have a commissioning process like you have at ECA, there is a fair amount of complexity to that. I continue to feel quite constructive about the work that is underway to commission that project. But, Justin, you recall Justin is the CEO of Sempra Infrastructure, Constantine. It would be helpful if you provide some additional details about what you found in the root cause analysis and how you think about the timeline going forward this fall.

Justin Christopher Bird: Yeah. Hi, Constantine. So as you recall, after we exported the first cargo out of ECA in July, we shut down the plant for planned maintenance. And inspections. And during that time, we discovered damage to equipment connected to the plant's mixed refrigerant compressors. And we are working with our EPC contractor and the OEM, the original equipment vendor, on the root cause and the remediation plan. And where we are is we expect the project to reach substantial completion in the fourth quarter of 26 with sales under our long term sale and purchase agreements commencing shortly thereafter. So we do not anticipate additional delay after that at ECA. And again, ECA is not the sorry. The substantial completion of ECA is not a condition precedent to the SI transaction.

Analyst: Really appreciate that. Abundantly clear. Thank you very much.

Jeffrey Walker Martin: Thanks a lot, Constantine.

Operator: Thank you. And as a reminder, we do ask that you please limit yourselves to 1 and 1 follow-up. And our next question will come from Steve Fleishman from Wolfe Research. Your line is open.

Steve Fleishman: Hi. Good afternoon. Steve Fleishman: Yeah. Hi, Jeff and team. Maybe you could just talk to some of the recent political commentary on the 765 k v approval process and thoughts on any risk of that changing or just where does that do you think that goes from here? Any color on that? Sure.

Jeffrey Walker Martin: Let me make a couple points here. As I mentioned this to Constantine's question, Steve, but we continue to think the picture at Oncor is intact and improving. Obviously, to your point, there is been some important recent developments, and I will make 2 quick points here. I think the theme is we remain constructive The most important thing that we will be hearing out of Austin is to make sure that we are spending enough time to fully integrate the voices and concerns from landowners and we want to make sure, obviously, that process is inclusive that is been a clear directive from the governor's office, and I think that is also something the PUCT is working hard to ensure happens. The key theme that I think you are hearing people focus on, Steve, is if it takes a little bit more time in the process stage, to get to what we think is a durable framework that allows us to invest capital with more certainty. We think this process will be time well spent. I would also note at recent senate hearings, it is very clear that there is 2 priorities being focused on. 1 is protecting landowner interest, and secondly, also making sure that Texas has the infrastructure needed to support its continued growth. And I think you saw some of that echoed by the lieutenant governor obviously, we want to make sure that the PUCT process and Alan and his team will participate know it is been a very high focus for Alan, is making sure that we are being inclusive of all the different voices that have a stake in the process here. If I could, Alan, maybe you could provide a little bit more commentary on where you see the 765 process going from here. Alan Nye: Yeah. Sure, Jeff. Thanks, Steve. I think the way we are thinking about the 765 issue right now is, obviously, there was a hearing on the 29th that lasted 15 hours. Followed by the statements issued by Chairman Schwertner and lieutenant Governor Patrick And as Jeff said, overall, there is kind of 2 key themes that we are seeing. 1, I think state leaders thoughtfully appropriately responding to the landowner concerns. And 2, I believe clear affirmation that Texas needs a reliable grid and more investments. that is a balance that we have been working hard to strike across all 4 of our Permian import projects. Just to give you some examples, we mailed notices to over 12 thousand landowners, more than required by the-- I am sorry, 1 thousand elected officials. We filed 529 unique routes. We added 110 link segments. In direct response to public feedback, and we had 16 days of hearings. At this point, SOAH, State Office of Administrative Hearings, judges have issued PFDs in 3 of our 4 dockets. We expect the fourth to come sometime in mid August Those PFDs, those proposed orders now go to the PUC. The PUC can accept them. They can deny them. They can modify them, or they can request more evidence. We are hopeful that given the significant reliability needs in the Permian, the PUC can reach a timely resolution of those dockets, but whatever they decide, we are committed to, and we look forward to working collaboratively with our regulators, the impacted landowners, obviously our state officials, to advance a reliable grid that meets the needs of Texas and our customers while protecting land owner rights. So as Jeff said, we remain constructive. Okay. And 1 follow-up or I guess, an unrelated follow-up. Just any sense on how things are developing on the California wildfire liability legislation and related, obviously, issues and just your confidence on something constructive getting done there? Yeah. Thanks for asking that question, Steve. I mean, I think 1 of the things that really resonates with me is the central focus for policymakers in the state are, I think, focused on the right thing The key theme here is livability, and, I think people recognize when you think about the white paper from the utilities, the feedback from the CPUC, the report that was provided by the earthquake authority, I think it really recognizes, Steven, that the status quo does not work. And if we are going to get at this issue of livability, you have gotta be willing to address a larger ecosystem of related considerations. Now I will offer a few to you, 1 of which is there is a big focus in this legislative session on ensuring that housing is more accessible and more affordable. That we take steps to create a more vibrant insurance marketplace; that there are steps taken and active considerations to put new safeguards in place to mitigate risk to California families, and kind of addressing that entire ecosystem I think there is a lot of focus on making sure that providers of utility services remain financially strong. So the focus, Steven, here needs to be on good public policy for the state of California and getting at the heart of the livability issue. And if you look at some of the reports that come out from both Moody's and S&P, they clearly are focused on making sure that some type of legislation comes out that avoids utilities moving to a higher rate environment and continues to allow California to be economically competitive. So I would conclude by saying I think Governor Newsom and the leadership of both houses deserve a ton of credit They are very much actively working on this issue. This is clearly, Steven, not an easy task, but I continue to believe that the right people are focused on the right set of issues, and I continue to believe that we will see solid progress during this legislative session. I will stop there and see if you want to ask additional questions. No. I appreciate that. I asked my 2, so I will let someone else. Thank you. Okay. Thanks, Steve.

