Sempra's Texas Machine: Large Load, UTM, and the Capital Recycling Pivot
Regulatory wins and a record data-center pipeline are shifting Sempra's growth axis to Texas even as investors question the load reality.
SRE · Earnings Call · 2026-05-07
Texas: The Load Machine Revs
Sempra's first-quarter call was dominated by a single story: the Texas grid is straining under an unprecedented boom of large load requests. Oncor's queue now stands at 289 GW of large load, 271 GW data-center-related — a staggering figure on a system that peaks at 31 GW. Management detailed the Batch 0 process at ERCOT, with a timeline stretching to a June 2027 regional transmission plan submission. Allen Nye repeatedly emphasized the quality of the 127 GW included in the RTP filing, saying it "meets all the requirements of SP6 as they were at the time." But investors are asking a harder question: how much of this pipeline is physically buildable? On the call, Nye acknowledged the coordination challenge, but Jeff Martin countered with a key defense: “we have a base capital plan that is largely indifferent to whether these things happen or do not happen” — Jeffrey Walker Martin, Chairman and CEO · 2026-05-07 — a plan built on transmission, not on any single data-center contract.The UTM and Rate-Case Wins
Texas regulatory machinery is now working in Sempra's favor. Oncor received approval for its base rate review with a higher authorized ROE of 9.75% and an equity layer of 43.5%, and the inaugural UTM filing to recover $4.4B of assets placed into service since early 2025. Nye laid out the schedule: testimony in July, a potential hearing in August, and an order in 2026. He also noted the ability to file every 365 days, meaning regulatory lag is being structurally reduced. Jeff Martin framed the broader shift: “this is going to lead to higher levels of capital spending in Texas” — Jeffrey Walker Martin, Chairman and CEO · 2026-05-07 — and that capital, plus the $10B of incremental opportunities, is what underpins the company's long-term EPS growth of 7-9%. This is not a small change; historically Oncor earned ROEs below 8%, and the new mechanism is designed to push earned returns closer to the authorized level.Capital Recycling: The SI Partners Deal
The second big theme is the simplification of the portfolio. Sempra is selling a 15-30% stake in Sempra Infrastructure (SI) to KKR, with proceeds earmarked to reinvest in utilities. Justin Bird updated the closing steps: FERC approval, Korean competition approval, HSR expiry, Mexican antitrust approvals, and majority third-party consents are done. The remaining items are Cameron partner and J-EXIM consents, plus transition services. Management expects to close in Q2 or Q3. This transaction is part of a broader SI Partners transaction that also includes the Ecogas sale, all designed to fund the record $65B capital plan and deconsolidate SI's debt. Karen Sedgwick indicated rating agencies will improve thresholds post-close, but “probably closer to the end of the year once we reach some of those construction milestones” — Karen L. Sedgwick, Chief Financial Officer · 2026-05-07 implying a six-month lag to full credit improvement.Fundamentals and Market Reaction
Sempra's Q1 top line declined 4% year-over-year to $3.7B, but operating income jumped 26% to $996M, reflecting the Oncor settlement benefits (although the main ROE impact is back-end loaded) and continued cost discipline. Net income rose 25% to $1.1B, and the company reaffirmed its 2026 EPS guide of $4.80-5.30. Yet the stock is down 16% from its April peak, a drawdown that mirrors broader utilities' struggles with rate repricing and with skepticism about Texas load growth — an analyst on the call noted an IPP's cautious view on physical build-out. The market is pricing in execution risk, but management's own history adds credibility: as Jeff Martin reminded on the February 2025 call, “we fully expect in the 2025 to 2029 plan to be at 9% or higher as a CAGR” — Jeff Martin, Chairman and Chief Executive Officer · 2025-02-25 — a target that now rests on the Texas machine. Allen Nye echoed the commitment last November: “We made a commitment to the state to complete the Permian plant by 2030, and we have every intention of doing so” — E. Nye, Chief Executive Officer · 2025-11-05. In a world where many utilities are retreating from RTOs or facing stranded assets, Sempra's challenge is abundant demand. The key is converting those 127 GW of substantiated load into wire in the ground — and the UTM, Batch 0, and the capital recycling war chest are the tools to do it.The market will likely reward Sempra if it can demonstrate that the load forecasts are real and that the newly won regulatory mechanisms are effective. The first-quarter numbers may not tell the full story, but the trajectory is clear: Texas is the growth engine, and Sempra is positioning itself as the pure-play utility that serves it.We have a base capital plan that is largely indifferent to whether these things happen or do not happen. We have an industry-leading story that is largely unrelated to the number of data centers that come online.