Sustainable Value Creation For All Stakeholders
www.SustainableSempra.com
June 11, 2018
www.SustainableSempra.com▫ 2 ▫
Disclaimer
THIS PRESENTATION IS FOR DISCUSSION AND INFORMATIONAL PURPOSES ONLY. THE VIEWS EXPRESSED HEREIN REPRESENT THE OPINIONS OF ELLIOTT MANAGEMENT CORPORATION AND ITSAFFILIATES (COLLECTIVELY, “ELLIOTT MANAGEMENT”) AND BLUESCAPE RESOURCES COMPANY LLC AND ITS AFFILIATES (COLLECTIVELY, “BLUESCAPE”). ALL OF THE INFORMATION CONTAINEDHEREIN IS BASED ON PUBLICLY AVAILABLE INFORMATION WITH RESPECT TO SEMPRA ENERGY (THE “COMPANY”), INCLUDING FILINGS MADE BY THE COMPANY WITH THE SECURITIES ANDEXCHANGE COMMISSION (“SEC”), AND OTHER SOURCES. IT DOES NOT CONSIDER IN ANY MANNER THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY, OR THEPARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESENTATION, AND SHOULD NOT BE TAKEN AS ADVICE ON THE MERITS OF ANY INVESTMENT DECISION WITH RESPECT TOTHE COMPANY OR ANY OTHER PERSON. NO INVESTMENT DECISIONS SHOULD BE BASED IN ANY MANNER ON THE INFORMATION SET FORTH IN THIS PRESENTATION. EACH RECIPIENT SHOULDCONSULT ITS OWN COUNSEL, TAX AND FINANCIAL ADVISERS AS TO THE LEGAL AND RELATED MATTERS CONCERNING THE INFORMATION CONTAINED HEREIN. THIS PRESENTATION DOES NOTPURPORT TO BE ALL-INCLUSIVE OR TO CONTAIN ALL OF THE INFORMATION THAT MAY BE RELEVANT TO AN EVALUATION OF THE COMPANY, ITS SECURITIES OR THE MATTERS DESCRIBEDHEREIN.
THIS PRESENTATION DOES NOT CONSTITUTE (AND SHOULD NOT BE CONSTRUED TO BE) A SOLICITATION OR OFFER BY ELLIOTT MANAGEMENT, BLUESCAPE OR ANY OF THEIR RESPECTIVEDIRECTORS, OFFICERS, EMPLOYEES OR AGENTS TO BUY OR SELL ANY SECURITIES OR RELATED FINANCIAL INSTRUMENTS OF THE COMPANY OR ANY OTHER PERSON IN ANY JURISDICTION. THISPRESENTATION DOES NOT CONSTITUTE FINANCIAL PROMOTION, INVESTMENT ADVICE OR AN INDUCEMENT OR AN ENCOURAGEMENT TO PARTICIPATE IN ANY PRODUCT, OFFERING ORINVESTMENT OR TO ENTER INTO ANY AGREEMENT WITH THE RECIPIENT. THIS PRESENTATION SHOULD NOT BE RELIED UPON FOR LEGAL, ACCOUNTING OR TAX ADVICE OR INVESTMENTRECOMMENDATIONS OR FOR ANY OTHER PURPOSE. NEITHER OF ELLIOTT MANAGEMENT NOR BLUESCAPE MAKE ANY REPRESENTATION OR WARRANTY IS MADE THAT THEIR RESPECTIVEINVESTMENT PROCESSES OR INVESTMENT OBJECTIVES WILL OR ARE LIKELY TO BE ACHIEVED OR SUCCESSFUL OR THAT THEIR RESPECTIVE INVESTMENTS WILL MAKE ANY PROFIT OR WILL NOTSUSTAIN LOSSES. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
NO REPRESENTATION, WARRANTY OR UNDERTAKING, EXPRESS OR IMPLIED, IS GIVEN AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION OR VIEWS CONTAINED HEREIN. ELLIOTTMANAGEMENT, BLUESCAPE AND EACH OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS EXPRESSLY DISCLAIM ANY LIABILITY WHICH MAY ARISE FROM THIS PRESENTATIONAND ANY ERRORS CONTAINED THEREIN AND/OR OMISSIONS THEREFROM OR FROM ANY USE OF THE CONTENTS OF THIS PRESENTATION. NO AGREEMENT, COMMITMENT OR UNDERSTANDINGOR LEGAL RELATIONSHIP EXISTS OR SHALL BE DEEMED TO EXIST BETWEEN OR AMONG ELLIOTT MANAGEMENT, BLUESCAPE OR ANY OTHER PARTY OR PARTIES BY VIRTUE OF FURNISHING THISPRESENTATION. NEITHER ELLIOTT MANAGEMENT NOR BLUESCAPE HAVE SOUGHT OR OBTAINED CONSENT FROM ANY THIRD PARTY TO USE ANY STATEMENTS OR INFORMATION INDICATEDHEREIN AS HAVING BEEN OBTAINED OR DERIVED FROM STATEMENTS MADE OR PUBLISHED BY THIRD PARTIES. ANY SUCH STATEMENTS OR INFORMATION SHOULD NOT BE VIEWED ASINDICATING THE SUPPORT OF SUCH THIRD PARTY FOR THE VIEWS EXPRESSED HEREIN.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS ADDRESSED IN THIS PRESENTATION ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN RISKS ANDUNCERTAINTIES. YOU SHOULD BE AWARE THAT PROJECTIONS AND FORWARD LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AND ACTUAL RESULTS MAY DIFFER FROM THE PROJECTIONSAND OTHER FORWARD LOOKING STATEMENTS CONTAINED HEREIN DUE TO REASONS THAT MAY OR MAY NOT BE FORESEEABLE. THERE CAN BE NO ASSURANCE THAT THE COMPANY’SSECURITIES WILL TRADE AT THE PRICES THAT MAY BE IMPLIED HEREIN. NO REPRESENTATION OR WARRANTY IS MADE AS TO THE ACCURACY OR REASONABLENESS OF THE ASSUMPTIONSUNDERLYING THE PROJECTIONS AND OTHER FORWARD LOOKING STATEMENTS CONTAINED HEREIN. PROJECTIONS, MARKET OUTLOOKS, ASSUMPTIONS OR ESTIMATES IN THIS MATERIAL AREFORWARD-LOOKING STATEMENTS, ARE BASED UPON CERTAIN ASSUMPTIONS, AND ARE SUBJECT TO A VARIETY OF RISKS AND CHANGES, INCLUDING RISKS AND CHANGES AFFECTING INDUSTRIESGENERALLY AND THE COMPANY SPECIFICALLY.
ELLIOTT MANAGEMENT AND BLUESCAPE RESERVE THE RIGHT TO CHANGE OR MODIFY ANY OF THE OPINIONS EXPRESSED HEREIN AT ANY TIME AS THEY DEEM APPROPRIATE. ELLIOTTMANAGEMENT AND BLUESCAPE DISCLAIM ANY OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN.
ALL TRADEMARKS AND TRADE NAMES USED HEREIN ARE THE EXCLUSIVE PROPERTY OF THEIR RESPECTIVE OWNERS AND THEY ARE NOT AFFILIATED WITH ELLIOTT MANAGEMENT OR BLUESCAPE.
