DBA Sempra

Good day and welcome to the SEMPRA Energy Third Quarter Earnings Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Ms. Nellie Molina. Please go ahead, ma'am.

Good morning and welcome to SEMPRA Energy's Third Quarter 2020 Earnings Call. A live webcast of this teleconference and a slide presentation is available on our website under the Investors section. Several members of our management team are on the line 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 LNG, Alan Lai, Chief Executive Officer of Encore, Kevin Sagara, Group President, and Peter Wall, Senior Vice President, Controller, and Chief Accounting Officer. Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statements we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K and 10-Q file with the SEC. All of the earnings for shared 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 poll for a reconciliation to GAAP measures. I'd also like to mention that our forward-looking statements containing this presentation speak only as of today, November the 5th, 2020, 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 four and let me hand the call over to Jeff.

Thanks, Nellie, and thank you all for joining us today. Before I start, I'd like to take a moment to recognize the exceptional work of our 18,000 employees who have been working hard to improve the safety and resilience of the communities we serve. We power thousands of hospitals and emergency service providers, the nation's two largest ports, hundreds of clean transit and heavy-duty trucking fleets, and essential electric generation. Millions of people count on our critical energy infrastructure, and the work we do is a great credit to the dedication and professionalism of all of our employees. Last quarter, we successfully concluded a two-year capital rotation program where we divested non-core assets and repositioned our business in what we believe are the best markets in North America, and we continue to see steady improvements in our financial results. Today, we're proud to be reporting strong earnings and reaffirming and guiding to the high end of our full year 2020 adjusted EPS guidance range. Additionally, we're reaffirming our full year 2021 EPS guidance range. Now, please turn to the next slide. In addition to improving financial performance, our current strategy of focusing on lower risk T&D investments has the added benefit of producing stable cash flows and improved earnings visibility. In large measure, this is the result of strong growth that we're seeing in our California and Texas utilities, where constructive regulation limits exposure to the price and volume of electricity and or natural gas sold. Also, when taken together, our U.S. utilities have a blended authorized ROE of right around 10.1 percent, which is excellent given the current environment. Adding to the growth profile of our utilities, our North American infrastructure businesses also provide attractive economic returns and are supported by take or pay contracts with over 20-year terms on average. As we demonstrated in Peru and Chile, as well as our renewables business, we built strong franchises that competed locally and globally. When we sold those businesses, investors not only bought the assets, but also the franchise value we had built up over decades, which was reflected in the premium multiple that we received. Similarly, we think we've built a strong franchise in our LNG business, and to fund its growth needs, we're focused on sourcing the lowest cost of capital to enhance value to our shareholders. At Cameron LNG, we believe cash flows from Phase 1 should cover any required equity for the Phase 2 expansion. Separately at Port Arthur LNG, we're evaluating efficient financing options with a view towards shifting post-FID equity contributions until much later in the construction phase, and At ECA LNG Phase 1, we estimate that Semper and Ianova's equity funding to be approximately $250 million for each company. That's why, with all this growth in front of us, we're actively looking at different financing structures and different forms of infrastructure and strategic capital. In doing so, we think it gives us the opportunity to efficiently fund growth, to highlight the growing value of our LNG franchise, and to strengthen Semper's balance sheet. which is important since we expect to also increase our investments in our utility businesses over the next five years. Beyond highlighting our continued execution and the strong organic growth from our infrastructure platforms, I would also like to update you on the recent recognitions we've received in the area of diversity and inclusion, which I would note is central to how we think about a high-performing culture. Please turn now to the next slide. In the last month, we received two awards recognizing SEMPRA for its industry-leading approach to diversity and inclusion. The first was the National Association of Corporate Directors NEXT Award, which recognizes company boards for their excellence in utilizing diversity and inclusion as a strategy for building long-term value for their companies. And the second was the Forbes Just 100 List, which recognizes companies who are doing right by all of their stakeholders. We're proud of the results of our continued focus around people, priorities, and culture. Across our management and more broadly our workforce, we compare favorably to industry benchmarks in the representation of both women and people of color. We also have a strong record and commitment to supplier diversity. And I think the key takeaway is we're focused on advancing our strategy in a way that is increasingly responsive to all stakeholders over time. Now please turn to the next slide where I'll highlight some of our more notable accomplishments for the year. This slide shows why I couldn't be more proud of our team. I won't discuss everything that's referenced here, but several points are particularly noteworthy. This year we launched a record five-year capital plan, completed the sale of both our Peruvian and Chilean businesses with cash proceeds of approximately $5.8 billion before tax. guided to the high end of our 2020 adjusted EPS guidance range in May, and then raised guidance in June, and now we're guiding to the high end of that increased range. And lastly, we executed the $500 million share buyback. Before turning to the next slide, I wanted to briefly discuss the San Diego Franchise Agreement. The city charter here in San Diego requires a competitive process to renew the franchise with a view towards getting the best outcome for the residents of the city. And those same residents happen to be our customers as well, so we have a strong alignment of interest here with the city to ensure a great outcome. SDG&E recently submitted a competitive bid and looks forward to concluding the process later this year. But because we are in a quiet period, we need to be respectful of the city's process and accordingly will not be able to comment further. Please turn now to the next slide, and I'll turn the call over to Trevor, to review some of the more notable operational and financial developments.

