Executive Summary / Key Takeaways

• Sempra is strategically focusing on investing in regulated utilities in high-growth North American markets, particularly Texas and California, alongside developing long-term contracted energy infrastructure assets, aiming to enhance the quality and predictability of earnings and cash flows.
• The company has significantly increased its five-year capital plan (2025-2029) to a record $56 billion, a 16% increase, with over 90% allocated to regulated utilities, driven primarily by remarkable growth opportunities at Oncor in Texas, including substantial investments to support increasing electricity demand from large C&I customers and digital infrastructure.
• Despite a revised, lower EPS guidance range for 2025 ($4.30 to $4.70) due to factors including the California GRC outcome, FERC decisions, and the strategic decision for Oncor to file an earlier base rate review, Sempra projects a strong rebound with 2026 EPS guidance of $4.80 to $5.30 and has raised its projected long-term EPS CAGR for 2025-2029 to 9% or higher, exceeding its stated long-term range of 7% to 9%.
• Sempra Infrastructure is advancing major LNG export projects like Port Arthur LNG Phase 1 (on budget/schedule) and targeting FID for Port Arthur LNG Phase 2 in 2025, leveraging scale advantages and strategic partnerships like the HOA with Aramco, while managing challenges such as the schedule delay at ECA LNG Phase 1.
• The company is actively realigning its portfolio through potential divestitures of non-core assets like Ecogas and a minority interest in Sempra Infrastructure Partners, aiming to fund utility growth, simplify the business, reduce reliance on future equity issuances, and enhance its credit profile.

Sempra (NYSE: SRE) stands as a prominent energy infrastructure company in North America, strategically repositioning its portfolio to capitalize on evolving energy demands and market dynamics. The company's core strategy centers on disciplined investments in regulated utilities situated within large, growing economic markets – primarily California and Texas – complemented by investments in long-term contracted energy infrastructure assets. This focus aims to enhance the quality and recurring nature of earnings and cash flows while mitigating exposure to commodity price volatility.

The company's history, marked by significant investments in California utility infrastructure, expansion into Texas through the acquisition of a majority interest in Oncor, and the development of large-scale LNG export facilities, underscores a deliberate shift towards a more focused and de-risked business model. Challenges, such as regulatory hurdles in California, litigation related to past operational incidents, and project execution complexities in Mexico, have reinforced the importance of operational excellence, strong regulatory relationships, and disciplined capital allocation.

Sempra operates through three main segments: Sempra California, Sempra Texas Utilities, and Sempra Infrastructure. Sempra California, encompassing SDG&E and SoCalGas, provides essential electric and natural gas services in a densely populated and economically significant region. This segment is characterized by a focus on safety, reliability, and supporting the state's decarbonization goals through investments in grid modernization, wildfire mitigation, and cleaner energy delivery. Sempra Texas Utilities, primarily representing the equity investment in Oncor, operates in a rapidly growing market experiencing unprecedented demand for electricity driven by population growth, industrial expansion, and the proliferation of digital infrastructure like data centers. Sempra Infrastructure develops and operates a portfolio of energy assets, including LNG terminals, pipelines, and renewable energy projects, often underpinned by long-term contracts with investment-grade counterparties, providing diversification and higher return opportunities.

Central to Sempra's operational strategy is the leveraging of advanced technology to enhance safety, reliability, and efficiency across its networks. At its California utilities, investments in wildfire mitigation technology, including AI-enabled predictive tools, high-resolution cameras, enhanced drone data, and line conductor fault detection, have been instrumental in hardening the system and improving preparedness. SDG&E's Kearny Mesa facility, for instance, is highlighted as a state-of-the-art wildfire and climate resiliency center. These technological advancements contribute to SDG&E's strong track record, having not experienced a significant utility-caused wildfire in over seventeen years and earning recognition for its mature wildfire mitigation program. In Texas, Oncor is implementing distribution automation technology in newer facilities, allowing for automatic load redistribution during outages, and proposes retrofitting older system portions with this technology as part of its System Resiliency Plan (SRP). This focus on technology aims to improve grid resiliency and reduce outage durations, directly addressing the impact of increasing extreme weather events. While specific, quantifiable efficiency gains from these technologies are noted qualitatively (e.g., "significantly reducing or in some cases eliminating lengthy outages"), the strategic intent is clear: to build a safer, smarter, and more resilient grid.

