Please standby, we're about to begin. Good day and welcome to the Sempra Third Quarter Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Ms. Nelly Molina, please go ahead.

Good morning, everyone. And welcome to our Third Quarter 2021 Earnings call for Sempra. A live webcast of this teleconference and a slide presentation is available on our website under the Investors Section. We have several members of our management team with us today, including Jeff Martin, Chairman and Chief Executive Officer, Trevor Mihalik, Executive Vice President and Chief Financial Officer, Justin Bird, Chief Executive Officer of Sempra Infrastructure, Faisel Khan Chief Financial Officer of Sempra Infrastructure, Allen Nye, Chief Executive Officer of Oncor, Kevin Sagara, Group President, and Peter Wall, Senior Vice President, Controller and Chief Accounting Officer. Before starting, I would 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 detailed in the Company's most recent 10-K and 10-Q filed with the SEC. All of the earnings-per-share amounts in our presentation are shown on a diluted basis, and 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 quarterly report on Form 10-Q for the quarter ended September 30, 2021. I would also like to mention that the forward-looking statements contained in this presentation speak only as of today, November 5, 2021, and the Company does not assume any obligation to update or revise any of these forward-looking statements in the future. With that, please turn to slide 4 and let me hand the call over to Jeff.

Thank you, Nelly. Several years ago, we revised our business strategy to narrow the focus of the Company to invest in energy infrastructure and markets where we expect high growth. Today, there's a growing recognition about why these types of investments are increasingly important. Whether it's the current dislocation in European energy markets, high prices for Renewable Natural Gas (RNG) in Asia, or even challenging weather events here at home that call for greater resiliency, new investments in energy infrastructure are certainly needed. Bipartisan support in Washington for the pending infrastructure bill provides further validation of this trend. In addition to helping meet the needs of the market at Sempra, we certainly believe energy infrastructure right here in North America is a key driver of job creation, economic growth, and competitiveness across the economy. Moreover, maintaining a modern, flexible, and secure network of electric transmission and distribution lines, natural gas pipelines, and storage facilities is essential to delivering affordable and increasingly clean energy to U.S. businesses and consumers while promoting growth across all sectors of our economy. Against that backdrop, we'll provide a business update today on the key activities in our California and Texas utilities. Also, Justin Bird, our new CEO of Sempra Infrastructure, will provide an update on how he's organized that business to capture exciting new growth opportunities. This will be followed by a summary of our financial performance. As an overview for the quarter, our strategic focus on investment in energy infrastructure across each of our three growth platforms, together with a commitment to operational excellence, continues to drive strong financial performance. As you know, we have a long track record of continuing to raise our guidance and then working hard to meet or exceed that guidance. This is a result of our high-performing culture and continuous focus on improving the quality of our operations. As a result of these efforts, we expect to be at the upper end of our full-year 2021 adjusted EPS guidance range, and we are reaffirming our full-year 2022 EPS guidance range. Now, please turn to the next slide where Justin and I will provide business updates. Let me start with our California utilities. In August, SDG&E filed an off-cycle application with the CPUC to update its cost of capital effective January 1, 2022. This application would increase SDG&E's equity ratio from 52% to 54% and the Return on Equity (ROE) from 10.2% to 10.55%, while also lowering the cost of debt from 4.59% to 3.84%. The application, if accepted by the CPUC, would supersede the automatic cost of capital adjustment mechanism. In terms of timing, SDG&E has requested a decision in the first half of 2022. Also, at SoCalGas, we recently announced agreements expected to resolve substantially all material civil litigation against SoCalGas and Sempra, related to the 2015 Aliso Canyon natural gas storage facility leak, with net after-tax cash flows for SoCalGas expected to ultimately be up to $895 million after taking into consideration the collection of existing insurance receivables and other adjustments. These agreements are important milestones that will help the community and our Company work toward putting this difficult chapter behind us. In addition, last month, SoCalGas issued an important technical analysis underscoring the essential role of clean fuel networks that leverage existing gas infrastructure to help California achieve its net-zero goals and more importantly, to do so more affordably and efficiently than other alternatives. Moving now to Texas, Oncor announced its updated 2022 to 2026 capital plan of approximately $15 billion. It's important to note that this plan is a $2.8 billion increase over its 2021 to 2025 capital plan, which was presented at the 2021 Investor Day in June. At Sempra Infrastructure, we recently finalized a series of transactions, including the sale of a non-controlling interest to KKR, completing the exchange offer and subsequent cash tender offer to purchase the publicly-owned IEnova shares, and delisting IEnova shares from the Mexican Stock Exchange. Additionally, I'd like to note that regarding the formation of Sempra Infrastructure, we've updated our GAAP guidance range for 2021 to include items expected to be reflected in our fourth quarter results. You can find the GAAP reconciliation in the appendix to the slide decks. Please turn to the next slide. Before I hand the call over to Jeff, I want to make one follow-on point about Oncor. We've talked a lot in the past about being in the most attractive energy markets in North America, and Texas is certainly an example. Oncor today operates in one of the fastest-growing markets in the country, with some forecasts estimating that the Texas population will nearly double by 2050. With strong macro fundamentals across its service territory, Oncor just announced a record-high 5-year capital plan of $15 billion. This capital plan is primarily earmarked to meet load growth with two-thirds of the plan dedicated to expansions of the Company's transmission and distribution network. Oncor's robust projected capital plan and rate-based figures are expected to support economic development across its service territory, increases in generation interconnections, strong premise growth, and critical new investments in grid modernization and resiliency. Finally, Oncor now expects to grow its rate base to nearly $28 billion by 2026, which reflects a compound annual growth rate of about 8% over the 5-year period. The growth the Company is experiencing is just remarkable.

