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Item 1A. Risk Factors” in this report. If any of these risks occur, Sempra’s and its businesses’ results of operations, financial condition, cash flows and/or prospects could be materially adversely affected, and the trading price of Sempra’s securities and those of its businesses could decline. If any of these risks occurs, Sempra’s and its subsidiaries’ results of operations, financial condition, cash flows and/or prospects could be materially adversely affected, and the trading price of Sempra’s securities and those of its subsidiaries could decline. These risks include the following:
Sempra, SDG&E and SoCalGas have cybersecurity risk management processes in place that are intended to protect the confidentiality, integrity, and availability of our critical infrastructure, systems and information. These cybersecurity risk management processes include cybersecurity incident response plans that are integrated into each entity’s respective enterprise risk management and emergency management programs.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect our results of operations, financial condition, cash flows and/or prospects. Sempra’s, SDG&E’s and SoCalGas’ respective boards of directors consider cybersecurity risk as part of their risk oversight function. The Sempra board of directors has delegated to its SST Committee oversight of cybersecurity and other information and operational technology risks. The SST Committee reports to the Sempra board of directors regarding the Committee’s activities, including those related to cybersecurity. The SST Committee receives briefings on cybersecurity topics from Sempra’s chief information security officer, internal information technology leadership or external experts in part for continuing education on topics that impact public companies. The SST Committee as well as the SDG&E and SoCalGas boards of directors oversee management’s implementation of our cybersecurity risk management processes and receive regular reports from management on our material cybersecurity risks. In addition, as needed, management updates the SST Committee and SDG&E and SoCalGas boards of directors about certain cybersecurity incidents. The SDG&E and SoCalGas boards of directors receive briefings from SDG&E’s and SoCalGas’ chief information officer and internal information technology and cybersecurity leadership. SDG&E’s and SoCalGas’ boards of directors also have safety committees that, at times, may oversee the matters described above on behalf of those companies’ respective boards of directors. Our cybersecurity materiality assessment teams, which include chief information security officers, chief information officers, chief accounting officers or chief financial officers, and general counsels, help assess the materiality of certain cybersecurity incidents. The cybersecurity management teams, cybersecurity councils and materiality assessment teams include professionals with decades of experience in their respective fields of cybersecurity, information and operational technology, legal, compliance, financial reporting and enterprise risk management. Some of these professionals hold relevant degrees and certifications that we believe enhance our ability to manage and respond to cybersecurity risks, including, among others, bachelor’s and/or master’s degrees in cybersecurity and computer science as well as certified information systems security professional, certified incident handler, and certified information security manager certifications .
Risks Related to Sempra
▪Sempra’s ability to pay dividends and meet its obligations largely depends on the performance of its subsidiaries and entities accounted for as equity method investments
▪Successfully executing our five-year capital expenditures plan is subject to risks
▪The economic interest, voting rights and market value of our outstanding common stock may be adversely affected by any additional equity securities we may issue
Risks Related to All Sempra Businesses
▪Our infrastructure and its supporting systems subject us to risks
▪We face risks related to severe weather, natural disasters, physical attacks and other similar events
▪We face evolving cybersecurity, technology resiliency and data security and governance risks, including with respect to increasing use of artificial intelligence
▪Our debt service obligations expose us to risks
▪The availability and cost of financing could be negatively affected by market and economic conditions and other factors
▪Credit rating agencies may downgrade our credit ratings or place them on negative outlook, and our efforts to maintain these ratings could require additional equity securities issuances by Sempra or sales of equity interests in subsidiaries or projects in development
▪We face risks related to the evolving regulatory environment, including failures or delays in obtaining and maintaining franchises and other required approvals and potential negative impacts of our legislative and regulatory advocacy efforts
▪We face risks related to environmental and climate change regulation and the costs of the energy transition
▪We are subject to complex tax and accounting requirements that expose us to risks
Risks Related to Sempra California
▪Wildfires in California pose risks to Sempra, SDG&E and SoCalGas
▪The electricity industry is undergoing significant change
▪Natural gas continues to be the subject of political and public debate, including a desire by some to reduce or eliminate reliance on natural gas as an energy source
▪SDG&E and SoCalGas are subject to extensive regulation
Risks Related to Sempra Texas Utilities
▪Ring-fencing measures, governance mechanisms and commitments limit our ability to influence the management, policies and operations of Oncor
▪Changes in the regulation of Oncor or the regulation or operation of the electric utility industry and/or ERCOT market could negatively affect Oncor
▪Oncor’s capital expenditures plan may not be executed as planned or achieve its business objectives
▪Oncor’s capital expenditures plan will result in significant liquidity needs that may necessitate additional investments
Risks Related to Sempra Infrastructure
▪Project development activities may not be successful, projects under construction may not be completed on schedule or within budget, and completed projects may not operate at expected levels or generate expected earnings or cash flows
▪We may not be able to secure, maintain, extend or replace long-term supply, sales or capacity agreements
▪Our international businesses and operations expose us to increased legal, regulatory, tax, economic, geopolitical, credit and management oversight risks and challenges
Risks Related to Planned Sales of Certain Assets and Businesses
▪We may be unable to complete or realize the anticipated benefits from our planned sales of certain of our assets and businesses as part of our capital recycling program
2025 Form 10-K | 11
PART I.
ITEM 1. BUSINESS
OVERVIEW
We are a holding company whose principal businesses are regulated utilities in California and Texas. Our businesses invest in and operate electric and gas utilities and other energy infrastructure that provide energy services to customers. Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers through regulated public utilities.
Sempra was formed in 1998 through a business combination of Enova Corporation and Pacific Enterprises, the holding companies of our regulated public utilities in California: SDG&E, which began operations in 1881, and SoCalGas, which began operations in 1867. We have since expanded our regulated public utility presence into Texas through our 80.25% interest in Oncor and 50% interest in Sharyland Utilities. Sempra Infrastructure’s assets include investments in the U.S. and Mexico with a focus on LNG, energy networks and low carbon solutions.
Business Strategy
Sempra’s mission is to build America’s leading utility growth business. We are primarily focused on the largest economies in the U.S., California and Texas, where we are investing in regulated utilities with a view toward producing stable cash flows and improved earnings visibility. Our goal is to deliver safe, reliable and affordable energy to customers while increasing shareholder value.
DESCRIPTION OF BUSINESS BY SEGMENT
Sempra’s business activities are organized under the following reportable segments:
▪Sempra California
▪Sempra Texas Utilities
▪Sempra Infrastructure
SDG&E and SoCalGas each have one reportable segment.
2025 Form 10-K | 12
Sempra California
SDG&E
SDG&E is a regulated public utility that provides electric services to a population of, at December 31, 2025, approximately 3.6 million and natural gas services to approximately 3.3 million of that population, covering an approximate 4,100 square mile service territory in Southern California that encompasses San Diego County and an adjacent portion of Orange County.
SDG&E’s assets at December 31, 2025 covered the following territory:
We describe SDG&E’s electric utility operations below. We describe SDG&E’s natural gas utility operations below in “Sempra California’s Natural Gas Utility Operations.” For a discussion of the risks and uncertainties facing SDG&E’s business, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra California.”
Electric Transmission and Distribution System. Service to SDG&E’s customers is supported by its electric transmission and distribution system, which includes substations and overhead and underground lines. These electric facilities are primarily in the San Diego, Imperial and Orange counties of California and in Arizona and Nevada and consisted of 2,018 miles of transmission lines, 24,210 miles of distribution lines and 158 substations at December 31, 2025. Occasionally, various areas of the service territory require expansion to accommodate customer growth and maintain reliability and safety.
SDG&E’s 500-kV Southwest Powerlink transmission line, which is shared with Arizona Public Service Company and Imperial Irrigation District, extends from Palo Verde, Arizona to San Diego, California. SDG&E’s share of the line is 1,163 MW, although it can be less under certain system conditions. SDG&E’s Sunrise Powerlink is a 500-kV transmission line constructed by SDG&E that extends across Southern California. Both of these lines are operated by the California ISO and together provide SDG&E with import capability of 3,900 MW of power.
2025 Form 10-K | 13
Mexico’s Baja California transmission system is connected to SDG&E’s system via two 230-kV interconnections with combined capacity of up to 600 MW in the north-to-south direction and 800 MW in the south-to-north direction. However, it can be less under certain system conditions.
SDG&E’s system is connected to Edison’s transmission system via five 230-kV transmission lines.
Electric Resources. SDG&E supplies power from its own electric generation facilities and procures power on a long-term basis from other suppliers for resale through CPUC-approved PPAs or purchases on the spot market. SDG&E does not earn any return on commodity sales volumes. SDG&E’s electric resources at December 31, 2025 were as follows:
(1) Excludes approximately 482 MW of energy storage owned and approximately 632 MW of energy storage contracted.
(2) SDG&E owns and operates four natural gas-fired power plants, three of which are in California and one is in Nevada.
Charges under contracts with suppliers are based on the amount of energy received or are tolls based on available capacity. Tolling contracts are PPAs under which SDG&E provides natural gas to the energy supplier.
SDG&E procures natural gas under short-term contracts for its owned generation facilities and for certain tolling contracts associated with PPAs. Purchases from various southwestern U.S. suppliers are primarily priced based on published monthly bid-week indices, which can be subject to volatility.
SDG&E participates in the Western Systems Power Pool, which includes an electric-power and transmission-rate agreement that allows access to power trading with more than 300 member utilities, power agencies, energy brokers and power marketers throughout the U.S. and Canada. Participants can make power transactions on standardized terms, including market-based rates, preapproved by the FERC. Participation in the Western Systems Power Pool is intended to assist members in managing power delivery and price risk.
Customers and Demand. SDG&E provides electric services through the generation, transmission and distribution of electricity to the following customer classes:
(1) Includes intercompany sales.
