10-Q: Sempra Reports Q3 Earnings Amid Strategic Divestitures

Sempra's third-quarter earnings were significantly impacted by one-time tax expenses related to the planned divestiture of Sempra Infrastructure Partners and Ecogas, despite strong operational performance from its California and Texas utilities.

Summary

• Sempra reported Q3 2025 net income of $150 million ($0.12 Basic EPS), a substantial decrease from $759 million ($1.01 Basic EPS) in Q3 2024, primarily due to a $705 million income tax expense related to the classification of SI Partners as held for sale.
• Year-to-date (YTD) 2025 net income was $1,588 million ($2.21 Basic EPS), down from $2,511 million ($3.40 Basic EPS) in YTD 2024, largely due to a $731 million income tax expense from the SI Partners and Ecogas held-for-sale classifications.
• Consolidated revenues increased by 13.5% to $3,151 million in Q3 2025 and by 5.6% to $9,953 million YTD 2025 compared to the same periods in 2024.
• San Diego Gas & Electric (SDG&E) reported a 24.1% increase in Q3 2025 net income to $324 million and a 16.4% increase YTD 2025 to $780 million, driven by higher income tax benefits and CPUC base operating margin.
• Southern California Gas (SoCalGas) swung to a Q3 2025 net income of $46 million from a $14 million loss in Q3 2024, and YTD 2025 net income increased by 20.6% to $573 million, also benefiting from higher income tax benefits and CPUC base operating margin.
• Sempra Texas Utilities saw equity earnings increase by 17% to $306 million in Q3 2025 and by 2% to $660 million YTD 2025, primarily from higher equity earnings from Oncor Holdings.
• Sempra Infrastructure reported losses of $580 million in Q3 2025 and $362 million YTD 2025, mainly due to the one-time income tax expenses from the held-for-sale classifications and unfavorable foreign currency and inflation effects.
• Capital expenditures for property, plant and equipment (PP&E) and investments are expected to total $13.3 billion in 2025, an increase from the previously projected $12.5 billion, primarily due to the Port Arthur LNG Phase 2 project reaching Final Investment Decision (FID).
• Sempra redeemed all 900,000 outstanding shares of its Series C preferred stock for $900 million on October 15, 2025.

Sentiment

Score: 6

Explanation: The filing presents a mixed picture. While the core utility businesses (SDG&E, SoCalGas, Sempra Texas Utilities) show strong operational performance and positive regulatory outcomes, the consolidated net income is significantly impacted by large, one-time tax expenses related to strategic divestitures. The progress on major infrastructure projects (PA LNG Phase 2, Cimarrón Wind, Hackberry CCS) is positive for future growth, but ongoing legal and regulatory challenges, particularly in Mexico and related to wildfires, introduce notable risks. The substantial capital raise activities indicate aggressive growth and portfolio rebalancing, but the immediate earnings hit and continued exposure to various risks temper overall sentiment.

Positives

• SDG&E's Q3 2025 net income increased by $63 million (24%) to $324 million, driven by higher income tax benefits and CPUC base operating margin.
• SoCalGas's Q3 2025 net income improved by $60 million, swinging from a $14 million loss in 2024 to a $46 million gain in 2025, due to higher income tax benefits and CPUC base operating margin.
• Sempra Texas Utilities' equity earnings from Oncor Holdings increased by $45 million (17%) in Q3 2025, reflecting higher revenues from rate updates and increased invested capital.
• The Port Arthur LNG Phase 2 project reached a positive Final Investment Decision (FID) in September 2025, with construction commencing and estimated capital expenditures of $14 billion.
• The Cimarrón Wind project reached positive FID, began generating energy in October 2025, and is expected to commence commercial operations in the first half of 2026.
• The Hackberry Carbon Sequestration project received its final permit to construct a Class VI carbon injection well in September 2025, advancing low-carbon solutions.
• SoCalGas ratified a new collective bargaining agreement with its unions on March 31, 2025, scheduled to expire on September 30, 2028, providing labor stability.
• Texas House Bill 5247 established the Unified Tracker Mechanism (UTM), allowing Oncor to apply for interim rate adjustments for capital expenditures, with Oncor already recognizing revenues and regulatory assets for UTM-eligible investments.

Negatives

• Sempra's Q3 2025 net income decreased significantly by $609 million (80.2%) to $150 million, primarily due to a $705 million income tax expense related to the classification of SI Partners as held for sale.
• YTD 2025 net income for Sempra decreased by $923 million (36.8%) to $1,588 million, largely due to $731 million in income tax expenses from the SI Partners and Ecogas held-for-sale classifications.
• Sempra Infrastructure reported substantial losses of $580 million in Q3 2025 and $362 million YTD 2025, mainly driven by the one-time income tax expenses and unfavorable foreign currency and inflation effects.
• SoCalGas recorded a write-off of $36 million ($25 million after tax) in disallowed costs related to its Catastrophic Event Memorandum Account, as the CPUC authorized only partial recovery of requested costs.
• Unfavorable foreign currency and inflation effects on monetary positions in Mexico negatively impacted Sempra Infrastructure's earnings by $100 million in Q3 2025 and $302 million YTD 2025.
• Sempra's cash flows from operating activities decreased by $166 million (4.7%) YTD 2025 compared to YTD 2024.
• Sempra's cash used in investing activities increased by $2,309 million YTD 2025, reflecting higher capital expenditures and investments.

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, the Wildfire Fund, the Continuation Account, or customer rates.
• 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 by regulatory bodies and governments in the U.S. and Mexico.
• The success of business development efforts, construction projects, acquisitions, divestitures, and other significant transactions, including risks related to reaching FID, 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 energy industry in the U.S. and Mexico).
• Litigation, arbitration, property disputes, and other proceedings, including those related to the Aliso Canyon Leak, ECA Regas Facility land disputes/permit challenges, and the Port Arthur LNG I construction incident.
• Cybersecurity threats, including ransomware or other attacks on systems or energy infrastructure.
• The availability, uses, sufficiency, and cost of capital resources and the ability to borrow or raise capital on favorable terms, which can be affected by credit rating downgrades, capital market instability, 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 on Sempra Infrastructure's ability to pass through higher costs due to volatility in inflation, interest rates, commodity prices, and tariffs.
• The impact of climate policies, laws, rules, regulations, trends, and required disclosures, including actions to reduce or eliminate reliance on natural gas, increased uncertainty for California natural gas distribution companies, 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, cause harmful material releases or fires, or subject the company to liability for damages, fines, and penalties.
• 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.
• Oncor's ability to reduce or eliminate its quarterly dividends due to regulatory and governance requirements and commitments.
• Uncertainty regarding the impact of the 2025 Energy Laws and new regulations in Mexico on Sempra Infrastructure's ability to operate existing assets, develop new projects, and recover investment carrying values.
• Potential impairment of the Sonora natural gas pipeline's Guaymas-El Oro segment ($391 million PP&E, net) if re-routing is unsuccessful or the contract is terminated without recovery.

Future Outlook

Sempra expects to complete the sale of a 45% equity interest in SI Partners and the sale of Ecogas in the second or third quarter of 2026. The Port Arthur LNG Phase 2 project has commenced construction with commercial operations expected in 2030 and 2031. The ECA LNG Phase 1 project is targeted for commercial operations in summer 2026. Oncor anticipates a new five-year capital plan (2026-2030) to be at least 30% higher than its previous plan. The company does not currently expect the Pillar Two global minimum tax framework to have a material effect on its financial results.