Operator: Thank you. Next question will come from David Arcaro from Morgan Stanley. Your line is open.

David Arcaro: David Arcaro: Hi. Good afternoon. Hey there. Thank you so much. Let me see. 1 thing I wanted to, a little bit of elaboration on was your large load pipeline at Oncor. Let me see. So I guess as I am just thinking about, you know, you have updated the overall interconnection queue here to 298 gigawatts at Oncor. I think last quarter, you had mentioned a 127 gigawatts of advanced pipeline, and now you have got the, obviously, drilling down further into the batch zero at 44 gigawatts. So I guess I am just looking for a little bit of help to understand the relationship there. You know, is there still a very big advanced pipeline of realistic data centers? When could those come in, and how do you kind of frame that up, in the context of batch zero?

Jeffrey Walker Martin: Thank you for the question. I will make a couple comments, and pass it to Alan. But the way I would think about it is across The United States, it does not matter whether you are in PJM or you are in the CAISO you are in ERCOT, we as a nation are struggling with ways to address issues around being short on net-short dispatchable generation We are addressing ways that we can see large load customers come onto the system and ways that we can meet that growth and make sure that we can allocate costs to protect the residential consumer. So frame this, David, as a starting point as a national issue. What I think is exciting is there is a clear signal that Texas is open for business. 1 of the things that there is strong alignment on across the legislature and executive branch is they wanna continue to advance the Texas miracle, and that comes back to the batch process that is being led by ERCOT. Think about a situation where you have got close to 500 gigawatts of generation on the sideline waiting to come on the system and similarly over 400 gigawatts of large load customers. That batch process is intended to sequence generation with large loads. So over time, it will be a sequencing effect that is intended to balance we think is gonna be remarkable load growth. Now here's the issue. Getting the process right is really important. it is complex. And you have seen a lot of different voices participate in the process. I think the long term story for Encore will continue to get better This state is focused on the right issues, And I heard someone I had a conversation recently with the CEO of the US chamber who made a comment, David, that really resonated with me. He said you may not be able to solve all the problems in this country with higher economic growth, but you cannot solve any problems without it. And I think Texas recognizes that and I think there is a lot of goodwill being spent making sure that we have the right framework to allow folks to invest the capital needed to meet the needs of stakeholders. If you could, Alan, do you mind walking through kind of where you are at with your queue and how you see it unfolding?