2025 Form 10-K | 14
SDG&E currently provides procurement service for a portion of its customer load. Most customers receive electric commodity service from a load-serving entity other than SDG&E through programs such as CCA and DA. In such cases, SDG&E no longer procures energy for this departed load. Accordingly, SDG&E’s CCA and DA customers receive primarily transportation and distribution services from SDG&E.
CCA is only available if a customer’s local jurisdiction (city or county) offers such a program, and DA is currently limited by a cap based on gigawatt hours.CCA is only available if the customer’s local jurisdiction (city) offers such a program and DA is currently limited by a cap based on gigawatt hours. Several jurisdictions in SDG&E’s territory have implemented CCA, including the City of San Diego in 2022.
Due to this departed load, SDG&E’s historical energy procurement commitments for future deliveries exceed the needs of its remaining bundled customers. To help achieve the goal of ratepayer indifference (as to whether customers’ energy is procured by SDG&E or by CCA or DA), the CPUC revised the Power Charge Indifference Adjustment framework. The framework is intended to more equitably allocate SDG&E’s historical energy procurement cost obligations among customers served by SDG&E and customers now served by CCA and DA.
San Diego’s mild climate contributes to lower consumption by our customers. Rooftop solar installations continue to reduce residential and commercial volumes sold by SDG&E. At December 31, 2025, 2024 and 2023, the residential and commercial rooftop solar capacity in SDG&E’s territory totaled 2,452 MW, 2,318 MW and 2,154 MW, respectively.
Electricity demand is dependent on the health and expansion of the Southern California economy, prices of alternative energy products, consumer preferences, environmental regulations, legislation, renewable power generation, demand-side management impact and DER, among other factors. California’s energy policy supports increased electrification, which could increase electric volumes sold in the coming years. California’s energy policy supports increased electrification, particularly electrification of vehicles, which could result in significant increases in sales volumes in the coming years. Other external factors, such as the price of purchased power, the use and further development of renewable energy sources and energy storage, the development of or requirements for new natural gas supply sources, demand for and supply of natural gas and general economic conditions, can also result in significant shifts in the market price of electricity, which may in turn impact demand. Other external factors, such as the price of purchased power, the use of hydroelectric power, the use of and further development of renewable energy resources and energy storage, development of new natural gas supply sources, demand for natural gas and general economic conditions, can also result in significant shifts in the market price of electricity, which may in turn impact demand. Electricity demand is also impacted by seasonal weather patterns (or “seasonality”), tending to increase in the summer months to meet the cooling load and in the winter months to meet the heating load. Demand for electricity is also impacted by seasonal weather patterns (or “seasonality”), tending to increase in the summer months to meet cooling load and in the winter months to meet heating load.
Competition. SDG&E faces competition to serve its customer load from distributed and local power generation growth, including DER. In addition, the electric industry is undergoing rapid technological change, and third party energy storage alternatives and other technologies may increasingly compete with SDG&E’s traditional transmission and distribution infrastructure in delivering electricity to consumers. Certain FERC transmission development projects are open to competition, allowing independent developers to compete with incumbent utilities for the construction and operation of transmission facilities.
2025 Form 10-K | 15
SoCalGas
SoCalGas is a regulated public utility that owns and operates a natural gas distribution, transmission and storage system that delivers natural gas to a population of, at December 31, 2025, approximately 21.3 million, covering an approximate 24,000 square mile service territory that encompasses Southern California and portions of central California (excluding San Diego County, the City of Long Beach and the desert area of San Bernardino County).
SoCalGas’ assets at December 31, 2025 covered the following territory:
We describe SoCalGas’ natural gas utility operations below in “Sempra California’s Natural Gas Utility Operations.” For a discussion of the risks and uncertainties facing SoCalGas’ business, see “Part I – Item 1A. For a discussion of these risks and uncertainties, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra California.”
Sempra California’s Natural Gas Utility Operations
Natural Gas Procurement and Transportation. At December 31, 2025, SoCalGas’ natural gas facilities included 52,765 miles of distribution pipelines, 3,030 miles of transmission and storage pipelines, 48,900 miles of service pipelines and seven transmission compressor stations, and SDG&E’s natural gas facilities consisted of 9,206 miles of distribution pipelines, 177 miles of transmission pipelines, 6,795 miles of service pipelines and one compressor station.
SoCalGas’ and SDG&E’s gas transmission pipelines interconnect with four major interstate pipeline systems: El Paso Natural Gas, Transwestern Pipeline, Kern River Pipeline Company, and Mojave Pipeline Company, allowing customers to bring gas supplies into the SoCalGas gas transmission pipeline system from the various out-of-state gas producing basins. Additionally, an interconnection with PG&E’s intrastate gas transmission pipeline system allows gas to flow into SoCalGas’ gas transmission pipeline system. SoCalGas’ gas transmission pipeline system also has an interconnection with a Mexican gas pipeline company at Otay Mesa on the California/Mexico border that allows gas to not only flow south from the gas producing basins in the southwestern U.S., but to also flow north into SoCalGas’ gas transmission pipeline system from supplies in Mexico. There are also several in-state gas interconnections allowing for delivery of California-produced gas, including a number of direct connections from biomethane producers.
2025 Form 10-K | 16
SoCalGas purchases natural gas under short-term and long-term contracts and on the spot market for SDG&E’s and SoCalGas’ core customers. SoCalGas purchases natural gas from various producing regions, including from Canada, the U.S. Rockies and the southwestern regions of the U.S. Purchases of natural gas are primarily priced based on published indices, which can be subject to volatility. The cost of purchases of natural gas for SDG&E’s and SoCalGas’ core customers is billed to those customers without markup.
To support the delivery of natural gas supplies to its distribution system and to meet the needs of customers, SoCalGas has firm and variable interstate pipeline capacity contracts that require the payment of fixed and variable tariffed and negotiated reservation charges to reserve firm and interruptible transportation rights.To support the delivery of natural gas supplies to its distribution system and to meet the needs of customers, SoCalGas has firm interstate pipeline capacity contracts that require the payment of fixed reservation charges to reserve firm transportation rights. Energy companies, primarily El Paso Natural Gas Company, Transwestern Pipeline Company and Kern River Gas Transmission Company, provide transportation services into SoCalGas’ intrastate transmission system for supplies purchased by SoCalGas. 16Table of ContentsEnergy companies, primarily El Paso Natural Gas Company, Transwestern Pipeline Company and Kern River Gas Transmission Company, provide transportation services into SoCalGas’ intrastate transmission system for supplies purchased by SoCalGas.
Natural Gas Storage. SoCalGas owns four natural gas storage facilities with a combined working gas capacity of 137 Bcf and 122 injection, withdrawal and observation wells that provide natural gas storage service. SoCalGas’ and SDG&E’s core customers, along with certain third-party market participants, are allocated a portion of SoCalGas’ storage capacity. SoCalGas uses the remaining storage capacity for load balancing services for all customers and for storage for noncore customers. SoCalGas uses the remaining storage capacity for load balancing services for all customers and, if available, to others, including SDG&E for its non-core customer requirements. Natural gas withdrawn from storage is important to help maintain service reliability during peak demand periods, including consumer heating needs in the winter, as well as peak electric generation needs in the summer. The Aliso Canyon natural gas storage facility has a storage capacity of 86 Bcf and, subject to a biennial administrative staff review by the CPUC and additional CPUC proceedings, represents 63% of SoCalGas’ working natural gas storage capacity. The Aliso Canyon natural gas storage facility has a storage capacity of 86 Bcf and, subject to the CPUC limitations described below, represents 63% of SoCalGas’ natural gas storage capacity. At December 31, 2025, SoCalGas has been authorized by the CPUC to utilize up to 68.6 Bcf of working gas at the facility.
Customers and Demand. SoCalGas and SDG&E sell, distribute and transport natural gas. SoCalGas purchases and stores natural gas for its core customers in its territory and SDG&E’s territory on a combined portfolio basis. SoCalGas also offers natural gas transportation and storage services for others.
(1) Includes intercompany sales.
For regulatory purposes, end-use customers are classified as either core or noncore customers. Core customers are primarily residential and small commercial and industrial customers.
Most core customers purchase natural gas directly from SoCalGas or SDG&E. While core customers are permitted to purchase their natural gas supplies from producers, marketers or brokers, SoCalGas and SDG&E are obligated to maintain adequate delivery capacity to serve the requirements of all core customers in their service territories.
SoCalGas’ noncore customers consist primarily of electric generation, wholesale, and large commercial and industrial customers. A portion of SoCalGas’ noncore customers are non-end-users, which include wholesale customers consisting primarily of other utilities, including SDG&E, or municipally owned natural gas distribution systems. Noncore customers at SDG&E consist primarily of electric generation and large commercial customers.
2025 Form 10-K | 17
Noncore customers are responsible for procuring their natural gas requirements, as the regulatory framework does not allow SoCalGas and SDG&E to recover the cost of natural gas procured and delivered to noncore customers.
Natural gas demand largely depends on the health and expansion of the Southern California economy, prices of alternative energy products, consumer preferences, environmental regulations, legislation, California’s energy policy supporting increased electrification and renewable power generation, and the effectiveness of energy efficiency programs, among other factors.Demand for natural gas largely depends on the health and expansion of the Southern California economy, prices of alternative energy products, consumer preference, environmental regulations, legislation, California’s energy policy supporting increased electrification and renewable power generation, and the effectiveness of energy efficiency programs. Other external factors such as weather, the price of, demand for, and supply sources of electricity, the use and further development of renewable energy sources and energy storage, development of or requirements for new natural gas supply sources, demand for natural gas outside California, storage levels, transport capacity and availability of supply into California and general economic conditions can also result in significant shifts in the market price of natural gas, which may in turn impact demand. Other external factors such as weather, the price of, demand for, and supply sources of electricity, the use of and further development of renewable energy resources and energy storage, development of new natural gas supply sources, demand for natural gas outside California, and general economic conditions can also result in significant shifts in market price, which may in turn impact demand.