Thanks Jeff. We had several positive developments this past quarter at all of our infrastructure businesses. SDG&E launched a comprehensive sustainability strategy to advance carbon neutrality. This strategy focuses on aspirational goals in environmental stewardship, clean transportation, grid modernization, and community engagement, all designed to directly support California's clean energy goals. As part of its sustainability commitment, SDG&E announced its plans to place two green hydrogen projects into service by 2022. While these projects are small in relation to our capital plan, we view them as important steps towards a cleaner energy economy and are in acknowledgement that we have an important role to play. At SoCalGas, we announced that the U.S. Department of Energy awarded funding for three projects advancing clean automotive transportation technologies that we're participating in, including fuel cell technology for trucking and transit and near zero emissions natural gas technology for rail locomotives. This is another demonstration of our commitment to be an integral part of California's clean energy future. In addition, the California utilities received a final decision from the CPUC for approval to recover approximately $935 million related to the pipeline safety enhancement plan. This represents approval for virtually all of the amounts requested in the proceeding. Moving to Texas. Today, Encore announced its 2021 to 2025 capital plan of $12.2 billion. This is an increase over the previous five-year capital plan and is a testament to continued execution by the Encore team, growth in its service territory, and resiliency of its business. Additionally, Encore issued its inaugural sustainable bonds with proceeds to finance or refinance expenditures with minority and women-owned businesses. Now let's shift to our North American infrastructure businesses. We're pleased that Cameron LNG Phase 1 reached full commercial operations in August. All three trains are now generating earnings and cash flows. As a reminder, we expect our share of annual earnings to be approximately $400 million to $450 million with no commodity or volumetric exposure, and the contracts are supported by A-rated customers who are also equity partners in the facility. Additionally, due to the structure of the tolling agreements, SEMPRA doesn't expect an earnings impact from the recent outages due to hurricanes Laura and Delta. We continue to work with our partners to ensure the resiliency of the operations. Moving to ECHA LNG phase one, we're continuing to work closely with the local authorities as well as at the highest levels of the Mexican government to advance the export permit process. We're expecting to reach a final investment decision by year end. As a reminder, ECHA LNG Phase 1 is fully contracted with long-term take-or-pay contracts. SPAs with Total and Mitsui are each in place for a 20-year term, and we have a lump-sum turnkey EPC contract with Technip FMC. Shifting to Mexico, we've advanced construction of the Gulf of Mexico fuel terminal network. Once completed, the three strategic terminals, which are all backed by dollar-denominated take-or-pay contracts with Valero, should contribute nearly 3.4 million barrels of combined refined product storage capacity, while improving Mexico's energy security. Notably, the Veracruz terminal is situated in the largest Mexican port on the Gulf Coast and is expected to be one of the largest terminals in the country. Please turn to slide 9, where I will discuss more detail about Encore's capital plans. Texas continues to be one of the premium macro and business environments in the United States, and Encore is well positioned to take advantage of these strong fundamentals. This is demonstrated by an increase in Encore's five-year capital plan to $12.2 billion projected for 2021 through 2025, which is primarily attributable to supporting new growth across both the transmission and distribution systems, maintaining the transmission system, including investments to enhance the safety and reliability of service, and continuing investments in innovation and technology. Overall, Encore's five-year capital plan has increased by over 60% since the 2017 regulatory commitment, reflecting the continued growth and critical investments needed to support its customers, the state, and the ERCOT market. Please turn to slide 10, where I'll review our financial results. Early this morning, we reported third quarter 2020 GAAP earnings of $351 million or $1.21 per share. This compares to third quarter 2019 GAAP earnings of $813 million or $2.84 per share. On an adjusted basis, third quarter 2020 earnings were $380 million or $1.31 per share. This compares to third quarter 2019 adjusted earnings of $425 million, or $1.50 per share. Please turn to the next slide. The variance in the third quarter 2020 adjusted earnings when compared to last year was affected by the following key items. $56 million of lower earnings due to the sales of our Peruvian and Chilean businesses in April and June of 2020, respectively. $32 million of lower income tax benefits from flow-through items Due to the timing of the 2019 GRC final decision at SoCalGas, $32 million of unfavorable impacts from foreign currency and inflation effects at Central Mexico net of foreign currency derivatives. Third quarter 2019 had approximately a $10 million gain, and third quarter 2020 had approximately a $20 million loss. $29 million charge related to an energy efficiency program inquiry at SDG&E $3 million of lower earnings at Semper Texas Utilities, including $21 million from unfavorable weather. The lower earnings were also due to increased operating costs, partially offset by increased revenues from rate updates to reflect invested capital. This was partially offset by $79 million of higher equity earnings from Cameron LNG JV, primarily due to Phase I commencing commercial operations, and $21 million impairment of non-utility native gas assets at SoCalGas in 2019. Please turn to the final slide. We're pleased to report a successful quarter, both operationally and financially. Benefiting from a more narrowed strategic focus, we're reaffirming and guiding to the high end of our full year 2020 adjusted EPS guidance range and reaffirming our full year 2021 EPS guidance range. We remain committed to creating long-term shareholder value And I could not be more pleased with our overall year-to-date financial performance, even in these challenging market conditions. And with that, this concludes our prepared remarks, and we'll stop to take your questions.

Thank you. If you'd like to ask a question, please click by pressing star 1 on your telephone keypad.

If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star 1 if you'd like to ask a question. We'll take our first question from Shar Peruzza with Guggenheim Partners.

Hey, good morning, guys. Good morning, Shar.

Just a couple questions here, Jeff.

Can we just first, can we touch on some of the moving pieces on sort of the 21 earnings drivers as you're thinking about it, especially as it sort of sets up to be a cleaner year from a business mix perspective, I guess? How do you think about year-over-year growth from your prior revised higher 2020 EPS guidance range, which now actually points to the top end.

So what are some of the pushes and takes as you think about 21 and build off the higher 2020 base?

Well, I appreciate the question, Sean. I think I would just start by saying that we feel great about the year we're having in 2021. And I think I want to emphasize the fact when you think about what the market backdrop is, I think it's one of the toughest situations that, you know, any of us have gone through in terms of the COVID and the impact to our economy. As you think about 2021, you raise a great point, which is it'll be a very clear, clean year for us. It'll be the first year you will not see contributions from any of our divested businesses. You recall that we've divested roughly $30 billion in enterprise value of assets over the last two and a half years. I think the whole goal was to make sure that we improved our performance going forward. As you look to 2021, I think you should continue to expect that the lead driver for our company will be our utilities. You've got upwards of a $30 billion five-year capital program dedicated to our regulated investments. You've got a blended ROE across that platform of about 10.1, which is differential in today's marketplace. And to a point that you alluded to, next year will be the first year that you'll see full annual run rate earnings from Cameron, which we've talked about being in that $400 to $450 million range. But I do want to mention that The goal of this whole capital recycling program, Shara, over the last two years was to put this management team in a position where we had a clear field of vision to do one thing, which was improve our financial performance. I was thinking about it coming into this call. If you think back, Shara, to 2019, we began the year with a guidance range of $5.70 to $6.30. Then last year on the Q3 call, We raised the entire guidance range to $6 to $6.50 of EPS. And then we delivered the year with an actual earnings number adjusted of $6.78. And that really set us up quite well for 2020. We began this year with $6.70 to $7.50, guided to the high end of that range, you may recall, on the Q1 call. And then in June, just over a month later, we raised the entire range to to $7.20 to $7.80. And I think I called this out on our last earnings call, which you may remember back when we used to provide five-year guidance. I went back and looked at 2016. In five years in advance, we had forecasted an adjusted EPS range of $7.20 to $7.80. So being able to deliver that performance in 19 and 20, and now being in a position, to your point, to guide to the high end of the range, We're going to exceed a 12% earnings kicker over the last five years. So this idea that we're going to be nimble, we're going to continue to compete our capital and adjust our portfolio to deliver returns, I think it set us up really well for 2021. So I would just conclude on this point. We're optimistic about the returns we can produce next year.

Perfect, perfect. And then just on ECO, I know clearly the gating factor for Phase 1 is the permit's

Any sort of updates, Jeff, at this juncture? I mean, there's a perception out there that this process really now relies on a second proposed LNG project. Can you just maybe touch on that? And then what's your sort of stance or threshold on further Mexico investments?