In the first quarter of 2025, Sempra reported adjusted EPS of $1.44, an increase from $1.34 in the prior-year period, reflecting a solid start to the year. Sempra California contributed $724 million in earnings, a significant increase from $582 million in Q1 2024, primarily driven by higher CPUC base operating margin and income tax benefits. Sempra Texas Utilities saw a decrease in equity earnings to $146 million from $183 million, attributed to higher interest and operating expenses at Oncor, partially offset by revenue growth from invested capital and customer consumption. Sempra Infrastructure's earnings increased to $146 million from $131 million, benefiting from favorable foreign currency and inflation impacts and lower operation and maintenance expenses, despite lower asset optimization results. Looking back at the full year 2024, Sempra reported adjusted earnings of $2.97 billion or $4.65 per diluted share.

The company's financial performance is increasingly tied to its substantial capital investment program. Sempra has announced a record $56 billion capital plan for 2025 through 2029, a 16% increase over the prior plan.

Over 90% of this planned investment is directed towards its regulated utilities, underscoring the strategic priority placed on these stable, rate-based assets.

The growth story in Texas is a major driver of this increased capital plan. Oncor's service territory is experiencing remarkable expansion, with annual premise growth around 2% and a significant increase in large commercial and industrial (C&I) interconnection requests. As of December 31, 2024, the total C&I load seeking transmission interconnection reached 137 gigawatts, a 250% increase from 2023, with approximately 119 gigawatts attributed to data centers. Oncor's high-confidence projection for C&I load through 2031 is 29 gigawatts, which, combined with signed interconnection agreements, could increase its 2031 peak load by approximately 36 gigawatts from C&I transmission customers alone, compared to a current system peak load of 31 gigawatts. This unprecedented demand necessitates significant investment in the transmission and distribution network. Oncor's $36 billion capital plan for 2025-2029 includes nearly $3 billion for its System Resiliency Plan (SRP), $2 billion for Permian Basin local projects, $1 billion for other West Texas transmission, $2 billion for generation and large C&I interconnections, and $4 billion for distribution upgrades. Notably, over 60% of this plan is allocated to transmission projects, which benefit from cost and benefit sharing across all ratepayers in Texas.

Beyond the $36 billion base plan, Oncor management identifies a clear line of sight to an additional $12 billion in capital investments over 2025-2029, related to potential SRP updates, Permian Basin import pathways (pending PUCT decision on voltage level), additional transmission interconnections for customers not yet under agreement, and projects from ERCOT's Strategic Transmission Expansion Plan (STEP). Looking further out, if current growth trends persist, Oncor estimates investment needs of $55 billion to $75 billion from 2030 to 2034. This robust, long-term growth pipeline in Texas is a key factor underpinning Sempra's increased confidence in its future earnings potential.

In California, the recent final decision in the 2024 General Rate Case (GRC) provides clarity on authorized revenue requirements and supports critical investments in safety and reliability. While the GRC outcome and a FERC decision removing the California ISO adder negatively impacted the 2025 financial outlook compared to prior expectations, the GRC also adopted mechanisms for cost recovery of specified projects outside the base attrition, providing opportunities for growth in the latter half of the plan. SDG&E and SoCalGas have also filed their cost of capital applications for 2026-2028, seeking updated rates of return aligned with current market conditions.

Sempra Infrastructure continues to advance its dual-basin LNG strategy. The Port Arthur LNG Phase 1 project in Texas, with a nameplate capacity of approximately 13 Mtpa, is progressing on budget and schedule, targeting commercial operations for Train 1 in 2027 and Train 2 in 2028. The project benefits from a fixed-price EPC contract with Bechtel and has secured long-term sale and purchase agreements with investment-grade counterparties like ConocoPhillips (COP), RWE (RWE), INEOS, Polski Koncern Naftowy Orlen, and ENGIE. The Port Arthur LNG Phase 2 project, expected to be a similar size, is in development, targeting FID in 2025. It benefits from scale advantages and continuous construction under the Bechtel EPC contract, leveraging common facilities built in Phase 1. A significant development is the non-binding Heads of Agreement (HOA) with Aramco for 5 Mtpa of LNG offtake and a 25% equity participation in Phase 2, demonstrating strong commercial interest. The ECA LNG Phase 1 project in Mexico, with a nameplate capacity of 3.25 Mtpa, is approximately 92% complete. However, it experienced a schedule delay due to contractor labor issues, pushing the expected commercial operations date to spring 2026. Despite this, Sempra expects to maintain strong integrated financial returns due to optimization opportunities, long-term demand, and inflation protection in contracts. The company is also developing the Cimarrón Wind project in Mexico (320 MW), expected to reach commercial operations in the first half of 2026, leveraging existing transmission capacity.