One of the larger drivers of natural gas demand is electric generation.One of the larger sources for natural gas demand is electric generation. Natural gas-fired electric generation within Southern California (and demand for natural gas supplied to such plants) competes with electric power generated throughout the western U.S. Natural gas transported for electric generating plant customers may be affected by the overall demand for electricity, growth in self-generation from rooftop solar, the addition of more efficient gas technologies, new energy efficiency initiatives, and the degree to which regulatory changes in electric transmission infrastructure investment divert electric generation from SoCalGas’ and SDG&E’s service areas. The demand for natural gas may also fluctuate due to volatility in the demand for electricity due to seasonality, weather conditions and other impacts, and the availability of competing supplies of electricity, such as renewable energy sources, among other factors. Given the significant level and availability of natural gas-fired generation, we believe natural gas is a dispatchable fuel that can continue to help provide electric reliability in our California service territories. Given the significant quantity of natural gas-fired generation, we believe natural gas is a dispatchable fuel that can help provide electric reliability in our California service territories.
The natural gas distribution business is subject to seasonality. Demand for natural gas in our service territory typically rises during the winter months to accommodate heating needs and the summer months to support peak electric generation. As is prevalent in the industry, subject to regulatory limitations, SoCalGas typically injects natural gas into storage during the months of April through October and usually withdraws natural gas from storage during the months of November through March. As is prevalent in the industry, but subject to current regulatory limitations, SoCalGas typically injects natural gas into storage during the months of April through October, and usually withdraws natural gas from storage during the months of November through March.
2025 Form 10-K | 18
Sempra Texas Utilities
Sempra Texas Utilities is comprised of our equity method investments in Oncor Holdings and Sharyland Holdings. Oncor Holdings is a wholly owned entity of Sempra that owns an 80.25% interest in Oncor. Oncor Holdings is an indirect, wholly owned entity of Sempra that owns an 80.25% interest in Oncor. TTI owns the remaining 19.75% interest in Oncor. Sempra owns a 50% interest in Sharyland Holdings, which owns a 100% interest in Sharyland Utilities. Sempra owns an indirect, 50% interest in Sharyland Holdings, which owns a 100% interest in Sharyland Utilities.
Sempra Texas Utilities’ assets at December 31, 2025 covered the following territory:
For a discussion of the risks and uncertainties related to our equity investments in Oncor Holdings and Sharyland Holdings, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Texas Utilities.”
2025 Form 10-K | 19
Oncor
Oncor is a regulated electricity transmission and distribution utility that operates in the north-central, eastern, western and panhandle regions of Texas. Oncor delivers electricity to end-use consumers through its electrical systems and also provides transmission grid connections to merchant generation facilities and interconnections to other transmission grids in Texas. Oncor’s transmission and distribution assets are located in over 120 counties and more than 400 incorporated municipalities, including the cities of Dallas and Fort Worth and surrounding suburbs, as well as Waco, Wichita Falls, Odessa, Midland, Tyler, Temple, Killeen and Round Rock, among others. Most of Oncor’s power lines have been constructed over lands of others pursuant to easements or along public highways, streets and rights-of-way pursuant to permits, public utility easements, franchise or other agreements or as otherwise permitted by law. Most of Oncor’s power lines have been constructed over lands of others pursuant to easements or along public highways, streets and rights-of-way as permitted by law.
At December 31, 2025, Oncor had approximately 5,600 employees, including 860 employees covered under a collective bargaining agreement and excluding interns.
Certain ring-fencing measures, governance mechanisms and commitments, which we describe in “Part I – Item 1A. Risk Factors,” are in effect and are intended to enhance Oncor Holdings’ and Oncor’s separateness from their owners and to mitigate the risk that these entities would be negatively impacted by the bankruptcy of, or other adverse financial developments affecting, their owners. Sempra does not control Oncor Holdings or Oncor, and the ring-fencing measures, governance mechanisms and commitments limit our ability to direct the management, policies and operations of Oncor Holdings and Oncor, including the deployment or disposition of their assets, declarations of dividends or other distributions, strategic planning and other important corporate matters and actions, including limited representation on the Oncor Holdings and Oncor boards of directors. Because Oncor Holdings and Oncor are managed independently (i.e., ring-fenced), we account for our 100% ownership interest in Oncor Holdings as an equity method investment.
Electricity Transmission. Oncor’s electricity transmission business is responsible for the safe and reliable operations of its transmission network and substations. These responsibilities consist of the construction, maintenance and security of transmission facilities and substations and the monitoring, controlling and dispatching of high-voltage electricity over its transmission facilities in coordination with ERCOT, which we discuss below in “Regulation – Utility Regulation – ERCOT Market. These responsibilities consist of the construction and maintenance of transmission facilities and substations and the monitoring, controlling and dispatching of high-voltage electricity over its transmission facilities in coordination with ERCOT, which we discuss below in “Regulation – Utility Regulation – ERCOT Market. ”
At December 31, 2025, Oncor’s transmission system included approximately 18,418 circuit miles of transmission lines, a total of 1,333 transmission and distribution substations, and interconnection to 230 third-party generation facilities totaling 63,670 MW.
Transmission revenues are provided under tariffs approved by either the PUCT or, to a small degree related to limited interconnections to other markets, the FERC. Network transmission revenues compensate Oncor for delivery of electricity over transmission facilities operating at 60 kV and above and are collected from load serving entities benefiting from Oncor’s transmission system. Network transmission revenues compensate Oncor for delivery of electricity over transmission facilities operating at 60 kV and above. Other services offered by Oncor through its transmission business include system impact studies, facilities studies, transformation service and maintenance of transformer equipment, substations and transmission lines owned by other parties.
Electricity Distribution. Oncor’s electricity distribution business is responsible for the overall safe and reliable operation of distribution facilities, including electricity delivery, power quality, security and system reliability. These responsibilities consist of the ownership, management, construction, maintenance and operation of the electricity distribution system within its certificated service area. Oncor’s distribution system receives electricity from the transmission system through substations and distributes electricity to end-users and wholesale customers through 3,874 distribution feeders at December 31, 2025.
Oncor’s distribution system included more than 4.1 million points of delivery at December 31, 2025 and consisted of 127,398 circuit miles of overhead and underground lines.
Distribution revenues from residential and small business users are generally based on actual monthly consumption (kWh) and distribution revenues from large commercial and industrial users are based on, depending on size and annual load factor, either actual monthly demand (kW) or the greater of actual monthly demand (kW) or 80% of peak monthly demand during the prior eleven months.Distribution revenues from residential and small business users are based on actual monthly consumption (kWh) and distribution revenues from large commercial and industrial users are based on, depending on size and annual load factor, either actual monthly demand (kW) or the greater of actual monthly demand (kW) or 80% of peak monthly demand during the prior eleven months.
2025 Form 10-K | 20
Customers and Demand. Oncor operates the largest transmission and distribution system in Texas based on the number of end-use customers and miles of transmission and distribution lines. Oncor delivers electricity to more than 4.1 million homes and businesses and operates more than 145,000 circuit miles of transmission and distribution lines as of December 31, 2025 in a territory with an estimated population of approximately 14 million. The majority of consumers of the electricity Oncor delivers are free to choose their electricity supplier from retail electric providers who compete for their business. The consumers of the electricity Oncor delivers are free to choose their electricity supplier from retail electric providers who compete for their business. Oncor is not a seller of electricity, nor does it purchase electricity for resale. Accordingly, Oncor is not a seller of electricity, nor does it purchase electricity for resale. Oncor provides wholesale transmission services to its electricity distribution business as well as non-affiliated electricity distribution companies, electric cooperatives and municipally owned utilities. Oncor also provides distribution services, consisting of retail delivery services to retail electric providers that sell electricity to end-use customers, as well as wholesale delivery services to electric cooperatives and municipally owned utilities. At December 31, 2025, Oncor’s distribution business customers primarily consisted of over 100 retail electric providers that sell the electricity it distributes to consumers in its certificated service areas. At December 31, 2021, Oncor’s distribution customers consisted of approximately 95 retail electric providers and certain electric cooperatives in its certificated service area.
Oncor’s revenues and results of operations are subject to seasonality, weather conditions and other electricity usage drivers, with revenues being highest in the summer.
Competition. Oncor operates in certificated areas designated by the PUCT. The majority of Oncor’s service territory is singularly certificated, with Oncor as the only certificated electric transmission and distribution provider. The majority of Oncor’s service territory is single certificated, with Oncor as the only certificated electric transmission and distribution provider. However, in multi-certificated areas of Texas, Oncor competes with certain municipal utilities and rural electric cooperatives for the right to serve end-use customers. However, in multi-certificated areas of Texas, Oncor competes with certain other utilities and rural electric cooperatives for the right to serve end-use customers. In addition, the electric industry is undergoing rapid technological change, and third-party DER (including behind the meter alternatives and private use networks) and virtual power plants and other technologies may increasingly compete with Oncor’s traditional transmission and distribution infrastructure in delivering electricity to consumers. In addition, the electric industry is undergoing rapid technological change, and third-party distributed energy resources and other technologies may increasingly compete with Oncor’s traditional transmission and distribution infrastructure in delivering electricity to consumers.
Sharyland Utilities
Sharyland Utilities is a regulated electric transmission utility that owns and operates, at December 31, 2025, approximately 64 miles of electric transmission lines in south Texas, including a direct current line connecting Mexico and assets in McAllen, Texas. Sharyland Utilities is responsible for providing safe, reliable and efficient transmission and substation services and investing to support infrastructure needs in its service territory, which we discuss below in “Regulation – Utility Regulation – ERCOT Market.” Transmission revenues are provided under tariffs approved by the PUCT.
