Sempra Makes Major Investments in Texas Energy Sector

News Summary

Sempra, the energy services company, is making significant moves in Texas by divesting its gas assets and focusing on a $56 billion capital plan. With a $13 billion investment in energy infrastructure this year, Sempra is reshaping its portfolio and aiming for financial stability. As demand for electricity surges in Texas, Sempra’s subsidiaries like Oncor are crucial in meeting the state’s future energy needs with ambitious projects, including a $15 billion transmission project. These developments signal a pivotal moment for the energy landscape in Texas.

Texas – Sempra has announced the strategic sale of its natural gas assets in Mexico and a minority stake in its infrastructure development arm as part of its ambitious $56 billion capital plan. This move aims to finance extensive investments in energy infrastructure, primarily focusing on the regulated utility sector and reducing the need for new common stock issuance.

The company plans to divest Ecogas Mexico, which encompasses three utility companies providing natural gas services in the Mexicali, Chihuahua, and La Laguna-Durango regions. Additionally, Sempra intends to sell a minority interest in Sempra Infrastructure, further solidifying its strategy to shift focus towards regulated utilities.

Sempra CEO Jeff Martin emphasized that these sales are designed to streamline funding for necessary capital expenditures, allowing the company to redirect investments more effectively. With a projected $13 billion investment in energy infrastructure for the current year, Sempra is allocating $10 billion for projects in the United States, particularly targeting the growing demand in Texas.

Analysts at Morningstar have expressed support for Sempra’s refocused strategy on regulated utilities, especially in light of disappointing earnings projections due to rising operational costs in previous quarters. This shift comes at a time when Sempra’s Texas subsidiaries have witnessed a significant surge in customer interest, particularly from data centers and industrial sectors.

To keep up with increasing demand, Sempra is planning substantial investments in new transmission projects. The Electric Reliability Council of Texas (ERCOT) projects that substantial investment of $32 billion to $35 billion will be required in new transmission infrastructure to accommodate a forecasted peak load of 150 gigawatts (GW) by 2030. Sempra’s subsidiary, Oncor, which is predominantly owned by Sempra with an 80% stake, is expected to spearhead much of this infrastructure development.

One major undertaking is the planned $15 billion to $17 billion Permian transmission project, which will mark ERCOT’s first extra-high-voltage transmission initiative. Recent regulatory decisions have accelerated the expected timeline for construction, raising the urgency for funding to support this essential project.

Customer requests for Oncor’s services have surged by 30% compared to the previous year, amounting to an astounding 156 GW of demand from data centers alone, alongside an additional 22 GW from various industrial operations. Oncor is confident that approximately 29.5 GW of this anticipated load will be operational by 2031, with several interconnection agreements already established for an extra 9 GW.

Sempra’s planned sales not only seek to secure efficient funding for critical capital projects but also aim to enhance financial stability by ensuring that 90% of the company’s earnings are generated from regulated utilities. An investment update regarding these transactions is expected to be released by the end of the second quarter of 2023, with preliminary interest in the sales described as robust.

Moreover, stakeholders are advised that it is essential for Oncor to recover rising costs through a base rate case that is set to be filed in the upcoming quarter. With energy demands surging, ERCOT anticipates the Southwestern grid might require additional capacity including up to 48 GW of new wind generation, 130 GW of solar power, and 59 GW of battery storage over the next 25 years. Opportunities associated with declining costs tied to tax credits from the Inflation Reduction Act could also play a significant role in shaping Sempra’s future strategies.

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