Thanks, Jeff. I'm excited to present the newly formed Sempra Infrastructure platform. We expect the formation of Sempra Infrastructure, along with the financial strength of KKR, to give us added scale to execute on a wide range of energy infrastructure opportunities across Sempra Infrastructure's three business lines. Since closing this transaction a month ago, we're already seeing the benefits of combining the two organizations through financial synergies and commercial optimization. For example, we've been able to restock our capital structure to create meaningful cost savings. To capture new development opportunities, we've organized into three business lines, LNG and Net Zero Solutions, Energy Networks, and Clean Power. We expect this structure will enhance growth and quality execution. This also strategically positions us to benefit from North America's continued trend toward the clean energy transition by optimizing the natural partnership between natural gas and renewables to help meet decarbonization goals here in North America and abroad. Energy infrastructure, as Jeff described at the top of today's call, is the focus of our development program. Now, please turn to the next slide where I'll briefly discuss how we're advancing growth in each of our business lines. First at LNG and Net Zero Solutions, the LNG market has recovered quite dramatically as evidenced by the spot market with record high prices being seen in Europe and Asia, and a recent uptick in long-term contracting activity around the world. With that constructive backdrop, our LNG development portfolio is expected to benefit from the strategic advantage of being situated on both the Pacific and Gulf Coasts with direct access to both Asian and European markets. As a reminder, ECA LNG Phase 1 was the only LNG export project in the world to take a final investment decision last year, which reinforces the competitive advantage of Brownfield sites that can dispatch into the Atlantic and Pacific basins. Now looking forward, we remain focused on the construction of ECA LNG Phase 1, working with our partners to optimize Cameron LNG's current operations, and the development of the Cameron LNG expansion. And finally, we're working on an exciting new Pacific opportunity in Topolobampo, Mexico called Vista Pacifico LNG. At ECA LNG Phase 1, engineering, equipment, fabrication, and site preparation are well underway. The project is on time and on budget, and we continue to expect first LNG production by the end of 2024. At Cameron LNG, the current facility is running well and hit record production levels during the month of October. Together with our partners, we're developing a projected 7 million tons per annum expansion project benefiting from 1 million tons per annum of debottlenecking trains 1, 2, and 3. With innovations in train design coupled with the high performance of trains 1 through 3, we expect this to be a very competitive, capital-efficient expansion. In terms of next steps, we plan to move to feed early next year to file an amendment with FERC to build Train 4 with electric drives in order to reduce Scope 1 emissions, and to work closely with our partners as we advance toward FID. Lastly, Vista Pacifico LNG is a new development project located adjacent to our Topolobampo refined products terminal. This new project is expected to be a mid-scale facility connected to two existing pipelines, one of them being the high-pressure pipeline system we own in Sonora. The project would source lower-cost natural gas from the Permian Basin for export to high-demand Asian markets. At our Energy Networks and Clean Power businesses, I'd like to highlight two important projects: the expansion of the GROE pipeline and the expansion of our ESJ wind farm. The GROE expansion is a pipeline project in development that is expected to increase gas delivery capacity to the Baja Peninsula and play a critical role in supplying gas to the ECA LNG Phase 1 project. We continue to advance a series of our cross-border renewable projects that are expected to dispatch directly into California. Specifically, the ESJ Expansion leverages the existing power transmission capacity that we own on the U.S. and Mexico border. We're the only company that owns cross-border transmission lines that can connect into the California electric grid, and that allow us to have a competitive advantage in helping the state meet its growing need for new renewable energy resources. I'm excited about the team we put together and about the business we're building. It's a unique opportunity where we're well-situated to compete, and we certainly expect to play a crucial role in investing in energy infrastructure right here in North America that supports the global energy transition. Please turn to the next slide, where I'll pass the call to Trevor, to review our financial results.

