8-K: Sempra Adjusts 2025 EPS Amid CPUC Regulatory Decisions

Sempra updates 2025 EPS guidance to the high end of its adjusted range despite a significant regulatory charge, following key California Public Utilities Commission decisions affecting its subsidiaries.

Summary

• The California Public Utilities Commission (CPUC) approved a Final Decision (FD) in the Cost of Capital proceeding for San Diego Gas & Electric Company (SDG&E) and Southern California Gas Company (SoCalGas) on December 18, 2025.
• The FD authorizes a return on equity that is 5 basis points higher than the original Proposed Decision (PD).
• The CPUC did not vote on the Proposed Decision (PD) issued in November 2025 for SDG&E's Track 2 request in its 2024 General Rate Case on December 18, 2025.
• SDG&E estimates this Track 2 PD will result in a $471 million after-tax charge to the earnings of Sempra and SDG&E in the fourth quarter of 2025.
• This estimated charge includes $34 million related to the first three quarters of 2025 and $437 million related to the 2019-2024 period.
• Sempra is guiding to the high end of its previously announced full-year 2025 adjusted diluted earnings-per-common-share (EPS) guidance range of $4.30-$4.70.
• Sempra is updating its full-year 2025 GAAP EPS guidance range to $2.38-$2.78, reflecting the estimated charge from the Track 2 PD.
• Sempra is affirming its full-year 2026 adjusted EPS guidance range of $4.80-$5.30, which factors in the impacts of both the Track 2 PD and the Cost of Capital FD.

Sentiment

Score: 4

Explanation: While Sempra is guiding to the high end of its adjusted EPS and affirmed 2026 guidance, the significant $471 million after-tax charge and the substantial reduction in GAAP EPS guidance for 2025 due to regulatory disallowances, particularly the retroactive portion, indicate a negative financial event. The slight improvement in return on equity is overshadowed by the larger negative impact and ongoing regulatory uncertainty.

Positives

• The CPUC approved a Final Decision in the Cost of Capital proceeding for SDG&E and SoCalGas, authorizing a return on equity that is 5 basis points higher than the original Proposed Decision.
• Sempra is guiding to the high end of its previously announced full-year 2025 adjusted diluted EPS guidance range of $4.30-$4.70, demonstrating resilience despite the estimated charge.
• Sempra affirmed its full-year 2026 adjusted EPS guidance range of $4.80-$5.30, which incorporates the impacts of the Track 2 PD and the Cost of Capital FD.

Negatives

• SDG&E estimates a significant $471 million after-tax charge to Sempra and SDG&E earnings in the fourth quarter of 2025 due to the Track 2 PD in its 2024 General Rate Case.
• A substantial portion of the estimated charge, $437 million, relates to prior years (2019-2024), indicating a retroactive financial impact.
• The CPUC did not vote on the Track 2 PD, leaving uncertainty regarding its final outcome and potential for further adverse adjustments.
• Sempra's updated full-year 2025 GAAP EPS guidance range of $2.38-$2.78 is significantly lower than its adjusted guidance, primarily due to the estimated regulatory charge.