2025 Form 10-K | 21
Sempra Infrastructure
Our Sempra Infrastructure segment includes the operating companies of our subsidiary, SI Partners, as well as a holding company and certain services companies. SI Partners is included within our Sempra Infrastructure reportable segment but is not the same in its entirety as the reportable segment. Sempra Infrastructure develops, constructs, operates and invests in energy infrastructure to help provide safe, sustainable and reliable access to cleaner energy in markets in the U.S., Mexico and globally.
At December 31, 2025, Sempra Infrastructure owned or held interests in the following assets:
2025 Form 10-K | 22
At December 31, 2025, Sempra, KKR Pinnacle and ADIA each hold a 70%, 20%, and 10% interest, respectively, in SI Partners. SI Partners owns a 100% interest in Sempra LNG Holding, LP and a 99.9% interest in IEnova at December 31, 2025.
The minority partners in SI Partners and Sempra are parties to a limited partnership agreement of SI Partners. Under this agreement, matters are generally decided by majority vote and the managers designated by the partners of SI Partners each vote on an equity-weighted basis based on the ownership percentage of their respective designating limited partner. SI Partners and its controlled subsidiaries are prohibited from taking certain limited actions without the prior written approval of the minority partners. The limited partnership agreement contains certain default remedies if any limited partner fails to fund any amounts required to be funded under the agreement and requires that SI Partners distribute to the limited partners at least 85% of distributable cash of SI Partners and its subsidiaries on a quarterly basis, subject to certain exceptions and reserves. Generally, distributions from SI Partners are made on a pro rata basis. However, KKR Pinnacle is entitled to certain priority distributions in the event of material deviations between certain specified projected cash flows and actual cash flows. Additionally, the minority partners are entitled to certain priority distributions in the event a specified project that reaches a positive FID does not have projected internal rates of return greater than a specified threshold or does not meet certain other conditions by certain dates. If the minority partners approve Sempra’s request that a project not be pursued jointly, or if the minority partners decide not to participate in any proposed project for which Sempra nevertheless desires to make a positive FID, then Sempra may proceed with such project either independently through a different investment vehicle or as a “Sole Risk Project” within SI Partners and receive Sole Risk Interests in respect thereof. Sole Risk Projects are separated from other SI Partners projects and are conducted at Sempra’s sole cost, expense and liability, and Sempra receives, through the acquisition of Sole Risk Interests, the economic and other benefits, if any, from such projects.
In September 2025, we entered into an agreement to sell a 45% equity interest in SI Partners to the KKR Partners for $9.99 billion, subject to adjustments. We expect the sale to close in the second or third quarter of 2026, subject to closing conditions. Subject to closing, the KKR Partners will own 65% of SI Partners, Sempra will own a 25% interest and ADIA will retain a 10% interest, with the KKR Partners assuming control. Sempra will deconsolidate SI Partners and account for its 25% interest in SI Partners under the equity method within the existing Sempra Infrastructure segment. At closing, we will enter into an amended and restated limited partnership agreement of SI Partners with the KKR Partners and ADIA, which will govern the rights and obligations of the partners with respect to SI Partners after the sale and will include transfer restrictions, provisions for Sole Risk Projects, under which a partner may independently pursue projects at its own cost and risk, and various other provisions. We describe the terms of this post-closing limited partnership agreement in further detail in Note 6 of the Notes to Consolidated Financial Statements.
In December 2025, we entered into an agreement to sell Ecogas, a natural gas regulated distribution utility that we describe below, to Gas Natural del Noroeste S.A. de C.V. for 9.0 billion Mexican pesos (approximately $500 million U.S. dollar-equivalent at December 31, 2025), subject to adjustments. We expect to complete the sale in the second or third quarter of 2026, subject to closing conditions.
As a result of satisfying all applicable criteria, we classified SI Partners’ and Ecogas’ assets and liabilities as held for sale and ceased depreciation and amortization. We provide further discussion regarding the sales of SI Partners and Ecogas in Note 6 of the Notes to Consolidated Financial Statements.We discuss various CPUC proceedings relating to SDG&E and SoCalGas in Notes 4, 15 and 16 of the Notes to Consolidated Financial Statements.
Subject to closing these sales, we expect Sempra’s ownership interests in SI Partners and all assets owned by SI Partners, other than those listed in the table below, to be 25% post-closing.
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Sempra Infrastructure consolidates Sempra’s ownership and management of its non-U.S. utility energy infrastructure assets in North America under a single platform. These assets include LNG and natural gas infrastructure in the U.S. and Mexico and renewable energy, LPG and refined products infrastructure in Mexico, which are managed through three business lines: LNG, Energy Networks and Low Carbon Solutions. For a discussion of the risks and uncertainties facing Sempra Infrastructure’s business, see “Part I – Item 1A. Risk Factors” and “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Infrastructure.”
LNG
Sempra Infrastructure’s LNG business line is comprised of a natural gas liquefaction and regasification portfolio in development, under construction or in operation and is focused on securely delivering natural gas to markets around the world. Sempra Infrastructure’s development and/or construction of projects, which we describe below, is subject to numerous risks and uncertainties.
Cameron LNG Phase 1 Facility. SI Partners owns 50.2% of Cameron LNG JV. An affiliate of TotalEnergies SE, an affiliate of Mitsui & Co., Ltd., and Japan LNG Investment, LLC (a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha) each own 16.6% of Cameron LNG JV. SI Partners accounts for its ownership interest in Cameron LNG JV under the equity method. No single owner controls or can unilaterally direct significant activities of Cameron LNG JV.
Cameron LNG JV owns and operates the Cameron LNG Phase 1 facility, a natural gas liquefaction, export, regasification and import facility with three natural gas pre-treatment, processing and liquefaction trains. Cameron LNG JV owns Cameron LNG JV Phase 1, a natural gas liquefaction, export, regasification and import facility with three natural gas pre-treatment, processing and liquefaction trains. The Cameron LNG Phase 1 facility is located in Hackberry, Louisiana, along the Calcasieu Ship Channel, which handles significant industrial shipping, including large oil and LNG tankers, that we believe is well positioned to supply the Atlantic and Pacific markets. Cameron LNG JV Phase 1 is located in Hackberry, Louisiana, along the Calcasieu Ship Channel, which handles significant industrial shipping, including large oil and LNG tankers, and is well 21Table of Contentspositioned to supply the Atlantic and Pacific markets. The three liquefaction trains have a combined nameplate capacity of 13.9 Mtpa of LNG with an export capacity of 12 Mtpa of LNG, or approximately 1.7 Bcf of natural gas per day.
The Cameron LNG Phase 1 facility has 20-year liquefaction and regasification tolling capacity agreements in place with affiliates of TotalEnergies SE, Mitsubishi Corporation and Mitsui & Co., Ltd., which collectively subscribe for the full nameplate capacity of the three trains at the facility.
ECA Regas Facility. SI Partners owns and operates the ECA Regas Facility in Baja California, Mexico, which is capable of processing one Bcf of natural gas per day and has a storage capacity of 320,000 cubic meters in two tanks of 160,000 cubic meters each. Sempra Infrastructure owns and operates the ECA Regas Facility in Baja California, Mexico, which is capable of processing one Bcf of natural gas per day and has a storage capacity of 320,000 cubic meters in two tanks of 160,000 cubic meters each.
The ECA Regas Facility generates revenues from fees under a firm storage and nitrogen injection service agreement with Shell that expires in May 2028 and permits it to use 36% of the terminal’s capacity, with the remaining capacity available for SI Partners’ use. SI Partners uses a portion of its capacity to satisfy its obligation under an LNG SPA with Tangguh PSC through 2029, which we discuss below. ECA LNG Phase 1 will be the sole user of this capacity thereafter.
The land adjacent to and owned by the ECA Regas Facility is the subject of litigation. The facility, however, is not situated on the land that is the subject of this dispute. We discuss litigation, regulatory and other matters that could impact the ECA Regas Facility and the ECA LNG liquefaction projects in Note 16 of the Notes to Consolidated Financial Statements and “Part I – Item 1A. Risk Factors.”
ECA LNG Phase 1 Project. SI Partners owns an 83.4% interest in the ECA LNG Phase 1 project that is under construction. An affiliate of TotalEnergies SE owns the remaining 16.6% interest in the project. The ECA LNG Phase 1 project will consist of a one-train natural gas liquefaction facility at the site of SI Partners’ existing ECA Regas Facility with a nameplate capacity of 3.25 Mtpa and an initial offtake capacity of 2.5 Mtpa. ECA LNG Phase 1 is constructing a one-train natural gas liquefaction facility at the site of Sempra Infrastructure’s existing ECA Regas Facility with a nameplate capacity of 3.25 Mtpa and an initial offtake capacity of 2.5 Mtpa.
The ECA LNG Phase 1 project has definitive 20-year SPAs with an affiliate of TotalEnergies SE for approximately 1.7 Mtpa of LNG and with Mitsui & Co., Ltd. for approximately 0.8 Mtpa of LNG. The customers have a termination right if the ECA LNG Phase 1 project does not commence commercial operations under the SPAs by February 24, 2026, subject to certain additional conditions, for which we have requested an extension. As of February 26, 2026, no customers have given notice of their intent to terminate the SPAs.
The ECA LNG Phase 1 project achieved mechanical completion in December 2025, and we expect the project to produce LNG cargoes for sale in the spring of 2026 and sales under the long-term SPAs to begin shortly after substantial completion when the facility commences commercial operations, which is targeted in the summer of 2026. Reaching substantial completion under the EPC contract is subject to various milestones, including achieving certain performance tests and functionality.
