Sempra (SRE) Q4 2025: $65B Capital Plan Fuels 11% Rate Base CAGR, Texas Surpasses California
Sempra’s record $65 billion capital plan marks a strategic pivot toward Texas, with transmission investment and disciplined capital sourcing at the forefront. The company’s shift to a 95% regulated utility model and de-risked cash flows position it for sector-leading growth through 2030. Execution risk now hinges on regulatory settlements and closing the SI Partners transaction, with upside potential from $9 billion in incremental projects.
Summary
- Texas Transmission Dominance: Sempra’s capital plan is anchored by Encore’s accelerated grid buildout and outsized AI-driven load growth.
- Balance Sheet Fortification: No new common equity needed for the base plan, with $5 billion higher operating cash flow enabling flexibility.
- Growth Visibility Into 2030: Expanded guidance and de-risked utility mix underpin confidence in 7% to 9% long-term EPS growth.
Performance Analysis
Sempra’s 2025 results reflect disciplined execution on a multi-year transformation. Adjusted earnings per share reached the high end of guidance, underpinned by robust performance at Encore, Sempra’s Texas utility, and improved capital efficiency. The $13 billion in annual capital deployed concentrated on regulated utilities, with California and Texas representing the bulk of investment, though Texas is now set to overtake California as the largest rate base contributor by 2030.
Encore’s contribution was especially notable, as it benefited from higher equity earnings, customer growth, and the implementation of the unified tracker mechanism, offsetting increased interest and O&M expense. Sempra Infrastructure provided incremental earnings from LNG asset optimization and progress on major projects, while the parent entity absorbed higher interest costs. Cash flow generation surged, with a $5 billion improvement over last year’s plan, eliminating the need for new equity issuance to fund the record capital plan.
- Texas Rate Base Acceleration: Sempra Texas is projected to grow at an 18% CAGR, becoming the company’s majority rate base by 2030.
- California Moderation: California’s growth slows as capital allocation shifts, but reliability and cash flows remain strong.
- Cash Flow Strength: Operating cash flow and asset sales provide over $50 billion of funding, de-risking the capital program.
Overall, Sempra’s financial performance signals a transition to a lower-risk, higher-growth utility model, with capital discipline and regulatory certainty as central themes.
Executive Commentary
"Our success in 2025 reflects how well we performed against our priorities. In that regard, we introduced five value creation initiatives last year designed to simplify Semper's business model, mitigate risk, and improve financial strength."
Jeff Martin, Chairman and Chief Executive Officer
"With over $50 billion provided by operational cash flows and expected transaction proceeds, we've eliminated the need for new common equity issuances to fund the base capital plan. Our disciplined capital allocation strategy is designed to produce attractive returns with improving cash flows and distributions to help efficiently fund the exceptional growth we're seeing in Texas."
Karen Sedgwick, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. Texas as the Growth Engine
Encore, Sempra’s Texas utility, is the centerpiece of the new capital plan, with nearly 70% of its CapEx dedicated to transmission. The Permian Basin Reliability Plan and transmission expansion are driven by unprecedented demand from data centers and AI-related loads. Encore is expected to build more than half of ERCOT’s estimated $32 to $35 billion required transmission investment, with Sempra tracking $10 billion in incremental capital opportunities beyond the base plan.
2. De-Risking and Simplification
Sempra is exiting non-core and higher-risk assets, including the sale of a 45% stake in Sempra Infrastructure Partners for $10 billion and divesting Ecogas in Mexico. These moves support a transition to a 95% regulated utility earnings mix by 2027, improving cash flow predictability and strengthening credit metrics. The company’s cost reduction initiative, Fit for 2025, continues to target organizational efficiency.
3. Capital Allocation and Funding Strategy
Record capital deployment is funded by internally generated cash flow and asset recycling, with no new common equity required for the $65 billion plan. Sempra retains a 25% stake in Sempra Infrastructure Partners, valued at $5.5 billion, as a future funding lever. The company expects to realize an additional $2.2 billion in cash proceeds beyond 2030 from the SI Partners transaction.