Thanks, Justin. Earlier this morning, we reported third quarter 2021 GAAP losses of $648 million or $2.03 per share. This compares to third quarter 2020 GAAP earnings of $351 million or $1.21 per share. On an adjusted basis, third quarter 2021 earnings were $545 million or $1.70 per share. This compares to our third quarter 2020 adjusted earnings of $432 million or $1.49 per share. Please turn to the next slide. The variance in the third quarter 2021 adjusted earnings compared to the same period last year was affected by the following key items: $35 million of higher earnings at Sempra, Mexico due to higher ownership of IEnova, $35 million of higher CPUC base operating margin, net of operating expenses at SDG&E and SoCalGas, $29 million of lower losses at parent and other primarily due to lower preferred dividends, and $29 million related to the energy efficiency program refund in the third quarter of 2020 at SDG&E. Please turn to the next slide. We are pleased with our operational and financial performance this quarter and are focused on continuing to execute through the remainder of the year. We also think our strong year-to-date performance sets us up well to have a great year in 2022. With that, this concludes our prepared remarks. We'll now stop and take your questions.

Thank you. If you're using a speakerphone, please ensure your mute function is turned off so that we can hear you clearly. We'll take our first question from Jeremy Tonet with JPMorgan.

Hi. Good morning.

Good morning, Jeremy.

I just want to touch on the LNG market a bit here, interest and heard about the new prospects in Mexico that you were talking about, but just curious your thoughts on the market. Right now, we've seen some others kind of signed some contracts close to 20 years pretty recently here. And so, it seems like the market could be improving. And I understand that there's two types of markets, the spot obviously being very strong right now, but you guys are looking at the long-term contracts and there's some different dynamics that go on there. Just wondering if you could help us think through how the market looks at this point for the longer-term contracts.

I appreciate having the opportunity to answer that question. I'll pass it to Justin here momentarily, but I would just start by saying, in the LNG trade, the spot market's roughly 30% of the overall market. We think the market backdrop is quite constructive. We've been fairly bullish on LNG, as many of you know, for quite a long period of time. And I would say that we're quite optimistic based upon the level and nature of our current conversations with counterparties. But let me just pass it to Justin. Maybe you can give an overview of what you're seeing in the marketplace, Justin.

Thanks, Jeff, and hi, Jeremy. Yeah, I think we've seen a dramatic improvement in the market, both on the spot market, and I think importantly, you're starting to see some of these long-term contracts come back. Also importantly, we're seeing higher forward curves over the next few years for deliveries into Asia and Europe. And I'd say the final thing that we're seeing that I think is important is you're seeing China's reentry into the long-term market. We are seeing a real uptick in our discussions, both in Asia and Europe, and frankly, as well as South America. So, I think we're going to see some exciting things coming over LNG portfolio, and we should benefit from this constructive market backdrop. Again, we think we have a competitive advantage, the ability to dispatch directly into Europe and Asia. And again, over the long term, it's nice to see that we still see demand for LNG growing mid to high single-digits, which supports our long-term very bullish view on LNG development.

Got it. That's very helpful there. Thanks, and maybe peeping towards California here. And thinking about the California investment opportunities and some of the reliability considerations that remain in focus, are there any near-term opportunities you see for San Diego Gas & Electric at this stage? And just you see smothers in the state in a moving forward and different initiatives. What do you think are the next steps for you guys there?

I'll give you a couple of thoughts. We're actually quite constructive on California. A couple of things I'd mention, as you may have seen the decision yesterday, where the PSC approved increasing the capacity utilization at Aliso Canyon, like they increased it from roughly 34 Bcf to 41 Bcf. And I would tell you, we're certainly committed to supporting a much cleaner economy in California. But the expectations today, Jeremy, is that traditionally, California uses roughly 39% to 41% of natural gas for its electricity production in the wintertime because of low hydro levels. I think there's much more focus now on that being closer to 45%. We could see record utilization of natural gas here in California in the winter, and I think the PUC decision reflects that. More broadly both SoCalGas and SDG&E have made a commitment to be a leader in the clean energy transition, and this is going to inform not only our current investments but how we're stacking capital investments going into the General Rate Case (GRC) next year. And Kevin, maybe you can talk about some of the things that you are seeing around battery storage and other things that could be near-term opportunities for SDG&E.