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PA LNG Phase 1 Project. SI Partners, KKR Denali and an affiliate of ConocoPhillips own a 28%, 42% and 30% interest, respectively, in the PA LNG Phase 1 project under construction on a greenfield site in the vicinity of Port Arthur, Texas, located along the Sabine-Neches waterway. The PA LNG Phase 1 project will consist of two liquefaction trains, two LNG storage tanks, a marine berth and associated loading facilities and related infrastructure necessary to provide liquefaction services with a nameplate capacity of approximately 13 Mtpa and an initial offtake capacity of approximately 10.5 Mtpa.
The PA LNG Phase 1 project has definitive SPAs for LNG offtake with:
▪an affiliate of ConocoPhillips for a 20-year term for 5 Mtpa of LNG, as well as a natural gas supply management agreement whereby an affiliate of ConocoPhillips will manage the feed gas supply requirements for the PA LNG Phase 1 project
▪RWE Supply & Trading GmbH, a subsidiary of RWE AG, for a 15-year term for 2.25 Mtpa of LNG
▪INEOS Energy Trading Limited, a subsidiary of INEOS Limited, for a 20-year term for approximately 1.4 Mtpa of LNG
▪Polski Koncern Naftowy Orlen S.A. for a 20-year term for approximately 1 Mtpa of LNG
▪ENGIE S.A. for a 15-year term for approximately 0.875 Mtpa of LNG
The first train of the Port Arthur LNG liquefaction project remains on schedule, and we continue to expect the first and second trains to commence commercial operations at or near the end of 2027 and in 2028, respectively.
KKR Denali’s interest in the PA LNG Phase 1 project is governed by a limited liability company agreement under which (i) a subsidiary of SI Partners (a) is the managing member, (b) exclusively holds the right to make decisions with respect to certain expansions, such as the PA LNG Phase 2 project, (c) has certain rights to preferential distributions from specified revenues and expansion true-up payments, and (d) through a parent entity that is a subsidiary of Sempra, bears a disproportionately higher allocation of certain capital contribution commitments in certain budgetary overrun scenarios; and (ii) KKR Denali has certain investor protection voting rights.
PA LNG Phase 2 Project. Since September 2025, SI Partners owns 50.1% and Blackstone owns 49.9% of the PA LNG Phase 2 project, a large-scale natural gas liquefaction project located adjacent to the PA LNG Phase 1 project. As we discuss in Note 12 of the Notes to Consolidated Financial Statements, Blackstone’s equity interest is subject to redemption and exit rights that are outside the control of SI Partners and Blackstone. As a result, we account for Blackstone’s NCI as being contingently redeemable, which is presented as CRNCI in Sempra’s Consolidated Balance Sheet.
Construction of the PA LNG Phase 2 project commenced in September 2025 after reaching a positive FID. The PA LNG Phase 2 project will include two liquefaction trains, one LNG storage tank, and associated facilities with a nameplate capacity of approximately 13 Mtpa.
The PA LNG Phase 2 project has definitive SPAs for LNG offtake with:
▪ConocoPhillips for a 20-year term for 4 Mtpa of LNG on a free-on-board basis
▪EQT Corporation for a 20-year term for 2 Mtpa of LNG on a free-on-board basis
▪JERA Co. Inc. for a 20-year term for 1.5 Mtpa of LNG on a free-on-board basis
In addition, SI Partners has a definitive SPA with the PA LNG Phase 2 project for a 20-year term for 2.5 Mtpa of LNG and has entered into offtake agreements for excess quantities of LNG, including an offtake agreement for a 30-year term to the extent of incremental amounts produced above 10 Mtpa up to an additional 0.75 Mtpa.
We expect the third and fourth trains of the Port Arthur LNG liquefaction project to commence commercial operations in 2030 and 2031, respectively.
Asset and Supply Optimization. SI Partners has an LNG SPA through 2029 with Tangguh PSC for the supply of the equivalent of 500 MMcf of natural gas per day at a price based on the SoCal Border index for natural gas. The LNG SPA allows Tangguh PSC to divert certain LNG volumes to other global markets in exchange for payments of diversion fees. SI Partners may also enter into short-term supply agreements to purchase LNG to be received, stored and regasified at the ECA Regas Facility for sale to other parties. Sempra Infrastructure may also enter into short-term supply agreements to purchase LNG to be received, stored and regasified at the ECA Regas Facility for sale to other parties. SI Partners uses the natural gas produced from this LNG to supply a contract for the sale of natural gas to the CFE at prices that are based on the SoCal Border index. Sempra Infrastructure uses the natural gas produced from this LNG to supply a contract for the sale of natural gas to the CFE at prices that are based on the SoCal Border index. If LNG volumes received from Tangguh PSC are not sufficient to satisfy the commitment to the CFE, SI Partners may purchase natural gas in the market to satisfy such commitment. If LNG volumes received from Tangguh PSC are not sufficient to satisfy the commitment to the CFE, Sempra Infrastructure may purchase natural gas in the market to satisfy such commitment.
SI Partners purchases, transports and sells natural gas and LNG, and has customers in both the U.S. and Mexico, including the CFE. SI Partners may also purchase natural gas from other Sempra affiliates. Sempra Infrastructure may also purchase natural gas from other Sempra affiliates. Natural gas purchases and transportation arrangements are substantially backed by long-term, U.S. dollar-based contracts for the sale of natural gas to third parties (both U.S. sourced and derived from imported LNG), LNG offtake and natural gas storage and pipeline capacity.
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LNG Projects Under Development. SI Partners is pursuing or evaluating the following development opportunities:
▪Cameron LNG Phase 2 project, an expansion of the Cameron LNG Phase 1 facility that would add one electric drive liquefaction train and debottlenecking capacity from the existing three trains
▪ECA LNG Phase 2 project, a large-scale natural gas liquefaction project to be located at the site of SI Partners’ existing ECA Regas Facility in Baja California, Mexico
No FID has been reached for either of these potential projects.
Demand and Competition. North America benefits from numerous competitive advantages as a supplier of LNG to world markets, including the following:
▪high levels of developed and undeveloped natural gas resources, including unconventional natural gas and oil relative to domestic consumption levels
▪flexible and mature oil and gas markets resulting in efficient unit costs of gas production
▪availability of extensive natural gas pipeline transmission systems and natural gas storage capacity with proximity to production locations
Global LNG demand and competition may limit North American LNG exports, as international liquefaction projects attempt to match North American LNG production costs and customer contractual rights such as volume and destination flexibility. North American LNG exports add market flexibility that is expected to facilitate additional growth of a global commodity market for natural gas and LNG.
Our LNG projects in development, under construction or in operation all compete globally to market and sell LNG to remarketers and end-users, including gas and electric utilities located in LNG-importing countries around the world. We compete with liquefaction projects currently operating and those under development in the global LNG market. In addition to the U.S., these competitors are located in the Middle East, Southeast Asia, Africa, South America, Australia and Europe.
Energy Networks
Sempra Infrastructure’s Energy Networks business line is comprised of a natural gas transportation and distribution network.
Cross-Border Interconnections and In-Country Pipelines. SI Partners develops, constructs, owns and operates systems for the receipt, transportation, compression and delivery of natural gas and ethane. Sempra Infrastructure develops, builds, operates and invests in systems for the receipt, transportation, compression and delivery of natural gas and ethane. At December 31, 2025, these systems consisted of 1,985 miles of natural gas transmission pipelines, 17 natural gas compression stations and 139 miles of ethane pipelines in Mexico. At December 31, 2021, these systems consisted of 1,850 miles of natural gas transmission pipelines plus 124 miles in development, 16 natural gas compression stations plus one in development, and 139 miles of ethane pipelines in Mexico. The design capacity of these pipeline assets is over 16,900 MMcf per day of natural gas, 204 MMcf per day of ethane gas and 106,000 barrels per day of ethane liquid. Capacity on SI Partners’ pipelines and related assets is substantially contracted under long-term, U.S. dollar-based agreements with major industry participants such as the CFE, Centro Nacional de Control de Gas, PEMEX and other similar counterparties. See “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Infrastructure” for a discussion about the Guaymas-El Oro segment of the Sonora pipeline.
SI Partners owns the Cameron Interstate Pipeline, a 40-mile natural gas pipeline in south Louisiana that links the Cameron LNG Phase 1 facility in Cameron Parish in Louisiana to seven pipelines that offer access to major feed gas supply basins in Texas and the northeast, midcontinent and southeast regions of the U.S. The majority of transportation capacity on the Cameron Interstate Pipeline is under long-term transportation service agreements with shippers for delivery to the Cameron LNG Phase 1 facility.
SI Partners is constructing the Port Arthur Pipeline Louisiana Connector, a 72-mile pipeline connecting the PA LNG Phase 1 project to Gillis, Louisiana. We expect the Port Arthur Pipeline Louisiana Connector to be ready for service ahead of the PA LNG Phase 1 project’s gas requirements.
Natural Gas Distribution. SI Partners owns the natural gas distribution regulated utility, Ecogas, which operates in three separate distribution zones in Mexicali, Chihuahua and La Laguna-Durango, Mexico. Sempra Infrastructure’s natural gas distribution regulated utility, Ecogas, operates in three separate distribution zones in Mexicali, Chihuahua and La Laguna-Durango, Mexico. At December 31, 2025, Ecogas had approximately 3,246 miles of distribution pipeline, and approximately 169,000 customer meters serving more than 661,000 residential, commercial and industrial consumers with total distribution volume of 94.1 MMcf per day in 2025, of which 10.7 MMcf per day were gas sales to direct end users of Ecogas. At December 31, 2021, Ecogas had approximately 2,842 miles of distribution pipeline, and approximately 143,000 customer meters serving more than 489,000 residential, commercial and industrial consumers with sales volume of approximately 10 MMcf per day in 2021. Ecogas relies on supply and transportation services from Sempra Infrastructure, SoCalGas and PEMEX for the natural gas it distributes to its customers. Ecogas relies on supply and transportation services, including from SI Partners and SoCalGas for the natural gas it distributes to its customers.