Yeah, there's a couple questions embedded there, but I'll start from the top and say that for the ECA project to go forward, it is 100% disconnected from another project going forward. I think the most important development that's caused us to have improved confidence is that we completed this successful consultation down in Baja over the last three weeks. We may have seen that we received a positive vote with strong local support around the 60% level. What's most important is that sends a strong message to the central government where we've developed some great relationships. I think I have been wrong on this before, I must confess. We originally thought that I would get this permit with the team in Q4 of last year. I think what has been the big difference now has been the relationships we've developed and the consultation that occurred down in Baja. The goal here is to get the scenario permit, which we're forecasting to get this month. That's the authorization to export hydrocarbons off the coast of Mexico. And we also think it's reasonable, Char, that we will have a final investment decision with the permit this quarter. Transitioning to the larger picture down in Mexico, I think you've heard us talk about this in the past where we're constructive, I think, over a longer-term horizon. I think the short-term, we definitely envision some headwinds. There have been some dislocations in the market based upon some of the policies and protections around state-owned enterprises. That's why you saw the E&OVA team earlier this year adjust their plans. Mainly, they backed off on just over $200 million of capital for 2020. That was designed to free up cash to support an opportunistic share repurchase program. They have bought back to date, I believe, roughly 77 million shares, which has increased Semper's ownership in that public company to the 70% level. I think When you trace that through, they put about $230 million to work in their share repurchase program. And their approach, very similar to ours at Sempra, is to be opportunistic when they think the market supports that. And then I think the final update I would say is they recently cut their dividend. So they're doing all the things you'd expect them to do to preserve the value of the business and be opportunistic about positioning the business for more value. And the dividend cut is really designed to bolster liquidity and shore up the balance sheet. So I would just say the big picture, the focus of Semper LNG and the focus of the ANOVA is really about getting the ECA project launched, which is a very, very big project. It will be the largest construction project in the history of Baja, California, and we're very well positioned to execute it.

Got it. And then, Jeff, just one last one for me, a little bit more of a strategic question for you is, you know, Semper is effectively, you know, one of the last sort of,

hybrid utilities will be with the scale of the infrastructure investments that you have. So, you know, it's been a big theme this year about de-risking, about simplifying.

So I'm just kind of curious, what are your thoughts on sort of the overall business mix, especially if your stock really never gets the value that it really does deserve?

When do you and the board start to like maybe consider options and rethink the current strategy?

Yeah, I would say, you know, one of the things that's embedded in your question, Char, is you should assume that we're doing that all the time. I think sometimes the outside perception is, you know, that a board of directors or a management team will have a strategy session once a year. That's not the way it works at SEMPRA. And I think, as a credit to our board and our management team, you know, you can't find another company in our space that's had the transactional activity we've had in the last 24 months. So you think about transaction on enterprise value, roughly $30 billion of transactions in two years. It's a pretty sweeping change to our portfolio, and you couple that with the earnings performance that we've demonstrated over the last two years. We have something special going on at the company in terms of a unique growth and income story, and I'm not here to tell you that the market gets it right every day, but I do believe in efficient markets over time. We certainly think our stock is undervalued, and that's why you saw us be proactive this summer in terms of executing the share repurchase programs. I will tell you this, we're not wedded to any single asset. If there's opportunities or dislocations in the marketplace, you should expect us to look for them. Let me highlight one example for you that I referenced in my prepared remarks. When you think about the LNG space as a vertical category, we have a pretty confident view that we've got a leading franchise in North America. It's well capitalized. I think there's a series of built-in competitive advantages that allows us to to access both the Asian market in a unique way as well as being able to dispatch directly into the Atlantic. If you look, Char, at the runway of growth in front of our LNG business, it's differential from any other company in North America. In my prepared remarks, one of the things I highlighted is that we're actively looking at ways that we can create more value for portfolio and really compete different sources of capital so that we can fund growth. Our goal, obviously, is to source the lowest cost of capital to fund that growth, but I want to be very clear. We're also, Char, looking for ways to highlight value for our shareholders and strengthen our balance sheet. So as I thought about this call today, we went back and looked at some of the transaction values in the marketplace, and a lot of the research work around our business will show people in some of the parts of analysis looking at our LNG business at nine or ten times EB to EB to EBITDA, But you look at some of the transactions, and some of them are quite recent, whether it's Coke Point, Chenier Energy Partners, there's a variety of transactions where there's value being highlighted in the marketplace, and you're seeing those chart go off at 12 to 14 times. So there's certainly a dislocation between the value being attributed to our portfolio, and that's why I would say that the bottom line is we think there's a lot of franchise value in our LNG business. You saw that show up. in how we transacted around wind and solar. You saw that franchise value in the transaction multiples in Peru and Chile, which went off at 16 and 17 times. So one of the things I can commit to you is we're going to be active, and we're going to be active about driving value for our shareholders. I certainly agree with you that we haven't seen that show up in our stock price, but we will not be standing still.

Terrific. That's very helpful, Jeff, and thank you, Jeff and Trevor. Bye, guys. Thank you. Thank you. We'll now take our next question from Steve Fleischman with Wolf Research. Thank you, Jeff. So, sorry, my question actually was related to that last question and the comments you made in your remarks about, you know, looking at different financing structures and strategic capital for the LNG projects. And I guess my question there is, When you make that comment, is it more for each individual project that you're thinking about that, or is it for kind of the business as a whole?

Well, let me start, Steve, by saying we appreciate having the opportunity to participate in the conference over the last couple weeks. I know I didn't participate on the day that the conference actually went off, but it's always a conference we look forward to. So if we think about the options we're looking at, and you can go back and review my prepared remarks, We're active in both regards. We're looking at both financing options and financing structures at the project level and at the portfolio level. And to be very specific, we're also looking at both infrastructure and strategic capital.

Got it. That's helpful. Thank you.

I guess... I guess there's a balance between value and then, you know, you're actually particularly on camera and make good earnings out of the business. So when you think about kind of value creation, how are you just thinking about that aspect in terms of, I guess, really making some things maybe accretive or not, or how are you thinking about that?

I think you can go back and look at our track record. As we look at things that we divest and things that we invest in, we always do it through the lens of accretion. I think the three comments that I've made, I think twice now on this call, is we're looking to source lowest cost of capital to fund growth. We're looking to highlight value, and I certainly would feel quite constructive about looking at things which are only accretive. But I also think that in doing so, This is not just an academic exercise. I think that our partners, particularly in the LNG space, really think that one of the things that's unique about our LNG story is the strength and financial commitment behind that business. And particularly in this marketplace, I think it has really allowed us to have a more competitive position, particularly relative to our peers here in North America. So I would just say it's about funding growth efficiently. It's about highlighting value and accretion. And it's about supporting our balance sheets.

Great. That's helpful. I'll let others ask questions. Thank you. Thanks for joining, Steve.

Thank you. We'll hear next from Julian Domolian-Smith with Bank of America.

Morning, Julian. Hey. So, perhaps just to pick up where Steve left off, just to be very clear about your thoughts on buybacks, right?