Thanks for that, Jeff. Thanks, Jeremy. Yes, we are seeing a lot of opportunities at both utilities. Jeff mentioned at the gas company, obviously, a lot of clean fuels opportunities around RNG and hydrogen. But you specifically asked about SDG&E. At SDG&E we're seeing a big push in the state, given what we've seen in the last couple of tight summers around more storage capacity, more generation capacity. I think SDG&E will have some filings in the next few weeks around more utility-owned battery storage. I think you'll also see a lot more activity in the coming months and years around electric vehicles too. California has made a lot of bold commitments to move much more strongly toward electric vehicles. And I think you'll see a lot of grid enhancements and good modifications in that area. But I'd also remind you that climate resilience is a big thing here, and so continues to be a lot of wildfire mitigation opportunities to invest capital as well.

Got it, that's helpful. I'll leave it there, thanks.

Thanks, Jeremy.

We'll take our next question from Shahriar Pourreza with Guggenheim Partners.

Morning, Shahriar.

Good morning, team. It's actually, Constantine here for Shahriar. Thanks for taking our question. Just following up a bit on the LNG market question. As you're putting out a more discrete SIP project pipeline, are there big economics for the projects within that pipeline still in the same low-teens IRR range that you've targeted before for some of the discrete projects? And how do those differ between the three categories that you outline?

So, I think you're talking about the return expectations across all three platforms?

Yes.

What I would probably say is, in this midstream space, we target mid-double-digit levered type of returns. We think those are consistent across all those. Interestingly, on the Clean Power side, you may recall that we've seen returns come in here in the U.S. That's one of the reasons we exited that business two or three years ago. In Mexico, because of our border position and the access we have to two very important transmission lines that bring power into the U.S., we think we have a real competitive advantage in that region. So, we expect relatively higher returns in which you might find in renewables here in the U.S. So, I would state that overall, Justin's portfolio is going to manage toward mid-double-digit equity returns. One other thing I'll mention too to the broader LNG story, Justin and I got back from a recent trip to Europe, where we visited Warsaw, Dusseldorf, Berlin, Brussels, and other places. There's a tremendous amount of recognition in Europe about the role for natural gas and specifically LNG. And there's certainly a new risk premium being assigned to pipeline gas. There's even discussions at the highest level of the EU about creating a strategic natural gas reserve. We've got a team on the ground next week in Asia. I think going back to the original point with Jeremy, there's a tremendous amount of conversations today. And I think this continues to reinforce our bullish case for LNG.

Excellent, that's great color. And I guess also shifting to the updates on regulated CapEx. I mean, we're obviously seeing a healthy Oncor update, and do you anticipate a similar entry year cadence of an update for California? And maybe you could be a little bit more specific, as you're thinking about the opportunities that you outlined, is there any anticipation they are going to realign the focus with policy, both in the state and federal, and the next iteration of those filings and GRC I suppose?

Let me start a little bit more broadly. I think there's been a lot of interest as people have engaged with us over the last couple of months about having better visibility into Sempra's long-term growth rate. You've heard us talk about our track record in the past of growing this business. Whether it's a 10-year period or 20-year period, at an EPS growth rate of around 7% or 8%. I must tell you, we feel fairly confident in our ability to produce similar growth in the future over a 7 to 10-year period of time. And part of that is bolstered by this continued point that we make about the quality of the markets we're participating in right? So, you've got the number 1 market in America is California. And the number 2 market is Texas. And I think Allen just has a remarkable story in Texas which keeps getting better. To your point, we're going to have an opportunity to restack our capital program here in California. It's part of our GRC filing next year. And I think you should expect to see us make filing requests around many of the things that Allen's doing, which is around resiliency, modernization of the grid, and making sure we're making those investments today that ensure that our infrastructure is future-ready for what we need in the future, such as hydrogen and other things on the system. So, we have a fairly clear pathway to grow the business in California, very similar to Texas. I think one of the things you're seeing on today's call is a pretty bullish case by Justin about what we can do in the Sempra Infrastructure business as well.

Well, I think that that's an abundance of clarity. Thanks, Jeff.

Thanks, Constantine.

We'll take our next question from Durgesh Chopra with Evercore ISI.

Good morning.

Good morning. Thank you for taking my question. I wanted to revisit the Analyst Day where you mentioned approximately $2 billion to $3 billion in additional CapEx at the utility. Could you clarify what portion of that CapEx you have committed or included in the plan?