Analyst: Alan Nye: Yeah. Sure, Jeff. Thanks, David. I think you have got the numbers right. I mean, we have 44 gigawatts in our service territory that is presently in the batch zero process. You had the 127.5 from the last call. The relationship between those 2 numbers, the 27.5 was what we had in our RTP submission. Versus the 44 in the batch zero. The delta there is that the batch zero rules were finalized in June. They are a different set of rules than the RTP submission rules. that is required things like finalization of studies, posting financial security of $50 thousand-megawatt, attestations of site control and contracting resources, things like that. So that is the difference between the 27.5 and the 44. Regarding your question about is there a lot still out there? Obviously, you also referenced the 298 total overall queue. I think we were at 283 last time, and then I will I will direct you to our-- in our earnings release, we talked about some of our growth numbers. But the answer to your question is yes. Is there more out there? Total active requests year to date for transmission POIs is up 15%. LC&I minus data centers, new requests are up 8% quarter over same quarter last year, and active are up about 22% quarter 26 second quarter 26 versus second quarter 25. So we continue to have really strong growth through strong interest, and yes, there is more out there.

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

Jeffrey Walker Martin: Thank you, David. I think you have got the, I think you have got the timeline correct. We obviously will look to update Sempra's roll forward 5 year plan as well as Oncor on the Q4 call. I think in my prepared remarks, we talked about the fact that, we think that visibility into additional capital that will be required to support the batch process as it moves forward. will be information we get after that. I think we will have to revisit, but we can continue to be as transparent as possible. Following Q4, but we are excited to bring those additional numbers to you at the right time. Okay. Great. Makes sense. Thank you. Thank you for joining us.

Operator: Thank you. And our next question comes from Nicholas Campanella from Barclays. Your line is open.

Nicholas Campanella: Nicholas Campanella: Hey. Good afternoon. How are you? Good. I just want just wanted to ask if we could be a little bit more clear just on the batch process, just the actual next steps To my understanding, there is a good cause exception requested to the PUCT and do you guys think that gets acknowledged and then we just kind of just keep moving along with the prior schedule? Or are we kind of on a pause until we get past November election and any thoughts from Encore if we could see additional legislation in the next session around this too would be helpful. Thanks.

Jeffrey Walker Martin: Yeah. I will make a couple of comments, and Alan, I would appreciate if you do as well. I think 1 of the things we have made clear on this call, and I know you are on top of this, Nicholas, but we have laid out a path here where we think we feel good about the base capital plan at Encore. We have got improving confidence in the additional capital opportunities, and certainly we think there will be a big backlog of new capital opportunities that fall outside of both of those 2 first buckets. As this goes forward, I mean, we are seeing strong leadership, I think, from governor Abbott. The PUCT has obviously taken up the issue as well. And I think as it goes forward, we will have more visibility to it in the next few months. But Alan, maybe talk about what your expectations are for the process being firmed up and whether you think potential legislation would be helpful. Alan Nye: Yeah, you bet. Hey, Nicholas. I think the way we are thinking about it is obviously Governor Abbott issued his letter on August 3rd calling for the comprehensive verification and audit of all the data centers before they can interconnect. The immediate impact is, I think, exactly the way you described it. ERCOT previously was going to notify TDSPs on August 7 of the loads that could potentially be in batch zero, and now ERCOT apparently intends to consult with the PUC on next steps and seek approval for a good cause exception related to the batch zero time line and process at the August 20th PUC open meeting. So we have really been focused on August 20th as being the next big event where we may learn more about what is going to go on. The only other thing I would say is it is also our perspective that, these projects that we are going to-- that we are going to make it into batch zero were always subject to a validation process to ensure that they met the criteria of the new rules. And with the comprehensive audit moving to the front end, and effectively reordering the prior process, we think it will benefit the process by allowing more participation on the front end and lead potentially to a more durable framework on the back end that is probably what we know right now. Yeah. I think that is a really good point too. is the way this is being structured. it is almost like a reordering of the existing process. And I think it is designed, I think, thoughtfully by the governor to make sure that there is more input on the front end. So if we get to a more durable framework on the back end, Nicholas, I think that is a win for everyone in the process. That makes a lot of sense, and thanks for sharing, sharing those thoughts. And then I guess, just coming back to the questions on California legislation, I know that there is been wide discussion that this is, you know, a wider than more than utilities type problem for the state. Right? And everyone has to bring something to the table. Just do we kinda think about you guys are drawing the line on you know, maybe trading things like future contributions to the Phase 2 fund? Jeffrey Walker Martin: Sure. I will make a couple of comments and then I will pass it to Caroline Winn, Nicholas, who you know runs California. But, you know, in my earlier remarks on today's call, I think it was really important that for Sempra and other participants in the market to frame this correctly. And I think for us to see successful legislation, it really goes through making sure it is focused primarily on public policy that improves livability. Right? And so you think about the utility side of it, I think this is less about pushing for a, quote, unquote, utility bailout bill. This is more about making sure that everyone's joined around the exercise of improving the environment for California families. And I think an output from that will be there is a lot of benefit to California families when load serving entities are financially healthy. So I think that will be important. In terms of the legislation itself, we have been active. We are working through all the various constituencies. I have been very pleased with the leadership of the state. I really feel great about the role that Governor Newsom is playing. I think it is a little bit premature for us to front run the process without having the text of a bill, Nicholas, in front of us. So I think it is important not to pass judgment there, and we will look at the totality of the bill and the benefits to the entire list of stakeholders. Before we weigh in on, any bright lines around what we might be expecting. But Caroline, I know you have done a lot of work in this area. Could you add some additional color for Nicholas' benefit?