So, obviously, you did some earlier this summer, perhaps less so this quarter.

how are you thinking about capital allocation in kind of a nearer term sense here?

I mean, obviously, you were fairly clear last quarter, so I just want to make sure we're hearing you right as to how you think about some of the nearer term priorities for capital.

Well, you know, I think if you go back to the early part of the year, you know, we announced, you know, what is our largest ever five-year capital program of just over $30 to $32 billion of capital over five years, and That's completely geared towards supporting the growth in our regulated businesses. You heard Alan talk about, or at least we talked about with Alan in our script, the growth we're seeing at Encore. And he's always got another $750 million of capital outside of that plan that they've circled in their tracking, which could also increase. So our job is to continue to find ways to produce what we think is a differential growth and income story. We're going to support our dividend. We're going to manage our balance sheet, and we're going to fund the growth that's right in front of us. If there's times where we see a dislocation in the marketplace, Julian, like you and I have talked about before, we will always look for opportunities to be opportunistic around the share repurchase program. I think you've seen Ian Nova take that approach. Obviously, you saw us do that earlier this summer. Having that dry powder with the $2 billion approval by our board is very helpful. It's something we constantly look at, and it's available to us. And it's going to be driven by where we think that we can produce the most value. So you saw a decline in our stock price in the mid part of the summer, and we were active there. But we're also going to meet the growth needs. So it's a balancing issue. It's something we look at a lot, Julian. We don't take a firm view and announce, quote, unquote, a $2 billion program. That authorization is there to let us do what we've done in the past, which is approach it opportunistically to create value.

You all talked about upside potentials previously of upwards of a billion dollars. You raised, I think, I'm going to call it just $300 million of late. How do you think about feathering in further upside capital at Encore in this $300 relative to the larger numbers you guys had talked about as some of the potentials there earlier?

Yeah, so obviously we own right over 80% of Encore. This is an investment that we take very highly of. So when you think about our commitment to invest in T&D assets or assets that have T&D level risk, one of the things that Alan outlined in our analyst conference was some incremental capital opportunities between right around $770 million to $1.17 billion of incremental capital We think that a lot of that opportunity is still there. It's outside of this 12.2. But I would just comment that we have a strong view about our ownership position at Encore. We certainly do not see any need to bring in outside third-party capital to support that. In fact, we'd love to own more of that business. But let me stop and bring Alan in. And, Alan, perhaps you can talk about the current market environment and growth you're seeing on your system, which I think causes all of us to have more confidence about being able to better serve Texas customers.

You bet, Jeff, and thanks for the question, Julian. First, the incremental capital point, just to reiterate, we're doing two things today. One, we've increased the five-year plan by $300 million, and then we're also adding another year right at the back end of the plan for 2025, another strong year at $2.4, $2.5 billion. So we do feel good about growth and where the state is going, where our company is going. As Jeff said, The 12.2 is separate in part of the incremental capital that we talked about before. So if you look back at my last analyst presentation, as Jeff said, I think we had a slide around 775 to 1.275 in incremental capital opportunities above and beyond that. That is still available. That is not diminished by this increase today. And if we see, you know, we try to be conservative in our planning, but if we see, you know, growth really strong growth continuing at levels that exceed what we're anticipating now, if we get oil and gas returning to pre-COVID or beyond levels, or if we continue to see really strong growth in renewables, I'll talk about in a second, then we may be back with more at some point. But we feel very good about the 12.2 over 5 based on what we're seeing on our system now and our conservative planning approach. With regards to the growth that Jeff mentioned, when we talk about growth on our system, there's several criteria we look at. One is obviously serve new. It's basically the number of new premises or number of new meters on our system. Notwithstanding all the challenges of 2020, we did around 64,000. We added about 64,000 last year, 2019. We added 21,000. in the third quarter of this year, and we're on track to be right on top of our 2019 number. So notwithstanding economic downturn, COVID, and all the fun of 2020, we feel good about our new circuit coming in basically where it was last year. On the transmission side, you know, we generally have two buckets, retail points of interconnection and generation points of interconnection. Retail is slightly down. However, generation interconnection requests are significantly up and far exceed the decrease on the retail side to the point where we're anticipating we'll have probably our highest level ever of total transmission POI requests that we have active at any given time. We have, I think, about 275 in the queue right now. So growth remains strong. We're still clicking along at about a 2% premise growth. Transmission POIs look good, and obviously based on the movement we made today on CapEx, we feel good about growth moving forward. Thanks, Jeff.

Thank you. Thank you. We'll take our next question from Steven Bird with Morgan Stanley.

Hi, good morning. Thanks for checking my questions. I wanted to spend some time on California, I guess, first just talking about the eventual move away from methane. I know, you know, you've been a thought leader in approaches there. I was just curious, in terms of your dialogue with regulators and legislators, et cetera, just sort of generally the feedback you're getting and your sense of potential sort of concrete next steps, or is this just a very long, gradual process? I did kind of see that unfolding. Okay.

Thank you for the question, and I'll pull Kevin Segar, our group president for California, into it momentarily. You know, there is a process underway at the PUC to look at a phased approach to how we integrate a natural gas strategy over multiple decades to help decarbonize the state. But I might start just with a little bit of a perspective, you know, nationally. I think that over the last, you know, several decades, Stephen, the United States has led the world in reducing energy-related emissions The IEA came out with a study in February that showed that emissions globally were flat in 2019. But of all the nations in the world, it was the United States that led the declines in 2019. So we grew our economy at 2.3% and reduced our energy-related emissions by 3%. And in that study, what they indicated was you saw declining emissions in OECD nations and increase in emissions in the developing world. Since the year 2000, we've led the world in absolute decline in emissions. We're currently one gigaton of carbon below the 2000 period here in the United States. What the IEA credits is the massive build-out of renewables combined with support from natural gas and switching from coal to natural gas. I think it's a case study and it's being viewed that way all around the world about the importance of getting LNG into developing markets. Whether it's China or India or Malaysia or Vietnam or Thailand, they have the opportunity to build a lot of renewables and not back it with coal but support it with natural gas. I think that thesis is spilling over, Stephen, in how people are thinking about LDCs, particularly in Europe. Today, LDCs have outperformed U.S. LDCs by 30%. The narrative in Europe is there is a clear recognition of that LDCs are a big part of the solution by taking exogenous methane in the form of renewable natural gas and putting that into the distribution system. And second, leading the world in not only producing hydrogen but distributing it across transportation and industrial uses and power production. So I think there's a thesis around methane that is really, really important that you can capture, escaping emissions, and you can be very proactive in terms of how you address environmental issues, but it is a core part of how we will support an energy transition globally. I think the blackouts from this summer have had a big sea change in the state in terms of how we think about the long-term role, but perhaps, Kevin, you could talk about some of the things that are actively underway to support natural gas's role in California.