Management Comments

• We regularly review our portfolio of assets with a view toward allocating capital to the businesses we believe can further improve shareholder value.
• We believe that these cash flow sources, combined with available funds, will be adequate to fund our operations in both the short-term and long-term.
• Our ability to access these markets or obtain credit from commercial banks outside of our committed revolving credit facilities could become materially constrained if economic conditions worsen or disruptions to or volatility in these markets increase.
• If cash flows from operations were to be significantly reduced or we were unable to borrow or obtain other financing under acceptable terms, we would likely first reduce or postpone discretionary capital expenditures (not related to safety/reliability) and investments in new businesses.
• We monitor our ability to finance the needs of our operating, investing and financing activities in a manner consistent with our goal to maintain our investment-grade credit ratings.
• SDG&E expects to submit its request to the OEIS for its annual wildfire safety certification in December 2025.
• SDG&E expects to receive a proposed decision for its Track 2 request by the end of 2025.
• SDG&E and SoCalGas expect to receive proposed decisions for their Track 3 requests in the first half of 2026.
• SDG&E and SoCalGas expect to receive a Final Decision for their cost of capital applications by the end of 2025.
• SoCalGas expects to receive a post-rehearing FD for its Catastrophic Event Memorandum Account in the first half of 2026.
• Oncor expects to make its first comprehensive UTM filing in the first half of 2026.
• Sharyland Utilities continues to expect a final order in the fourth quarter of 2025, with rates, if approved, going into effect in December 2025.
• We expect the Port Arthur Pipeline Louisiana Connector to be ready for service ahead of the PA LNG Phase 1 project's gas requirements.
• We expect Louisiana Storage to be ready for service in time to support the needs of the PA LNG Phase 1 project.
• We expect the Cimarrón Wind project to commence commercial operations in the first half of 2026.

Industry Context

The energy industry is undergoing a significant transition towards cleaner energy, with companies like Sempra investing in LNG, carbon sequestration, and renewable energy projects. Regulatory environments, particularly in California and Mexico, continue to shape utility operations and investment recovery. The establishment of the 2025 Wildfire Legislation and the Continuation Account in California reflects ongoing efforts to manage wildfire risks for utilities. Geopolitical factors, including trade policies and tariffs, are impacting the cost and demand for energy infrastructure projects and LNG exports. The global push for decarbonization is driving investments in projects like Hackberry Carbon Sequestration and Cimarrón Wind, while also creating uncertainty for natural gas distribution companies in California.

Comparison to Industry Standards

• Sempra's strategic divestiture of a significant equity interest in SI Partners and Ecogas aligns with a broader industry trend of portfolio optimization, where large energy companies streamline operations to focus on core strengths or high-growth segments. This is comparable to other utilities divesting non-core assets to enhance capital efficiency and shareholder value.
• The Port Arthur LNG Phase 2 project reaching FID, with an estimated $14 billion in capital expenditures, positions Sempra as a major player in the global LNG export market, competing with projects from companies like Cheniere Energy and Venture Global LNG, which are also expanding their liquefaction capacities to meet growing international demand.
• Oncor's proposed 2026-2030 capital plan, expected to be at least 30% higher than its previous plan, reflects a common industry trend among regulated utilities to invest heavily in grid modernization, resilience, and infrastructure upgrades to meet increasing demand and enhance reliability, often driven by regulatory incentives like Texas's new Unified Tracker Mechanism (UTM).
• The development of the Hackberry Carbon Sequestration project, in partnership with TotalEnergies SE, Mitsui & Co., Ltd., and Mitsubishi Corporation, demonstrates Sempra's commitment to low-carbon solutions, a growing area of investment for energy majors seeking to reduce emissions from their operations and offer decarbonization services, similar to projects by ExxonMobil or Occidental Petroleum in the Gulf Coast region.
• SDG&E's and SoCalGas's reliance on CPUC-approved General Rate Cases (GRCs) and cost recovery mechanisms for operating costs and capital investments is standard for regulated utilities in California, ensuring a predictable revenue stream but also exposing them to regulatory lag and disallowances, as seen with SoCalGas's Catastrophic Event Memorandum Account.

