Key Highlights

● Third-quarter Earnings rose

● Adjusted results expected at the high end of the full-year range

● Oncor's Texas expansion drove the upbeat tone

● California proposed decision prompted a warning about next year

Sempra (NYSE:SRE), one of the larger diversified Utility stocks trading on the New York Stock Exchange, disclosed third-quarter results that showed adjusted earnings rising from a year earlier and reported earnings rebounding sharply from an unusually low prior-year figure. The San Diego company said it expects full-year adjusted Earnings Per Share at the high end of its guidance range. It also affirmed next year's guidance range while cautioning that pending California regulatory outcomes could push results toward the lower half.

That combination sets out the main tension in the report. Texas, where the company holds its stake in Oncor, is setting Demand records and preparing a larger Capital plan. California, home to Southern (NYSE:SO) California Gas and San Diego Gas and Electric, produced both a sizable charge in the quarter and a fresh regulatory setback in late October. Chairman and Chief Executive Jeffrey W. Martin credited the results so far this year to "disciplined execution across the company."

The gap between reported and adjusted figures deserves attention. Revenue was essentially flat, but Net Income rose steeply, Equity earnings increased and interest expense fell from the prior-year period. Prior-year reported earnings had been depressed mainly by taxes tied to the pending sale of Sempra Infrastructure, according to market data on last year's results, which explains why this year's reported comparison looks so dramatic. The adjusted comparison provides a more measured view, with growth at a strong double-digit rate.

What Separates Reported Profit From Adjusted Profit

Several large items sit between the reported and adjusted figures for the third quarter. A regulatory disallowance produced the largest after-tax charge, and an unrealized loss on Commodity Derivatives also weighed on reported results. On the positive side, the company excluded a gain on the sale of Ecogas México, a gain tied to currency and Inflation effects in Mexico, and an unrealized gain on Port Arthur LNG Interest Rate swaps from adjusted earnings.

So far this year, reported and adjusted earnings both increased substantially, and the 'held for sale' classification of Sempra Infrastructure Partners continued to affect taxes. The company also updated its guidance on a reported basis for the year to a level far above the adjusted range. Given how many transaction-related items are moving through the accounts, adjusted figures carry much of the burden of comparison, while the reported numbers show the scale of the portfolio changes under way.

California's Charge and the Late-October Setback

Sempra California absorbed a net after-tax charge from proposed decisions by the California Public Utilities Commission. The charge was concentrated at Southern California Gas, stemming from a later track of the general rate case and a decision on its Transmission Integrity Management Program. San Diego Gas and Electric recorded a smaller benefit from the rate case track decision, so the utilities moved in opposite directions.

The more forward-looking item came on the last Thursday in October, when the commission issued a proposed decision denying a request by the utilities to correct the capital attrition mechanism in the general rate case. The release says the request sought to reflect the appropriate post-test-year capital revenue requirement for next year. The company states that "Sempra California continues to pursue other available regulatory avenues" in response.

The financial stakes are explicit. If those efforts fail, Sempra California expects next year's earnings to come in at the low end of its segment range, "unless otherwise mitigated through various Business initiatives." At the parent level, the company says "certain pending regulatory outcomes could cause Sempra to be in the lower half of its" guidance range for next year, again unless mitigated. The phrasing leaves room for management action, but it represents a clear caution attached to an otherwise affirmed range. Because the document is a proposed decision, the release treats the outcome as still open rather than final, and it does not quantify the effect on earnings beyond those range references.

Martin addressed the state's standing a year ago, telling analysts that "California will always be an important part of Sempra," according to market data. That report also described planned reductions in energy efficiency programs at San Diego Gas and Electric and the closure of remaining SoCalGas branch offices, which the company projected would save customers money over a multi-year period, subject to commission approval. The latest report shows California still advancing on the ground, with compressor station modernization work under way at both utilities, a new customer information system at SoCalGas, and a new all-time peak net system demand at San Diego Gas and Electric.

Oncor Sets the Pace in Texas

Texas provides the growth contrast. According to market data, Sempra owns a large majority of the Holding Company that controls Oncor, and Oncor's own third-quarter release shows net income up substantially from the prior-year quarter. Oncor attributed the increase to new base rates that took effect in June, higher tracker and resiliency plan revenues, warmer-weather consumption, Surcharge revenues and customer growth.

Operating statistics point in the same direction. Oncor set a new all-time system peak in late August, and it remains on track for the largest annual capital plan in its history, having already deployed most of this year's budget by the end of September. It built, rebuilt or upgraded a large stretch of transmission and distribution lines in the quarter. Premise count continued to grow, and distribution points of delivery increased at a low-single-digit rate over the past year. Chief Executive Allen Nye said: "Texas' continued economic growth depends on having the electric infrastructure in place."

Oncor's next plan is set to be larger still. It projects that the base capital plan covering the coming multi-year period will be about a fifth higher than its current plan, driven by reliability needs and load growth across ERCOT. Sempra said it plans to finalize its own multi-year capital plan on its fourth-quarter call in February, after investing a very large amount of capital so far this year.

The Transmission Fight Over the Permian

Much of that growth depends on new extra-high-voltage lines. Oncor filed certificates of convenience and necessity for the first and second Import paths of the Permian Basin Reliability Plan. In August, Texas regulators approved the state's first such lines, accepting and modifying proposed decisions on a pair of Oncor applications that form one of the import paths into the region.