Thanks, Jeff. Now, let me tell you why we're so excited about the gas company's leadership position in the energy transition. My optimism really springs from a couple areas. One, it's what we're doing now, and two, it's how we're aligning with energy policy in California. The gas company has an important role in the energy transition in California. Today, we have established a voluntary goal of having 5% of our core gas come from renewable natural gas by 2022 and 20% by 2030. Right now, we're flowing 100% California-produced renewable natural gas for all of our compressed natural gas refueling stations in our service territory. We will have reduced our fugitive methane emissions by 20% by 2015. The state has a goal to do that by 2025, so we're five years early in meeting the state's mandate. We're also accelerating, like Jeff talked about, innovative technologies like renewable natural gas and hydrogen, and I'm really excited also about opportunities in carbon capture. Our infrastructure will play a role there as well. Those are the things that we're doing, but now let's focus a little deeper on how we're aligned with the three legs of the energy policy school in California. Those legs are clean energy, safety and reliability, and affordability. In the area of clean, You know, undoubtedly we need and will see increasing penetration of renewable energy and electrification in this state. However, natural gas is a fundamental component of getting higher penetration of renewable resources on the grid. Batteries are expensive and can't provide the long-duration storage we need at times. During certain periods in the summer, 80% of our power was coming from gas and a little bit from coal. In August, I just mentioned there were blackouts. I mean, when the sun went down, I remember one day, we got about a system peak in California of like maybe 50 or 60 gigawatts, and 29 gigawatts were coming at that point when the sun went down from gas. We were getting one gigawatt from batteries. And so, you know, that was a real warning shot to the state that, you know, gas infrastructure is important, and really gas infrastructure enables more renewable energy. When you think about it, you want to get more renewables on, you've got to have more backup, and that comes mainly in the form of gas. In the area of safety and reliability, again, gas packs up renewables for the reliable grid. And in safety, you know, it's obviously our number one priority. And that emphasis has been reflected in our most recent rate case, our PSEP decision that Trevor mentioned in his opening remarks. You know, the CPUC is providing us the capital necessary to keep the gas system safe and reliable, thus aligning with the state's priorities of a safe and reliable energy system. And lastly, the gas system is an affordable second energy system for our customers. The average natural gas bill is something around $40 a month, and stakeholders in California recognize the increasing importance on affordability as we execute this transition. So super excited about this energy transition. We're going to be leading at SoCalGas in this area.

The only other thing I would add, Steven, too, is that, you know, if you look at natural gas penetration rates, I think you'd be hard pressed to find anywhere in the country where you have a 90% penetration rate like you see in Southern California with one of the largest population centers in the country. So, you know, look, we're going to be thoughtful. We're going to partner with the governor. We've made a commitment to do that. I think there's a growing recognition that there's a transition here and natural gas is part of the answer. can help us get higher renewable penetration rates, and I think Kevin made that point. There's an efficient frontier, and California is setting the record in the world for renewable penetration on the electric system. That's a really thorough answer. Maybe just one follow-up on an element there. Just following up on the blackouts that we saw this summer, I saw the root cause assessment that came out. You mentioned this in your response to my first question.

Just I'm curious, how is the state sort of thinking through – I mean, that's kind of a – it's a sign. I mean, the state has a long way to go still to add more renewables, so we're having blackouts at this stage. I think that's kind of a warning sign in terms of just some changes that need to be made. How is that dialogue sort of playing out, and what might come out of sort of that root cause assessment and the desire to make sure you don't have further blackouts in the future?

Thank you for the question. I think that you have a lot of people that take a lot of pride in California about being a leader around the clean energy transition. This is something that the state cares a lot about. All the utilities up and down the state are committed to supporting it. When you think back about how challenged our system was, you build a system and all your integrated resource planning around a one-in-ten-year event People are concluding that maybe it was a 1 in 30 event or a 1 in 35 event. There's a couple things that were uncovered, which I think are really taken to heart in California. The first of which is that imports in the state routinely run between 20% and 30%. So what happened during this Southwest weather event was a lot of the generation in Nevada and Arizona that we would otherwise rely on, which is all natural gas and coal, particularly at certain times during the day, was not available because it was being used in those states for cooling and air conditioning. Secondly, when you look at our state, you may have been late in the afternoon where you're getting a lot of solar contributions, but there wasn't sufficient ability to basically load follow. You've got really two issues here. One is California's energy is insecure. We rely too much on imports and we need to build more generation in the state so that we're not reliant and dependent on other states. Number two, When you have a 1 in 30 event like that, it calls you to go back and look at how you do your integrated resource planning to support your reserve margins. Typically, this data is looked at between a 15% and 17% required reserve margin by utility as you procure your resources. That has an implied value assigned to solar for resource adequacy, an implied value to wind. All those assessments have to be revisited to make sure that we have a larger, more reliable reserve margin. I think the outcome from this will be the existing natural gas plants will be repowered. The state needs more peaking natural gas generation. You will see more electric storage put on in the state, and you need to see a lot more capacity built in the state of California. So there will be a process that takes place between the three energy agencies, the California Energy Commission, the California Independent System Operator, and the CPUC. But it's about being less reliant on third-party states It's about revisiting our one- and ten-year analysis and making sure that we revisit the capacity value that we allocate to planning around solar and wind. It's a really thorough answer.

Thank you so much.

Thank you.

Thank you. We'll hear next from Jeremy Tomet with J.P. Morgan.

Good morning, Jeremy.

Good morning. Just wanted to circle back to Encore for a minute, if I could, with the capital plan. And if you could talk a little bit more on the specific customer growth you're assuming under your updated plan here. And is this going to bake in kind of the current, you know, trajectory in West Texas as it is? And I guess, you know, trying to feel out what type of sensitivity, what type of upside is possible if the commodity price environment does improve there.

Let me make a couple comments, then, Alan, you can fill in behind me. But I just want to recharacterize, when people think about West Texas, they think about the Permian and the Delaware Basin, it's really important to understand that what producers are trying to do right now is lower their marginal cost of production. And there's a huge benefit to be able to attach to the grid instead of self-generating. So a lot of what the capital that's being deployed by Alan right now in West Texas is has largely been improved and locked in for the next two years, and there's still a lot of demand for more infrastructure in that region because it's viewed as making their production more competitive. And then secondly, we usually circle something around 70,000 new meter additions a year. Alan can update on that, but I just think going through this pandemic and going through the disruption we've seen, Texas today has roughly an 8% unemployment rate against something you know, here in California, which is closer to 12. We think that Texas will be a big part of our nation's economic recovery, and we think Encore is as well positioned as any company to benefit from what we're forecasting in Texas. But perhaps, Alan, you could provide some color behind my comments.