As we discuss in Note 6 of the Notes to Consolidated Financial Statements, in December 2025, we entered into an agreement to sell Ecogas to Gas Natural del Noroeste S.A. de C.V. for 9.0 billion Mexican pesos (approximately $500 million U.S. dollar-equivalent at December 31, 2025), subject to adjustments. We expect to complete the sale in the second or third quarter of 2026, subject to closing conditions.
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LPG Storage and Associated Systems. SI Partners owns and operates the TDF, S. Sempra Infrastructure owns and operates the TDF, S. de R. L. de C. V. (TDF) pipeline system and the Guadalajara LPG terminal. At December 31, 2025, the TDF pipeline system consisted of approximately 118 miles of 12-inch diameter LPG pipeline with a design capacity of 34,000 barrels per day and associated storage and dispatch facilities. The TDF pipeline system runs from PEMEX’s Burgos facility in the Mexican state of Tamaulipas, Mexico to SI Partners’ approximately 32,000-barrel LPG storage facility near the city of Monterrey, Mexico and is fully contracted to PEMEX on a firm basis through 2027. SI Partners’ Guadalajara LPG terminal is an 80,000-barrel LPG storage facility near Guadalajara, Mexico, with associated loading and dispatch facilities, and serves the LPG needs of Guadalajara. The TDF pipeline system runs from PEMEX’s Burgos facility in the state of Tamaulipas, Mexico to Sempra Infrastructure’s delivery facility near the city of Monterrey, Mexico and is fully contracted to PEMEX on a firm basis through 2027. Sempra Infrastructure’s Guadalajara LPG terminal is an 80,000-barrel LPG storage facility near Guadalajara, Mexico, with associated loading and dispatch facilities, and serves the LPG needs of Guadalajara. The Guadalajara LPG terminal is fully contracted to PEMEX on a firm basis through 2028. Both contracts are U.S. dollar-denominated or referenced and are periodically adjusted for inflation.
Refined Products and Natural Gas Storage. SI Partners’ refined products storage business develops, constructs, owns and operates systems for the receipt, storage and delivery of refined products, principally gasoline, diesel and jet fuel, throughout the Mexican states of Baja California, Colima, Estado de Mexico, Puebla, Sinaloa and Veracruz for private companies, with a combined storage capacity of 4.6 million barrels fully operating as of December 31, 2025. Our customer contracts for our refined products storage business are structured as long-term, U.S. dollar-denominated, firm capacity storage agreements with counterparties including Marathon Petroleum Corporation, Valero Energy Corporation and PEMEX. The contracted rate under these contracts is independent from each terminal’s regulated rate as determined by the CNE.
SI Partners is constructing Louisiana Storage, a 12.5-Bcf salt dome natural gas storage facility to support the PA LNG Phase 1 project. The construction includes an 11-mile pipeline that will connect to the Port Arthur Pipeline Louisiana Connector. We expect Louisiana Storage to be ready for service in time to support the needs of the PA LNG Phase 1 project.
Demand and Competition. Ecogas faces competition from other distributors of natural gas in each of its three distribution zones as other distributors of natural gas construct or consider constructing natural gas distribution systems. Ecogas faces competition from other distributors of natural gas in each of its three distribution zones in Mexicali, Chihuahua and La Laguna-Durango, Mexico as other distributors of natural gas build or consider building natural gas distribution systems. SI Partners’ pipeline and storage facilities businesses compete with other regulated and unregulated pipeline and storage facilities. Sempra Infrastructure’s pipeline and storage facilities businesses compete with other regulated and unregulated pipeline and storage facilities. They compete primarily on the basis of price (in terms of storage and transportation fees), available capacity and interconnections to downstream markets. The overall demand for natural gas distribution services increases during the winter months, while the overall demand for power increases during the summer months.
Low Carbon Solutions
Sempra Infrastructure’s Low Carbon Solutions business line is focused on developing, constructing and operating energy infrastructure to help meet the demand for lower carbon and reliable energy supply. The portfolio of infrastructure assets includes renewable energy generation, a natural gas-fired power plant, as well as the development of infrastructure for carbon capture and storage and for generation and storage of low carbon energy.
Renewable Power Generation. Renewable Power Generation. SI Partners develops, constructs, owns and operates renewable energy generation facilities that have long-term PPAs to sell the electricity they generate to their customers, which are generally load-serving entities and industrial and other customers. Sempra Infrastructure develops, builds, invests in and operates renewable energy generation facilities that have long-term PPAs to sell the electricity they generate to their customers, which are generally load serving entities, as well as industrial and other customers. Load serving entities sell electric service to their end-users and wholesale customers upon receipt of power delivery from these energy generation facilities, while industrial and other customers consume the electricity to run their facilities. At December 31, 2025, SI Partners had total nameplate capacity of 1,044 MW related to its operating wind and solar power generation facilities. Generation from SI Partners’ renewable energy assets is susceptible to fluctuations in naturally occurring conditions such as wind, inclement weather and hours of sunlight.Generation from Sempra Infrastructure’s renewable energy assets is susceptible to fluctuations in naturally occurring conditions such as wind, inclement weather and hours of sunlight. Some of these facilities may be affected by recent legal and regulatory changes in Mexico, which we discuss in “Part I – Item 1A. Risk Factors.”
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Natural Gas-Fired Generation. SI Partners owns and operates the TdM power plant in the vicinity of Mexicali, Baja California, adjacent to the Mexico-U.S. border. TdM is a 625 MW natural gas-fired, combined-cycle power plant that is connected to our Gasoducto Rosarito pipeline system, which enables it to receive regasified LNG from the ECA Regas Facility as well as continental gas supplied from the U.S. on the North Baja pipeline. TdM generates revenue from selling electricity and resource adequacy to the California ISO for delivery to governmental, public utility and wholesale power marketing entities. TdM generates revenue from selling electricity and resource adequacy to the California ISO and to governmental, public utility and wholesale power marketing entities.
Low Carbon Solutions Projects. The Cimarrón Wind project, an approximately 320-MW wind generation facility in Baja California, Mexico, commenced energy generation in October 2025 during its commissioning phase. We expect commercial operations to commence in the first quarter of 2026. SI Partners has a 20-year PPA with Silicon Valley Power for the long-term supply of renewable energy to the City of Santa Clara, California. Cimarrón Wind will utilize the available capacity on one of SI Partners’ existing cross-border high voltage transmission lines to interconnect and deliver clean energy to the East County substation in San Diego County.
SI Partners is developing the potential Hackberry Carbon Sequestration project near Hackberry, Louisiana, together with TotalEnergies SE, Mitsui & Co., Ltd. and Mitsubishi Corporation. This proposed project is designed to permanently sequester carbon dioxide from the Cameron LNG Phase 1 facility, the proposed Cameron LNG Phase 2 project and potentially other sources.
Demand and Competition. SI Partners competes with Mexican and foreign companies for new energy infrastructure projects in Mexico. Some of its competitors (including public or state-operated companies and their affiliates) may have better access to capital or greater financial and other resources or advantages, including those provided by recent legal and regulatory changes in Mexico, which could give them a competitive advantage for such projects. Some of its competitors (including public or state-operated companies and their affiliates) may have better access to capital and greater financial and other resources, which could give them a competitive advantage for such projects.
SI Partners sells power from its ESJ wind power generation facilities into California, where renewable energy demand is affected by U.S. state mandates requiring a portion of energy to come from renewable sources. These mandates are part of California’s RPS Program. The first and second phases of ESJ, which are in operation, were certified by the CEC under the RPS Program. Certification by the CEC means that the energy produced by a facility is eligible to generate RECs, which can be used to meet California’s RPS Program requirements, which in turn influences the demand from California load serving entities for energy from that facility. In January 2025, the CEC approved Cimarrón Wind’s application for precertification under the RPS Program.
TdM participates in the day-ahead and real-time markets supplying power into the California electricity system. SI Partners manages commodity price risk at TdM through a mix of day-ahead sales of energy, energy spreads hedging, ancillary services, and short-term to medium-term capacity sales. Sempra Infrastructure manages commodity price risk at TdM by using a mix of day ahead sales of energy, energy spreads hedging, ancillary services, and short-term to medium-term capacity sales.
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REGULATION
We discuss the material effects of compliance with government regulations, including environmental regulations, on our capital expenditures, earnings and competitive position in “Part II – Item 7. MD&A” and Note 16 of the Notes to Consolidated Financial Statements.
Utility Regulation
California
SDG&E and SoCalGas are principally regulated at the state level by the CPUC, CEC and CARB.
The CPUC:
▪consists of five commissioners appointed by the Governor of California for staggered, six-year terms;
▪regulates, among other things, SDG&E’s and SoCalGas’ customer rates and conditions of service, sales of securities, rates of return, capital structure, rates of depreciation, long-term resource procurement and other financial matters, except as described below in “U.S. Federal;”
▪has jurisdiction over the proposed construction of major electric generation, transmission and distribution, and natural gas transmission, distribution and storage facilities in California;
▪conducts reviews and audits of utility performance and compliance with regulatory guidelines and conducts investigations related to various matters, such as safety standards and practices, reliability and planning, deregulation, competition, disconnection and billing practices, commodity pricing, resource adequacy and environmental compliance; and
▪regulates the interactions and transactions of SDG&E and SoCalGas with Sempra and other affiliates, including their marketing functions.
The CPUC also oversees and regulates other energy-related products and services, including solar and wind energy, bioenergy, alternative energy storage and other forms of renewable energy. In addition, the CPUC’s safety and enforcement authority includes inspections, investigations and citation and enforcement programs for safety and other violations. In addition, the CPUC’s safety and enforcement role includes inspections, investigations and penalty and citation processes for safety and other violations.