ELLIOTT®
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Executive Summary
www.SustainableSempra.com
www.SustainableSempra.com▫ 4 ▫
About Elliott and Bluescape
ELLIOTT
Investment firm founded in 1977 with over $35B of assets under management
Multi-strategy firm active in debt, equities, commodities, currencies and various other asset classes across a range of industries
Strong track record investing in the power, utility and broader energy sector and working with companies to create long-term fundamental stakeholder value
Private investment firm founded in 2007 focused on value-oriented investments in the upstream oil and gas, power and utility industries
John Wilder, Founder and Executive Chairman of Bluescape, served as CEO and Chairman of TXU Corp. from 2004-07, achieving an annual TSR of 65% and ranking as the fifth best performing company in the S&P 500 during that period
Elliott and Bluescape have conducted exhaustive research on Sempra, including working with a team of industry-leading advisers and experts, to evaluate and develop our recommendations
Elliott and Bluescape’s world-class team of advisers includes:
Six Highly Qualified Board Candidates with deep industry, regulatory, executive, and leadership experience and strong local ties
Leading Regulatory Counsel to understand each jurisdiction in which Sempra operates; we retained four specialized local law firms (California, Texas, FERC, and Mexico) to study the regulatory implications of our proposal’s various potential results
Leading Corporate Counsel to review Sempra’s corporate governance and legal structure
Leading Financial Adviser to independently verify the viability and value creation potential of the proposed strategic plan
Big 4 Accounting Firm & Tax Counsel to vet structures and understand the tax consequences of contemplated spin-offs and divestitures
Independent Compensation Consultant to unpack Sempra management’s incentive structure and benchmark against industry peers
We are pleased to share our suggestions for creating a better Sempra for all key stakeholders
www.SustainableSempra.com▫ 5 ▫
Why Are We Here?
Sempra has Continually Underperformed: Despite owning a collection of highly attractive businesses, Sempra’s share price has meaningfully underperformed and persistently trades at a steep discount to both peers and achievable value
Sempra’s Conglomerate Strategy has Failed: A litany of operational and financial setbacks demonstrate drift into a low-performance organization with a detached management structure and Board as the company has become larger, more complex, and more disparate
Inadequate Oversight: Executive compensation, board oversight, corporate structure and behavior are not rooted in appropriate performance and accountability measures and are not in the best interests of key stakeholders
Elliott and Bluescape collectively own a 4.9% economic interest in Sempra valued at more than $1.3 billion1
We believe Sempra can achieve $11-16 billion of value creation from an appropriately conducted business review
Sustainable Value Creation: Two-pronged approach:
Reset Oversight: Refresh the Board with new truly objective, highly qualified directors
Strategic Review: New Board committee to complete a sober, dispassionate, full portfolio and operational review
Sempra’s Potential: Elliott and Bluescape have crafted a readily achievable plan that demonstrates the potential value creation at Sempra from unlocking its significant conglomerate discount, highlighting the value of its LNG development pipeline, and improving US utility operations
Key Stakeholder Benefits: Change in strategy expected to yield significantly better tangible outcomes for customers, employees, regulators and shareholders
Sempra’s Performance Sempra’s Opportunity
38-57%upside
1 Elliott – approx. $1.17B, Bluescape – approx. $152m.
We believe Jeff Martin and his team have a unique opportunity to create a more Sustainable Sempra and achieve $139-158 per share
www.SustainableSempra.com▫ 6 ▫
Sempra Has Underperformed
Sempra’s total shareholder return (“TSR”) has meaningfully underperformed peers and, importantly, its own opportunity
Sempra’s underperformance is not due to the quality of underlying businesses…
Sempra TSR Relative to Infrastructure Utility Peers1 Sempra TSR Relative to Proxy Peers2
Sempra TSR Relative to S&P 500 Utilities Index Sempra TSR Relative to S&P 500
Source: Bloomberg as of 6/7/18.Note: Charts represent peer median relative cumulative total shareholder return.1. Infrastructure utility peers include: NEE, D, DTE, AGR, CNP and NI.2. Proxy peers from Sempra 2018 proxy statement.
(4)
(17)
(39)(34)
(26)
1-Year 2-Year 3-Year 4-Year 5-Year
(3)(8)
(31)
(18)
(7)
1-Year 2-Year 3-Year 4-Year 5-Year
(5)(6)
(21)(18)
(9)
1-Year 2-Year 3-Year 4-Year 5-Year
(28)
(38)(35)
(42) (42)1-Year 2-Year 3-Year 4-Year 5-Year
www.SustainableSempra.com▫ 7 ▫
22
.5x
20
.4x
19
.0x
18
.7x
18
.2x
17
.4x
17
.9x
17
.6x
16
.4x
16
.3x
16
.3x
16
.2x
16
.0x
15
.8x
15
.6x
15
.2x
15
.0x
14
.8x
14
.6x
14
.2x
14
.1x
13
.3x
Gas Utility Peer Median: 18.9x Electric & Infrastructure
Utility Peer Median: 15.8x
NWN OGS NJR ATO SWX SR AGR NEE LNT NI AEE CMS WEC ED XEL PNW DTE AEP ES CNP D SRE
Lowest Valuation Among Peers
2020 P/E: Sempra vs. Utility Peers
Sempra’s steep valuation discount to peers reflects a substantial conglomerate discount
Source: Bloomberg as of 6/7/18.Note: See Appendix slide 44 for peer group detail.
…Rather, investors do not trust Sempra’s oversight or believe in its strategy
www.SustainableSempra.com▫ 8 ▫
How Has Sempra Become an Underperformer?$
5.2
5
$5
.65
$5
.75
$5
.35
$6
.25
$4
.71
$5
.21
$5
.05
$5
.42
$5
.55
2014 2015 2016 2017 2018Guidance
5-Year Plan Midpoint
Actual
EPS
EPS
SDG&E and SoCalGas provide Sempra holding company robust access to capital
?? ?
85% of management’s annual bonus is based on absolute earnings dollars, not EPS
Pursuing sheer size, Sempra develops and acquires several valuable yet divergent businesses
Lack of focus causes operational issues and consistent misses against 5-year plan1
Sempra’s Board is structured to empower the longest-tenured directors
Investors and analysts lose faith in Sempra,leading to a steep valuation discount2
1 2 3
4 5 6
Access to Capital Misguided Incentives Disparate Portfolio
Operational Issues Poor Oversight Low Valuation
MISS
MISSMISS
MISS
18.9x
15.8x
13.3x
Gas UtilityPeer P/E
Electric UtilityPeer P/E
SempraP/E
Source: Bloomberg as of 6/7/18, SEC filings, Sempra 2018 proxy statement and company presentations.1. Comparison of reported adjusted EPS vs. midpoint of five-year plan EPS target from four years prior.2. 2020 P/E multiple. See Appendix slide 44 for gas and electric utility peer groups.