Yeah, thanks, Jeff. And, Jeremy, the direct answer to your question as to what's in our kind of plan with regards to customer growth, is, you know, for the last few years, we've seen 2% premise growth, which is around that number of premises that Jeff spoke about a minute ago. And that's what we have currently in this 12.25 year plan. We're assuming 2% continued 2% premise growth. So when you think about things that could lead to increased investment, if you if we were to get things like I said before, if we could get residential or rather premise growth in excess of what's in plan, Or another example, which I gave earlier, was things returning to normal or better than normal in the oil field. That's a couple of examples. Obviously, a quicker or more aggressive implementation of renewable power. Texas already leads the nation in renewable power, but there's currently more than 100,000 megawatts of renewable via the solar, wind, or storage. in the queue at ERCOT to the extent that that manifested a level higher than a historical average of 30 or 40%. Those things would all be drivers that could ultimately end up increasing our capex. When you look at West Texas particularly, we're actually seeing some pretty good signs in West Texas. A couple that frankly were counterintuitive to me just based on the fact that I know a lot of our customers out there have been significantly impacted. But if you look at ERCOT data, month-over-month demand in the Far West Texas region is actually up every month in 20 versus the corresponding month in 2019. So demand in the Far West Texas region for every month in 20 is in excess of 2019 month-over-month. So that's one. Two, Delaware Basin, we serve the portion of the Delaware Basin that we do on what's called the Culberson Loop, which is a transmission loop system that we have out there. The 2019 peak on that system was 550 megawatts. On September 25th of this year, we saw a peak of 678 megawatts. So while we're undoubtedly seeing impact to our customers in the West Texas region, we're seeing some really positive trends with regards to consumption. So there's hopefully light at the end of the tunnel there. But if West Texas, if oil and gas activity returns to pre-COVID levels or there above, or if we see some of these other positives from generation or customer growth, those are generally the kinds of things. Those are the kinds of things that would drive increased capital allocation.

Hey, Al and Becky, Jeff, one of the things we've talked about that you might want to share is we had a really major legislative development last year with Senate Bill 1938. and maybe talk about the overlay of that on top of the market description you just gave.

I'd be glad to, Jeff. So just to refresh you all, 1938, which was passed out of the legislature last year and signed into law, effectively put into PURA the current construct in ERCOT, which allocates transmission projects based on ownership of endpoints, substations more or less. And so when you think about... Generation development, when you think about transmission point of interconnections, when you think about adjusting the grid as we shift to more renewables and the impacts you have when you reallocate the flows around the system, to the extent those require transmission upgrades or additional greenfield transmission projects, those projects would be allocated to the owner of the endpoints based on the 1938 now allocated or now codified into PURA law. We own more than 1,100, probably closer to 1,200 of those endpoints substations. So we believe we're fairly uniquely situated to capture a significant part of that growth. Thanks, Joe. Thank you, Alan. Got it. That's very helpful. Thanks for that. And then maybe kind of pivoting here and recognizing that this dynamic impact appears far more than you, but How are you finding the insurance market in California, specifically for wildfire insurance here? Does your risk profile of your system relative to peers benefit your ability to secure cost-effective coverage? Do you anticipate any changes here given the record fire season?

Thank you for the question. I'll go back and talk about our original thesis where we're trying to build a portfolio that's really focused on T&D investments. or investments that have T&D-like risk, when you bring that into California, we certainly have received a differential approach by the insurance companies in terms of how they think about our risk relative to our peers. I'll pass it over to Trevor to provide a little bit more color about our insurance program.

Yeah, thanks, Jeff. Yes, so Jeremy, we have not had a problem procuring insurance, and we've got a separate wildfire tower of over a billion dollars, and we're getting it at very competitive rates. And in fact, we were also able to put out cap bonds this year at under 10%. So from our perspective, given all the technology and what SDG&E has done to fire hardness system and around the fire sciences, we are recognized as differentially within the insurance markets and procuring insurance at competitive rates, you know, is something that we're able to do fairly efficiently and effectively.

Got it. That's helpful. I'll stop there and leave questions for others.

Appreciate it. Okay. We'll take our next question from Michael Lassies with Goldman Sachs. Go ahead.

Hey, guys, thank you for taking my questions, and congrats on progress during what's been a crazy year. Jeff, in your remarks at the beginning, you witnessed specific details to reference potential financing options for both Cameron 436 and Port Arthur. Can you give a little more of the details update on kind of what you're expecting progress-wise for both of those in terms of, A, contracting, and, B, going to SIDs? And then just broadly, kind of the broader macro environment for incremental US LNG or U.S. fiscal factors.

Sure. Well, first off, let me say thank you, Michael, for joining our call. And we've got Justin on the line with us. And what I'd like to do, Justin, if you don't mind perhaps tackle the macro side first and then come back and maybe provide, you know, a project-by-project update on the progress we're seeing around our contracting capacity. Okay.

Sure. Thank you, Jeff, and thanks for the question, Michael. In terms of the market, I think we're seeing continued growth in U.S. LNG exports this year, clearly dampened a bit by the hurricane season, but it looks like, frankly, LNG exports could set a record in November. It's really being underpinned by increasing demand and stronger prices in Asia and We're also seeing stronger prices in Europe. Prices in Asia have actually tripled since the summer. And really, we think it's a demonstration that LNG demand growth is driven by recovery in global GDP, unlike oil, which really is a mobility or transportation fuel. In terms of the longer term in the LNG market, we still think we'll see some short-time oversupply. But we think over the medium term, let's call it 2023-25, we see that the lack of FIDs over the past recent years will create a situation where demand will exceed supply, and we see that continuing. I think for us it's importantly because, as Jeff mentioned, he talked about our uniquely positioned FIDs. LNG business, I think we have an opportunity to really capitalize. We will have Pacific and Atlantic access. We're bolstered by Sempra's strong balance sheet, and we have and continue to create strong relationships and partnerships in the LNG space. So we think our business, our franchise, will be more successful over the medium and long term. In the short term, let me talk about our development projects. As Jeff mentioned in his prepared remarks, We are hoping to take FID and plan to take FID during this quarter prior to the end of the year. The offtake for that project is completely sold. In shifting to Cameron Phase 2, we are continuing to work with partners on optimizing the design of that phase, really building on the strength of Cameron Phase 1, and leveraging that to really create expansion and brownfield economics. In terms of the time of that development, we are progressing. We're working closely with the partners, but we don't have a specific timeline for that. On Port Arthur, we previously announced that we were delaying final investment decision to 2021. That's based on where we are, what we're seeing in the market. We are seeing a little bit of rebound in the short-term market. We're frankly seeing some challenges, practical challenges, just as a result of COVID. LNG tends to be a face-to-face business. And although we are all starting to use conference calls, it's still, I would say, slowing down the process a bit. We still have continued conversations. We're continuing to co-develop with Saudi Aramco. We think Port Arthur really has the opportunity to be not only a successful first phase, but truly one of the great LNG megaprojects in the world. Again, we're very excited about our development prospects. As we previously stated, we will not develop a project until the market is ready for it. We show a tremendous level of capital discipline. We at Temporal LNG compete for our capital. And really, we're here to create value for Semper's shareholders. So we think we have a uniquely positioned franchise, and we see both in the short term and then the medium to long term continued success. Got it. Thank you, guys.

Hey, I had a follow-on, but it's very unrelated. It's probably for Alan. Just curious, Alan, any thoughts? If I remember correctly, AlamSport is going to file a rate paycheck here. Any thoughts on A, given the broader economic environment with COVID, you could delay or push out that rate case? And B, if you can, any kind of early lead on whether this is kind of a move the needle type of request or is this just a mandatory coming back in, but it's not something that's going to drive significant rate pressure on customers?

Sorry, Jeff. You're 100% correct. We are required by PUC rule to file index rate case by October 1st of next year. And so we're currently planning on that, working on that. You're also 100% correct. Very unusual test year to say the least. Now we will have the opportunity to make known and measurable changes and normalize some of our test year data. But it's unquestionably going to be an unusual test year. I think there are four rate cases presently scheduled for the PDC to hear next year. Ours is obviously the biggest. I have not had any discussions nor received any feedback so far from the Commission as to whether they would like to delay. Certainly, to the extent the state would like us to delay, it's something we always work very well with the state and the interveners, and we would consider that. It's just not a topic that we've addressed yet. With regards to what we'll be asking for, we're putting that together right now. We haven't been in a few years, so we'll just have to wait and see. I can't really predict what we'll be asking for. We're obviously cognizant of what other utilities and their experiences recently at the commission. I would just simply say their rate cases are obviously very very specific, specific to the time you file, who the utility is, and what the facts and circumstances are. And I think our history has shown we have good relationships. We've been a good player, good supporter of ERCOT market. We've done everything the commission has asked us to do. So we feel like we're in a good position going into next year to the extent we have to file. We're anticipating that we will unless we're told otherwise. And we're anticipating that we'll We'll do what we've always done, and we'll work with the stakeholders, and we'll try to come up with something amicable and reasonable for the customers and for us. But that's kind of where we stand on a rate case, if that answers your question. Yeah, that's super helpful, Alan. Much appreciated. Thank you, guys. Thank you.

Thanks, Michael. Thank you. We'll hear from Ryan Levine. Let's see. Morning, Ryan. Thank you. Good morning. Good morning. In light of the 2035 California electric vehicle policies, what are your current thoughts around incremental infrastructure needs to prepare for these policies and what role will SEMPR play in this trend in light of the strong adoption rates in the San Diego market?

Thank you for that question. We do have a leadership position in the San Diego region with respect to electric vehicles. I think we've got roughly 60,000 on our system today, which scores very high on a per capita basis. I got to tell you, I recently published an article in the World Economic Forum about the importance of clean transportation. I was quite laudatory about Governor Newsom's leadership position here. I said this earlier about comments. This is a state that's justifiably prideful about their leadership position around all issues of clean energy. When you think about, I think statewide it's roughly 40% of the greenhouse stack is associated with transportation issues. Here in the San Diego region, it's just over 50%. So a lot of times, people who talk a lot about the clean energy transition will focus on things which are relatively small and don't move the needle. This is probably the most complicated issue globally if we're going to be successful about combating climate change. And I really think the state is real committed to progress here. And the final comment before I pass to Kevin is people don't fully understand The circuit by circuit changes you have to make as utility, what we refer to as make ready work, you start adding two or three electric vehicles to a street, you've got to upgrade the electrical system. There will be a tremendous amount of distribution infrastructure that will be required to accommodate the type of penetration we're expecting to see with electric vehicles. Kevin, perhaps you could talk about some of the things that SDGD is doing in this area.

Thank you for that question, Ryan. And we are really excited about the governor's executive order. At SEG&E, we've gone a long way already of having a significant amount of work around charging for electric vehicles. Some of our newer programs have to do with exploring vehicle to grid. And so taking like school bus fleets or something and charging those at the right time and pulling only electricity off them at another time. Like Jeff mentioned, all the make ready work, you know, presents a big capital opportunity for SDG&E over time. And, you know, like Jeff mentioned at the beginning, we're not going to get where we want to go from a climate perspective and a carbon, you know, reducing carbon intensity without addressing the transportation sector. And that's why this this executive order was so important. And like we said, a big opportunity for SDG&E, but also at SoCalGas, right? And so we can see on the medium and heavy duty side, we've got by 2045, go to zero emission vehicles there. And so when you think about that particular segment, you know, right now there's some lack of clarity, whether it's electric or hydrogen fuel cells, but my own belief is, you know, we're leaning more toward the hydrogen side. And like we've spoken about in the past, you know, refueling opportunities around hydrogen fuel cells and hydrogen itself for the gas company is a tremendous opportunity. So it's going to help both companies a lot. So I'm really happy to see this.

I would also add, Ryan, that Trevor and I are also board members in Encore, and Alan puts on a really thoughtful strategy session every fall. And Trevor and I are just in the last couple weeks joining Alan. And one of the things we talk about really is the opportunity for clean transportation in Texas. What's unique in a lot of Allen service territory is the commute time in Texas is shorter than it is in many communities in California. So certainly we think Texas is not going to move at the same pace as California. But going back to his footprint in the state of Texas, this is another long-term upside for that franchise.

Great. Thank you.

Thank you, Ryan.

Thank you. We'll hear next from Anthony Crowdell with Mizzou Health.

Good morning, Jeff. Good morning, Trevor. Just hopefully two quick questions. Jeff, one is the LDC multiples, valuation multiples, have really come in maybe over the last 12 months. I'm curious if you think that's more temporary or is that something you're going to continue to see for the next couple of years?

Yeah, thank you, Doug. For many of us who have been around the industry for a long period of time, we've traditionally seen LDCs trade at a premium to electric utilities. largely because natural gas can be stored. It was viewed by many as being more lightly regulated, whereas electricity largely has to be used instantaneously and tends to be more politicized. I will tell you, I think that in my personal view, I think it's temporary. And here's my base case for that. I was moving in to take over and run SDG&E in the fall of 2013. I think I stepped in in January of 2014. And many of you will recall One of the common themes in our industry was the death spiral of utilities, particularly electric utilities, and how embattled they were going forward. I think what people couldn't see at that time was that they were taking steps, particularly on the power generation side, to change the feedstocks of power generation. As you decarbonize that commodity, it became a real weapon to actually electrify the United States and compete on the transportation side, which was similar to Ryan's question just a few minutes ago. An entire new landscape opened up in front of those electricity businesses, and now we all talk about electrification like it's a secular trend, and it is. I personally think it is one of the most dominant trends in our industry is electrification. If you go back six or seven years, there were a lot of dark clouds on the horizon for the electric business. And I will tell you, I think the European sentiment is further ahead of the United States in this area. There is a growing recognition outside the United States that a central player in leading energy transition will be our LDCs. Because they've got this prior investment, which is quite significant, and they've got a leadership position if you go country by country and continent by continent, most of the hydrogen work is being led by LDCs. That's one of the reasons that I've been participating on the World Economic Forum is to help us track some of the new developments in this area. We think that SoCalGas, which is the largest LDC in the Western Hemisphere, will be the natural leader here in the United States. And Scott Drury and his team, I believe, have 10 to 12 projects pending currently. And we've talked about this just in the last couple of weeks, Anthony. We're going to make an entire breakout category in our March Analyst Conference around the clean energy transition and innovation and technology across each of our portfolio companies. So I actually think that LDCs will be valued differently in the future at a more premium value.