Caroline A. Winn: Sure. Happy to. Hi, Nicholas. You know, we are encouraged by not only the ongoing dialogue but importantly, the range of solutions that are being discussed. And I am pleased with the broad recognition that California would benefit from a more durable wildfire framework. That said, I will agree with Jeffrey that it is premature to assess any specific proposal until there is bill language for us to evaluate and a clear understanding of how it would operate as part of the broader package. But count on us to continue to engage constructively over the last 3 weeks of session, but we do not wanna get ahead of the process. And I will just end with this that, you know, our focus remains unchanged, that we are going to operate the system safely. We will on our wildfire mitigation plans. Maintain financial discipline, and invest in the system in a way that supports customers, communities, and long term shareholder value. We will evaluate any legislation against those principles, and we will be able to communicate our assessment at the appropriate time. Thanks, Caroline.

Jeffrey Walker Martin: Nicholas, I would just conclude, and I made this comment before that a lot of people have sought us out and asked for our views on this. I think the thing I keep coming back to is I think I have been pretty clear, I am constructive. I actually think we are gonna get some solid legislation this session. I am really pleased with the leadership that we are hearing from key folks. Wanna get ahead of the process. Caroline's absolutely right. there is a long way to go. We wanna see the text language. it is a very complicated exercise. The reason I am constructive is I think it is the right thing for the state. I think it is the right thing for livability. I think it is the right thing to improve affordability. And when you line it up around what is right from a public policy, standpoint, it becomes just a good old-fashioned leadership challenge, and I am pleased with the people that are stepping forward to address it in Sacramento.

Operator: Thank you. And our next question will come from Julien Dumoulin-Smith from Jefferies.

Julien Dumoulin-Smith: Paul Zimbardo: Hi. Sorry to disappoint, but good afternoon. it is Paul Zimbardo on for Julien today. Thank you for taking the time, team. No worries. Thank you. Do not know of course. Thank you very much. Just to and I know a lot has been asked already. Just on the good old transmission side of the business, kind of the earlier stage projects, any view on timing changes on some of these certificate of convenience and necessity approvals just related to what is going on, or would you describe things as on track?

Jeffrey Walker Martin: Yeah. I would describe things as on track, and I will pass it to Alan. But let me just make a quick point you may find helpful, Paul. Oncor's base capital plan is $47.5 billion They only have about $5 billion of that base capital program. that is focused on 765 import pathways related to the Permian. I think Alan and Don have enough flexibility in their capital program to adjust the timing and sequencing of those projects that they need to. We continue to feel good about Encore's 5 year capital plan and look forward to looking coming back in Q4 to update you on how we might grow that going forward. But, Alan, on the specific issue of where you are at with CCNs, you feel like things are on track and we will add additional color for Paul's benefit. Yeah. I do not have much to add. I will simply say, you know, I take Chairman Thwertner and lieutenant Governor Patrick's statements very seriously. We intend to work with landowners, and work through this process. Just right now, it is so recent. I do not have really a very good understanding or belief about what is gonna happen or what time lines could change or what not. I think we will just wait and see. Thank you. Okay. No. Understood. And then 1 follow-up on the batch zero. You mentioned the 8 gigawatts of kind of load that is already in process. If you could elaborate that a little bit, does that require capital to go? Is that kind of in that upside to the upside capital bucket as well? If you could help on that 8-gigawatt scope. Thank you. Yeah. I think when you think about that 44 gigawatts that we have identified in today's call, the reason we called out that 8 gigawatts is that is projects that have moved forward. And they are already interconnected. So all it is pointing to is customers that have been interconnected, their overall utilization is not at the 8-gigawatt level. They are already connected, and their load is expected to increase over time to 8 gigawatts. And the reason that is important, and I think we called this out, it shows that load growth is not just a prospective opportunity. it is something that is coming on the Encore system currently. Okay. No. that is helpful. Thank you very much. Thank you, Paul. Thank you for joining.

