Sempra 2022 Q1 Form 10-Q Summary
Business context and reporting period
Sempra Energy, together with its wholly owned California utilities San Diego Gas & Electric Company and Southern California Gas Company, filed a combined Form 10-Q for the three months ended March 31, 2022. Sempra reports four segments: SDG&E, SoCalGas, Sempra Texas Utilities and Sempra Infrastructure. The interim financial statements are unaudited and should be read with the 2021 Form 10-K.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $3.820 billion | $3.259 billion | 17% increase |
| Net income | $657 million | $928 million | 29% decrease |
| Earnings attributable to common shares | $612 million | $874 million | 30% decrease |
| Diluted EPS | $1.93 | $2.87 | 33% decrease |
| Net margin attributable to common shares | 16.0% | 26.8% | Down 10.8 percentage points |
| Operating cash flow | $1.607 billion | $1.502 billion | $105 million increase |
| Capital expenditures and investments | Approximately $1.289 billion | Approximately $1.296 billion | Broadly stable |
Revenue growth was primarily driven by higher natural gas prices and related pass-through revenues at SoCalGas and SDG&E. Revenue is substantially affected by regulatory recovery mechanisms and does not directly indicate equivalent earnings growth.
At March 31, 2022, Sempra had $2.519 billion of cash and cash equivalents, $7.766 billion of available unused committed credit capacity, and approximately $682 million of standby letters of credit outstanding. Total debt and finance leases were approximately $26.895 billion, consisting of $2.181 billion of short-term debt, $298 million of current maturities and $24.416 billion of long-term debt and finance leases. Sempra, SDG&E and SoCalGas remained in compliance with applicable credit-facility covenants and maintained investment-grade ratings.
Sempra invested $1.204 billion in property, plant and equipment during the quarter. Management expects 2022 capital expenditures and investments of approximately $6.2 billion, excluding capital expenditures funded by unconsolidated entities.
Segment results and material changes
- SDG&E: Earnings increased 10% to $234 million from $212 million, primarily due to higher CPUC base operating margin net of operating expenses.
- SoCalGas: Earnings declined 18% to $334 million from $407 million. The decrease primarily reflected a $66 million after-tax Aliso Canyon civil-litigation charge and $10 million of energy-efficiency and advocacy penalties.
- Sempra Texas Utilities: Earnings increased 20% to $162 million from $135 million, primarily due to higher Oncor equity earnings from rate updates, customer growth and higher consumption.
- Sempra Infrastructure: Earnings declined to $95 million from $202 million. The principal adverse factors were $107 million of unfavorable foreign-currency and inflation effects and $84 million of lower asset and supply optimization earnings, partly offset by tax benefits, higher transportation revenues and contributions from terminals and renewable assets.
- Parent and other: Losses increased to $213 million from $82 million, primarily due to a $120 million deferred tax expense related to a change in the indefinite-reinvestment assertion for foreign subsidiaries and investment losses on benefit-plan assets.
Cash flow, liquidity and financing
Operating cash flow exceeded capital expenditures and investments by approximately $318 million before financing and other investing items. Financing cash flow was $1.638 billion, compared with a $407 million use of cash in the prior-year quarter, reflecting substantial debt issuance partly offset by debt repayments, lower short-term borrowings and $226 million of common-stock repurchases.
During the quarter, Sempra issued $750 million of 3.30% senior notes due 2025 and $500 million of 3.70% senior notes due 2029. SDG&E issued a $200 million term loan and $1.0 billion of first-mortgage bonds due 2032 and 2052. SoCalGas issued $700 million of 2.95% senior notes due 2027. Sempra Infrastructure issued $400 million of 3.25% senior notes due 2032.
Sempra expects to fund operations, capital expenditures, dividends, debt repayments, Leak-related costs and other obligations through operating cash flow, cash balances, credit facilities, debt issuances, investment distributions, project financing and minority-owner funding.
Guidance, outlook, commentary and unusual items
- Sempra expects the sale of a 10% interest in Sempra Infrastructure Partners to Abu Dhabi Investment Authority for approximately $1.8 billion, subject to adjustments and regulatory and other closing conditions. Management expected closing in the second quarter of 2022 and intended to use proceeds for capital expenditures, debt reduction and balance-sheet strengthening.
- The Aliso Canyon cost estimate was $3.314 billion at March 31, 2022, including $1.279 billion recovered or deemed probable of recovery from insurance. Accrued costs totaled approximately $2.056 billion, and a $360 million insurance receivable remained recorded. Management warned that additional costs, unrecovered insurance, regulatory penalties and unresolved claims could be significant.
- The proposed settlement of most Individual Plaintiff Litigation related to the Leak provides for payments of up to $1.8 billion, subject to participation conditions. A separate Property Class Action settlement totals $40 million. Claims by nonparticipating plaintiffs, a remaining developer plaintiff and regulatory proceedings remain unresolved.
- SoCalGas’s Aliso Canyon facility had a net book value of $894 million. Permanent closure or inadequate future cash flows could result in impairment, higher operating costs or additional capital requirements.
- The ADIA transaction, Cameron LNG Phase 2, Port Arthur LNG, ECA LNG Phase 1 and other infrastructure projects remain subject to permits, financing, customer commitments, partner approvals, construction execution and market conditions. ECA LNG Phase 1 is under construction, with production expected by the end of 2024; its estimated capital expenditures are approximately $2.0 billion.
- Key risks include California wildfires, regulatory and rate decisions, Aliso Canyon litigation, cybersecurity, commodity and foreign-currency volatility, higher inflation and interest rates, Mexico regulatory changes, project delays and potential credit-rating pressure.
Important facts for investors to verify
- Whether the ADIA transaction closed on expected terms and how proceeds affected debt, capital spending and share repurchases.
- Progress and final cost exposure for Aliso Canyon settlements, insurance recoveries, CPUC proceedings and remaining litigation.
- The outcome of SDG&E’s cost-of-capital proceeding and the effect of any retroactive adjustment to authorized returns.
- Whether Sempra Infrastructure’s foreign-currency, inflation and commodity effects normalize or continue to pressure earnings.
- Construction costs, financing, permitting and offtake commitments for ECA LNG, Port Arthur LNG and Cameron LNG Phase 2.
- Credit ratings, debt maturities, covenant compliance and the availability of committed credit capacity.
- The filing’s statement that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting.