Sempra (SRE) Q3 2026 earnings review
Sempra's Texas profit jumps 50%, but California rulings threaten 2027
Sempra's Texas electric grid is driving rapid profit growth while California regulators create new hurdles. Third-quarter profit per share excluding one-offs rose 26% to $1.40, powered by a 50% profit jump in Texas after new customer rates took effect in June. Chief executive Jeffrey W. Martin lifted the 2026 profit outlook to the top of the company's range, which by our math leaves fourth-quarter profit down about 4% as Sempra sells a 45% stake in its infrastructure unit.
| Profit per share, excluding one-offs | $1.40 +26% from a year ago |
|---|---|
| Sempra Texas Utilities segment profit | $460M +50% from a year ago |
| 2026 profit per share outlook (ex-one-offs) | High end of $4.80–5.30 range (+13% at top) |
| 2027 profit per share outlook | $5.10–5.70 warned of lower half on CA ruling |
⚖️ Verdict: 🟢 Bullish
The story got better because Texas growth proved durable and Oncor plans to raise its 2027–2031 spending plan by 20%, to about $57 billion by our math, even without counting delayed data-center projects. In addition, the infrastructure stake sale to KKR will close within two weeks, locking in cash to fund the Texas expansion. The bad news: California regulators disallowed $149 million of past costs and proposed denying a 2027 rate adjustment, which could push Sempra into the lower half of its 2027 profit outlook.
The question now is whether Sempra can keep profit growing in 2027 if California regulators finalize their proposed rate denial. Either Texas rate updates and cost cuts offset the California hit, or 2027 profit per share stalls near the $5.30 top of the 2026 plan. The California commission's final decision and February's five-year capital plan will settle the path.
🐂 Bull Case
Texas Rate Increases Lifted Segment Profit 50%
Sempra's growth rests on shifting its investment toward Texas through Oncor, its 80%-owned electric grid operator in the state. Earlier this year, Texas regulators approved a base rate increase for Oncor that took effect on June 1, alongside a new mechanism that lets the utility recover capital spending faster.
The third quarter was the first full summer period under those new rates, and Sempra Texas Utilities segment profit rose 50% from a year ago to $460 million. Oncor's own revenue jumped 24% to $2.30 billion, which easily outpaced higher interest and depreciation costs from its grid buildout.
- Oncor distribution base revenue: $1.18 billion, up 29% from a year ago (18% excluding weather)
- Revenue from faster cost-recovery trackers (UTM and SRP): $208 million, up from $77 million a year ago
- Total electricity delivered by Oncor: 55,206 gigawatt-hours, up 8.8% from a year ago
This matters because the earnings step-up did not rely on last quarter's retroactive billing catch-up or summer heat alone. Weather-adjusted distribution revenue still grew nearly 18%, proving that the new rate structure turns Oncor's $9 billion annual construction budget into profit as planned.
What to watch: Texas regulators' decision on Oncor's pending $550 million interim rate request in the fourth quarter. Approval would lock in the next leg of Texas revenue growth for 2027.
Oncor Plans 20% More Five-Year Grid Spending
Investors have debated whether political scrutiny in Texas would slow down Oncor's long-term spending plans. Instead, Sempra announced that Oncor expects its 2027–2031 base capital plan "to increase by approximately 20% relative to its 2026-2030 base capital plan" when it is finalized in February.
By our math, a 20% increase lifts Oncor's five-year spending baseline from $47.5 billion to about $57 billion. In August, the Public Utility Commission of Texas also approved both segments of Import Path 1, the extra-high-voltage 765-kilovolt transmission lines serving the Permian Basin. Crucially, Oncor noted that "Batch Zero projects remain outside of Oncor's current base capital plan."
That distinction is vital because it shows Oncor can expand its regulated asset base by roughly $9.5 billion using already identified grid reliability projects. The utility does not need the state's delayed data-center review to finish before it commits to higher spending.