So, I think there were a couple of things I have to make sure I don't misunderstand your question. The difference between the 5-year strip from Oncor that we presented in June, which went through 2025, as compared to the new 5-year strip, which goes to 2026 is a difference of $2.8 billion. We also talked about the Analyst Day, the intra-period change in 2021 and 2022 from the prior year's period. So, I think that you've seen two things take place. Year-over-year, you've seen the 2021 and 2022 CapEx for our utilities increase. But since June of this year, you've seen Allen's numbers increase by $2.8 billion. So hopefully that's helpful.

Sure, in terms of the Oncor CapEx itself, the figure was around $775 million to $1.3 billion.

Let me address that and hopefully, this will be helpful. A couple of points: the 5-year projection, going back to June, has increased by about $2.8 billion from Allen's organization. Additionally, Allen had a separate incremental bucket ranging from $775 million to $1.275 billion, which has remained unchanged. It might be the right time for Allen to discuss what's included in your $15 billion CapEx plan and what isn't included concerning future rulemaking and your incremental bucket, which I believe is the essence of the question.

Sure, thanks. You've described it very well. Today, we announced another billion dollars for Oncor CapEx over the next five years, bringing the total to $2.8 billion since Investor Day, as Jeff mentioned. This is supported by the tremendous growth that we can discuss shortly. Our new plan involves $15 billion over the next five years. A couple of years ago, we introduced the concept of an additional incremental CapEx bucket, which we initially estimated at $725 million to $1.275 billion.

Some projects will emerge from our annual discussions with the Board about the $15 billion plan, while we also consider future projects for the incremental bucket. We have currently announced this 5-year $15 billion plan. In addition, there is another incremental bucket estimated between $725 million and $1.275 billion. This incremental bucket includes potential capital expenditures related to legislative activities in Texas. One opportunity in this bucket is participation in the Texas storage market, with 100 megawatts available statewide, potentially generating around $20 million for renewable projects. Additionally, the Second Bill SB1281 relates to Certificates of Convenience and Necessity and suggests about $50 million a year for transmission projects. On the emergency generation side, we are working on acquiring capital leases and expect to have about 10 megawatts under contract by January 1. The capital expenditures for emergency generation will depend on the ultimate leasing decisions, currently ranging from $2 million for smaller capacity to around $10 million for larger units. We will carefully decide how much emergency generation to acquire, impacting our capital expenditures. The same bill also enables acquiring long lead time equipment needed for service restoration, with an estimated $10 million for general plans in 2022 and an additional potential $100 million over the five-year plan. However, this total could vary significantly, especially with larger equipment costing between $50 million to $70 million per site. We are evaluating various legislative opportunities, and the potential capital expenditures related to the legislation from Storm Yuri are currently noted in our incremental bucket, which might later be incorporated into our 5-year plan. Is that what you were looking for, Jeff?

It is and I'll tell you the reason, there's so much enthusiasm from our team, as we've seen a $2.8 billion restack in that capital plan up to $15 billion since June. It has had no impact on the incremental bucket, which is still there as Allen described. And hasn't picked up yet some of the forward-looking opportunities around rulemaking in legislation. So, I think it's a very important story. And the last thing Allen, you might speak to is the expected impact on rates.

So, here's how the rate impact works. Of the $15 billion over 5 years that we're talking about today, about two-thirds of that is growth-related. So new customers, more or less, or expansion of customers. Of the increase that we're talking about today, about 80% of that increase is directly related to growth. And I should mention also that 97% of that total amount of $15 billion over 5 is tracker eligible. So, as we make these investments, keep in mind that we are presently the low-cost investor-owned utility in the state we have the lowest rates of all the investor-owned utilities. We believe that because of this substantial growth we're seeing on our system, even after $15 billion over 5, we will remain the low-cost provider, or at least close to the low-cost provider on the right side of that chart of the rates with all the investor-owned utilities. Generally, I think we're probably thinking rates could increase somewhat similar to inflation. But again, we're the low-cost provider now and we believe will be the low-cost provider at the end of five years in $15 billion. Thanks.

Thanks a lot, Allen.

Thank you both. Appreciate you breaking that down for us. Thank you.

Thank you.

We'll take our next question from Stephen Byrd with Morgan Stanley.

Hi, good morning. Thanks so much for taking my questions. I wanted to talk about federal legislation, and in particular, green hydrogen, though there are other elements here that could benefit Sempra. You all have been innovators in a number of areas that could get support at the federal level. And I was just curious at a high level, I know the exact composition of the bill could change and obviously we are not even sure it's going to pass at all, but to the extent that we did see the framework that's been laid out, what are the areas that you're most excited about in terms of what that support might mean in terms of accelerating your plans or changing your plans?

