8-K: Sempra Updates 2025 EPS, Faces $471M Charge from CPUC

Sempra revises its 2025 GAAP EPS guidance and affirms 2026 adjusted EPS guidance following a mixed California Public Utilities Commission regulatory update.

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), both Sempra subsidiaries, 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, with $34 million relating to the first three quarters of 2025 and $437 million relating to 2019-2024.
• 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, which accounts for the estimated charge related to 2019-2024.
• Sempra is updating its full-year 2025 GAAP EPS guidance range to $2.38-$2.78, based on results in the first nine months of 2025 plus the estimated charge from the Track 2 PD.
• Sempra is affirming its full-year 2026 adjusted EPS guidance range of $4.80-$5.30, factoring in the impacts of both the Track 2 PD and the Cost of Capital FD.

Sentiment

Score: 4

Explanation: While Sempra affirmed its adjusted EPS guidance and received a slight improvement in its Cost of Capital decision, the significant estimated $471 million after-tax charge from the unvoted Track 2 PD and the resulting substantial reduction in GAAP EPS guidance for 2025 introduce considerable negative financial impact and 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.
• Sempra affirmed its full-year 2026 adjusted EPS guidance range of $4.80-$5.30.

Negatives

• The CPUC did not vote on the Proposed Decision for SDG&E's Track 2 request in its 2024 General Rate Case on December 18, 2025.
• SDG&E estimates the Track 2 PD will result in a significant $471 million after-tax charge to the earnings of Sempra and SDG&E in the fourth quarter of 2025.
• The $471 million charge includes $34 million related to the first three quarters of 2025 and $437 million related to the 2019-2024 period.
• Sempra's full-year 2025 GAAP EPS guidance range was updated to a lower $2.38-$2.78, reflecting the estimated charge from the Track 2 PD and other non-GAAP adjustments.
• The estimated charge from the Track 2 PD may differ substantially from actual results depending on various factors, including the timing and outcome of the final decision in 2026, introducing uncertainty.

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, rates, or a combination thereof.
• 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 (e.g., planned sale of Sempra Infrastructure Partners equity interest), 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, 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 SDG&E's, SoCalGas's, and Sempra Infrastructure's ability to pass through higher costs to customers due to volatility in inflation, interest rates, commodity prices, tariffs, the cost of meeting demand for lower carbon and reliable energy in California, and volatility in foreign currency exchange rates.
• 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 (e.g., work stoppages) 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 2025 adjusted EPS range and affirming its 2026 adjusted EPS range, despite the significant estimated charge from the unvoted Track 2 PD. The final outcome of the Track 2 PD is still pending in 2026, and SDG&E is actively pursuing opportunities through the regulatory process to improve the outcome. The company acknowledges that actual results may differ substantially from estimates due to various factors.

Management Comments

• 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 based on results in the first nine months of 2025 plus the estimated charge referenced above resulting from the Track 2 PD.
• Sempra is also affirming its full-year 2026 adjusted EPS guidance range of $4.80-$5.30, which factors in the foregoing impacts of the Track 2 PD and the Cost of Capital FD.
• 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 (CPUC) plays a critical role in regulating utility companies like SDG&E and SoCalGas, directly impacting their financial performance through decisions on cost recovery and authorized rates of return. The ongoing regulatory proceedings, such as the Cost of Capital and General Rate Case, are standard for utilities but can introduce significant financial volatility and uncertainty. The increase in authorized return on equity is a positive for the utilities, while the potential disallowance from the Track 2 PD highlights the inherent risks associated with regulatory scrutiny and cost recovery in a highly regulated environment like California, which often faces pressure to keep consumer rates low.

Comparison to Industry Standards

• The 5 basis point increase in return on equity for SDG&E and SoCalGas is a specific regulatory outcome within the California utility market. Direct global benchmarks are difficult without more context on typical authorized ROE for comparable regulated utilities in other regions, but any increase is generally favorable.
• The $471 million after-tax charge from the Track 2 PD represents a significant regulatory disallowance. While specific comparable disallowances are not provided, such charges are a known risk for regulated utilities, particularly in states with stringent regulatory oversight like California, which often faces pressure to keep consumer rates low.
• The ongoing nature of CPUC decisions and the potential for substantial changes between proposed and final decisions (as seen with the Cost of Capital FD improvement) are characteristic of the highly dynamic and often contentious regulatory landscape for utilities in California, which can be more challenging than in some other states or countries with more stable regulatory frameworks.

Stakeholder Impact

• Shareholders: Potential negative impact on earnings and share price due to the $471 million charge and reduced GAAP EPS guidance. Uncertainty regarding future regulatory outcomes.
• Customers (SDG&E and SoCalGas): The Cost of Capital decision impacts the rates they pay, though the 5 basis point increase in ROE is relatively small. The Track 2 PD relates to cost recovery, which ultimately affects customer rates.
• Creditors: Potential impact on credit ratings if financial performance deteriorates significantly due to regulatory disallowances, though not explicitly stated as an immediate impact.

Next Steps

• SDG&E is actively pursuing opportunities through the regulatory process to improve the outcome of the Track 2 PD.
• The timing and outcome of the Final Decision in SDG&E's Track 2 request are expected in 2026.

Key Dates

Recommendation

The filing presents a mixed bag. While the Cost of Capital decision was slightly favorable and Sempra is guiding to the high end of its *adjusted* 2025 EPS and affirming 2026 adjusted EPS, the significant estimated $471 million after-tax charge from the Track 2 PD and the resulting lower *GAAP* 2025 EPS guidance introduce substantial uncertainty and a material negative financial impact. The delay in the Track 2 PD final decision means this uncertainty will persist into 2026. Investors should hold to monitor the final outcome of the Track 2 PD and assess Sempra's ability to mitigate its impact, as well as the broader regulatory environment in California. The long-term outlook for regulated utilities remains stable, but this specific regulatory headwind warrants caution.

Keywords

Sempra, SDG&E, SoCalGas, CPUC, Cost of Capital, General Rate Case, Track 2 PD, Regulatory Decision, EPS Guidance, Utility, California, Energy, Financial Reporting, 8-K, SEC Filing, Earnings Charge, Return on Equity