www.SustainableSempra.com▫ 9 ▫
Current Sempra Does Not Fit Together
Risk Profile Regulated electricRegulated electric
& gasRegulated gas
Long-term contracted,
construction risk
Long-term contracted,
currency risk
Regulated,currency risk
Long-term contracted
Valuation Framework
P/E multiple, dividend yield +
growth
P/E multiple, dividend yield +
growth
P/E multiple, dividend yield +
growth
EV/EBITDA, DCF or $/tonne
EV/EBITDA EV/EBITDA or P/EFree cash flow
yield or $/installed kW
Geography US – Texas US – California US – California US – Gulf Coast Mexico Chile and Peru US
Regulator PUCTCPUC electric: ~50%
CPUC gas: ~10%FERC: ~40%
CPUC FERC, DOE CREChile – CNE
Peru –OSINERGMIN
FERC
NaturalInvestor Base
Dedicated electric utility
Dedicatedutility
Dedicatedgas utility
Energy / midstream
Energy / midstream, emerging markets
Dedicatedemerging markets
Yield-oriented
LeadershipSkills
Texas focus; electric ops & maintenance
California focus; electric ops & maintenance
California focus; gas LDC ops & maintenance
Mega-scale gas project
development & construction
Emerging markets project development &
construction
Emerging markets electric
ops & maintenance
Renewables project
development & construction
Sempra’s portfolio approach is suboptimal for its stakeholders. Each business has a different cost of capital and a different risk-return profile
To create a more sustainable company, Sempra must reset oversight, streamline its portfolio, and improve core operations
Source: SEC filings.
www.SustainableSempra.com▫ 10 ▫
Fixing the Problems at Sempra
To address Sempra’s three critical problems we have developed three clear solutions
www.SustainableSempra.com▫ 11 ▫
$40
$35 ($26)
$91
$5 $4
LNG & MidstreamSpin
Non-CoreBusiness
Divestitures
$7B HoldcoDebt Paydown
Pro Forma USUtilities
Utility High-Performance
Strategy
BuybackAccretion
Achievable 6-12Month Price
Target
Sempra’s Potential
Board Enhancement: Six new directors already identified who are truly independent, highly qualified with diverse experience and expertise, who will rely on fact-based evidence to inform their decision-making
Strategic Review Committee (“SRC”): Formation of a new Board committee comprised of the most qualified directors to immediately initiate strategic review
Reset Oversight
Portfolio Review: SRC to conduct “no stone unturned” review to consider all pathways to maximize value –including tax-free spin-offs and tax-optimized business divestitures
Operational Review: SRC to simultaneously review operations to enhance safety, reliability and service at Sempra’s US utilities, with no net increase in customer rates, and maximize LNG development opportunities
Announce Sustainable Sempra Plan by Year-End
Strategic Review
With improved oversight and from the work of a newly formed Strategic Review Committee,we believe that Sempra can create $11-16 billion of value
$139-158
38-57%upside
Note: Assumes share count of 279m including forward share sales. Figures shown are midpoints of each valuation range. See slide 33 for additional detail.1. Net of ~1x EBITDA of proposed holdco debt and $1.7B of convertible preferred stock.2. Accretion from $2-3B share buyback.
1 2
Achievable Upside For a Sustainable Sempra
www.SustainableSempra.com▫ 12 ▫
Customers: Improved reliability and customer service due to renewed operational focus; increased investment in infrastructure with no net increase in utility customer rates
Employees: More opportunity due to increased growth and investment potential; better and safer work environment from new high-performance culture
Regulators: Eliminates exogenous risks from businesses outside each regulator’s direct purview; improved safety and reliability standards on an affordable / cost-efficient basis; enhanced transparency and accountability
Shareholders: Improved management accountability and alignment, transparency, operating performance, financial results and optimized, enhanced value realization with greater overall certainty
A Better Sempra for all Key Stakeholders
Becoming more focused and well-run will benefit all key stakeholdersin each of Sempra’s businesses
A more reliable, more profitable, and more sustainable Sempra
www.SustainableSempra.com▫ 13 ▫
(5)
0
5
10
15
20
1/1
9
1/2
6
2/2
2/9
2/1
6
2/2
3
3/2
3/9
3/1
6
3/2
3
3/3
0
4/6
4/1
3
4/2
0
4/2
7
5/4
5/1
1
5/1
8
5/2
5
6/1
FirstEnergy
XLU
Recent Elliott and Bluescape Collaborations
NRG Total Shareholder Return
Enhanced Oversight: Addition of highly qualified directors and formation of a Business Review Committee of the Board within 1 month
Independent Review: An objective review of NRG’s strategy and operations which culminated in the announcement of a highly successful Transformation Plan within 4 months
$6B of Value Created
#1 Stock in S&P 500 in 2017
#1 Stock in XLU YTD 2018
$1B Cash Flow Improvement
Sale of Non-Core Businesses
FE vs. XLU Since Elliott & Bluescape Investment
Enhanced Oversight: Active involvement of John Wilder on FirstEnergy’s newly formed Restructuring Working Group
Portfolio Focus: Landmark $2.5B investment led by Elliott and Bluescape to repair FE’s balance sheet and enable its exit from merchant generation and refocus on its collection of pristine, regulated utility companies within 3 months
We see similar opportunities at Sempra
Prior to 2018, FE had underperformed the XLU for 6 consecutive years
Source: Bloomberg as of 6/7/18.
+102%+99%
+80%
Since Elliott 13D vs. XLU vs. S&P 500
Source: Bloomberg as of 6/7/18. +18% FE relative TSR vs. XLU from 1/19/18.
+18%
ELLIOTT®
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Sempra Today is Not Working
www.SustainableSempra.com
www.SustainableSempra.com▫ 15 ▫
As Sempra Gets Bigger, Underperformance Deepens
Source: Bloomberg as of 6/7/18.1. Infrastructure utility peers include: NEE, D, DTE, CNP and NI (AGR is excluded from 3-year chart as it was not yet public 3 years ago).
The market is telling Sempra that the time is NOW for a comprehensive strategic review
Sempra TSR Relative to Infrastructure Utility Peers1 and Sempra Enterprise Value
Sempra’s enterprise value has expanded by nearly $17 billion over the last three years,while its TSR has underperformed infrastructure peers by 39%
Sempra relative TSR (LHS)
Sempra enterprise
value (RHS)
(39%)
$57B
$35
$40
$45
$50
$55
$60
(50)
(45)
(40)
(35)
(30)
(25)
(20)
(15)
(10)
(5)
0
J-15 S-15 D-15 M-16 J-16 S-16 D-16 M-17 J-17 S-17 D-17 M-18
Ente
rpri
se V
alu
e (
$ in
bill
ion
s)
Sem
pra
TSR
Re
lati
ve t
o In
fras
tru
ctu
re P
ee
rs
www.SustainableSempra.com▫ 16 ▫
Regulated gas & electric utility serving San Diego county
100% SRE owned
$8.5B rate base 1.4m electric, 0.9m gas
customers
Regulated gas utility serving southern California including LA
100% SRE owned
$5.5B rate base 6.0m gas customers
Regulated electric utility serving northwest Texas and Dallas metro
80% SRE owned
$11B rate base 3.5m electric customers
50.2% interest in Cameron LNG export project Gas storage and pipeline assets Leading LNG development pipeline
13.9 Mtpa total liquefactioncapacity at Cameron
42 bcf of gas storage ~25 Mtpa of potential LNG
development projects1
Mexico energy infrastructure company 66.4% SRE owned
1,400 miles of natural gas pipelines with throughput of 16.5 bcf/day
Largest regulated electric utility in Peru 83.6% SRE owned
1.1m electric customers
Third largest regulated electric utility in Chile. 100% SRE owned
0.7m electric customers
Long-term contracted wind and solar assets primarily in NV, AZ, CA and the Midwest US
1.6GW capacity
Sempra Today
However, Sempra has failed to articulate a logical strategy around its various businesses.In reality, no coherent strategy actually exists
Map of Sempra’s Businesses
Source: SEC filings. Map from Sempra website.1. Estimated capacity attributable to Sempra. See Appendix slide 41.