What to watch: Sempra's full 2027–2031 capital plan announcement on the fourth-quarter call in February. It will show how much parent-company funding Sempra must contribute to support Oncor's larger budget.
Infrastructure Stake Sale Closes Within Two Weeks
Sempra is selling a 45% stake in Sempra Infrastructure Partners, its liquefied natural gas and Mexican pipeline unit, to affiliates of KKR to fund its US utilities and pay down debt. After slipping from mid-year into the fourth quarter, the company said the deal is "expected to close in the next two weeks."
In August, the unit also completed the sale of its Ecogas Mexican gas utility, booking a $97 million after-tax gain. For the KKR transaction, Sempra's full-year outlook now embeds an estimated after-tax gain of $2.00 billion to $2.40 billion, alongside $325 million to $400 million in transaction costs.
Closing the deal in November removes a lingering timing risk and drops Sempra's ownership to a 25% minority stake, taking the unit's construction debt off Sempra's balance sheet. What to watch: the exact cash proceeds and parent debt reduction disclosed in the fourth-quarter report, which will determine whether credit rating agencies lift their negative outlooks.
🐻 Bear Case
California Regulators Threaten 2027 Profit Growth
"Our year-to-date results reflect disciplined execution across the company and continued progress on our 2026 value creation initiatives," chief executive Jeffrey W. Martin said. Yet regulatory setbacks in California cut into third-quarter results and clouded the company's 2027 profit outlook.
In the third quarter, Sempra recorded $205 million in pre-tax regulatory disallowances (6.4% of revenue, or $149 million after tax) after state regulators disallowed past rate-case and pipeline-safety costs at Southern California Gas. Worse, on October 29 the California Public Utilities Commission issued a proposed decision "denying SoCalGas and SDGE's request to correct the 2024 General Rate Case capital attrition mechanism" for 2027.
- Sempra California Q3 reported profit: $223 million, down 40% from $370 million a year ago
- Sempra California Q3 profit excluding disallowances: $372 million, up 0.5% by our math
- Operation and maintenance costs: 38.2% of revenue, down 4.6 percentage points from a year ago
Sempra warned the October 29 ruling "could cause Sempra to be in the lower half of its 2027 EPS guidance range, unless otherwise mitigated." Because Sempra lifted its 2026 outlook to the top of its $4.80 to $5.30 range, landing in the lower half of the $5.10 to $5.70 range in 2027 would mean flat or falling profit per share next year.
What to watch: the California commission's final vote on the 2027 capital revenue adjustment before year-end. An unchanged ruling would force Sempra to find cost cuts just to keep 2027 earnings from shrinking.
Texas Data-Center Queue Faces a December Audit
Oncor's interconnection queue — requests from large power users to hook up to the Texas grid — now holds 795 industrial requests, up by 58 from last quarter, including 293 gigawatts from data centers. To turn those requests into construction projects, Texas created the Batch Zero review process.
This quarter, the grid operator classified 24 gigawatts of Oncor's Batch Zero requests as base load and 21 gigawatts as studied load (compared with 27 gigawatts and 17 gigawatts last quarter). Oncor noted this classification is conditional "pending the results of an ERCOT audit of customer qualifications and community impacts, which is expected in December 2026." Meanwhile, outside parties filed motions for rehearing challenging the approval of Oncor's 765-kilovolt Permian transmission lines.
While Oncor holds $6.0 billion in customer collateral ($2.0 billion for Batch Zero), a final Batch Zero transmission plan will not arrive until fall 2027. What to watch: the December 2026 audit results, which will show how much of the 45-gigawatt Batch Zero pool survives state scrutiny.
Risks this quarter didn't answer
Three standing operational and financial concerns received no new disclosures in the third-quarter earnings releases.
- ECA LNG Phase 1 completion: the release gave no update on compressor repairs or whether the export plant in Mexico will reach substantial completion in the fourth quarter as scheduled.
- California Wildfire Fund exposure: Sempra's wildfire fund asset dipped to $226 million from $246 million at year-end, with no commentary on whether Los Angeles fire claims against another utility will exhaust the state fund.
