Sempra 2022 Form 10-K Summary
Business context and reporting period
This combined Form 10-K covers Sempra Energy, San Diego Gas & Electric Company and Southern California Gas Company for the fiscal year ended December 31, 2022. Sempra is a California-based energy infrastructure holding company with four reportable segments: SDG&E, SoCalGas, Sempra Texas Utilities and Sempra Infrastructure.
- SDG&E: regulated electric and natural gas utility serving approximately 3.6 million people in Southern California.
- SoCalGas: regulated natural gas distribution, transmission and storage utility serving approximately 21.1 million people.
- Sempra Texas Utilities: equity-method investments in Oncor and Sharyland Utilities.
- Sempra Infrastructure: LNG, natural gas infrastructure, renewable generation, storage and other energy-transition assets in the United States and Mexico.
The filing is an annual report, not a standalone fourth-quarter filing. The source text does not provide a separate Q4 income statement.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenues | $14.439 billion | $12.857 billion | Up 12% |
| Earnings attributable to common shares | $2.094 billion | $1.254 billion | Up $840 million |
| Diluted EPS | $6.62 | $4.01 | Up $2.61 |
| Income from continuing operations | $2.285 billion | $1.463 billion | Up $822 million |
| Operating cash flow | $1.142 billion | $3.842 billion | Down $2.700 billion |
| Capital expenditures and investments | $5.7 billion | Not stated on the same basis in the filing summary | Capital intensive |
| Total capitalization | $58.175 billion | $52.064 billion | Up $6.111 billion |
| Debt-to-capitalization | 50% | 47% | Up 3 percentage points |
Revenue growth was driven primarily by higher natural gas prices and regulated revenue recovery. Natural gas revenues increased 24% to $7.868 billion, while electric revenues increased 3% to $4.783 billion. Energy-related business revenues decreased 4% to $1.788 billion.
| Segment earnings attributable to common shares | 2022 | 2021 | Principal driver |
|---|---|---|---|
| SDG&E | $915 million | $819 million | Higher CPUC base operating margin and tax benefits |
| SoCalGas | $599 million | $(427) million | Lower Aliso Canyon litigation and regulatory charges |
| Sempra Texas Utilities | $736 million | $616 million | Higher Oncor equity earnings |
| Sempra Infrastructure | $310 million | $682 million | Commodity derivative losses and Mexico currency and inflation effects |
| Parent and other | $(466) million | $(436) million | Higher deferred tax expense and investment losses |
Sempra’s effective tax rate increased to 28% from 12%, primarily because 2021 included larger tax benefits associated with Aliso Canyon charges and 2022 included a $120 million deferred tax expense related to foreign subsidiary reinvestment assertions. Interest expense decreased 12% to $1.054 billion, largely because 2021 included debt redemption costs and hedge termination charges.
Liquidity, debt and cash flow
- Sempra reported $370 million of unrestricted cash and cash equivalents and $7.348 billion of available unused credit at December 31, 2022. SDG&E and SoCalGas had $7 million and $21 million of unrestricted cash, respectively, and $1.295 billion and $1.100 billion of available unused credit.
- Sempra’s commercial paper outstanding declined to $759 million from $2.026 billion, while the weighted-average period-end interest rate rose to 4.75% from 0.34%.
- Long-term debt and finance leases increased to $24.548 billion from $21.068 billion. Consolidated short-term debt was $3.352 billion.
- Sempra issued $1.25 billion of senior unsecured notes. SDG&E issued $1.0 billion of first mortgage bonds and borrowed $400 million under a term loan. SoCalGas issued $1.3 billion of notes and first mortgage bonds and borrowed $800 million under a term loan.
- SoCalGas paid $1.79 billion related to the Aliso Canyon individual plaintiff settlement and received $650 million of equity contributions from Sempra in 2022.
- Operating cash flow fell sharply because of Aliso Canyon settlement payments, higher net margin posted for commodity positions, working-capital changes and regulatory balancing accounts.
- Sempra paid $1.430 billion of common dividends and $44 million of preferred dividends and repurchased $478 million of common stock.
- Credit ratings remained investment grade. Sempra was rated Baa2 stable by Moody’s, BBB+ negative by S&P and BBB+ stable by Fitch.