“SRE remains one of the more complex and diversified companies in our universe...”Goldman Sachs, June 6, 2018
www.SustainableSempra.com▫ 17 ▫
How Did Sempra Get SO BIG?
This is NOT working for any of Sempra’s Key Stakeholders
Sempra’s growth strategy relies on siphoning earnings and creditworthiness from its core California utilities and deploying that capital into various unrelated businesses with poor returns and results
www.SustainableSempra.com▫ 18 ▫
Rationale for Current Strategy Doesn’t Hold Together
This is Sempra’s rationale for its strategy from the 2017 Analyst Day
Owning a collection of three distinct, unconnected assets in the Texas regiondoes not constitute a “Gulf Coast strategy”
Sempra has not demonstrated any tangible or quantifiable benefits across its businesses for any of its key stakeholders
Pg. 8 of Sempra’s 2017 Analyst Day Presentation
Pg. 10 of Sempra’s 3Q17 Earnings Presentation
www.SustainableSempra.com▫ 19 ▫
Purported Operational Synergies Lack Credibility
Alleged “Synergy” Management Commentary Elliott / Bluescape Perspective
“Risk Profile”
“With all of our businesses, we are fully committed to our strategy of maintaining high-growth, but utility-like risk profile.”
Executive Chairman Debra Reed, April 5, 2017
Sempra’s businesses have different risk profiles, different growth opportunities, different customers, different regulators, different natural owners anddifferent valuation parameters
This is the underpinning of what’s wrong with Sempra’s current structure and the root cause of underperformance
“Geographic”
“We expect the addition of Oncor, coupled with our existing presence in the natural gas market, to position us well to be a leading player in the Gulf Coast.”
Executive Chairman Debra Reed, October 30, 2017
There is virtually no integration or physical interconnectedness between Sempra’s businesses
Geographic proximity is not a synergy in and of itself
“ProjectConstruction”
“We build transmission at SDG&E. We build transmission in Chile.”
President & COO Joe Householder, April 5, 2017
Expertise in constructing and maintaining renewables and transmission assets is not unique or proprietary
“Safety & Reliability”
“Like our California utilities and our South American utilities, operational excellence is paramount to our focus: safety, reliability and customer service.”
Former Executive VP Steven Davis, April 5, 2017
Safety, reliability and customer service should be the highest priority for any energy / utility business, but it does not justify being a conglomerate
Sempra’s track record does not inspire confidence that the company has high-performance operations
www.SustainableSempra.com▫ 20 ▫
Disparate Businesses Result in Operational Issues
Incident What Happened Key Lessons
Cameron LNG Construction Delays
Cameron LNG commercial operation dates have been delayed numerous times for over 12 months cumulatively due to construction-related issues
Management was ambiguous around timing of plant commissioning and further timing slippages
By comparison, several of Cheniere’s LNG facilities have been completed months ahead of schedule
Large unregulated construction projects require proactive management
In 2016, Sempra management was not aware of any delay until notified by the contractor and was ill-equipped to respond
Aliso Canyon Gas Leak
October 2015 natural gas leak at the SoCalGas Aliso Canyon facility was the worst natural gas leak in US history in terms of environmental impact
Gas leak released over 100,000 metric tons of methane into the atmosphere, with a carbon footprint worse than the Deepwater Horizon oil spill1
Safety and reliability must be the number one priority for any utility management team
Gas leak is an example of “eye off the ball” mismanagement of core operations
Rockies Express Pipeline Impairment
Cumulative impairments on the Rockies Express pipeline cost shareholders approximately $600 million2
Project was plagued at the outset, with construction cost ballooning from $4.4B to $6.8B, an over 50% increase
Subsequent changes to re-contracting prospects led Sempra to write down and ultimately dispose of its 25% interest
Despite the long-term contracted nature of assets, midstream infrastructure investment requires specialized experience and foresight
Argentina Impairment
Sempra lost virtually its entire investment in two Argentine regulated utilities, costing shareholders over $200 million
Businesses in foreign jurisdictions have completely different risk profiles compared to regulated US utilities
Sempra’s structure has resulted in serious execution missteps, which creates meaningful risks for all key stakeholders and results in lack of confidence in leadership
Source: SEC filings.1. From The Independent UK, 1/2/2018.2. Cumulative pre-tax impairments on Rockies Express Pipeline and related pipeline capacity release.
www.SustainableSempra.com▫ 21 ▫
Consistent EPS Misses Demonstrate Lack of Grasp and Focus
2011–2017 Segment EPS Contribution
($0.52)($0.22)
($0.67) ($0.69) ($0.61) ($0.46) ($0.55)
$1.91 $1.44 $1.61
$1.97 $1.87 $1.53 $1.77
$1.19
$1.17 $1.36
$1.32 $1.67 $1.58
$1.66
$1.78
$1.96 $1.89
$2.11 $2.28
$2.39 $2.55
2011 2012 2013 2014 2015 2016 2017
6.1%CAGR
California utilities are growing EPS
“Everything Else,” is Flat/Down
5.7%CAGR
(1.3)%CAGR
5-Year Plan EPS Guidance vs. Actual Achieved1
$5.25
$5.65 $5.75
$5.35
$6.25
$4.71
$5.21
$5.05
$5.42
$5.55
2014 2015 2016 2017 2018 GuidanceMidpoint
5-Year Plan Midpoint Actual
10%miss
8%miss 12%
miss
11%miss
“The bear case on SRE is that they never make their five-year forecast, so why believe them now?...It is true that SRE will have fallen short of the majority of their five-year plans for EPS growth aspirations laid out in ‘12/‘13/‘14/‘15.”
Evercore ISI, April 5, 2018
Sempra has not been able to sustainably drive earnings growth at non-California businesses
SDG&E
Other Businesses
SoCalGas
Corporate
Source: SEC filings, company presentations.1. Comparison of reported adjusted EPS vs. midpoint of five-year plan EPS target from four years prior.
www.SustainableSempra.com▫ 22 ▫
Repeated Downward Earnings Revisions
$4.00
$5.00
$6.00
$7.00
$8.00
Jun-14 Jun-15 Jun-16 Jun-17 Jun-18
2019: (12%)
2018: (13%)2017: (8%)
2016: (8%)
Sempra’s consensus earnings estimates have consistently seen significant downward revisions, perpetuating share price underperformance and low valuation
2016–2019 Street Consensus EPS Estimate Trend
“Looking for gradual negative revisions to 2018-20 outlook, but disproportionate rebase of '18 keeps LT EPS CAGR intact to '21.”
Bank of America, May 8, 2018
“We see a potential re-set of growth expectations ahead…Should the company rely more on future LNG project or other riskier international or other non-utility sources of growth in the future, we see potential for additional multiple compression as well.”
JP Morgan, June 4, 2018
“The bear case on SRE continues to be skepticism regarding their ability to achieve their L-T EPS growth aspirations, pointing to SRE’s historic underperformance vs. their growth aspirations.”
Evercore ISI, May 9, 2018
Source: Bloomberg as of 6/7/18.
“Our updated 2019 estimates come in below consensus, and we expect 2019 guidance at SRE’s analyst day (June 28th) to disappoint.”
Goldman Sachs, May 15, 2018
www.SustainableSempra.com▫ 23 ▫
Sempra’s Board Structure is Problematic
Exec. Directors Age Tenure Industry? Board Roles Nom & Gov. Comp.
Debra Reed 61 40* Yes Chairman, Former CEO
Jeff Martin 56 14* Yes CEO
Indp. Directors Age Tenure Industry? Board Roles Nom & Gov. Comp.
Director 1 62 24 No Chair of Governance
Director 2 74 20 No
Director 3 73 17 Yes Lead Director, Chair of Comp
Director 4 73 10 No Chair of Health & Safety
Director 5 69 7 No
Director 6 66 5 No Chair of Audit
Director 7 66 5 Yes
Director 8 72 5 No
Director 9 55 5 Yes
Director 10 56 1 No
Director 11 48 1 No
Director 12 62 1 No
The power structure of the current Board is skewed heavily towards the longest tenured directors
In particular, the compensation committee has failed to properly construct management’s incentive scheme
The Board today lacks key industry and capital allocation know-how and credibility
Longest tenured directors dominate key positions, notably the Nominating & Governance and Compensation Committees
Sempra’s Lead Director has 17 years of tenure and the Chairman of the Nominating & Governance Committee has 24 years of tenure
Only three of Sempra’s 12 independent directors have utility industry experience
Four of Sempra’s 12 independent directors have no beneficial ownership in Company stock at all (0 common shares or options)
In aggregate, Sempra’s independent directors own a total of 52,200 shares, or 0.02% of the current shares outstanding
Only one of Sempra’s independent directors has ever purchased shares on the open market (and on only one occasion)
Since 2010, Sempra’s independent directors have sold nearly $20 million of stock on the open market
Sempra’s Board would greatly benefit from new fresh perspectives and real industry experience
Source: Sempra 2018 proxy statement.
* Tenure for Debra Reed and Jeff Martin refers to tenure at Sempra, not the Board. Ms. Reed has been a director since April 2010 and Mr. Martin joined the board in May 2018.
www.SustainableSempra.com▫ 24 ▫
The Problems with Sempra’s Annual Incentive Structure
Governance Concerns Made Tangible in Incentive Structure
Sempra’s incentive structure encourages GET BIG strategy and rewards mediocrity
Management’s bonus is 85% based on absolute earnings dollars (not EPS)
2013 2014 2015 2016 2017
Previous Year Actual Target Actual
The Board sets very low goals for management’s bonus. In fact, in 3 of the last 5 years, the set goal was lower than the previous year’s actual result
-10%
3%
-4% 0%1%
Management’s annual pension contribution is based on salary and 3-year average highest bonus during the prior 10 years, thus shareholders pay double for low goals
Peer Group CEOs Annual Incentive Payout as a % of Target
2013 2014 2015 2016 2017 5YR Avg.
75th 155% 155% 141% 147% 143% 141%
50th 135% 126% 122% 127% 121% 127%
25th 109% 113% 107% 107% 101% 109%
Sempra 189% 177% 188% 105% 196% 171%
Sempra TSR Percentile vs. Proxy Peers 92% 34% 22% 12% 28% 42%
Source: Sempra proxy statements.
This plan allows for low return investments and acquisitions so long as it grows absolute earnings dollars (not per share)
Earnings In billions of dollars
Previous Year Earnings vs. Target (85% of Annual Bonus) vs. Actual Achieved
www.SustainableSempra.com▫ 25 ▫
$5
3
$5
1
$4
6
$4
6
$4
3
$4
3
$4
3
$4
2
$4
2
$4
0
$3
9
$3
9
$3
8
$3
5
$3
4
$3
4
$3
1
$3
1
$3
0
$3
0
$2
8
$2
8
$2
6
$2
1
$2
0
$1
9
$1
7
5
60
19
1413
30
-11
5
44
7
-8
40
18
5
35
48
38
49
40 39
12
42
-12
68
3942
(20)
(10)
0
10
20
30
40
50
60
70
80
-$10
$0
$10
$20
$30
$40
$50
$60
TSR
CEO
Pay
in M
M
CEO Pay Peer Avg Pay TSR Peer Avg TSR
The Result: Big Company, Big Pay, Small Returns
3-Year (2015–17) CEO Pay vs. Proxy Peer TSR
Sempra has paid its CEO more than $50 million over the last three years vs. a peer average of $36 million, despite underperforming proxy peers by more than 20%
Source: Bloomberg, company proxy statements.
ELLIOTT®
▫ 26 ▫
Creating a Better Sempra
www.SustainableSempra.com
www.SustainableSempra.com▫ 27 ▫Source: Fireside chat with Wolfe Research, September 14, 2017.
“I hope that over time [Sempra’s businesses] grow so huge that it makes sense to have that type of separation.
Executive Chairman Debra Reed, September 14, 2017
“
Analyst: “You got high quality businesses in each thing that you do…but they are kind of disparate businesses. You could arguably say that they could be put together in different standalone businesses and the like.”
www.SustainableSempra.com▫ 28 ▫
Sustainable Value Creation
www.SustainableSempra.com▫ 29 ▫
Reset Oversight
Strong California ties
Strong Texas ties
Strong Louisiana ties
Utility industry executive and board experience and expertise
Midstream industry executive and board experience and expertise
Federal and state energy regulatory commission experience and expertise
Political / legislative experience and expertise
Strong leadership and high-performance culture qualifications
Transaction advisory / special committee experience and expertise
We have identified six new, highly qualified directors with diverse, highly relevant skill-sets and look forward to sharing their credentials with Sempra
www.SustainableSempra.com▫ 30 ▫
Strategic Review
A comprehensive plan to improve Sempra is readily achievable by late 2018
A rigorous review of Sempra’s portfolio and operations should lead to tangible, sustainable enhancements for all key stakeholders
Refresh Board
Appoint six new highly qualified directors
Form Strategic Review Committee of the Board
Form Strategic Review Committee (“SRC”) of the Board populated with some or all of the newly appointed Board members; SRC to hire independent advisers
Full Business Review
SRC to conduct full business review, including both i) portfolio review to evaluate strategic alternatives for each business; and ii) operational review to identify efficiencies and growth opportunities
Announce New Plan
Publicly announce results of business review and begin plan implementation immediately
www.SustainableSempra.com▫ 31 ▫
Sempra’s Conglomerate Discount Can be Efficiently Unlocked
SCALE Each underlying business has critical scale Each underlying business is a billion dollar plus enterprise
Several of Sempra’s businesses lead their respective sectors
NO DIS-SYNERGIES No operational dis-synergies from separation No real integration or physical interconnectedness
between businesses
MANAGEMENT Each operating business has its own fully staffed
management team Enhanced focus from removal of complexity from
disparate businesses
Potential cost savings from eliminating unnecessary layers of corporate overhead
TAX LEAKAGE Minimal to zero cash tax leakage Simplification can be effectuated through tax-free spins
and tax-efficient divestitures
Sempra has >$4 billion of net operating losses to shield taxable gains
Strategic Review Will Create a More Focused Sempra
Sempra Today Asset Sales New High-Performance Companies
US Utility Co. LNG Co.
