Sempra: Powering North America's Energy Future

Sempra (NYSE: SRE) is a premier North American energy infrastructure company focused on electrification and the clean energy transition. With a mission to be the leading energy infrastructure company on the continent, Sempra's strategy is centered on its three major growth platforms: Sempra California, Sempra Texas, and Sempra Infrastructure. The company is executing a massive capital investment plan focused on expanding and modernizing its vast transmission and distribution networks to support growing energy demand and the integration of renewables. This focus on regulated, rate-based utility growth provides a stable foundation, while its infrastructure arm offers significant upside through large-scale projects like liquefied natural gas (LNG) export terminals.

Core Strategy: A Three-Platform Growth Engine

Sempra's strategy is to deliver long-term value through disciplined investments in its three core businesses:

  • Modernize Regulated Utilities: Deploy significant capital into its California and Texas utilities to enhance safety, reliability, and capacity, supporting electrification and clean energy goals.
  • Grow Infrastructure Assets: Expand its infrastructure portfolio, particularly in LNG and clean power, to meet growing global demand for secure and cleaner energy sources.
  • Financial Discipline: Maintain a strong balance sheet and focus on operational excellence to support its large capital program and deliver consistent, top-tier dividend growth.
  • Sustainability Leadership: Position the company as a leader in the energy transition by enabling the delivery of diverse and cleaner forms of energy.

2025-2029 Capital Plan

$48 Billion

Represents a record five-year capital plan focused almost entirely on regulated transmission and distribution investments to drive rate base growth.

How Sempra Makes Money: Three Regulated Platforms

Sempra's business is organized into three large-scale, regulated growth platforms. This structure provides a stable and predictable earnings base from its utilities, complemented by the significant growth potential of its infrastructure projects.

Sempra California

This platform is comprised of two major Southern California utilities: San Diego Gas & Electric (SDG&E) and Southern California Gas Co. (SoCalGas). Together, they form the largest utility customer base in the United States, serving a thriving and innovative regional economy.

  • SDG&E: A combined electric and natural gas utility providing service to San Diego and southern Orange counties.
  • SoCalGas: The largest natural gas distribution utility in the United States, serving customers throughout Central and Southern California.

Service Territory

~27 Million Consumers

Serving a massive and economically vital region of the U.S., providing a stable foundation for earnings.

Financial Deep Dive

Sempra's financial model is designed for stability and predictable growth. The vast majority of its earnings are generated by its regulated utilities, which provides a high degree of predictability. This stable base supports the company's large capital expenditure program and allows for consistent dividend growth.

Fiscal Year Trends (FY22-FY24)

Quarterly Trends (Recent 8 Qtrs)

The financial charts showcase the stable and growing nature of Sempra's regulated utility business, which forms the bedrock of its financial strength.

Competitive Moat: The Regulated Utility Fortress

Sempra's competitive advantage is built on the foundation of its regulated monopoly utility assets, which operate in attractive, high-growth markets. These assets provide a wide and deep moat that is nearly impossible for competitors to replicate.

Key Moats

  • ➔ Regulated Monopoly Status: Sempra's utilities in California and Texas operate as legal monopolies in their service territories. They face no direct competition for their transmission and distribution services, leading to highly predictable, regulated returns.
  • ➔ Strategic Infrastructure Assets: The company's vast network of pipelines, wires, and storage facilities are essential, long-lived assets that are critical to the functioning of the economy in their regions.
  • ➔ Constructive Regulatory Environments: Sempra primarily operates in states like California and Texas, which have generally constructive regulatory frameworks that allow for timely recovery of the significant capital investments needed to maintain and modernize the grid.

Primary Competitors

  • ● Peer Utilities: While there is no direct competition in its service territories, Sempra competes for investment capital with other large, regulated utilities like NextEra Energy, Duke Energy, and Southern Company.
  • ● Other Infrastructure Developers: In its non-regulated Sempra Infrastructure business, it competes with other large energy companies and private equity firms to develop and build large-scale projects like LNG terminals and renewable power plants.

Strategic Outlook: Risks & Rewards

Sempra offers a compelling combination of stable, regulated utility growth and significant long-term upside from its infrastructure projects. The investment thesis is centered on the successful execution of its massive capital plan and navigating the complex regulatory and political environments in its key markets.

Rewards & Opportunities 🚀

  • Predictable Rate Base Growth: The $48 billion, five-year capital plan is expected to drive a 9% annualized growth in the company's rate base, leading to predictable earnings and dividend growth.
  • The Electrification Tail-wind: Sempra is a primary beneficiary of the long-term trend of electrification, particularly in transportation and buildings, which drives the need for a larger and more robust grid.
  • LNG Growth Potential: The development of the Port Arthur LNG facility and potential expansions at Cameron LNG offer significant, long-term contracted cash flow growth potential.
  • Strong Dividend Profile: With a solid track record of dividend increases, Sempra appeals to income-oriented investors seeking reliable and growing payouts.

Risks & Challenges 📉

  • Regulatory Risk: The company's profitability is highly dependent on constructive outcomes in regulatory proceedings in California and Texas. Any adverse rulings on cost recovery or allowed returns could negatively impact earnings.
  • Wildfire Risk: Operating in California exposes the company to significant financial risk associated with catastrophic wildfires, despite extensive mitigation efforts.
  • Large Project Execution Risk: The development of multi-billion dollar infrastructure projects like LNG terminals is complex and carries risks of cost overruns and construction delays.
  • Interest Rate Sensitivity: As a capital-intensive business, a sharp rise in interest rates could increase the cost of financing its large capital expenditure program.