In the competitive landscape, Sempra operates alongside major regulated utilities like Dominion Energy (D), Firstenergy Corp (FE), DTE Energy Co (DTE), and Entergy Corporation (ETR). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Sempra's presence in the two largest U.S. state economies provides a unique scale advantage. Sempra's strategic focus on transmission and distribution, particularly Oncor's significant transmission capital plan, differentiates it from peers with more diverse generation portfolios. Sempra's investments in advanced grid technology and wildfire mitigation position it favorably in terms of operational efficiency and risk management compared to some competitors employing more traditional approaches. However, Sempra's debt levels, with a debt-to-equity ratio around 1.19 (TTM), are higher than some peers like Dominion (1.53) and DTE (1.99), potentially impacting financial flexibility. The company's profitability margins, such as Net Profit Margin (TTM 22.23%), are competitive within the sector. Sempra's strategic divestitures, including the planned sale of Ecogas and a minority interest in Sempra Infrastructure Partners, are aimed at simplifying the business and increasing the proportion of earnings from regulated activities, further sharpening its competitive focus.

Sempra has revised its full-year 2025 adjusted EPS guidance range to $4.30 to $4.70, down from prior expectations. This adjustment reflects the impact of the California GRC final decision coming in below planning assumptions, the FERC decision on the California ISO adder, the strategic decision for Oncor to file an earlier base rate review (impacting tracker filings during the proceeding), the delay in ECA LNG Phase 1 COD, updated natural gas price assumptions, and higher interest expense at the parent level. Despite this near-term headwind, the company has issued full-year 2026 EPS guidance of $4.80 to $5.30 and has raised its projected long-term EPS CAGR for the 2025-2029 period to 9% or higher, signaling strong confidence in its future growth trajectory. This confidence is underpinned by the robust capital plan, particularly the significant and growing investment opportunities at Oncor, the expected contributions from ECA LNG Phase 1 and Cimarrón Wind reaching commercial operations in 2026, and the anticipated FID and subsequent construction of Port Arthur LNG Phase 2.

Key risks to the investment thesis include regulatory uncertainty in both California and Texas, particularly regarding rate case outcomes and the recovery of capital investments and operating costs. Litigation risks, including ongoing matters related to the Aliso Canyon leak and potential liabilities from the recent incident at the Port Arthur LNG site, could result in material costs. Project execution risk, as evidenced by the delay at ECA LNG Phase 1 and potential challenges in securing permits and financing for future projects, could impact timelines and costs. Exposure to changes in Mexican energy laws and land disputes also presents ongoing risks for Sempra Infrastructure's assets in Mexico. Fluctuations in interest rates could affect borrowing costs and the cost of capital for regulated entities.

Conclusion

Sempra is executing a clear strategy focused on high-growth regulated utility markets and contracted infrastructure, backed by a record capital plan. While the revised 2025 guidance presents a near-term challenge, it is framed as a necessary reset to position the company for accelerated growth. The significant investment opportunities at Oncor, driven by Texas's economic and demographic expansion and increasing energy demand from sectors like digital infrastructure, form the core of a compelling long-term growth story. Progress on major LNG projects and strategic portfolio realignment through divestitures further support the company's objective of enhancing earnings quality and predictability. Despite facing regulatory and execution risks inherent in the energy sector, Sempra's focus on disciplined capital allocation, operational excellence, and leveraging technological advancements positions it to deliver on its projected long-term EPS growth rate of 9% or higher, making it a noteworthy consideration for investors seeking exposure to North American energy infrastructure growth.