Sempra’s corporate structure can be simplified over a short period of timewith no disruption to underlying operating businesses
www.SustainableSempra.com▫ 32 ▫
Operational Review
Employ back-to-basics strategy with increased executive management focus on core utility operations rather than unregulated growth
Transition SDG&E and SoCalGas into high-performance organizations
Target top-decile metrics in relevant industry benchmarks including customer satisfaction, safety and reliability, environmental compliance and cost efficiency
Incremental rate base investment opportunity of $2.5-5.0 billion expected with no net increase in customer rates
Ample investment opportunities in pipeline safety, weather hardening, grid modernization, green energy initiatives and cybersecurity
Service, Safety and Reliability: Improved reliability as measured by SAIDI and SAIFI from pipeline safety and grid modernization investments
Weather Hardening: Increased protection against extreme weather events and wildfires from infrastructure hardening
Green Energy: More investment in behind-the-meter services and solutions such as battery storage and electric vehicle infrastructure
Benefits to Customers, Employees and Regulators
High-Performance Strategy Cost-Effective Rate Base Investment
www.SustainableSempra.com▫ 33 ▫
Spin-off to Shareholders:
50.2% unconsolidated interest in Cameron LNG JV 42 Bcf gulf coast gas storage, Cameron Interstate Pipeline $8-9B $28-31
Development Projects Risked NPV of ~25 Mtpa of LNG development projects Cameron Trains 4-5, Port Arthur, Energia Costa Azul, P2K pipeline $3B $10-11
Business Divestitures:
66.4% interest in IEnova 83.6% interest in Luz del Sur, 100% interest in Chilquinta 1.6 GW net capacity of contracted wind and solar generation across the US
$9-10B $33-37
Holdco Debt Reduction Assumes $7.2B of holdco debt paydown from sale proceeds ($7B) ($26)
High-Performance US Utilities:
100% interest in SDG&E and SoCalGas; 80% interest in Oncor $29-30B $105-109
High-Performance Strategy NPV of incremental $2.5-5.0B rate base investment over 3-5 years $1-2B $3-7
Pro Forma Holdco Debt $5.4B face value of remaining holdco debt or ~1x EBITDA1, capitalized at
consistent multiple of after-tax interest expense $1.7B face value of convertible preferred deducted dollar-for-dollar
($5B) ($16)
Share Buyback Accretion2 Accretion from $2-3B buyback using proceeds from business divestitures after holdco debt paydown $1-2B $2-5
Total Equity Value $39-44B $139-158
Potential Upside For a Sustainable Sempra
Note: Assumes share count of 279m including forward share sales.1. Expected to sustain strong investment grade credit metrics.2. Represents capitalized value of accretion from share buybacks. Actual equity value would be $36-39B with 250-262m shares outstanding.
Equity Value Per SRE Share
www.SustainableSempra.com▫ 34 ▫
Which Sempra Do You Choose?
Status QuoSustainable
SempraImprovement
Target Share Price $101/Share $139-158/Share $38-57/Share Upside
Target Equity Value1 $28B $39-44B$11-16B Value
Creation
Holdco Debt $12B $5B $7B Less Holdco Debt
Potential EquityIssuance / Buyback
$2B Issuance $2-3B Buyback$4-5B Less Equity
Need
US Utility Earnings Growth2 5-7% 7-10% +2-3% Higher Growth
After initiating an objective portfolio and operational review, Sempra can change its trajectory and become a more valuable and more sustainable company
1. Assumes share count of 279m including forward share sales.2. Expected 3-5 year earnings growth rate with ~1x of holdco leverage.
www.SustainableSempra.com▫ 35 ▫
Operational Review Should Identify Long-Term Improvements
The below upside factors, which are not included in our analysis,offer Sempra shareholders even further substantial value-creation opportunities over time
1. Estimated pre-tax cash flow before project financing amortization.
US Utility Co. LNG Co.
Earnings Growth Additional Opportunity Cameron Trains 1-3LNG & Midstream
Development
Implementation of High-Performance Strategy enables industry-leading utility earnings / dividend growth of 7-10% and corresponding value accretion over time
Potential to expand scope, magnitude and duration of High-Performance Strategy upon further objective review of Sempra’s US utility operations
Annual free cash flow from Cameron Trains 1-3 attributable to Sempra expected to be $550m+ beginning in 20201
Potential to optimize operating cost structure of Cameron and maximize output
~25 Mtpa of cost-effective LNG development capacity at three different sites (see Appendix slide 48)
Successful development of even one facility would result in billions of dollars of incremental value
www.SustainableSempra.com▫ 36 ▫
Next Steps
We appreciate stakeholders’ consideration of our perspectives and invite Sempra’skey stakeholders and analysts to share their thoughts with us
We hope that we can work expeditiously with Sempra to initiate the fundamental changes needed
Elliott and Bluescape formally ask for the following initial next steps:
Engagement with Elliott and Bluescape on Board refreshment, including consideration of the six highly qualified directors that we have identified
Formation of Strategic Review Committee which will include newly appointed directors
Sempra’s new Strategic Review Committee to initiate a full portfolio and operational review with the help of advisers
www.SustainableSempra.com▫ 37 ▫
Contact Information
Toll-Free: +1-877-259-6290
+1-212-478-2017
ELLIOTT®
▫ 38 ▫
Appendix
www.SustainableSempra.com
www.SustainableSempra.com▫ 39 ▫
Customers / ServiceTerritory
3.5 million electric
Dallas metro and northwest Texas
1.4 million electric, 0.9 million gas
San Diego County and southern Orange County
6 million gas
Southern California including the Los Angeles metro
Sempra Ownership 80% 100% 100%
Rate Base / Growth $11B / 7% $8.5B rate base (~50% CPUC electric, ~10% CPUC gas, ~40% FERC)
6% rate base growth1
$5.5B / 7%1
Other Commentary More than four attempts to acquire Oncor over the past three years
Small geographical service territory and best-in-class systems limit exposure to wildfire risk
Largest natural gas distribution utility in the US
Indicative Comparable Peers
Regulated US Utilities
Sempra’s US utilities have strong growth rates and should command premium valuations as a standalone US utility holding company
Source: SEC filings, SDG&E 2019 General Rate Case filing, Sempra earnings calls.1. Based on Sempra 2017 Analyst Day presentation 2017-21 projected rate base growth.
BUSINESS OVERVIEW
www.SustainableSempra.com▫ 40 ▫
SDG&E - CPUC Electric, 17%
SDG&E - FERC, 14%
SDG&E - CPUC Gas, 3%
SoCalGas - CPUC Gas, 22%
Oncor - PUCT, 44%
Sempra’s US Utilities Have Limited Exposure to Wildfires
Sempra US Utility Aggregate Rate Base Composition
~83% of aggregate rate base assets are either: TX assets not subject to
inverse condemnation Gas assets with no
wildfire exposure FERC assets with history
of cost recovery
Only ~17% of Sempra’s aggregate rate base is electric infrastructure regulated by the CPUC
SDG&E Service Territory
“In our view, Sempra has minimal wildfire risk due to its small geographic footprint, and “best in class” fire mitigation and management program.”
Citi, March 19, 2018
Only a small fraction of Sempra’s US utility business is exposed to California wildfire risk
Source: SEC filings, CPUC website, SDG&E and SoCalGas 2019 General Rate Case filings.
