Karen Sedgwick
Executive Vice President & Chief Financial Officer at Sempra
Thank you, Allen.
Sempra California is strategically positioned the largest economy in the US and benefits from constructive regulation that supports investment opportunities to decarbonize and improve the safety and resiliency of the grid, forward-looking rate cases, cost of capital adjustment mechanism and an established wildfire fund that backstops the financial strength of the state's utilities.
At SoCalGas, we're participating in several decarbonization initiatives that support California's state-wide goals. Recently ARCHES of which SoCal Gas is a partner, became the country's first hydrogen hub to sign with the DOE to secure its funding. ARCHES' forecasts California will need 17 million tons per year of hydrogen to help meet the state's 2045 climate goals. These cleaner molecules are expected to play a pivotal role in helping Los Angeles, one of the nation's largest manufacturing hubs lower its emissions and heavy-duty transportation and other hard-to-electrify sectors. That's why SoCalGas has proposed Angeles Link will form a key component in California's regional hydrogen hub.
Turning to SDG&E. Community safety continues to be our #1 priority. Over the last 2 decades, we've made significant investments in wildfire mitigation and hardened 100% of the transmission lines in our Tier 3 high fire-threat districts. We've proactively taken steps to further strengthen our predictive tools, training and resources by making significant upgrades to SDG&E's wildfire and climate resiliency center.
I recently had a chance to visit the state-of-the-art facility, and it's impressive. I invite you to come and see the facility if you can. Substantial innovative features of the facility include AI-enabled solutions, high-resolution cameras, enhanced drone data and line conductor fault detection. This facility is one of the most technologically advanced of its kind anywhere in America, and plays a central role in helping to ensure SDG&E is prepared for and actively mitigating risks related to its operating environment. This is all part of a larger effort at SDG&E to meet the state's public policy goals while building out a climate-resilient energy grid.
Now moving to our regulatory updates of California Utilities. In June, SDG&E delivered a notice of termination to FERC of its fifth transmission owner formula rate mechanism or TO5 and is preparing its TO6 filing. We expect SDG&E to make a submission in the fourth quarter with an effective date in 2025. In our filing, we anticipate updating our formulaic rate and making a constructive case for competitive ROE, reflecting today's market conditions. Lastly, on the California GRC, we expect to propose decision later this summer and a final decision by year-end. As a reminder, the final decision will be retroactive to the beginning of this year.
Please turn to the next slide. Sempra Infrastructure's long-term strategy is focused on capitalizing on the growing demand for cleaner and more secure energy. Wood Mackenzie estimates that global LNG demand will grow nearly 70% and reach more than 700 million tonnes per year by 2050. Our development pipeline is making significant strides to help meet those needs. At ECA LNG Phase 1, we are roughly 85% complete. However, our contractor has experienced labor retention and productivity issues in recent months.
As a result, our commercial operations date will be delayed until the spring of 2026. We are actively engaged with our contractor to advance the project, and we'll see increased capital expenditures for the project in the form of additional carrying costs and lower estimated commissioning revenues, which are based on forward price curves. Despite the delay of potential changes in capital, we still expect to maintain strong integrated financial returns, consistent with our original forecast at the time that we took FID in 2020. This is the result of a combination of factors, including optimization opportunities, stronger LNG demand over the long term and inflation protection within the SPAs. Moving to Port Arthur LNG, we're making steady progress on Phase 1. And we remain on budget and schedule. We recently received FERC authorization for 24/7 construction, which is expected to improve the overall efficiency of the construction activities.
At Cameron Phase 2, we continue to work with our partners to enhance cost efficiency through value engineering. Finally, we've begun construction on Cimarron wind, a 320-megawatt project and expect to reach commercial operations in the first half of 2026. Our experience in Mexico demonstrates our ability to work well with both regulators and legislators, and we look forward to supporting their increasing energy needs as industrial restoring continues to drive economic expansion.
Please turn to the next slide for an update on progress at Port Arthur Phase 2. We're very excited about some of the recent developments at Port Arthur LNG Phase 2. Earlier this summer, we executed an HOA with Aramco for 5 million tonnes per annum of offtake capacity and 25% interest in the project level equity. Last month, we also executed a fixed price contract with Bechtel. This contract provides an opportunity to continue our partnership with a world-class EPC firm while also benefiting from continuous construction.
In combination with the common facilities that are being constructed as part of Phase 1, we expect to generate robust investment returns on the overall Port Arthur Energy Hub. We are working with all stakeholders to advance this project, which has received all material permits with the exception of the DOE non-FTA export permit that is pending approval. However, we do not anticipate the DOE pause will impact our development time line. As a reminder, Phase 2 at Port Arthur and all other projects that have not reached FID represent upside to our existing capital plan.
Please turn to the next slide where I'll walk through Sempra's financials. Earlier this morning, Sempra reported second quarter 2024 GAAP earnings of $713 million or $1.12 per share. This compares to second quarter 2023 GAAP earnings of $603 million or $0.95 per share. On an adjusted basis, second quarter 2024 earnings were $567 million or $0.89 per share. This compares to our second quarter 2023 earnings of $594 million or $0.94 per share. The key takeaway is that we're pleased with our financial results. For the first 6 months of the year, we're trending above our financial forecasts and are well positioned to deliver another strong year of financial performance.
Please turn to the next slide. Variances in the second quarter 2024 adjusted earnings compared to the same period last year can be summarized as follows: At Sempra, California, we had $26 million primarily from higher CPUC base operating margin, net of operating expenses, including higher authorized cost of capital. This was more than offset by $49 million, primarily from lower income tax benefits, lower regulatory awards and higher net interest expense. As a reminder, because our GRC is still pending, our CPUC-authorized base revenues in second quarter 2024 are based on 2023 authorized levels. This is important because any true-up later this year will be retroactively applied to January 1 once the final decision is approved. Turning to Sempra Texas, we had $42 million of higher equity earnings attributable to rate updates, increased invested capital and consumption, partially offset by higher interest and operating expenses.
At Sempra Infrastructure, we had $48 million of lower equity earnings and revenues in the transportation business, including the cumulative impact of new tariffs in Mexico in the prior year and $8 million of higher income tax expense, higher O&M and lower revenues, partially offset by lower net interest expense. At Sempra parent, the $10 million net change is primarily due to lower taxes from the interim period application of an annual forecasted consolidated effective tax rate, partially offset by higher net interest expense.
Please turn to the next slide. To wrap up our prepared remarks, I want to reiterate a couple of the key points that help drive the overall success of our corporate strategy. As energy needs to grow and evolve in North America, our unwavering commitment to safety and operational excellence support our delivery of safer, more reliable and resilient energy and our position as a leader in some of North America's largest economic markets, offers investors visibility to our future growth as we look to invest higher levels of capital and critical new energy infrastructure through the end of the decade and beyond.
To conclude, this is an exciting time for our company, and we look forward to continuing to deliver strong financial and operational results.
Thank you for joining us, and I'd now like to open the line for your questions.