I appreciate the chance to address that question. Back in 2018, you might recall there was significant discussion about the differences between regulated and unregulated businesses. We used that opportunity to redefine what an investment-class looks like. Ultimately, all of these represent energy infrastructure investments, and the ways to generate revenue can vary depending on whether one operates within a regulated framework or not. We focused on being proactive in identifying the markets where energy infrastructure is likely to expand the most. In my opening remarks today, I highlighted that energy infrastructure is currently very active in Europe, Asia, and the U.S. The infrastructure bill you mentioned serves as strong affirmation of its importance in the U.S., creating favorable conditions for Sempra during this clean energy transition. Four key topics arise from today’s bill, which could be passed as soon as today. First, we are monitoring private activity bonds that facilitate financing for carbon sequestration and storage technologies, which we believe is crucial for the sector. The IEA has indicated that achieving net-zero emissions by 2050 is not feasible without carbon sequestration, which is why Justin's business is prioritizing this opportunity. Second, green hydrogen is central to our nation's future. We have decided to engage with all relevant trade associations and are currently involved in around 10 to 12 hydrogen research and development projects. The legislation includes plans for four regional hydrogen hubs across the country, which we see as significant for establishing distribution centers. It’s worth noting that the leading manufacturing facility in the U.S. is in the LA Basin, while the primary industrial region is the Gulf area between Texas and Louisiana. These regions are of particular interest to us, and we believe hydrogen will play a vital role there. Two additional points from today’s bill include a focus on wildfire management, a pressing issue in California and other parts of the world, which includes support for vegetation management and enhancing resiliency. Finally, there's considerable focus on electric vehicles. Trevor and I were involved in a strategy meeting with Allen's board last week in Texas, and the electric vehicle market there is massive. Currently, there are about 30,000 vehicles in Oncor's system, while at SDG&E, we are just 120th the size of Oncor's system with 70,000 vehicles in our network. Hence, electric vehicles are expected to be of great significance, and the bill outlines various funding opportunities to boost electric vehicle initiatives nationwide. Those are the four areas we are closely tracking, and we share your enthusiasm for green hydrogen.

That's a very thorough answer. Thank you for that. It's helpful to understand your focus areas. Shifting back to LNG, you made some great points about the strength and excitement in this market, and your solid positioning. Does this global excitement open up more opportunities for you to monetize your assets or find low-cost avenues for growth, such as the opportunity in Mexico you mentioned? In other words, could this be a way not only to monetize but also to leverage external funding to drive better growth and returns overall?

Yeah. One of the things I would start with saying is the priority of our capital program is our U.S. utilities. And what we want to do is be able to grow our utilities at a rate faster than our peers and do that without coming back to the capital markets to issue separate equity. And that's one of the reasons that the KKR transaction was so important. It gave us a chance to crystallize and highlight value in that business and recycle capital back into reducing parent debt and meeting to the capital needs like Allen described today. But I would tell you, I don't think we're finished, right? That business now has been valued at roughly an enterprise value of $25 billion, so we think about going forward. We think there will be strategic opportunities to bring that business to the market, but those are conversations we would obviously have with KKR and to your point, if we have the chance to further diversify the capital structure at higher valuations, that's something you should look for us to do. And we will be looking under Faisel and Justin's leadership at bringing in project equity on some of these projects to reduce the call of capital from Sempra Infrastructure. But right now, they are very, very focused on growth, and there's a lot of enthusiasm for what they think they can accomplish.

That's great. Thank you very much. That's all I had.

Thank you for being on the call.

We'll take our next question from Michael Lapides with Goldman Sachs.

Good morning.

Hey, everyone. Thank you for taking my questions this morning. I have one short-term and one long-term question. For the short-term question, could you clarify what is included in your 2022 guidance, particularly regarding the growth trajectory related to the California cost of capital dock and its mechanism? For the longer-term question concerning the potential new Mexico LNG project, can you discuss what kind of pipeline development is necessary to transport gas from the Permian to the site? Thank you.

Thank you. I'll pass the pipeline question to Justin in a moment. It's actually a very positive story. Many of you on the call have been tracking the developments in the cost of capital for SDG&E, PG&E, and Edison. I want to remind everyone that the SoCalGas mechanism did not trigger, and we will keep a close watch on this. The critical gating item for everyone in the state is the upcoming scoping memo we anticipate from the commission. In terms of forward guidance, as we previously stated, whether or not we receive the automatic triggering mechanism or approval for our application is included in our guidance for next year. Due to some additional measures the business has implemented to cut costs and improve efficiency, we believe it will fall within the range of $0.05 to $0.10 either way, but well within our guidance range. We do not plan to update our guidance without this outcome. Justin, I think it's important to help our audience understand what sets the pipeline system that supports Vista Pacifico apart, especially since pipeline development often presents challenges in domestic LNG development.

