Sempra Is Building the Biggest Grid in America and Getting Paid Less for It
A 20% Texas capex raise, a high-end guide, and a stock 20% off its high — the market is repricing the rate-sensitive utility trade faster than Sempra can re-rate the growth
SRE · Earnings Call · 2026-11-05
The 20% nobody paid for
On November 5, Sempra told investors three things that should have been worth money: 2026 adjusted EPS lands at the high end of the $4.80–$5.30 range, the 7–9% long-term growth rate is affirmed, and Oncor's base capital plan will roll forward in February at roughly 20% above the current $47.5 billion. Third-quarter adjusted EPS rose 26% to $1.40. And the stock sits 20% below its April peak of $99.75, down 12.6% in the last 90 days.
That gap is the dossier. Sempra is not being marked down for its execution — it is being marked down for its factor exposure. The whole-market keyword set for this quarter is studded with rate shock, impact of high rates and duration extension; the tape has spent 30 days dumping the AI-power complex wholesale, with AI data centers down roughly 30% across 59 tickers. Sempra lives at the intersection of both: a long-duration regulated equity whose growth narrative is, at least at the margin, a data-center transmission story. Management's problem this quarter was that its own numbers got better while its multiple got worse.
Texas: the load story grew up
Oncor's system hit a new peak of 33 gigawatts, 6% above last year's record. The base plan is $47.5 billion; the February 2027–2031 roll-forward adds about 20%, and — this is the part Jeff Martin wanted heard — that step-up explicitly excludes the system resiliency plan and the eastern 765 kV projects, both of which stay in the incremental bucket:
So the $47.5 billion base capital plan today, we are forecasting will go up by 20% and it will not include the SRP which we had in the prior incremental capital plan, and it will not include the Eastern Step 765 projects.
That convention — only ERCOT-endorsed or PUC-approved projects enter the base, everything else sits in a separately disclosed opportunity set — is what Martin means when he says the confidence “comes from the flexibility they have inside their plan today to move projects around.” — Jeffrey Walker Martin, Chairman and CEO · 2026-11-05 It is also, quietly, the tell for what changed in the keyword record. Batch Zero was the company's number-one keyword for two consecutive quarters; this quarter it has fallen out of the top tier entirely, replaced by incremental bucket, PATH 1 and financing plan. The batch process has been formally demoted to upside-beyond-the-upside — Martin was blunt that none of it will appear even in the January plan — and the equity story has been re-anchored on things that already have a docket number. That is a deliberate de-risking of the narrative, and it is the right one.
The genuinely fresh detail is what the load actually is. Of the 19 gigawatts of non-data-center large-load requests, about 6 GW is manufacturing, 5 GW oil and gas field expansion, 4 GW utility and government (including military bases), and 4 GW other C&I. Large-load requests excluding data centers are up 23% year over year. This matters enormously in the current tape: the part of Sempra's pipeline that is not the de-rating AI trade is the part that is accelerating, and it feeds directly into PATH 1 and PATH 2 through the Permian.
The California crack
There is one genuinely new negative. The CPUC issued a proposed decision last week denying Sempra's petition for modification — a filing management characterizes as correcting a clerical omission in the 2024 GRC attrition mechanism. Karen Sedgwick put the number on it plainly: the revenue requirement at issue is $188 million, and “unfortunately that attrition mechanism failed to include the associated revenue requirements.” — Karen L. Sedgwick, President and CEO of SoCalGas (transitioning from CFO) · 2026-11-05 Absent a fix, Sempra California's 2027 earnings land toward the low end of guidance.
Two things keep this from being a thesis-breaker. First, it is a one-year artifact: new rates take effect January 2028 under a pending GRC. Second, the commission corrected the identical error in Southern California Edison's case. But note the pattern across calls — in August, California's question was wildfire legislation and the livability agenda; in November, the wildfire question came and went in a single exchange while the proposed decision consumed the California airtime. What management stopped emphasizing is as informative as what it started emphasizing.
The offset is affordability, where Alan Nye is doing the most under-appreciated work on the call. The Project 58-thousand proposals at the PUCT — a switch from 4CP to 12CP, and a take-or-pay tariff for loads over 75 MW, so large customers pay on contracted rather than actual load — would, in Oncor's modeling, “reduce the residential customer bill between 15 and $35 per year” — Alan Nye, CEO · 2026-11-05 and save about $1.14 billion over a decade. Texas O&M inflation is running 1–1.5 points above the national average. That is the price of the boom, and Oncor is trying to pay it in rate design rather than rate increases.
The balance sheet is the real story
Look at the numbers behind the narrative. Capital expenditure has run $2.2 billion in the latest quarter against $1.3 billion of operating cash flow — a structural funding gap that is the whole reason the SI Partners transaction exists. Reported interest coverage has compressed to 1.6x from a 10.2x peak in late 2024, and the equity now trades at roughly 22x trailing net income against a mid-teens history.
Interest coverage of 1.6x looks thin next to the 10.2x reading two years ago, and quarterly capital expenditure keeps climbing while operating cash flow swings. This is why the KKR stake sale matters more than the $9 billion of deconsolidated debt: Justin Bird confirmed the last two conditions — Cameron partner consent and the Japanese lending agencies — are effectively done, and “we do expect to close in the next 2 weeks.” — Justin Christopher Bird, Incoming Chief Financial Officer · 2026-11-05 Post-close, regulated earnings approach 95% of the total and the downgrade thresholds should improve.
What to watch in February
Martin has now promised, three calls running, that the roll-forward would go up. In August he said “we expect that the roll-forward capital plan at Encore will go up” — Jeffrey W. Martin, Chairman · 2026-08-07; in May he was “confident that we will be able to give you an update on that incremental CapEx bucket later this year.” — Jeffrey Walker Martin, Chairman and CEO · 2026-05-07 February is where that promise gets a number, alongside the financing plan that competes capital across Texas, California and the residual 25% SI stake.
The honest read: Sempra's operating story has rarely been better, and its stock has rarely been this out of favor. That is either a rate-sensitivity discount on a company that just told you its Texas rate base grows 11% a year, or it is the market saying the political risk in Austin — a new administration, a legislature that convenes in 2027, and data-center rhetoric that has turned — is not yet priced. Martin's answer is that “high voltage electric transmission, Steve, is 1 of the hardest things to build in this country, and there is a lot of scarcity of value around it.” — Jeffrey Walker Martin, Chairman and CEO · 2026-11-05 Scarcity of value is a good description of the equity, too.