Sempra’s Texas Subsidiary Secures Major Rate Agreement

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Investors in Sempra Energy have received significant news from Texas, where its subsidiary Oncor has reached a comprehensive settlement with state regulators. This agreement paves the way for substantially higher revenue and improved financial metrics for the utility. The development in the South provides a crucial counterbalance to the ongoing political debates surrounding utilities in Sempra's home market of California.

The settlement, which was filed unanimously, removes a major uncertainty for Sempra's Texas operations. Final approval from the state commission in the first half of 2026 is now considered a formality. The key financial components of the deal include:

• Revenue Increase: Annual revenue is set to rise by approximately $560 million, an increase of 8.8%, bringing the total to around $7 billion.
• Return on Equity: The allowed rate of return (ROE) will increase from 9.70% to 9.75%.
• Capital Structure: The authorized equity ratio will be raised from 42.5% to 43.5%.
• Effective Date: The new rates are retroactive to January 1, 2026, and will be reflected in the company's quarterly reports for that full fiscal year.

A substantial portion of the settlement is earmarked for grid resilience. The annual reserve for storm damage will be boosted from $122 million to $200 million, creating a larger financial buffer against future weather-related risks. The importance of such investment was demonstrated recently during Winter Storm "Fern," where the grid remained stable—a contrast to the 2021 crisis—thanks to improved protective measures and expanded battery storage deployment.

Strategic Diversification Amid California Headwinds

The regulatory progress in Texas arrives at a time of contrasting sentiment on the U.S. West Coast. In California, gubernatorial candidate Tom Steyer's proposal to slash electricity bills by 25% has captured attention. While experts question the feasibility of such deep cuts given fixed distribution costs, the political rhetoric underscores the risk of a concentrated market presence.

Sempra's geographic diversification strategy appears designed to mitigate this type of pressure. The company's expansion into Texas, with its more investor-friendly regulatory climate, is currently serving as an effective hedge against the challenges in its home state. The market seems to acknowledge this strategic positioning, with Sempra's shares trading at a price-to-earnings ratio of 26.8 and offering a dividend yield of nearly 3% at a recent price of $86.95.

The definitive rate agreement in Texas not only solidifies the financial outlook for Oncor but also strengthens Sempra's overall portfolio by balancing the regulatory landscapes across its key operating regions.