SEMPRA 2024 Q3 10-Q Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 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 (Nine Months Ended Sept 30, 2024)
| Metric | Sempra Consolidated | SDG&E | SoCalGas |
|---|---|---|---|
| Total Revenues | $9,427 million | $3,977 million | $4,168 million |
| Net Income | $2,511 million | $670 million | $476 million |
| Earnings Attributable to Common Shares | $2,152 million | $670 million | $475 million |
| Diluted EPS | $3.38 | N/A | N/A |
| Operating Cash Flow | $3,542 million | $1,443 million | $1,370 million |
| Capital Expenditures | $5,765 million | $1,838 million | $1,491 million |
| Total Debt (Short + Long Term) | $34,363 million | $10,446 million | $7,527 million |
| Cash & Cash Equivalents | $560 million | $15 million | $2 million |
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues decreased 29% year-over-year (YoY) to $9.4 billion, driven primarily by a 37% drop in natural gas revenues due to significantly lower average natural gas prices and lower volumes. Electric revenues remained relatively flat.
- Earnings Decline: Earnings attributable to common shares decreased 6% YoY to $2.15 billion.
- Sempra California: Earnings decreased 8% to $1.15 billion, impacted by lower income tax benefits and higher net interest expense.
- Sempra Texas Utilities: Earnings increased 18% to $646 million, driven by higher equity earnings from Oncor Holdings due to rate updates and customer growth.
- Sempra Infrastructure: Earnings decreased 13% to $652 million, primarily due to a $401 million unfavorable impact from asset and supply optimization (unrealized losses on commodity derivatives vs. gains in 2023).
- Cost of Natural Gas: Decreased by $2.5 billion YoY to $790 million, reflecting lower market prices.
- Interest Expense: Decreased 5% YoY to $944 million, largely due to higher capitalization of interest on projects under construction and the absence of a $47 million loss on a contingent interest rate swap recorded in 2023.
Guidance, Outlook, and Risks
- Regulatory Proceedings: The California Public Utilities Commission (CPUC) issued a proposed decision on October 18, 2024, for the 2024 General Rate Case (GRC). A final decision is expected by year-end. The proposed decision adopts revenue requirements for 2024 that are lower than requested but higher than 2023 levels.
- Cost of Capital: The CPUC modified the Cost of Capital Mechanism (CCM), reducing the adjustment factor to 20% of benchmark rate changes effective January 1, 2025. This will reduce the authorized Return on Equity (ROE) for SDG&E and SoCalGas by 42 basis points.
- Capital Plan: Sempra expects to fund capital expenditures through operating cash flows, debt issuances, and equity offerings. A new At-The-Market (ATM) equity program was established in November 2024 with a capacity of up to $3.0 billion.
- Key Risks:
- Wildfire Liability: SDG&E remains exposed to wildfire risks. The Wildfire Fund asset is valued at $282 million. Exhaustion of the fund could materially impact financial condition.
- Aliso Canyon: SoCalGas faces ongoing regulatory proceedings regarding the Aliso Canyon storage facility. A permanent closure could result in a material impairment of the $1.0 billion net book value.
- Legal Proceedings: Approximately 520 plaintiffs remain in litigation regarding the 2015 Aliso Canyon gas leak. Sempra has accrued $22 million but cannot estimate potential losses beyond that amount.
- Mexico Regulatory Environment: Ongoing challenges to self-supply permits and land disputes at the ECA Regas Facility in Mexico pose risks to Sempra Infrastructure operations.
Investor Verification Checklist
- CPUC GRC Final Decision: Verify the final revenue requirements and cost of capital adjustments for SDG&E and SoCalGas expected by year-end 2024.
- Commodity Derivative Exposure: Review the volatility in Sempra Infrastructure earnings driven by unrealized gains/losses on commodity derivatives and LNG diversion fees.
- Aliso Canyon Status: Monitor the CPUC's final decision on the Aliso Canyon storage facility usage and potential impairment risks.
- Wildfire Fund Solvency: Assess the status of the Wildfire Fund and potential claims from other California IOUs that could reduce SDG&E's coverage.
- ATM Program Utilization: Track the execution of the new $3.0 billion ATM equity program and its impact on share count and EPS dilution.
- Capital Expenditure Timing: Verify the schedule and funding sources for major projects, particularly PA LNG Phase 1 (commercial ops expected 2027/2028) and ECA LNG Phase 1 (commercial ops expected 2026).