Management Changes

Corporate Governance

Legal Proceedings

• **SDG&E City of San Diego Franchise Agreements**: One lawsuit challenging the franchise agreements was resolved in favor of SDG&E and the City of San Diego, with the California Supreme Court denying the plaintiff's appeal. Another case is pending appeal by both sides regarding the City Council vote requirement for termination.
• **SoCalGas Aliso Canyon Natural Gas Storage Facility Gas Leak**: As of October 31, 2025, three outstanding plaintiffs have not agreed to a settlement in principle following a $1.79 billion settlement in 2022 that resolved over 99% of lawsuits.
• **Energa Costa Azul (ECA) Regas Facility Land Disputes**: A long-running land dispute with a claimant relating to property adjacent to the ECA Regas Facility is pending, with an administrative procedure at SEDATU potentially restarting. Another land dispute was definitively resolved in favor of the ECA Regas Facility by the Mexican Supreme Court in May 2025.
• **ECA Regas Facility Environmental and Social Impact Permits**: Several administrative challenges and three federal district court cases are pending, seeking revocation of environmental impact authorizations and permits for natural gas liquefaction activities. Injunctions have been issued, with uncertain application, and appeals are ongoing.
• **Port Arthur LNG I TCEQ Permit**: A U.S. Court of Appeals for the Fifth Circuit decision to vacate and remand the 2022 Permit (governing emissions for PA LNG Phase 1 and 2) was withdrawn, and the Supreme Court of Texas adopted Port Arthur LNG I's interpretation of the standard. The Fifth Circuit subsequently denied the petitioners' argument, resulting in continued effectiveness of the permit. Petitioners have until November 10, 2025, to appeal to the U.S. Supreme Court. Construction is proceeding uninterrupted.
• **Port Arthur LNG I Construction Incident**: An incident in April 2025 resulted in three deaths and two injuries to Bechtel employees. Two lawsuits are pending, asserting negligence and gross negligence against Port Arthur LNG I, SI Partners, Sempra, Bechtel, and ConocoPhillips. Bechtel is providing indemnity.
• **Litigation Related to Regulatory and Other Actions by the Mexican Government**: Three amparo lawsuits challenging 2021 amendments to Mexico's Electricity Industry Law (LIE) were initiated. Two have been definitively dismissed, and the third, impacting Sempra Infrastructure's power marketing business, remains pending but is believed to be moot due to the repeal of the LIE by the new Electric Sector Law (ESL) in March 2025.
• **Oncor 2023 Comprehensive Base Rate Review Order**: Oncor's appeal of certain rate base disallowances in the PUCT's order was dismissed by the Fifteenth Court of Appeals in Texas in August 2025, and Oncor elected not to pursue further appeal.

Related Party Transactions

• Sempra's Condensed Consolidated Financial Statements include amounts due from and to unconsolidated affiliates, such as tax sharing agreements with Oncor Holdings and various affiliates, and U.S. dollar-denominated notes with TAG Pipelines Norte, S. de R.L. de C.V.
• SDG&E and SoCalGas are included in Sempra's consolidated income tax return, with their income tax expense/benefit computed as if they filed separate returns, resulting in income taxes due from/to Sempra.
• Sempra provides guarantees to certain unconsolidated affiliates, including a promissory note and letters of credit for Cameron LNG JV's SDSRA distribution ($165 million maximum exposure) and a Support Agreement for CFIN ($979 million maximum exposure).
• SI Partners and ConocoPhillips have provided guarantees relating to their respective affiliates' commitment to fund 110% of the development budget of the PA LNG Phase 1 project, up to $9.0 billion.
• PA2 JVCo issued 49.9% of its equity interests to Blackstone, a related party, for $3.4 billion in cash and a commitment for an additional $3.6 billion in capital contributions.

