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Dive Brief:
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Sempra Energy executives unveiled a $56 billion five-year capital plan and their intent to open an early rate case in Texas during the company's quarterly earnings call on Tuesday. The record capital plan is 16% larger than the company’s prior five-year plan, Sempra chairman and CEO Jeff Martin said.
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Increased spending, high interest rates, reduced revenues and a series of unfavorable regulatory outcomes in December eroded the company's fourth-quarter earnings and 2025 projected earnings, triggering a 19% drop in the company's stock price as analysts questioned the company's financial plans.
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Martin acknowledged that the current course would curtail the company's short-term financial performance, but said the plan was intended to position the company for greater-long term growth, particularly in Texas.
Dive Insight:
After a rough fourth quarter, Sempra is banking on a “Texas miracle” to restore the company's financial performance.
The company reported 2024 fourth quarter earnings of $665 million, down from $737 million in 2023, and also scaled back its expected 2025 earnings estimates during Tuesday's call. An unfavorable decision in San Diego Gas & Electric’s latest rate case at the California Public Utilities Commission, issued in December, and a Dec. 31 Federal Energy Regulatory Commission order rejecting a return on equity adder for California Independent System Operator utilities have unexpectedly curtailed the company's earning potential, Martin said.
Delays in some of Sempra Infrastructure's liquefied natural gas projects, higher interest rates and operating costs, and decreased electrical consumption due to a mild winter also cut into the company's fourth-quarter earnings, according to Karen Sedgwick, executive vice president and chief financial officer for Sempra.
Plans to open an early rate case for subsidiary Oncor in Texas to finance the company's $56 billion five-year capital plan will also put downward pressure on the company's earnings potential for the coming year, Martin said. He apologized to investors for the unexpected downturn, but said he believed the rate case and the growth plan were the right decisions for the company.
“We could have maintained a 6% to 8% growth rate, but we chose not to because we have fundamentally raised our expectations of the earnings power of this business over the long-term,” Martin said.