- Credit rating outlooks: Moody's and S&P maintain negative outlooks on Sempra, and testing whether the KKR deal fixes its credit metrics must wait until the sale closes in November.
👓 Other Themes
Summer Heat Boosted Texas and California Demand
Extreme summer temperatures lifted electricity use across both of Sempra's utility regions during the third quarter. In Texas, Oncor's cooling degree days — a measure of how much air conditioning customers needed — jumped 40% from a year ago, pushing residential electricity volumes up 19.6% and adding 10.9 percentage points to distribution base revenue growth. In California, San Diego Gas & Electric hit an all-time peak demand record of 5.2 gigawatts during a heatwave.
💲 Other KPIs
Sempra's equity investment in its Texas utility holding company rose 5.3% from last quarter and 14.5% since December 2025. The balance has grown over 4% per quarter this year as Sempra contributed $2.10 billion in capital over the first nine months to fund Oncor's grid expansion, directly expanding the asset base that earns regulated returns.
Total debt (short-term plus current and long-term debt) increased 7.0% from $35.02 billion at the end of 2025. Over the first nine months, Sempra generated $4.68 billion in operating cash flow but spent $7.33 billion on property, plant and equipment and $2.10 billion on utility investments, bridging the gap with net debt issuances until the infrastructure stake sale closes.
Diluted weighted-average shares rose 0.3% from 654.0 million a year ago and stayed unchanged from last quarter. Sempra has avoided issuing major common equity this year, relying on the upcoming cash proceeds from the Sempra Infrastructure Partners stake sale to fund its utility capital plan.
🔮 Guidance
Raised to the high end. Sempra kept the $4.80 to $5.30 range but now points to the top of it, or about 13% growth for the full year. By our math, hitting $5.30 after earning $4.07 in the first nine months leaves $1.23 for the fourth quarter, down 4% from $1.28 a year ago as Sempra hands over a 45% stake in its infrastructure unit in November.
Raised. The middle of the range jumped by $2.63 per share, following a $0.17 raise last quarter. The revision incorporates the estimated $3.05 to $3.66 per share after-tax gain from closing the Sempra Infrastructure Partners stake sale in November, partially offset by $0.50 to $0.61 per share in transaction costs and $0.23 per share in third-quarter California regulatory disallowances.
Qualitatively lowered. While the $5.10 to $5.70 range is unchanged, management warned that an October 29 California regulatory ruling could push 2027 results into the lower half ($5.10 to $5.40) unless mitigated. By our math, even the $5.40 midpoint represents less than 2% growth over the $5.30 high end of the 2026 plan, well below Sempra's affirmed 7% to 9% long-term annual growth target.
❓ Key Questions
How can Sempra offset the California 2027 revenue denial?
The California commission's October 29 proposed decision threatens to push 2027 profit per share into the lower half of the $5.10 to $5.70 outlook. What specific cost reductions or regulatory filings can management execute to prevent 2027 earnings from stagnating against a $5.30 baseline in 2026?
What are the $325–400 million infrastructure sale costs?
The 2026 GAAP outlook reconciliation newly discloses $325 million to $400 million ($0.50 to $0.61 per share) in estimated ancillary costs tied to closing the Sempra Infrastructure Partners sale. How much of this is cash advisory and financing fees versus non-cash pension termination charges?
Is ECA LNG Phase 1 still on track for Q4?
Management previously expected the ECA LNG Phase 1 export terminal in Mexico to reach substantial completion in the fourth quarter of 2026 after compressor repairs, but the third-quarter release did not mention the project. Has the commissioning schedule or repair cost shifted?
Why did Batch Zero base load drop by 3 gigawatts?
Oncor reported 24 gigawatts of conditional base load and 21 gigawatts of studied load in the Batch Zero process, compared with 27 gigawatts of base load and 17 gigawatts of studied load last quarter. Did customers withdraw projects or did the grid operator reclassify them?