Sempra Faces Significant Regulatory Headwinds While Maintaining Forward‑Looking Guidance
Sempra Energy (NASDAQ: SRE), the diversified utilities firm headquartered in San Diego, has received a series of regulatory updates that could materially impact its 2025 earnings. The company disclosed that a proposed decision concerning its Southern California Gas (SDG&E) customer‑rate setting—known as “Track 2”—may result in an after‑tax charge of $471 million. The charge arises from a regulatory filing in which SDG&E is actively pursuing a more favorable outcome through the California Public Utilities Commission (CPUC) process.
In a separate filing, the CPUC approved an improved return‑on‑equity (ROE) for both SDG&E and SoCalGas, the gas utility arm of Sempra. The commission’s decision is expected to lift Sempra’s cost of capital, a development that the company has incorporated into its earnings‑per‑share (EPS) guidance for 2025 and 2026. Despite the potential adverse effect from the Track 2 decision, Sempra’s management has reaffirmed its forecast for fiscal year 2026, indicating confidence in the company’s long‑term value creation.
Regulatory Context and Financial Impact
The Track 2 proposal pertains to the setting of customer rates for SDG&E, a key component of Sempra’s utility portfolio. The company’s filing highlighted that SDG&E is seeking to negotiate terms that would mitigate the impact of the proposed regulatory outcome. If the commission ultimately upholds the current proposal, Sempra anticipates a $471 million after‑tax reduction in earnings for the year, a figure that underscores the significance of utility regulation on the firm’s profitability.
Conversely, the CPUC’s approval of a higher ROE for SDG&E and SoCalGas translates into a lower cost of capital for Sempra. This adjustment is expected to improve the company’s profitability metrics, offsetting some of the negative effect from the Track 2 charge. Sempra has updated its 2025 and 2026 EPS guidance to reflect this more favorable capital structure, though the exact figures were not disclosed in the public briefings.
Guidance Reaffirmation and Market Outlook
Following the regulatory announcements, Sempra reiterated its FY26 earnings outlook. The company’s leadership emphasized that, even with the $471 million hit, the overall business fundamentals remain strong, supported by robust demand for sustainable energy and continued investment in transmission and distribution infrastructure across North America. The reaffirmation comes at a time when the company’s share price is trading near its 52‑week high of $95.72, indicating that investors remain optimistic about Sempra’s strategic trajectory.
Broader Implications for the Utilities Sector
Sempra’s situation illustrates the delicate balance utilities must maintain between regulatory compliance and financial performance. The company’s ability to navigate the CPUC’s regulatory environment while delivering on earnings expectations will be closely watched by analysts, particularly as the sector continues to focus on sustainability and infrastructure investment.
In summary, Sempra Energy is confronting a significant regulatory challenge that could impose a $471 million after‑tax charge, yet it has simultaneously secured a lower cost of capital through a CPUC decision and has reaffirmed its FY26 earnings outlook. The company’s ability to manage these competing forces will be a key determinant of its performance in the coming fiscal period.