Yes. Thank you. Thanks for the question, Michael. Yes, Vista Pacifico would effectively source gas from the Permian from the U.S. basin and deliver it in the form of LNG to Asia. There are two existing pipelines that basically converge very close to the site, so there would be a very small spur type pipeline that we would build that would connect to PacificO2 existing pipelines, both of which are underutilized on a transmission capacity basis. So, I think very little pipeline construction associated with this. This is part of the strategic location of the project is its proximity to pipelines and the fact that two of those pipelines are very underutilized.

Got it. And just 1 quick follow-up. Are you the only LNG, or potential LNG project competing to utilize those pipes?

I think there is another existing development project that is north that is trying to get some capacity from one of those pipelines.

Which we own.

Got it. Thanks, guys.

Thanks, Michael.

We'll take our next question from Ryan Levine with Citi.

Good morning.

Good morning, Ryan.

Hey, Jeff. Given the political uncertainty related to CFP contracts in Mexico, are there any proactive steps the SIP or broader Sempra organization is considering to mitigate the counterparty risks or other broader opportunities to capitalize on the growth in Mexico? And then related, did Sempra have any differentiated impact relative to its SIP partners in any policy change in Mexico in conjunction with the KKR agreement?

I would start with your second question, which is KKR has their own infrastructure presence in Mexico, both on the refined product side of the value chain, as well as with renewables. They are certainly collaborating with us constructively with CSE, so that's been helpful. I can make a couple of comments, Ryan, that because of our headquarters being here in San Diego, you'll recall that we've been investing pretty consistently down in Mexico for close to 25 years. And what excites us back then still excites us today is you've got about 130 million consumers. It's one of the fastest-growing consumer markets in the Western Hemisphere. And most importantly, is the largest energy export partner for the U.S. at about 7 to 8 BCF per day. And I think even though we've got leading scale and expertise at Sempra Infrastructure, we're still very selective about the projects we expect to invest in. Even the Vista Pacifico project that Justin was describing, those capacity releases on some of these pipelines that would be needed would come from the government. And this is really a government-sponsored project, and one that they've been quite public about supporting from a permit and pipeline capacity standpoint. But curious you, I think is quite topical that there are reforms being proposed in the electricity market. I think you'll expect to see the lower house vote on that, in the fourth quarter. But it would not clear the legislature until probably April of next year, and we handicap that as a low probability. What's interesting about this is those reforms largely target to the point you made, Ryan, generation assets that are connected to the CFE system. Today, we have a relatively small footprint in generation across all of Sempra because we're a transmission and distribution business. I think the electric investments in Mexico account for roughly 1% of our consolidated earnings, and more importantly, the vast majority of all those projects, something like 80%, are on the border with California and are not connected to CFE and dispatch directly into the Cal ISO. But I will leave you with one thought which is probably the most important. We made the decision several years ago that what we really want to do is help President Lopez Obrador be successful. So, the majority of our conversations are focused on ways that we can partner with his cabinet to make Pemex be successful and make CFE successful. So, when you see us announce projects like Vista Pacifico, it's because those will be done largely in tandem with the objectives of the government. That's one of the reasons we still feel good about those types of projects in Mexico.

Appreciate the color. Thank you.

Thank you, Ryan.

We'll take our next question from Paul Zimbardo with Bank of America.

Good morning, Paul.

Hi, good morning, team. I said a question, if you could discuss at a high level just how you think some of the latest cost estimates change for the Brownfield and Greenfield development projects? However you want to frame it, what percentage changes, or just how to think about the latest commodity backdrop.