Risks

• California wildfires, including potential liability for damages regardless of fault and any inability to recover all or a substantial portion of costs from insurance, wildfire funds, or rates from customers.
• Decisions, denials of cost recovery, audits, investigations, inquiries, ordered studies, regulations, denials or revocations of permits, consents, approvals or other authorizations, renewals of franchises, and other actions, including the failure to honor contracts and commitments, by regulatory bodies (e.g., CPUC, FERC, IRS) and governmental jurisdictions.
• The success of business development efforts, construction projects, acquisitions, divestitures, and other significant transactions, including risks related to reaching final investment decision, negotiating definitive contracts, completing projects on schedule and budget, realizing anticipated benefits, obtaining regulatory approvals, and third parties honoring commitments.
• Changes to capital expenditure plans and their potential impact on rate base or other growth.
• Changes, due to evolving economic, political, and other factors, to trade and other foreign policy (including tariffs) and laws and regulations (including those related to tax and the energy industry).
• Litigation, arbitration, property disputes, and other proceedings.
• Cybersecurity threats, including by state and state-sponsored actors, of ransomware or other attacks on systems or the systems of third parties, including the energy grid or other energy infrastructure.
• The availability, uses, sufficiency, and cost of capital resources and the ability to borrow money or otherwise raise capital on favorable terms and meet obligations, which can be affected by credit rating downgrades, instability in capital markets, and fluctuating interest rates and inflation.
• The impact on affordability of SDG&E's and SoCalGas's customer rates and their cost of capital and their ability to pass through higher costs due to volatility in inflation, interest rates, commodity prices, tariffs, and the cost of meeting demand for lower carbon and reliable energy in California.
• The impact of climate policies, laws, rules, regulations, trends, and required disclosures, including actions to reduce or eliminate reliance on natural gas, increased uncertainty in the political or regulatory environment for California natural gas distribution companies, the risk of nonrecovery for stranded assets, and uncertainty related to emerging technologies.
• Weather, natural disasters, pandemics, accidents, equipment failures, explosions, terrorism, information system outages, or other events that disrupt operations, damage facilities or systems, cause the release of harmful materials or fires, or subject to liability for damages, fines, and penalties, some of which may not be recoverable through regulatory mechanisms or insurance or may impact the ability to obtain satisfactory levels of affordable insurance.
• The availability of electric power, natural gas, and natural gas storage and transportation capacity, including disruptions caused by failures in the transmission grid or pipeline and storage systems or limitations on the injection and withdrawal of natural gas from storage facilities.
• Oncor Electric Delivery Company LLC's ability to reduce or eliminate its quarterly dividends due to regulatory and governance requirements and commitments.

Future Outlook

Sempra is guiding to the high end of its previously announced full-year 2025 adjusted diluted EPS guidance range of $4.30-$4.70, even after accounting for the estimated charge from the Track 2 PD. The company also affirmed its full-year 2026 adjusted EPS guidance range of $4.80-$5.30, which incorporates the impacts of both the Track 2 PD and the Cost of Capital Final Decision.

Management Comments

• SDG&E is actively pursuing opportunities through the regulatory process to improve the outcome of the Track 2 PD.

Industry Context

The California Public Utilities Commission's decisions significantly influence the financial health and operational parameters of regulated utilities like SDG&E and SoCalGas. The increase in authorized return on equity is a positive for the utilities, potentially improving their ability to attract capital, while the significant charge from the Track 2 PD highlights the ongoing regulatory risks and the potential for retroactive financial impacts within the highly regulated California utility market. This environment often sees utilities navigating complex rate cases and cost recovery mechanisms, which can lead to volatility in reported earnings.

Comparison to Industry Standards

• The filing details specific regulatory outcomes for Sempra's California utilities. Direct comparisons to global benchmarks or specific comparable companies/projects are not provided within the filing itself.
• The authorized return on equity and the regulatory disallowances are specific to the California regulatory environment and the unique circumstances of SDG&E and SoCalGas.

Stakeholder Impact

• Shareholders: Potential negative impact on earnings and share price due to the significant after-tax charge, though adjusted EPS guidance remains strong. Increased regulatory uncertainty could affect investor confidence.
• Customers (SDG&E & SoCalGas): The Cost of Capital FD's higher return on equity could potentially lead to higher rates, while the Track 2 PD's disallowances might reflect past costs not recoverable from customers.
• Employees: No direct impact mentioned.
• Creditors: The financial charge could impact credit metrics, though the overall financial health of Sempra and its subsidiaries is not explicitly detailed as being at risk.

Next Steps

• SDG&E is actively pursuing opportunities through the regulatory process to improve the outcome of the Track 2 PD.
• The CPUC will vote on the final decision for SDG&E's Track 2 request in 2026.

Key Dates

Recommendation

The filing presents a mixed bag. On one hand, Sempra is guiding to the high end of its adjusted 2025 EPS and affirming 2026 guidance, suggesting underlying operational strength and management's ability to navigate challenges. The improved return on equity for its California utilities is also a positive. However, the significant $471 million after-tax charge, largely retroactive, and the substantial reduction in GAAP EPS for 2025 due to regulatory disallowances introduce considerable uncertainty and a material negative financial event. The ongoing regulatory process for the Track 2 PD means the final outcome is not yet certain. Given the strong adjusted guidance but also the material negative regulatory impact and ongoing uncertainty, a 'hold' recommendation is appropriate. Investors should monitor the final resolution of the Track 2 PD and future regulatory developments.

Keywords

Sempra, SDG&E, SoCalGas, CPUC, regulatory decision, cost of capital, general rate case, EPS guidance, utility, California, energy, financial results, 8-K, SRE, SREA