BUSINESS OVERVIEW
• SDG&E’s small geographic service area, which is ~7% the size of SoCalEdand PG&E, further limits wildfire exposure
• SDG&E is known to have best-in-class technology, including cameras to monitor systems and the ability to quickly de-energize electric infrastructure
www.SustainableSempra.com▫ 41 ▫
• 3 LNG trains
• 13.9 Mtpa nameplate capacity
• 50.2% SRE ownership
• 20-year take-or-pay agreements with A-rated counterparties (who are also project owners) for full nameplate capacity
• No commodity exposure
• 84% complete with projected 2019 completion for all 3 trains
• Louisiana Gulf Coast
• 2 LNG trains
• 9 Mtpa brownfield capacity
• 50.2% SRE ownership
• Fully permitted by FERC and DOE
• Louisiana Gulf Coast
• 2 LNG trains
• 13.5 Mtpa greenfield capacity
• 3,000-acre prime land position along gulf coast
• FERC and DOE non-FTA applications filed
• Texas Gulf Coast
• Mid-scale 2.5 Mtpa LNG facility in the near-term
• 12 Mtpa LNG facility longer-term
• Pursuant to development agreement with IEnova
• Permitted by Mexican regulators
• Mexico West Coast / Baja
• 1.5-2.0 Bcfd Permian-to-Katy Pipeline; JV with Boardwalk
Contracted 20-year cash flow annuity
Opportunity to develop over 25 Mtpa1 of cost-effective liquefaction capacity
Sempra has the foundation of a highly valuable standalone LNG and midstream franchise.High-performance execution and strategic vision are key to unlocking the value of this business
Expansion Trains 4 & 5Trains 1-3
LNG & Midstream
OtherProjects
1. Estimated capacity attributable to Sempra; assumes retention of 50% interest in ECA liquefaction pursuant to a development agreement with IEnova.
BUSINESS OVERVIEW
www.SustainableSempra.com▫ 42 ▫
Description Premier Mexico energy infrastructure company primarily focused on natural gas transportation and distribution
Significant growth opportunities in renewables and liquids infrastructure
Long-term contracted dollar-based assets
Largest electric utility in Peru
Primarily transmission and distribution
Serves 1.1 million customers
Third largest electric utility in Chile
Primarily transmission and distribution
Serves 0.7 million customers
1.6 GW of net wind and solar generation across the US
Fully contracted assets with 17 year weighted average remaining contract life
Public Market Valuation
$6.1B equity value
$8.8B TEV
$1.8B equity value
$2.4B TEV
N/A N/A
Sempra Ownership
66.4% 83.6% 100% Various
Business Overview: Other Businesses
Sempra’s three international businesses and renewables portfolio are all attractive but non-core. Each has a strong growth profile and constructive regulatory environment
Source: Bloomberg, SEC filings.
BUSINESS OVERVIEW
www.SustainableSempra.com▫ 43 ▫
Business Segment Valuation Methodology
0.0-1.0x discount to median electric utility peer group P/E multiples on year-forward basis (see Appendix slide 44) Electric utility peer group: AEP, ED, XEL, WEC, ES, AEE, CMS, LNT, PNW
0.0-0.5x discount to median gas utility peer group P/E multiples on year-forward basis (see Appendix slide 44) Gas utility peer group: ATO, OGS, NJR, SWX, SR, NWN
0.5-1.0x premium to median electric utility peer group P/E multiples on year-forward basis (see Appendix slide 44) Electric utility peer group: AEP, ED, XEL, WEC, ES, AEE, CMS, LNT, PNW
Cameron LNG Trains 1-3: 13.4-14.4x EV/EBITDA applied to midpoint of run-rate EBITDA guidance range of $812.5m; corresponds to $1,600-$1,700/tonne capacity
o Consistent with Cheniere’s (CQP and LNG) current observed market valuation Gas storage: $10-12m/Bcf capacity; Cameron Interstate Pipeline: 10-11x EV/EBITDA
LNG & MidstreamDevelopment Projects
65-70% discount to unrisked NPV of ~$8.5B for prospective LNG & Midstream development projects See comparison to other LNG development companies on Appendix slide 48
Sale at 10-25% change-of-control premium to current public market valuation
Sale at 10-25% change-of-control premium to current public market valuation
Sale at 10-25% change-of-control premium to estimated standalone value calculated using aggregate IPSA P/E multiple
Sale of 1.6GW of wind and solar assets at $1,500-1,650/kW change-of-control value less $631m non-controlling interest
Key Valuation Assumptions
Our valuation range is constructed using the parametersdescribed below and is achievable over 6-12 months
VALUATION
www.SustainableSempra.com▫ 44 ▫
Relevant Comparable Company Valuation Statistics
Public Market Trading Comparables
Source: Bloomberg as of 6/7/18, company presentations.Note: Peer groups developed by Elliott & Bluescape and our financial adviser to most closely match Sempra’s utility businesses and excludes certain special situations.1. Reflects midpoint of medium-term EPS growth guidance.2. EPS adjusted to exclude impact of non-recurring items.
VALUATION
Share Mkt Cap TEV 2018E 2018-21 Yield + EV / EBITDA P / E
Name Ticker Price ($B) ($B) Div. Yield EPS CAGR Growth 2018 2019 2020 2018 2019 2020
Electric Utility Peers
American Electric Power Co Inc AEP $64.15 $31.6 $55.3 3.9% 5.1% 9.0% 10.1x 9.5x 9.0x 16.5x 15.6x 14.8x
Consolidated Edison Inc ED 72.79 22.6 39.4 3.9% 3.4% 7.4% 10.1 9.5 9.2 17.1 16.4 15.8
Xcel Energy Inc XEL 42.72 21.7 37.6 3.6% 6.0% 9.6% 10.1 9.4 9.1 17.6 16.5 15.6
WEC Energy Group Inc WEC 59.38 18.7 29.5 3.7% 6.2% 9.9% 12.1 11.3 10.7 18.0 17.0 16.0
Eversource Energy ES 53.60 17.0 31.0 3.8% 6.2% 9.9% 11.5 10.8 10.4 16.5 15.4 14.6
Ameren Corp AEE 56.90 13.8 22.8 3.3% 7.4% 10.7% 10.0 9.4 8.8 18.7 17.6 16.3
CMS Energy Corp CMS 43.38 12.3 22.4 3.3% 6.9% 10.2% 10.1 9.5 9.2 18.6 17.3 16.2
Alliant Energy Corp LNT 39.19 9.1 14.6 3.4% 6.0% 9.5% 11.9 10.9 9.6 18.5 17.4 16.4
Pinnacle West Capital Corp PNW 74.48 8.3 13.7 3.8% 5.1% 8.9% 9.7 9.1 8.7 16.7 15.8 15.2
Median $17.0 $29.5 3.7% 6.0% 9.6% 10.1x 9.5x 9.2x 17.6x 16.5x 15.8x
Gas Utility Peers
Atmos Energy Corp ATO $85.73 $9.5 $12.6 2.3% 7.0% 1 9.3% 12.1x 10.8x 9.7x 21.6x 20.1x 18.7x
ONE Gas Inc OGS 71.17 3.7 5.2 2.6% 6.5% 9.1% 11.9 11.2 10.4 22.8 21.6 20.4
New Jersey Resources Corp NJR 41.05 3.6 4.9 2.7% 7.0% 1 9.7% 14.4 13.8 12.8 21.9 2 20.6 19.0
Southwest Gas Holdings Inc SWX 74.19 3.6 5.6 2.8% 7.0% 9.8% 9.7 9.0 8.8 20.4 19.3 18.2
Spire Inc SR 67.85 3.4 6.0 3.3% 5.0% 8.3% 12.8 11.7 10.9 19.2 2 18.1 17.4
Northwest Natural Gas Co NWN 58.10 1.7 2.5 3.3% 5.6% 8.8% 11.6 10.8 10.4 25.6 23.4 22.5
Median $3.6 $5.4 2.7% 6.8% 9.2% 12.0x 11.0x 10.4x 21.8x 20.3x 18.9x
Infrastructure Utility Peers
NextEra Energy Inc NEE $156.38 $73.7 $108.7 2.8% 7.8% 10.7% 11.8x 10.7x 10.1x 20.2x 18.7x 17.6x
Dominion Energy Inc D 62.39 40.7 80.3 5.4% 4.3% 9.6% 11.7 11.0 10.1 15.3 14.7 14.1
DTE Energy Co DTE 97.04 17.6 30.8 3.7% 6.2% 9.9% 11.0 10.1 9.5 16.8 15.8 15.0
Avangrid Inc AGR 50.40 15.6 21.7 3.5% 8.3% 11.9% 10.4 9.8 9.2 20.9 19.9 17.9
CenterPoint Energy Inc CNP 25.41 11.0 18.6 4.4% 5.8% 10.2% 8.6 8.4 7.9 16.0 15.1 14.2
NiSource Inc NI 23.56 8.5 17.6 3.3% 6.4% 9.6% 11.5 10.4 9.8 18.4 17.1 16.3
Median $16.6 $26.3 3.6% 6.3% 10.0% 11.2x 10.2x 9.6x 17.6x 16.4x 15.7x
www.SustainableSempra.com▫ 45 ▫
Relevant M&A Transactions
High quality regulated and contracted businesses have commanded significant M&A premiums and valuations well in excess of what is embedded in Sempra’s share price
Precedent Transaction Comparables
Source: Bloomberg, SNL Energy, company press releases.