The CEC publishes electric demand forecasts for the state and specific service territories. Based on these forecasts, the CEC:
▪determines the need for additional energy sources and conservation programs;
▪sponsors alternative-energy research and development projects;
▪promotes energy conservation programs to reduce demand for natural gas and electricity within California;
▪maintains a statewide plan of action in case of energy shortages; and
▪certifies power-plant sites and related facilities within California.
The CEC conducts a 20-year forecast of available supplies and prices for every market sector that consumes natural gas in California. This forecast includes resource evaluation, pipeline capacity needs, natural gas demand and wellhead prices, and transportation and distribution costs. This analysis is one of many resource materials used to support SDG&E’s and SoCalGas’ long-term investment decisions.
We discuss regulatory oversight by CARB below in “Environmental Matters – Air Quality and GHG Emissions.”
Texas
Oncor’s and Sharyland Utilities’ rates are regulated at the state level by the PUCT and, in the case of Oncor, at the city level by certain cities. The PUCT has original jurisdiction over wholesale transmission rates and services and retail rates and services in unincorporated areas and in municipalities that have ceded original jurisdiction to the PUCT, and has exclusive appellate jurisdiction to review the retail rates, retail services, and ordinances of municipalities. The PUCT has original jurisdiction over wholesale transmission rates and services and retail rates and services in unincorporated areas and in those municipalities that have ceded original jurisdiction to the PUCT, and has exclusive appellate jurisdiction to review the retail rate and service orders and ordinances of municipalities. Generally, PURA prohibits the collection of any rates or charges by a public utility (as defined by PURA) that do not have the prior approval of the appropriate regulatory authority (i. Generally, the Texas PURA prohibits the collection of any rates or charges by a public utility (as defined by PURA) that do not have the prior approval of the appropriate regulatory authority (i. e., the PUCT or the municipality with original jurisdiction).
At the state level, PURA requires utility owners or operators of electric transmission facilities to provide open-access wholesale transmission services to third parties at rates and terms that are nondiscriminatory and comparable to the rates and terms of the utility’s own use of its system. The PUCT has adopted rules implementing the state’s open-access requirements for all utilities that are subject to the PUCT’s jurisdiction over electric transmission services, including Oncor. The PUCT has adopted rules implementing the state open-access requirements for all utilities that are subject to the PUCT’s jurisdiction over electric transmission services, including Oncor.
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U.S. Federal
SDG&E and SoCalGas are also regulated at the federal level by the FERC, EPA, DOE and DOT, and for SDG&E the NRC.
The FERC regulates SDG&E’s and SoCalGas’ interstate sale and transportation of natural gas. The FERC also regulates SDG&E’s:
▪electric transmission rates
▪transmission and wholesale sales of electricity in interstate commerce
▪transmission access
▪rates of return and rates of depreciation on electric transmission investments
▪electric rates involving sales for resale
▪the application of the uniform system of accounts
The FERC enforces mandatory reliability standards developed by the North American Electric Reliability Corporation, including standards designed to protect the power system against potential disruptions from cyber and physical security breaches. The U.S. Energy Policy Act governs procedures for requests for electric transmission service. To a small degree related to limited interconnections to other markets, Oncor’s electric transmission revenues are provided under tariffs approved by the FERC.
The NRC oversees the licensing, construction, operation and decommissioning of nuclear facilities in the U.S., including SONGS, in which SDG&E owns a 20% interest and which permanently ceased operations in 2013. The NRC and various state regulations require extensive review of these facilities’ safety, radiological and environmental aspects. We provide further discussion of SONGS matters, including the closure and decommissioning of the facility, in Note 15 of the Notes to Consolidated Financial Statements.
The EPA implements federal laws to protect human health and the environment, including federal laws on air quality, water quality, wastewater discharge, solid waste management, and hazardous waste disposal and remediation. The EPA also sets national environmental standards that state and tribal governments implement through their regulations. As a result, SDG&E, SoCalGas, Oncor and Sharyland Utilities are subject to an interrelated framework of environmental laws and regulations.
The DOT, through PHMSA, has established regulations regarding engineering standards and operating procedures, including procedures intended to manage cybersecurity risks, applicable to SDG&E’s and SoCalGas’ natural gas transmission and distribution pipelines, as well as natural gas storage facilities. The DOT has certified the CPUC to administer oversight of and compliance with these regulations for the entities they regulate in California. The DOT has certified the CPUC to administer oversight and compliance with these regulations for the entities they regulate in California.
California ISO Market
The California IOUs’ electric transmission facilities are under the operational control of the California ISO. The California ISO is a non‑profit, federally regulated organization that manages the flow of electricity from generators to local utilities across approximately 80% of California’s high‑voltage power grid. Within its balancing authority area, the California ISO oversees the markets that help balance electricity supply and demand, coordinate dispatch of generation, and manage system constraints.
ERCOT Market
As member utilities, Oncor and Sharyland Utilities operate within the ERCOT market, which represents approximately 90% of the electricity consumption in Texas. ERCOT is the regional reliability coordinating organization for member electricity systems in Texas and the ISO of the interconnected transmission grid for those systems. ERCOT is subject to oversight by the PUCT and the Texas Legislature. ERCOT is responsible for ensuring reliability, adequacy and security of the electric systems, as well as nondiscriminatory access to transmission service by all wholesale market participants, in the ERCOT region. ERCOT’s membership consists of corporate and associate members, including electric cooperatives, municipal power agencies, independent generators, independent power marketers, transmission service providers, distribution service providers, independent retail electric providers and consumers.
The PUCT has primary jurisdiction over the ERCOT market to ensure the adequacy and reliability of power supply across Texas’ main interconnected electric transmission grid. Oncor and Sharyland Utilities, along with other owners of electric transmission and distribution facilities in Texas, assist the ERCOT ISO in its operations. Oncor and Sharyland Utilities, along with other owners of electric transmission and distribution facilities in Texas, participate with the ERCOT ISO and other member utilities in its operations. Each of these Texas utilities has planning, design, construction, operation, maintenance and security responsibility for the portion of the transmission grid and the load-serving substations it owns, primarily within its certificated service area. Each of these Texas utilities has planning, design, construction, operation and maintenance responsibility for the portion of the transmission grid and for the load-serving substations it owns, primarily within its certificated distribution service area. Each participates with the ERCOT ISO and other ERCOT utilities in obtaining regulatory approvals and planning, designing, constructing and upgrading transmission lines in order to remove any existing constraints and interconnect energy generation on the ERCOT transmission grid. These transmission line projects are necessary to meet reliability needs, support energy production and increase bulk power transfer capability.
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Oncor and Sharyland Utilities are subject to reliability standards adopted and enforced by the Texas Reliability Entity, Inc., an independent organization that develops reliability standards for the ERCOT region and monitors and enforces compliance with the standards of the North American Electric Reliability Corporation, including critical infrastructure protection, and ERCOT protocols.
Other U.S. State and Local Territories Regulation
SDG&E has electric franchise agreements with the two counties and the 27 cities in its electric service territory, and natural gas franchise agreements with the one county and the 18 cities in its natural gas service territory. These franchise agreements allow SDG&E to locate, operate and maintain facilities for the transmission and distribution of electricity or natural gas. Most of the franchise agreements have no expiration dates, while some have expiration dates that range from 2028 to 2041. SDG&E has electric and natural gas franchises for the City of San Diego. These franchise agreements, which went into effect in July 2021, provide SDG&E the opportunity to serve the City of San Diego for 20 years, consisting of 10-year agreements that will automatically renew for an additional 10 years unless the City Council voids the automatic renewal. These franchise agreements have been challenged in a lawsuit that we discuss in Note 16 of the Notes to Consolidated Financial Statements.
SoCalGas has natural gas franchise agreements with the 12 counties and the 232 cities in its service territory. These franchise agreements allow SoCalGas to locate, operate and maintain facilities for the transmission and distribution of natural gas. These franchises allow SoCalGas to locate, operate and maintain facilities for the transmission and distribution of natural gas. Most of the franchise agreements have no expiration dates, while some have expiration dates that range from 2026 to 2069.
Other U.S. Federal Regulation
The FERC regulates certain of SI Partners’ assets pursuant to the U.S. Federal Power Act and Natural Gas Act, which provide for FERC jurisdiction over, among other things, sales of wholesale power in interstate commerce, transportation of natural gas in interstate commerce, and siting and permitting of LNG facilities.
The FERC may regulate rates and terms of service based on a cost-of-service approach or, in geographic and product markets determined by the FERC to be sufficiently competitive, rates may be market-based. FERC-regulated rates at SI Partners are market-based for wholesale electricity sales, cost-based for the transportation of natural gas, and market-based for the purchase and sale of LNG and natural gas. FERC-regulated rates at Sempra Infrastructure are market-based for wholesale electricity sales, cost-based for the transportation of natural gas, and market-based for the purchase and sale of LNG and natural gas.
SI Partners’ investment in Cameron LNG JV and its LNG projects under construction are subject to regulations of the DOE regarding the export of LNG. Under these regulations, the DOE acts on LNG export applications to non-FTA countries after completing a public interest review that includes several criteria, including economic and environmental review of the proposed export. SI Partners’ natural gas liquefaction projects under development are subject to similar regulations.
SDG&E, SoCalGas and certain of SI Partners’ businesses are subject to the DOT rules and regulations regarding pipeline safety. PHMSA, acting through the Office of Pipeline Safety, is responsible for administering the DOT’s national regulatory program to help ensure the safe transportation of natural gas, petroleum and other hazardous materials by pipelines, including pipelines associated with natural gas storage, and develops regulations and other approaches to risk management to help ensure safety in design, construction, testing, operation, maintenance and emergency response of pipeline facilities. PHMSA also regulates the safety of onshore LNG facilities.