Stakeholder Impact

• **Shareholders**: The planned divestiture of SI Partners and Ecogas, while resulting in a significant one-time tax expense impacting current earnings, is part of a capital recycling program aimed at improving shareholder value. The ATM program and new debt issuances are intended to finance long-term capital plans and manage liquidity, potentially affecting future dilution and debt leverage. The redemption of Series C preferred stock impacts preferred shareholders.
• **Customers (SDG&E & SoCalGas)**: CPUC-approved GRCs and cost recovery mechanisms aim to ensure reasonable rates while allowing utilities to recover operating costs and earn a return on capital. However, higher natural gas and electric fuel costs, as well as inflationary pressures, could lead to increased customer rates. The 2025 Wildfire Legislation and Continuation Account aim to protect customers from the full burden of catastrophic wildfire costs.
• **Employees**: SoCalGas ratified a new collective bargaining agreement, providing stability for represented employees. The VREP offered to eligible employees resulted in additional postretirement health benefits. The planned sale of SI Partners will result in a partial termination of Sempra's pension plan for impacted employees, with full vesting of benefits.
• **Creditors**: The company's ability to maintain investment-grade credit ratings is crucial for accessing capital markets on favorable terms. A downgrade could increase borrowing costs and require collateral. New debt issuances and the structure of the SI Partners sale (including deferred payments) impact the company's overall debt profile.
• **Suppliers/Contractors**: Significant capital expenditure plans for new projects (e.g., Port Arthur LNG, Cimarrón Wind) and infrastructure upgrades (Oncor) will create opportunities for suppliers and contractors. However, construction delays, cost overruns, and legal disputes (e.g., Port Arthur LNG I incident) can impact these relationships.
• **Regulatory Bodies**: Ongoing GRCs, cost of capital proceedings, and appeals related to FERC and CPUC decisions highlight the continuous interaction and influence of regulatory bodies on the utilities' operations, financial recovery, and strategic initiatives. Compliance with new Mexican energy laws and environmental permits is also critical.

Next Steps

• Complete the sale of 45% equity interest in SI Partners to KKR Partners in Q2/Q3 2026, subject to regulatory approvals and closing conditions.
• Complete the sale of Ecogas in Q2/Q3 2026.
• Continue construction of Port Arthur LNG Phase 2 project, with commercial operations expected in 2030 and 2031.
• Achieve commercial operations for ECA LNG Phase 1 project in summer 2026.
• Achieve commercial operations for Cimarrón Wind project in H1 2026.
• Continue progress on Hackberry Carbon Sequestration project following the final permit for a Class VI carbon injection well.
• SDG&E to submit annual wildfire safety certification request to OEIS in December 2025.
• SDG&E and SoCalGas await proposed decisions for their Track 3 GRC requests in H1 2026.
• SDG&E and SoCalGas await Final Decisions on their cost of capital applications by end of 2025.
• Oncor expects to announce a new five-year base capital plan (2026-2030) in H1 2026.
• Oncor expects to make its first comprehensive UTM filing in H1 2026.
• SoCalGas expects a post-rehearing Final Decision for its Catastrophic Event Memorandum Account in H1 2026.
• Monitor guidance issued by the U.S. Department of the Treasury and the IRS regarding OBBBA tax changes.

Key Dates

Recommendation

Sempra's Q3 2025 results show a significant decline in net income and EPS, primarily due to a large, one-time income tax expense related to the strategic classification of SI Partners and Ecogas as held for sale. While this creates a negative headline, it's a non-recurring accounting impact tied to a long-term capital recycling strategy aimed at optimizing the portfolio. The underlying performance of the California and Texas utilities remains strong, with positive regulatory outcomes and increased operating margins. The Port Arthur LNG Phase 2 project reaching FID and other infrastructure developments are positive for future growth. However, the company faces ongoing legal and regulatory risks, particularly in Mexico and related to California wildfires, which could introduce future volatility. Given the mixed financial performance (strong operational, weak reported net income due to one-time items) and the long-term strategic re-positioning, a 'hold' recommendation is appropriate. Investors should monitor the successful completion of divestitures, the progress of major projects, and the resolution of key regulatory and legal challenges.

Keywords

Sempra, SDG&E, SoCalGas, SEC Filing, 10-Q, Quarterly Report, Earnings, Financial Results, Utilities, Energy Infrastructure, LNG, Natural Gas, Electric Power, Capital Expenditures, Divestitures, SI Partners, Ecogas, Port Arthur LNG, ECA LNG, Wildfire Fund, Regulatory, CPUC, FERC, Oncor, Mexico, California, Texas, Capital Recycling, Debt, Credit Ratings, ESG, Carbon Sequestration, Renewable Energy