4. Regulatory and Policy Certainty
Regulatory settlements and policy support underpin growth visibility. Encore has reached a comprehensive settlement in its base rate review, expected to be finalized in the first half of 2026, locking in ROE and cost of debt terms through 2030. In California, Sempra is engaged in legislative efforts to strengthen wildfire risk mitigation and ensure long-term stability of the state’s wildfire fund.
5. Growth Guidance and Upside Levers
Sempra has issued sector-leading EPS guidance through 2030, with a 7% to 9% CAGR target and a 2030 EPS outlook of $6.70 to $7.50. The $9 billion in incremental capital opportunities, primarily in Texas, represent upside to the plan, with the potential to move Sempra to the upper end of guidance if realized, particularly in the 2028–2030 period.
Key Considerations
Sempra’s fourth quarter call showcased a company in the midst of a strategic realignment, pivoting capital and focus toward Texas transmission and regulated utility growth, while de-risking the portfolio and fortifying the balance sheet.
Key Considerations:
- Encore Transmission Pipeline: Encore’s project pipeline is not contingent on speculative data center demand, with most transmission CapEx already approved or in advanced regulatory processes.
- SI Partners Transaction Execution: Closing the SI Partners sale and deconsolidating associated debt are critical to achieving targeted credit metrics and funding flexibility.
- California’s Strategic Role: California remains a stable, cash-generative platform, though capital allocation is shifting toward Texas, and regulatory outcomes will influence future growth rates.
- Upside from Incremental CapEx: The $9 billion in tracked opportunities, if realized, could further accelerate EPS growth and rate base expansion, especially post-2027.
- Dividend Growth Commitment: Sempra targets annual dividend growth of 2% to 4%, supported by the visibility of regulated cash flows and capital discipline.
Risks
Execution risk remains around regulatory approvals, particularly the Encore Texas rate case settlement and finalization of the SI Partners transaction. Potential delays or policy changes in California or Texas, as well as unforeseen cost inflation in major projects, could pressure margins or slow growth. While Sempra’s plan is structured to absorb downside from speculative load, any material contraction in Texas demand or regulatory setbacks could impact the long-term growth trajectory.
Forward Outlook
For 2026, Sempra guided to:
- Adjusted EPS range of $4.80 to $5.30
- No new common equity issuance required for base plan funding
For full-year 2027, management introduced:
- Adjusted EPS range of $5.10 to $5.70
2030 EPS outlook is $6.70 to $7.50, with upside tied to incremental capital projects and successful execution of regulatory and transaction milestones. Management highlighted:
- Continued focus on regulatory settlements and policy engagement
- Capital plan flexibility and funding discipline as top priorities
Takeaways
Sempra’s transformation is anchored by Texas-led transmission investment, disciplined capital sourcing, and an increasingly pure-play regulated utility model. The company’s expanded guidance and transparent capital plan provide rare growth visibility in the sector.
- Texas Transmission Drives Growth: Encore’s grid expansion and AI-driven load growth are the linchpins of Sempra’s long-term earnings trajectory.
- Balance Sheet and Funding Strength: Higher cash flows and asset sales eliminate equity dilution risk, supporting both growth and dividend commitments.
- Watch Regulatory and Execution Milestones: Key inflections will come from Texas rate case approval, SI Partners transaction close, and incremental CapEx conversion to the base plan.
Conclusion
Sempra enters 2026 with a fortified balance sheet, sector-leading growth visibility, and a clear pivot toward Texas transmission investment. The company’s disciplined execution and capital flexibility position it to capitalize on the energy transition and AI-driven demand, while regulatory and transaction milestones will determine the pace and magnitude of upside realization.
Industry Read-Through
Sempra’s capital allocation underscores the shifting center of gravity in US utilities toward Texas and large-scale transmission infrastructure. The company’s ability to fund record CapEx without equity dilution sets a benchmark for capital discipline in the sector. AI and data center-driven load growth are emerging as key investment themes, with Encore’s pipeline highlighting the magnitude of opportunity. Other utilities with exposure to ERCOT or transmission-heavy jurisdictions may see similar capital deployment opportunities, though regulatory certainty and balance sheet strength will be critical differentiators. Portfolio simplification and utility re-rating are likely to remain sector-wide priorities as the energy transition accelerates.