VALUATION
Date Date Transaction Equity Offer FY+1 FY+1 EV/
Acquirer Target Announced Closed Value ($B) Value ($B) Premium P/E EBITDA
Gas Utility Transactions
Centerpoint Vectren 4/23/18 TBD $8.1 $6.0 17% 23.8x 11.6x
HydroOne Avista 7/19/17 TBD 5.3 3.5 24% 25.6x 11.2x
AltaGas WGL Holdings 1/25/17 TBD 6.3 4.5 28% 24.2x 11.4x
Dominion Questar 2/1/16 9/19/16 6.0 4.4 30% 19.0x 10.0x
Duke Energy Piedmont 10/26/15 10/4/16 6.7 4.9 42% 30.0x 15.0x
Emera Teco 9/4/15 7/1/16 10.4 6.5 48% 23.2x 10.7x
Southern AGL Resources 8/24/15 7/1/16 11.9 7.9 36% 21.0x 10.0x
Median 30% 23.8x 11.2x
Electric Utility/Transmission Transactions
NextEra Gulf Power 5/21/18 TBD $5.8 $4.4 NA 24.7x 12.8x
Dominion Scana 1/3/18 TBD 14.6 7.9 42% 18.2x 11.5x
Sempra Oncor 8/20/17 3/9/18 18.8 9.5 NA 23.7x 9.9x
Fortis ITC 2/9/16 10/14/16 11.3 6.9 33% 20.0x 11.9x
Algonquin Power Empire District Electric 2/9/16 1/3/17 2.4 1.5 21% 21.5x 9.7x
Iberdrola UIL 2/25/15 12/17/15 4.8 3.0 19% 20.7x 9.8x
Median 27% 21.1x 10.7x
Natural Gas Infrastructure Transactions
Pembina Veresen 5/1/17 10/11/17 $7.1 $4.3 22% 33.5x 15.0x
Enbridge Spectra 9/6/16 2/27/17 48.6 28.3 12% 27.1x 14.9x
Transcanada Columbia Pipeline Group 3/17/16 7/1/16 13.3 10.2 29% 36.3x 17.1x
MPLX Markwest 7/13/15 12/4/15 21.3 15.7 32% 67.3x 18.0x
Median 26% 34.9x 16.0x
www.SustainableSempra.com▫ 46 ▫
Cameron LNG vs. Cheniere Metrics Comparison
Cameron LNG compares favorably to Cheniere’s projects: i) more contracted, ii) no commodity exposure, iii) better counterparty credit, iv) less levered
Trains 1-3 Cheniere Energy Partners(Sabine Pass Trains 1-5)
Cheniere Energy Inc.(Sabine Pass Trains 1-5, Corpus
Christi Trains 1-3)
FID Nameplate Capacity
13.9 Mtpa 22.5 Mtpa 36.0 Mtpa
ExpectedCompletion
2019 2019 2021
Contract Terms 100% 20-year take-or-pay ~90% 20-year take-or-pay ~85% long-term take-or-pay
Gas Procurement Customer responsible Cheniere responsible Cheniere responsible
Counterparty Credit
All A-rated~55% A-rated or better;
~45% BBB-rated~40% A-rated or better;
~60% BBB-rated or unrated
Consolidated Debt/EBITDA
~4.5x1 ~6x2 ~6-6.5x2
Enterprise Value N/A $38B2,3 $54B2,4
Source: SEC filings, company presentations.1. Sempra’s $3.7B share of Cameron LNG JV financing per Sempra’s 2017 10-K divided by run-rate EBITDA guidance midpoint of $812.5m.2. Uses midpoint of debt guidance as shown in Cheniere’s 5/29/18 investor presentation.3. Market cap grossed up by 20% (estimated run-rate cash flow allocation to GP) to account for GP interest.4. Shares o/s of 288m as shown in Cheniere’s 5/29/18 investor presentation; non-controlling interest valued using market value of CQP and CQH shares not owned by Cheniere.
VALUATION
www.SustainableSempra.com▫ 47 ▫
$22 B$24 B
$25 B$26 B
$28 B
$1,600 /tonne
$1,700 /tonne
$1,800 /tonne
$1,900 /tonne
$2,000 /tonne
Cameron LNG vs. Cheniere Valuation Comparison
Public market values of LNG businesses provide a marker for thepotential standalone value of Sempra’s LNG & Midstream businesses
Public Market TEV / Mtpa of Contracted LNG Businesses
$1,700 / tonne $1,500 /
tonne
Cheniere EnergyPartners LP (CQP)
Cheniere EnergyInc (LNG)
Implied 100% TEV of Cameron Trains 1-3 (13.9 Mtpa)
Later completion date for Corpus Christi Train 3
Implied Equity Value to SRE:
$7.5B $8B $9B $9.5B $10B
Elliott & BluescapeValuation Range
Source: Bloomberg as of 6/7/18, SEC filings.
VALUATION
www.SustainableSempra.com▫ 48 ▫
LNG Development Comparison
Standalone publicly-traded LNG development businessescommand significant market valuations
$2.5 B
$0.7 B
Tellurian NextDecade
Public market value of LNG development companies
Attributable Capacity
Brownfield / Greenfield
RegulatoryPermits
Cameron T4-5 4.5 Mtpa Brownfield Received
Port Arthur 13.5 Mtpa Greenfield Filed
Energia Costa Azul ~7 Mtpa1 Brownfield Received
Total Sempra ~25 Mtpa
Tellurian / Driftwood 27.6 Mtpa Greenfield Filed
NextDecade / Rio Grande
27 Mtpa Greenfield Filed
Two of Sempra’s projects are at brownfield sites and have received regulatory permits
Comparison of LNG development projects
Source: Bloomberg as of 6/7/18.1. Assumes Sempra retains 50% interest in ECA liquefaction pursuant to a development agreement with IEnova.
VALUATION
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