Material changes versus the prior comparable period
- Earnings improved substantially because SoCalGas recorded $259 million of Aliso Canyon litigation and regulatory charges in 2022 versus $1.593 billion in 2021.
- SDG&E earnings increased 12%, reflecting higher authorized operating margin, tax benefits and regulatory interest income, partly offset by higher interest expense.
- Sempra Texas Utilities earnings increased 19%, mainly from higher Oncor revenues related to rate-base growth, customer consumption and customer growth.
- Sempra Infrastructure earnings decreased 55% due primarily to $283 million of asset and supply optimization losses versus $148 million of earnings in 2021 and a $169 million unfavorable Mexico currency and inflation effect.
- Sempra completed the sale of a 10% noncontrolling interest in SI Partners to ADIA for $1.7 billion, leaving Sempra with a 70% interest, KKR with 20% and ADIA with 10%.
- Capital expenditures for property, plant and equipment increased to $5.357 billion from $5.015 billion. Weighted-average rate base increased to $13.780 billion at SDG&E and $10.494 billion at SoCalGas.
- Sempra completed $450 million of accelerated share repurchases during 2022.
Guidance, outlook, management commentary and unusual items
- Management expects approximately $5.7 billion of capital expenditures and investments in 2023: $2.3 billion at SDG&E, $2.1 billion at SoCalGas, $300 million at Sempra Texas Utilities and $1.0 billion at Sempra Infrastructure.
- For 2023 through 2026, Sempra expects approximately $18.7 billion of capital expenditures and investments, excluding capital expenditures funded by unconsolidated entities.
- Management expects ECA LNG Phase 1 to begin commercial operations in summer 2025. The project has estimated capital expenditures of approximately $2.0 billion, including capitalized interest and contingency, and had $575 million outstanding under its project loan at year-end.
- Sempra was targeting a final investment decision for PA LNG Phase 1 in the first quarter of 2023. Cameron LNG Phase 2 was targeted for a final investment decision after completion of FEED work, expected in summer 2023. The filing states that no final investment decision had been reached for the other proposed LNG and net-zero projects.
- Management states that available cash, operating cash flow, credit facilities, debt financing, project financing, distributions from equity-method investments and minority-owner funding are expected to support operations, capital expenditures, debt repayment and dividends. The filing cautions that rising interest rates and market volatility have made financing more costly.
- The Aliso Canyon Leak remains a significant unusual item. Estimated related costs were $3.486 billion, including $1.279 billion of insurance recoveries. SoCalGas had exhausted its insurance coverage other than directors’ and officers’ liability insurance; unresolved litigation and regulatory matters are excluded from portions of the estimate.
- SoCalGas’s CPUC settlement concerning the Leak OII remained subject to CPUC approval at year-end. The Aliso Canyon facility had a $958 million net book value and remains subject to potential closure or impairment risk.
- Key continuing risks include California wildfires and potential inverse-condemnation liability, regulatory cost recovery, the clean-energy transition and declining natural gas demand, cybersecurity, inflation and interest rates, commodity derivative volatility, Mexico regulatory and political developments, property and permit disputes, project execution and counterparty performance.
Most important facts for an investor to verify
- Reconcile the large increase in earnings with the reduction in operating cash flow, particularly the effect of Aliso Canyon settlement payments, collateral and regulatory balancing accounts.
- Review the full Aliso Canyon reserve, remaining plaintiff claims, CPUC settlement approval and the potential financial impact of unresolved litigation and regulatory proceedings.
- Assess the sustainability of dividends and parent-level liquidity given restricted net assets, subsidiary dividend limitations and reliance on distributions from equity-method investments.
- Evaluate debt maturities, floating-rate exposure, credit-rating outlooks and the effect of higher refinancing costs.
- Verify the timing, cost, financing, permits, offtake agreements and final investment decisions for ECA LNG Phase 1, PA LNG and Cameron LNG Phase 2.
- Review exposure to SDG&E wildfire liabilities and the adequacy and remaining availability of the California Wildfire Fund and insurance coverage.
- Assess potential impairment or recovery risk for the Aliso Canyon facility, the Guaymas-El Oro pipeline and Mexican infrastructure affected by legal, regulatory or permitting disputes.
- Confirm the treatment and future cash effects of unrealized commodity derivative losses, collateral requirements and associated margin exposure.