That approval followed a contested process. According to market data, at an oral argument in August, Public Utility Commission of Texas Chairman Thomas Gleeson postponed the ruling after hearing arguments on need. Oncor counsel Jaren Taylor argued that West Texas already faces thermal import limits and said that "there can be no better argument for a reliability transmission line than load shed is required if it is not built." Opponents disputed whether the relevant state law authorizes the full build.

The matter is not fully settled. Both Sempra and Oncor note that motions for rehearing and appeals have been filed on the approved segments. Oncor also said it is awaiting a decision on the projects for the second import path. Separately, commission staff backed approval of Oncor's Wildfire Mitigation Plan under a recent state law, and Oncor expects a final decision during the current quarter. Oncor filed certificate applications at several voltage levels this year, and about half of them have been approved so far, along with a number filed in earlier years. Those approvals are the practical gateway between planned spending and construction.

Batch Zero and the Size of the Queue

ERCOT's new Batch Zero process offers the clearest measure of the large-load wave reaching Oncor. Where Oncor is the transmission service provider, ERCOT conditionally classified a large Volume of load as base load, including a substantial amount that is already energized, and a further large amount as studied load.

Oncor's release adds caveats that the headline figures can obscure. The classification depends on an ERCOT audit of customer qualifications expected in December. A final transmission plan is not expected until the autumn of next year, and Batch Zero projects are excluded from the current base capital plan. In other words, this demand is not yet reflected in the capital plan that Oncor projects to grow, which leaves any associated Investment as a matter for later planning.

The wider interconnection queue is far larger, and it is dominated by data centers. Oncor reported a large number of commercial and industrial transmission requests, with Data Center requests representing the overwhelming share of the requested capacity. The generation queue is growing too, with active requests up by about a tenth from a year earlier, and storage and solar together forming the great majority of them, while gas accounts for only a small share. The company holds substantial customer Collateral against generation and large-customer requests. It said the collateral "is intended to reduce the risk of rate payers bearing costs," a pointed comment in a period when, as Sempra's own risk language acknowledges, affordability pressure on customer rates is a live concern. Oncor also holds further collateral specifically related to Batch Zero, according to its release.

Closing the Infrastructure Stake Sale

The stake sale that has reshaped Sempra's strategy is nearly finished. The company said the transaction covering a sizable minority equity interest in Sempra Infrastructure Partners to affiliates of KKR (NYSE:KKR) "remains on track" and that closing is expected within the coming weeks. Sempra Infrastructure Partners also finished the sale of Ecogas México in August, which produced the gain excluded from adjusted earnings this quarter.

Market commentary noted when the deal was announced last year that the buyers were companies affiliated with KKR and the Canada Pension Plan Investment Board. It said the KKR-led group would become the majority holder, leaving Sempra with a smaller minority position and the Abu Dhabi Investment Authority with a small stake. Martin described the transactions at the time as "advancing the company's capital recycling program and transition to a leading U.S. utility growth business."

The release frames the closing as support for the regulated businesses, with Martin saying the company looks forward to completing it "with a view toward supporting strong growth" at its Texas and California utilities and strengthening its financial position. The company presents no standalone operating results for the infrastructure segment in the release's main discussion. Port Arthur LNG appears there only through the swap gain, although Market commentary noted last year that Sempra had taken a final investment decision on the second phase of that project alongside the stake sale, backed by long-term offtake commitments from ConocoPhillips (NYSE:COP), EQT (NYSE:EQT), JERA and Sempra Infrastructure Partners itself.

Balancing Guidance Across Jurisdictions

Sempra reaffirmed its long-term earnings per share growth rate, which it describes as a high single-digit annual range. The near-term picture is more textured. The current year looks set to finish at the upper end of the range, and next year's range remains in place but carries a condition tied to a single state.

This creates a clear contrast between earnings confidence and regulatory uncertainty. Texas growth, the capital plan increase and the proceeds of the infrastructure sale all point toward expansion, while the California attrition decision bears directly on next year's earnings. Investors will have more information in February, when Sempra plans to present its final capital plan, and when the outcome of the proposed decision and any mitigation efforts are likely to be clearer.

Wildfire, Rates and Other Stated Risks

The release's forward-looking section lists California wildfire liability, limits on insurance recovery and uncertainty around the state's wildfire fund. It also covers regulatory, legislative and tax decisions across U.S. and Mexican authorities, including bodies in Texas and California, as well as completion of acquisitions, divestitures including the Sempra Infrastructure Partners stake sale, and construction projects on schedule and on budget.

Financial risks include capital market access, Credit ratings, interest rates and inflation. The company further points to trade policy and tariffs, geopolitical instability, Cybersecurity threats, weather, natural disasters, accidents and operational disruptions. Other listed items are affordability pressure on customer rates, reliability of Natural Gas and electric supply, and Oncor's ability to reduce or eliminate dividends because of regulatory or governance requirements.

That last item is a reminder that cash from the Texas business can be constrained by regulatory or governance requirements. Oncor reported a sizable Liquidity position in early November. Oncor's December audit outcome, the transmission rehearing process, the closing of the KKR transaction and the California commission's next steps form a dense calendar for the coming months. Each will test how far Texas can offset any California shortfall in next year's results.