10-Q: Sempra Reports Mixed Q1 2024 Results: Infrastructure Earnings Dip, Utilities Remain Steady

Sempra's Q1 2024 earnings reflect a decline in infrastructure performance offset by stable utility operations, with key projects and regulatory matters shaping the outlook.

Summary

• Sempra's Q1 2024 earnings attributable to common shares were $801 million, down from $969 million in Q1 2023.
• Sempra California's earnings decreased by $36 million to $582 million, primarily due to higher net interest expense and lower CPUC base operating margin.
• Sempra Texas Utilities saw an increase in earnings of $100 million, reaching $183 million, driven by higher equity earnings from Oncor Holdings.
• Sempra Infrastructure's earnings decreased by $184 million to $131 million, mainly due to asset and supply optimization and lower transportation revenues in Mexico.
• The company's effective income tax rate was 21% for Q1 2024, compared to 26% in Q1 2023.
• Sempra California recorded CPUC-authorized revenues in the three months ended March 31, 2024 based on 2023 levels authorized under the 2019 GRC because a final decision in the 2024 GRC remains pending.
• Sempra issued $600 million of 6.875% fixed-to-fixed reset rate junior subordinated notes maturing on October 1, 2054.
• SDG&E issued $600 million aggregate principal amount of 5.55% first mortgage bonds due in full upon maturity on April 15, 2054.
• SoCalGas issued $500 million aggregate principal amount of 5.6% first mortgage bonds due in full upon maturity on April 1, 2054.

Sentiment

Score: 6

Explanation: The document presents a mixed picture, with some positive developments (e.g., increased earnings in Sempra Texas Utilities) offset by negative trends (e.g., decreased earnings in Sempra Infrastructure). The overall sentiment is neutral to slightly positive.

Positives

• Sempra Texas Utilities saw an increase in earnings of $100 million, reaching $183 million, driven by higher equity earnings from Oncor Holdings.
• SDG&E and SoCalGas recorded CPUC-authorized revenues in the three months ended March 31, 2024 based on 2023 levels authorized under the 2019 GRC because a final decision in the 2024 GRC remains pending.
• The company's effective income tax rate was 21% for Q1 2024, compared to 26% in Q1 2023.

Negatives

• Sempra's Q1 2024 earnings attributable to common shares were $801 million, down from $969 million in Q1 2023.
• Sempra California's earnings decreased by $36 million to $582 million, primarily due to higher net interest expense and lower CPUC base operating margin.
• Sempra Infrastructure's earnings decreased by $184 million to $131 million, mainly due to asset and supply optimization and lower transportation revenues in Mexico.

Risks

• The results of the 2024 GRC may materially differ from what is contained in the GRC applications.
• The Aliso Canyon natural gas storage facility had a net book value of $1.0 billion at March 31, 2024, and if it were to be permanently closed or if future cash flows from its operation were otherwise insufficient to recover its carrying value, we may record an impairment of the facility, which could be material, and natural gas reliability and electric generation could be jeopardized.
• Sempra Infrastructure had $408 million in PP&E, net, related to the Guaymas-El Oro segment of the Sonora pipeline, which could be subject to impairment if Sempra Infrastructure is unable to re-route a portion of the pipeline and resume operations or if Sempra Infrastructure terminates the contract and is unable to obtain recovery.
• The PA LNG Phase 1 project holds two Clean Air Act, Prevention of Significant Deterioration permits issued by the TCEQ, which we refer to as the 2016 Permit and the 2022 Permit. In November 2023, a panel of the U.S. Court of Appeals for the Fifth Circuit issued a decision to vacate and remand the 2022 Permit to the TCEQ for additional explanation of the agencys permit decision.

Future Outlook

Sempra expects to meet its cash requirements through various sources, including cash flows from operations, borrowings, and distributions from equity method investments. The company is progressing with several key projects, including the ECA LNG Phase 1 and Phase 2 projects, and the Port Arthur LNG Phase 1 and Phase 2 projects.

Industry Context

Sempra's results are influenced by regulatory frameworks, commodity prices, and the energy transition. The company is investing in LNG and renewable energy projects to capitalize on growing demand for cleaner energy sources.

Comparison to Industry Standards

• Sempra's performance is comparable to other large utility and energy infrastructure companies, such as NextEra Energy, Duke Energy, and Kinder Morgan.
• The company's investments in LNG projects align with the industry trend of increasing LNG exports to meet global energy demand.
• Sempra's focus on renewable energy projects is consistent with the industry's shift towards cleaner energy sources.

Legal Proceedings

• Two lawsuits challenging the natural gas and electric franchise agreements granted by the City of San Diego to SDG&E are ongoing.
• Litigation related to the Aliso Canyon natural gas storage facility gas leak is ongoing.
• Several administrative challenges are pending before Mexican authorities, seeking revocation of the environmental impact authorization issued to the ECA Regas Facility in 2003.
• Litigation related to the Clean Air Act permits for the Port Arthur LNG project is ongoing.

Stakeholder Impact

• SDG&E and SoCalGas customers may be affected by changes in rates and service reliability.
• Shareholders are impacted by the company's financial performance and strategic decisions.
• Employees are affected by the company's operations and investments.
• The communities in which Sempra operates are affected by the company's environmental and social impact.

Next Steps

• Sempra Infrastructure plans to sell the LNG corresponding to its allocated capacity from the proposed Cameron LNG Phase 2 project under long-term SPAs prior to making a final investment decision.
• Cameron LNG JV is conducting additional value engineering work to improve the overall value of the project and evaluate other potential EPC contractors.
• SDG&E expects to receive a proposed decision on its 2020 cost study in the third quarter of 2024.
• Sempra expects to settle the forward sale agreements entirely by the physical delivery of shares of our common stock in exchange for cash proceeds, which may be settled on one or more dates specified by us occurring no later than December 31, 2024, which is the final settlement date under the agreements.

Key Dates

Keywords

Sempra, earnings, infrastructure, utilities, SDG&E, SoCalGas, Oncor, LNG, CPUC, FERC, financial results