So, I think there's two parts to that question. Number 1 is this issue of how much inflation are we seeing in terms of how we source our soft and hard costs at any of our projects, including our utilities. And we've got obviously some building mechanisms that help us with that on the utility side. In Justin's business, you recall that we were very reliant on EPC wrap contracts, so the procurement and exposure to costs, we shift that risk to the construction contractor. And that's why it's important that they have strong credit counterparties. But in terms of Brownfield versus Greenfield, I think the way I would answer that, very generally, to say, Brownfield projects always have a cost advantage, and Greenfield projects can be also quite viable. Typically, they need to be done at scale, and Port Arthur would be an example of that, but coming back to our projects, think about this. For us to have the opportunity to turnkey 6% to 7 Bcf, I mean, 6 to 7 MTPA at Cameron expansion; our view internally is that it could be one of the lowest cost projects for new capacity in the world. So, our likelihood of going forward that, we account as being relatively high and that's why we've got 100% of MOUs in place to get to the next step and move to heads agreement from the SPAs there. And then this to Vista Pacifico is the type of price very similar to ecoPhase 1. Our expectation is it will be oversubscribed. That is a Greenfield project, but the geographic location to be able to have direct pipeline access from two different pipelines to Waha and to be able to dispatch directly into the Pacific will be a tremendous and competitive advantage where we market that project.

Okay, now that's great. And then shifting back to Oncor, thank you for that super detailed breakdown. Given the robust opportunity set should we think about the October 2022 board meeting as the next opportunity for refresh, or should we think more of the 2021 pattern where those updates sprinkle throughout the year?

It's such a great question, and I hate to foreshadow that we're going to be sprinkling things throughout the year. But I'll give Allen great credit. It wasn't that they had an ongoing process just to update their plan. They were looking at issues in the market around inflation and how they supply chain issues in advance. So, the real genesis of Allen updating CapEx guidance was he came back to the boards so they can make forward purchases that allow them to keep their 2021 and 2022 capital plans in place. What they were doing is they were reaching forward to source what they needed to execute those capital plan. So, I think you would expect his team to do something very similar. They're watching the marketplace if there are opportunities to adjust that, they will. And I think he made a great case for we didn't cannibalize that incremental bucket list that's been replenished as we look going forward. I think that they will continue to look for opportunities to take price risk away from their capital program and ensure that they can deliver the plan they have on the street today.

Okay, great to hear. Thank you all.

Yes. Thank you for joining us.

We'll take our next question from Craig Shere with Tuohy Brothers.

Hello, Craig.

Hi, good morning. Do you see the possibility for Topolobampo to advance ahead of Port Arthur in the new project queue? Also, did I understand correctly that the emphasis will be on obtaining equity from partners outside of SIP, if external equity is necessary for the construction of three simultaneous LNG projects: ECA Phase 1, Cameron Phase 2, and another one?

A couple of things here is the Topolobampo project will be very similar in scale to ECA Phase 1, kind of that 3 to 4 million-ton-per-annum size. It definitely can jump ahead of Port Arthur, so that's the answer to your first question. We are certainly quite bullish both on Cameron expansion, which is 6 to 7 MTPA, as well as the Vista Pacifico project, which is closer to 4 million tons per annum. In terms of equity, we're very comfortable with the level we're at today with KKR. Certainly, if we saw opportunities to diversify the capital structure at Sempra Infrastructure at points in the future at higher valuations, we would evaluate that against the opportunity to bring in equity down to project level. But definitely, there's an interest to attract equity participation at the project level, given the size and scale of our expectations around LNG.

That's very helpful, and the last question, maybe Justin, if you want to opine, but we've kind of noticed that equity cargo capacity that can be delivered years in advance of new train construction appears to be a major selling point for new long-term contracting. On track doing, like the latest Venture Global announcement included some short-term supply off their facility. How do you see this market dynamic playing out with respect to SIP's portfolio?

Yes. It's a great point, Craig, and I think you even saw Cheniere's deal today, had a lead into the bigger capacity coming at the long term. So, I would say I wish I had capacity I could sell right now to bridge some of the construction on these other projects. Because I do think it is a competitive advantage. The market is very hot right now, and people are looking for volumes in the next few years. I think for us, it's a question of maintaining our financial discipline, potentially looking for partners where we can provide some bridge volumes into volumes coming from our facilities. And then looking for potential excess volumes that could be available via the partners out of Cameron or when ECA Phase 1 comes online looking for some additional volumes as production actually starts and we see what production looks like. Yes, I think you raise a great point having volumes to bridge into these long-term contracts, I would say is a competitive advantage and it's something that we're focused on and looking for opportunities to find those types of bridging arrangements.

Great. Thank you very much.

Thank you. That we will conclude our question-and-answer session. At this time, I'd like to turn the call back over to Jeff Martin for any additional or closing remarks.

I just want to thank everyone for joining our call this morning. We're certainly pleased to join the EEIC, EEI Conference virtually next week. We're looking forward to spending time with as many of you as possible. Thank you again for joining us. Feel free to reach out to our IR team for any additional questions. This concludes today's call.

Thank you. That will conclude today's conference. We appreciate your participation.