Sempra (SRE) Business & Investor Dossier

Sempra is a San Diego-based energy infrastructure holding company with three primary business platforms. Sempra California includes San Diego Gas & Electric (SDG&E), which provides regulated electric and natural gas utility service to 3.7 million consumers in San Diego and southern Orange County, and Southern California Gas Company (SoCalGas), one of the largest natural gas utilities in the US serving 22 million consumers across Southern California. Sempra Texas holds approximately an 80% stake in Oncor Electric Delivery, a large regulated electric transmission and distribution utility serving 10 million customers in Texas. Sempra Infrastructure (formerly Sempra LNG) develops and operates natural gas and LNG export infrastructure, including the Cameron LNG facility in Louisiana and the Port Arthur LNG project under development, positioned to serve global demand for liquefied natural gas exports.

Sempra's core regulated utility businesses (SDG&E, SoCalGas, Oncor) operate as rate-regulated monopolies. Regulators allow utilities to earn a specified rate of return on their rate base (the value of infrastructure assets). As utilities invest capital in new infrastructure (grid upgrades, reliability improvements, electrification projects), the rate base grows, supporting earnings growth. For investors, regulated utilities offer predictable, low-risk earnings streams backed by regulatory compacts, generally supported by dividend growth. California utilities face elevated wildfire liability risk that creates regulatory and legal uncertainty. The Oncor stake provides exposure to Texas's fast-growing electricity demand (driven by population growth, industrial loads, and data center development). Sempra Infrastructure offers higher-growth exposure to LNG exports, which require substantial capital and carry more commodity-price and execution risk.

Sempra has positioned itself as a developer of LNG export infrastructure to serve global demand for US natural gas. Cameron LNG (Louisiana) is an existing operating facility with three liquefaction trains. Port Arthur LNG (Texas) is a major greenfield development project designed to produce significant volumes of LNG for export to European and Asian customers, structured with long-term take-or-pay contracts with creditworthy buyers that underpin the project's economics. The global LNG market grew sharply in importance after Russia's 2022 invasion of Ukraine, which accelerated European efforts to diversify away from Russian gas and increase demand for US LNG. Sempra Infrastructure's long-term contracts and scale make it a significant participant in the global energy transition narrative as natural gas serves as a bridge fuel.

California utilities face significant wildfire liability risk due to the state's doctrine of inverse condemnation, which can hold utilities liable for wildfire damages caused by their equipment even without negligence. California's hot, dry climate and aging transmission infrastructure create conditions where downed power lines or equipment failures can ignite catastrophic wildfires. SDG&E has been associated with several major San Diego wildfires, and the broader California utility sector (including Pacific Gas & Electric, which declared bankruptcy due to wildfire liabilities in 2019) has faced enormous claims. California has implemented various reforms to limit utility wildfire liability, including the creation of a wildfire insurance fund, but the fundamental risk remains. Investors in California utilities must weigh the stable regulated return profile against the tail risk of catastrophic wildfire liability events.

Key risks include California regulatory risk (the California Public Utilities Commission regulates SDG&E and SoCalGas; unfavorable rate case decisions, disallowances of capital spending, or changes to natural gas policy reduce earnings), wildfire liability (SDG&E and SoCalGas face ongoing wildfire risk from California climate conditions; catastrophic events can generate large liabilities), natural gas transition risk (SoCalGas is a pure natural gas utility; California's aggressive clean energy policies aim to reduce natural gas use over time, potentially pressuring long-term rate base growth and stranding some infrastructure), LNG execution risk (Port Arthur LNG is a major capital project; cost overruns, delays, or offtake contract defaults could impair returns), interest rate sensitivity (utility companies use significant debt financing; rising interest rates increase financing costs and can compress the equity multiple investors are willing to pay), and Texas regulatory risk (Oncor is subject to Texas PUC oversight).