Scott? Great. And then just lastly, I guess, Semper, Jeff, you have this really high-class problem. There seems to be very little question, or even on the earnings call, like there's no question to the earnings, whatever, the earnings power of the company's core utility businesses. Most of the questions are uncertainty coming from maybe the smallest portion of the Semper family. I guess, how do you move the focus away from, you know, the – LNG business, or maybe Mexico, and focus more on the core earnings power of SDG&E and SoCalGas? I'll leave it at that.

Well, I think I'll start by saying I appreciate the positive comments about the earnings power of the company. I spent a little bit of time earlier in my remark talking about how we've seen steady improvement in the core earnings power of the company, both in 2019 and in 2020. It's not just earnings growth. To your point, Anthony, It's also improved earnings quality and earnings visibility. So I think over time that will get valued into the stock. And I think going to your larger point about our unregulated businesses, you should expect that SEPRA over time will become increasingly have higher content in its regulated businesses. So we think that our utilities will become a larger part of our earnings stack as you go forward in time. And that's kind of a signal about how we expect to manage both Mexico and the LNG business. And I think part of what we need to do there is we just need to execute cleanly in Mexico and execute cleanly in LNG. I spent some time earlier on today's call talking about some active steps we're taking to make sure that we can demonstrate that value to the market. We're quite optimistic, actually.

Great. Jeff, you're not in my group EEI next week, so I wanted to wish you an early happy Veterans Day, and thanks so much for taking my question.

I appreciate it. Thank you very much. Thank you. We'll get to you next from Jonathan Arnold with Rival Research Partners.

Good afternoon from me now, and thank you for taking my question. Jeff, I appreciate that you are in this quiet period on the franchise agreement. Are you able to share anything about the process from here, which, you know, how it works and what the timing would potentially be for all that to be new?

Yeah, there's been a lot of, obviously, good research publications around this. We've talked about it a little bit more recently. effusively on our Q2 call, but because we're in the quiet period, Jonathan, I have to apologize. I think it's really important for us to respect the process that the city has underway. I would just say that Caroline, Winn, and the team are really excited to work collegially with the city, and I made this point in my prepared remarks. I think we have an identity of interest here, right? We're both looking to serve the benefit of the same people, and I remain optimistic.

Do we know if there's going to be some sort of open bidding hearing? Can you talk to that at all?

I would just say if there was an invitation to bid process, that process came to a conclusion in October. We made a filing, which we thought was competitive at the time that the bids were due. They have not announced whether there is one bid or more bids. They have not announced when they plan to specifically open the bids. and what the definitive process will be. But I think it's reasonable to expect that the process will be finished this quarter, and we feel quite good about the bids that we've submitted.

Okay, great. That's helpful. Thank you. If I may, just on your comments about, pick up on your comments on 2021. I mean, earlier in the year, you explicitly said you were positively inclined around the 2021 number, and we just didn't revisit it. this year, like last quarter, you said the buyback, so we're dying to create it, something like that. I'm just curious, what's happened that changed your view?

Yeah, I'm actually smiling because I did actually say that, and I was optimistic then, and I'm optimistic now, and I think we tend to take a relatively conservative approach to planning. What I will say is this, is If I was an outsider looking at the company, your first question is, is there something that you're not aware of that makes 2021 not look good or not? All I'll say is this. We had a great year in 2019. We have improved portfolio with improved earnings power. We're having a heck of a year in 2020. It's in a really difficult environment. Our employees have really been challenged to both work at home and we've got a ton of people in the field working. So I think we're set up extremely well for 2021. I made a comment earlier. I think you should expect to see the power of our earnings growth continue to be from our three leading utilities. And next year, we're really excited to see full run rate earnings from Cameron. So there's no real back story here other than us going through the planning process. And when we have an updated view on 2021, I'll be excited to come back to you.

Perfect. All right. Well, thank you very much.

Thank you.

Thank you. We are next from Paul Patterson with Glen Rock. Good morning, Paul. Good morning.

Hey, how are you doing? Great. So just to sort of follow up on Michael Peterson's question on sort of the natural gas outlook, I was wondering if you had any thoughts on the NG – and I apologize if I missed it. It's quite a distraction here. But the NG next decade – announcement and methane in Europe, the concern there, I guess. Any thoughts about that or any trends or anything you're seeing?

Yeah. I'm glad you asked the question, Paul. I would say it's, you know, I view it a little bit as a red herring, right? You know, IMG was formerly a partner with us in the Cameron facility. Obviously, Total is our partner now. We have MOUs for the full capacity of Cameron expansion. ONG is in a little bit different position relative to TOTAL, but I don't see any read-through from ONG to any impact on their LNG program.

Okay, great. And then just to – when do you think we might see the end of or the conclusion of the Aliso Canyon? I noticed from quarter to quarter there's been some sort of small movements, it seems to me, on activity there. But when do you think we'll – We'll get some closure, I guess, or more closure with respect to the Aliso Canyon litigation.

The way I would think about it is you recall that we had a catastrophic equipment failure back in 2015, and out of that there arose really what I think about is three buckets of risk and exposure that we've been actually managing, the first of which was from you know, a group or coalition of government plaintiffs, which we resolved in 2019. Justin Bird, who's now in our LNG business, was our lead executive to help us resolve that. And now, Paul, there are two remaining, you know, buckets who are managing this. The first of which is the civil litigation process. We're engaged in those activities. You saw that last quarter we recorded a charge related to the civil litigation and our settlement discussions there. What you're looking at in this quarter is is the ongoing process we have at the commission of what we might loosely call, Paul, the penalty phase. And that just shows the nature of our current discussions around trying to settle that process with the commission currently.

Okay. And when do you think it might all be sort of finished?

Now, any time you talk about litigation, you know, we're going to be reticent to provide a lot of, you know, you know, forecast about the timing of it. I would just say that, you know, we have good positions in both matters. We're working collegially with the folks that we should be working with, and that's reflected in both our Q2 results and our Q3 results.

Okay, awesome. Those are my questions. Thank you. Thank you.

Bye. Yeah, I really appreciate it. So, you know, to come to the end of today's call, I wanted to thank everyone for joining us. I know that there's like a dozen other companies that are reporting this morning. I hope everyone continues to be safe and healthy and feel free, as usual, to reach out to anyone on our IR team if you have additional questions. And this concludes today's call. Thank you.

Thank you. That does conclude today's conference. Thank you all for your participation.

You may now disconnect.