Operator: Thank you. And our next question will come from Richard Sunderland from Truist Securities.

Analyst: Hi, Richard. Hi. Good morning. Thanks for the time today. You know, sticking with some of these Oncor upside CapEx themes. Very clear on the batch zero sequencing relative to your fourth quarter update. But can you speak to other opportunities that could fold into the upside bucket on that fourth-quarter update? Presumably, there is things like the SRP that would remain in there. But just trying to think about other things that might translate into upside that are not currently being discussed right now.

Jeffrey Walker Martin: Thank you for the question, Richard. We outlined how we thought about the upside opportunity for Encore on our Q4 call. That might be something that you go back and reference. But in our current materials, if you look at slide 4, talking about the $47.5 billion base capital plan that we announced 4 months ago, and you can see that we have articulated the 3 buckets that form what we referred to as the $10 billion incremental capital opportunity, that is $4 billion associated with these recently endorsed DFW projects, and then you referenced it correctly. They do expect to make a system resiliency plan filing next year. They have earmarked about $3 billion of capital for that. That number can move around a little bit. And to your point, there may be other opportunities that come to us before we announce this next February. But I think we are quite constructive on those 2 buckets together, $47.5 billion and also this $10 billion opportunity. And I think, Richard, 1 of the key things we have taken a lot of questions on since our last call was how this batch process fit into our current plan. I think it is been a really clear takeaway for us that the batch process is clearly an incremental opportunity beyond $47.5 billion and beyond the $10 billion of upside capital they have. The challenge will be as that process unfolds, do not think we will have a lot more definition on the batch related capital until later in 2027. Got it. Now thanks for running through all that, but I will just I guess, ask the question in a different way. So is the $10 billion that you currently call out as Oncor upside kind of what you are working with? And then some of that presumably translates into base on that 4Q update. And then the remainder stays as upside? Or do you see other opportunities and programs that may backfill whatever moves into the base? Well, you know, I appreciate the clarification. Let me go a little deeper because I think that the past is prologue here. If you go back and look at, where we were in February 2025, at the 100% level, Encore had a $36 billion capital program they had about $12 billion of upside opportunities. Through the year, they continue to work on that pipeline. And by the time they got to February this year, they took $36 billion and the $12 billion, and announced a brand new base capital plan of $47.5 billion. And then, Richard, they re upped that opportunity bucket back to $10 billion. And I think that is probably something like that is what we expect. We expect to see all or portions of the $10 billion get rolled into the $47.5 billion. I am quite confident that Don and Allen will come back with a very large upside bucket beyond that. that is what we will cover on the February call. All very clear. Thank you very much. Thank you. Appreciate you joining.

Operator: Thank you. And our next question will come from Anthony Crowdell from Mizuho. Your line is open.

Anthony Crowdell: Anthony Crowdell: Hey, guys. I guess just 1 high-level question on Texas and then 1 on the balance sheet. Just Steve had talked earlier about the 765 maybe delays in some of the news we are hearing there. We are talking about delays in the batch zero process. Is it the same issue there of NIMBYism? Just it seems that timing of both of them happening or the news we have seen in the last 3 weeks have just reached a peak. Is it the same issue that is going on in ERCOT?

