SEMPRA 2024 Q2 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2024, for Sempra and its consolidated subsidiaries, San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas). Sempra operates three reportable segments: Sempra California (regulated utilities), Sempra Texas Utilities (equity investment in Oncor), and Sempra Infrastructure (energy infrastructure development and operations). The filing reflects a realignment of segments effective Q4 2023, combining SDG&E and SoCalGas into the Sempra California segment.
Key Financial Metrics (Six Months Ended June 30, 2024)
| Metric | Sempra Consolidated | SDG&E | SoCalGas |
|---|---|---|---|
| Total Revenues | $6,651 million | $2,734 million | $3,114 million |
| Net Income | $1,752 million | $409 million | $490 million |
| Earnings Attributable to Common Shares | $1,514 million | $409 million | $489 million |
| Diluted EPS | $2.38 | N/A | N/A |
| Operating Cash Flow | $2,520 million | $1,056 million | $1,046 million |
| Capital Expenditures | $3,830 million | $1,234 million | $978 million |
| Total Debt (Short + Long Term) | $32,874 million | $10,463 million | $7,259 million |
| Cash & Cash Equivalents | $228 million | $66 million | $10 million |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues decreased 33% year-over-year (YoY) to $6.65 billion, primarily driven by a 41% drop in natural gas revenues due to significantly lower average natural gas prices and lower volumes driven by weather.
- Earnings Resilience: Despite revenue declines, earnings attributable to common shares remained relatively stable at $1.51 billion (down 4% YoY). This was supported by strong equity earnings from Sempra Texas Utilities (Oncor) and favorable foreign currency/inflation impacts in Mexico.
- Segment Performance:
- Sempra California: Earnings decreased 6% YoY due to lower income tax benefits (including the absence of a one-time 2023 tax benefit) and higher interest expense, partially offset by higher authorized cost of capital.
- Sempra Texas Utilities: Earnings increased 58% YoY to $385 million, driven by higher Oncor revenues from rate updates, increased transmission billing units, and customer growth.
- Sempra Infrastructure: Earnings decreased 19% YoY to $422 million, primarily due to unrealized losses on commodity derivatives compared to gains in 2023, offset by favorable foreign currency effects.
- Cost of Natural Gas: Decreased $2.3 billion YoY to $691 million, reflecting lower market prices and volumes.
Guidance, Outlook, and Risks
- Regulatory Outlook: The California Public Utilities Commission (CPUC) has not yet issued a final decision on the 2024 General Rate Case (GRC) for SDG&E and SoCalGas. Revenues for the first half of 2024 were recorded based on 2023 authorized levels. A final decision is expected by year-end 2024.
- Wildfire Mitigation: SDG&E is pursuing recovery of $1.5 billion in wildfire mitigation costs (Track 2) and expects to submit a request for 2023 costs (Track 3). An interim mechanism allows for partial recovery in 2024 and 2025, subject to refund pending final review.
- Project Development:
- Port Arthur LNG (PA LNG): Construction is proceeding. A federal court referred a permit challenge to the Texas Supreme Court; the permit remains effective during review. Phase 2 EPC contract signed in July 2024.
- ECA LNG Phase 1: Construction continues with commercial operations expected in spring 2026. Subject to land disputes and permit challenges in Mexico.
- Key Risks:
- Legal Proceedings: Ongoing litigation related to the 2015 Aliso Canyon gas leak (SoCalGas) and franchise agreement challenges (SDG&E). Accruals of $27 million exist for SoCalGas, but potential losses could be significant.
- Regulatory & Political (Mexico): Recent elections in Mexico and amendments to the Electricity Industry Law create uncertainty regarding self-supply permits and dispatch priority, potentially impacting Sempra Infrastructure's Mexican operations.
- Commodity Volatility: Sempra Infrastructure earnings are exposed to commodity price fluctuations due to asset and supply optimization activities.
Investor Verification Checklist
- 2024 GRC Final Decision: Monitor the CPUC's final ruling on the 2024 General Rate Case for SDG&E and SoCalGas, which will determine revenue requirements for 2024-2027.
- Wildfire Fund Status: Track the status of the Wildfire Fund and SDG&E's Track 2/Track 3 cost recovery requests, as these impact future earnings and regulatory assets.
- Aliso Canyon Litigation: Review updates on the remaining non-settling plaintiffs in the Aliso Canyon leak litigation and any potential for additional accruals beyond the current $27 million.
- Mexico Regulatory Environment: Assess the impact of the new Mexican administration and ongoing legal challenges to the Electricity Industry Law on Sempra Infrastructure's assets (Ecogas, ECA LNG).
- PA LNG Permitting: Follow the Texas Supreme Court's review of the PA LNG Phase 1 and 2 permits to ensure no material delays to the 2027/2028 commercial operation dates.
- Forward Sale Agreements: Note the settlement of the November 2023 common stock forward sale agreements (up to $1.2 billion potential proceeds) expected by December 31, 2024.