Jeffrey Walker Martin: Look. I think I look at it like this, Anthony. You know, all across this country, there is a variety of elections taking place in November. there is a big focus on affordability. Does not matter whether you are a Republican or a Democrat or an Independent. We are looking for ways to release pressure on American families. I think Texas is not immune from that. Obviously, there is a process going forward where doing things at scale, Anthony, that have never been done before. And if it is gonna happen, it is gonna happen in the state of Texas. So I think there is a uncommon electricity demand growth opportunity, and I think there is an uncommon associated capital opportunity. I think a lot of people of goodwill at the table and just trying to make sure that we have got a right process. And I think Alan has struck the right tone. We what we want to do is make sure that we are supportive of the process. We are there to make sure that we can address some of the needs of stakeholders And if the outcome is it takes a little bit longer, to make the process better for everybody, and we end up with a durable framework, I think it is great for the state of Texas, and, in the long run, we continue to have an increasingly bullish view of Oncor. And then if I could pivot to Slide 11 and talk about Moody's. Your Baa2 with a negative outlook If my memory serves me correct, went to a negative outlook back in January 2025. Just curious if there is any timing on when they revisit it or any, you know, data points they are looking for, to change that negative outlook. Yeah. Thank you for that question. Obviously, the key issue for us at this point is working very closely with Justin and his team to close the KKR transaction. Which is on schedule for this quarter. And Karen, you could talk about the value of that transaction also from a credit standpoint.

Karen L. Sedgwick: Sure. And thanks, Anthony, for the question. Yeah. So the priority right now is getting the KKR transaction closed, and you will recall as part of our strategy, we work closely with the rating agencies to improve the strength of our balance sheet. So it is going to help us improve our funding capacity and really help us pay down some parent debt. So with the closing of the SI transaction, later this quarter, we expect to deconsolidate over $9 billion worth of debt off the balance sheet and see an improvement in those outlooks. And, specifically, you asked about Moody's. For them, it is not only closing the SI transaction, deconsolidating but they also are tracking the progress, at the SI projects. And in particular, they look for certain milestones. The 1-- you know, 1 of the ones they have said that is important is the pipe installation, which, again, Justin mentioned, we are on track there. So we expect that to be where they want it to be close to the end of the year. So I think it will probably be early next year before they make the changes. But to be clear, we are meeting with the rating agencies regularly. We are on track for what they expect us to do, and we are excited about being able to shore up the balance sheet And on top of that, Jeffrey and I have talked about, you know, having an opportunity to really improve the balance sheet going forward and having cushion there of at least 50 to 150 basis points on average above those thresholds with those thresholds improving. So excited about where this will take us. I think that is a great point.

Jeffrey Walker Martin: I mean, I think what you are seeing us do here, Anthony, is we have got an improving equity story. We are posting strong financial results both for the quarter and for the first half of the year. And we have a definitely improving credit story and balance sheet story. So we are looking to pull all that together in the second half of the year and obviously meet the expectations of our stakeholders on the credit side. Great. Thanks for taking my questions. Thank you.

Operator: Thank you. And we do have time for 1 last question today. And our last question will come from Carly Davenport from Goldman Sachs.

Carly Davenport: Your line is open. Carly Davenport: Hey, Jeff. How are you? Thanks for taking the questions. I just have 1 follow-up on some of the commentary earlier on the call on California. Just as you think about the potential outcomes here, if you do not see any legislation move forward this session, is there anything that you could see changing about your GRC filing or any other parts of your investment strategy in California that we should be keeping in mind?

Jeffrey Walker Martin: Yeah. You know, thank you, Carly. I would go back to some of the information we released in February. You recall that at the enterprise level, we are growing our utility platform at the enterprise level at about 11% annually. If you folded in the additional upside at Encore, that number would be closer to 13%. As part of that portfolio growth, California is now growing a little bit slower, growing rate base in California at about 5%, and I think we have got the right approach there in terms of making sure we meet the needs of the state in terms of safety and reliability. And there is a nod to affordability with that. I know this is a question that is come up both for Edison and PG&E who are in a little bit different situation than us. Think we have got the opportunity to continue to execute our current capital plan In terms of legislation itself, I do not wanna start speaking to hypotheticals without having the text in front of us. I remain constructive on legislation in the state, and I think we have got our capital plan dialed in about the appropriate level for the future. Got it. Okay. Very clear. Thank you very much for the color. Thank you for joining the call, Carly.

Operator: Thank you. That concludes today's question and answer session. At this time, I would like to turn the conference back to Jeffrey Walker Martin for any additional closing remarks.

Jeffrey Walker Martin: The SI Partners transaction, which we are targeting later this quarter. Finally, we hope to see many of you next week at the upcoming Citi Conference in Las Vegas If there are any other follow-up items, please reach out to our IR team with your questions. This concludes our call.

Operator: Thank you for your participation. You may now disconnect.