SDG&E, SoCalGas and SI Partners are also subject to regulation by the U.S. Commodity Futures Trading Commission.
Foreign Regulation
Operations and projects in our Sempra Infrastructure segment are subject to regulation by the ASEA, CNE, SENER, the Mexican Ministry of Environment and Natural Resources of Mexico (Secretaría del Medio Ambiente y Recursos Naturales), and other labor and environmental agencies of city, state and federal governments in Mexico. New energy infrastructure projects may also require a favorable opinion from Mexico’s Competition Commission (Comisión Federal de Competencia Económica) in order to be constructed and operated. Recent legal and regulatory changes in Mexico, which we discuss in “Part I – Item 1A. Risk Factors,” are designed to increase the government’s control and participation in the energy sector.
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Licenses and Permits
Our utilities in California and Texas obtain numerous permits, authorizations and licenses for, as applicable, the transmission and distribution of natural gas and electricity and the operation and construction of related assets, including electric generation and natural gas storage facilities, some of which require periodic renewal.
SI Partners obtains numerous permits, authorizations and licenses for its electric and natural gas distribution, generation and transmission systems from the local governments where these services are provided. The permits for generation, transportation, storage and distribution operations at SI Partners are generally for 30-year terms, with options for renewal under certain regulatory conditions. The permits for generation, transportation, storage and distribution operations at Sempra Infrastructure are generally for 30-year terms, with options for renewal under certain regulatory conditions.
SI Partners obtains permits, authorizations and licenses for the construction and operation of:
▪LNG facilities, including the expansion thereof, and for the import and export of LNG and natural gas
▪facilities for the receipt, storage and delivery of refined products
▪natural gas storage facilities and pipelines
SI Partners’ businesses also obtain permits, authorizations and licenses in connection with their participation in the wholesale electricity market.
Most of the permits and licenses associated with SI Partners’ construction and operations are for periods generally in alignment with the construction cycle or expected useful life of the asset and in some cases are greater than 20 years.28Table of ContentsMost of the permits and licenses associated with Sempra Infrastructure’s construction and operations are for periods generally in alignment with the construction cycle or expected useful life of the asset and in many cases are greater than 20 years.
RATEMAKING MECHANISMS
Sempra California
General Rate Case Proceedings
A CPUC GRC proceeding is designed to set authorized base revenue requirements that are sufficient to allow SDG&E and SoCalGas to recover their reasonable forecasted operating costs and to provide the opportunity to realize their authorized rates of return on their investments. The proceeding generally establishes the test year revenue requirements and provides for attrition, or annual increases in revenue requirements, for each year following the test year. The proceeding generally establishes the test year revenue requirements, which authorizes how much SDG&E and SoCalGas can collect from their customers, and provides for attrition, or annual increases in revenue requirements, for each year following the test year. Both the test year revenue requirements and attrition authorize how much SDG&E and SoCalGas can collect from their customers in base rates.
We discuss SDG&E’s and SoCalGas’ most recent GRCs in “Part I – Item 1A. Risk Factors,” “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra California” and Note 4 of the Notes to Consolidated Financial Statements.
Cost of Capital Proceedings
A CPUC cost of capital proceeding every three years determines a utility’s authorized capital structure and return on rate base, which is a weighted average of the authorized returns on debt, preferred equity and common equity (referred to as ROE), weighted on a basis consistent with the authorized capital structure. The authorized return on rate base approved by the CPUC is the rate that SDG&E and SoCalGas use to establish customer rates to finance investments in CPUC-regulated electric distribution and generation, natural gas distribution, transmission and storage assets, as well as general PP&E and information technology systems investments to support operations.
The CPUC established the CCM to apply in the interim years between required cost of capital applications. The CCM considers changes in the cost of capital using changes in interest rates as reflected by the applicable utility bond index published by Moody’s (CCM benchmark rate) for each 12-month period ending September 30 (the measurement period). The index applicable to SDG&E and SoCalGas is based on each utility’s credit rating. The CCM benchmark rate is the basis of comparison to determine if the CCM is triggered in each measurement period, which occurs if the change in the applicable Moody’s utility bond index relative to the CCM benchmark rate is larger than plus or minus 1.00% for the measurement period. Subject to regulatory approval, the CCM, if triggered, would automatically update the authorized cost of debt based on actual costs and update the authorized ROE upward or downward by 20% of the difference between the CCM benchmark rate and the applicable Moody’s utility bond index during the measurement period. Alternatively, each of SDG&E and SoCalGas is permitted to file a cost of capital application to have its cost of capital determined in lieu of the CCM in an interim year in which an extraordinary or catastrophic event materially impacts its cost of capital and affects utilities differently than the market.
We discuss the cost of capital and CCM in “Part I – Item 1A. Risk Factors,” “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra California” and Note 4 of the Notes to Consolidated Financial Statements.
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Transmission Rate Cases
SDG&E files separate rate cases with the FERC for its FERC-regulated electric transmission operations and assets. The proceeding establishes, among other things, a ROE, capital structure and a formulaic rate whereby rates are determined using (i) a base period of historical costs and a forecast of capital investments, and (ii) a true-up period, similar to balancing account treatment, that is designed to provide earnings equal to SDG&E’s actual cost of service including its authorized return. SDG&E makes annual filings with the FERC to update rates for the following calendar year based on inputs in the FERC-approved formula rate that are contained in SDG&E’s Transmission Owner Tariff. SDG&E may also file for ROE incentives that might apply under FERC rules.
We discuss the latest FERC rate matters in “Part I – Item 1A. Risk Factors,” “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra California” and Note 4 of the Notes to Consolidated Financial Statements.
Incentive Mechanisms
SoCalGas is subject to the GCIM and is eligible for financial awards or subject to financial penalties depending on its performance in relation to specific benchmarks. We discuss the GCIM in “Part II – Item 7. MD&A” and Note 3 of the Notes to Consolidated Financial Statements.
Other Cost-Based Regulatory Recovery
The CPUC, and the FERC as applicable to SDG&E, authorize SDG&E and SoCalGas to collect, or in the case of CPUC programmatic activities, to apply for, additional revenue requirements beyond base rates from customers for certain operating and capital-related costs (depreciation, taxes and return on rate base), including for:
▪costs to purchase natural gas and electricity
▪costs associated with administering public purpose, demand response, environmental compliance, and customer energy efficiency programs
▪programmatic activities, such as gas distribution, gas transmission, gas storage integrity management and wildfire mitigation
▪costs associated with third-party liability insurance premiums
Authorized costs are recovered as the commodity or service is delivered. To the extent authorized amounts collected vary from actual costs, the differences are generally recovered or refunded in a subsequent period based on the nature of the balancing account mechanism. In general, the revenue recognition criteria for balanced costs billed to customers are met when the costs are incurred. Because these costs are substantially recovered in rates through a balancing account mechanism, changes in these costs are reflected as changes in revenues. The CPUC and the FERC may require regulatory review procedures before authorizing recovery or refund of amounts accumulated for authorized programs, including reviews of costs for reasonableness, and may impose limitations on a program’s total cost or revenue requirement. The CPUC and the FERC may impose various review procedures before authorizing recovery or refund for programs authorized, including limitations on the total cost of the program, revenue requirement limits or reviews of costs for reasonableness. These procedures and requirements could result in delays or disallowances of recovery from customers.
Sempra Texas Utilities
Rates and Cost Recovery
Oncor’s and Sharyland Utilities’ rates are each regulated at the state level by the PUCT and, in the case of Oncor, at the city level by certain cities, and are subject to regulatory rate-setting processes and earnings oversight. This regulatory treatment does not provide assurance as to achievement of earnings levels or recovery of actual costs. Instead, rates are based on an analysis of each utility’s costs and capital structure in a designated test year, as reviewed and approved in regulatory proceedings. Instead, their rates are based on an analysis of each utility’s costs and capital structure in a designated test year, as reviewed and approved in regulatory proceedings. Rate regulation is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. However, there is no assurance that the PUCT will judge all of the Texas utilities’ costs to have been prudently incurred and therefore fully recoverable. The approved levels and timing of recovery could differ significantly from requested levels and timing. There can also be no assurance that the PUCT will approve any other items requested in any rate proceeding or that the regulatory process in which rates are determined will result in rates that produce full recovery of the Texas utilities’ actual post-test year costs and/or the full return on invested capital allowed by the PUCT, particularly during periods of increased capital spending, high inflation or increases in interest rates resulting in increased costs relative to the utility’s most recent base rate review.
PUCT rules provide that a transmission and distribution utility must file a comprehensive base rate review within four years of the last order in its most recent comprehensive rate proceeding unless an extension is approved by the PUCT. However, the PUCT or any city retaining original jurisdiction over rates may direct the utility to file a base rate review, or the utility may voluntarily file a base rate review, any time prior to that deadline.
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In addition, PUCT rules allow for interim rate adjustments known as capital trackers that allow Texas electric utilities to recover, subject to reconciliation, the cost of certain investments before a comprehensive base rate review. As a result of Texas legislation signed into law in 2025 establishing the UTM, qualifying electric utilities like Oncor can apply for a single interim rate update annually through 2035 for cost recovery of certain transmission and distribution capital investments, as an alternative to separate distribution cost recovery factor and transmission cost of service capital tracker filings. All investments included in a capital tracker update filing are ultimately subject to prudence review by the PUCT in the next base rate review after such assets are put into service. Oncor anticipates filing its initial UTM application on or after March 16, 2026 for eligible transmission and distribution investments placed into service after December 31, 2024 through December 31, 2025, and as a result, Oncor has recorded regulatory assets for recoverable costs associated with those investments and recognized a corresponding amount in other regulated revenues. We discuss Oncor’s anticipated first UTM filing in “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Texas Utilities.”
Capital Structure and Return on Equity
In April 2023, the PUCT issued a final order in a comprehensive base rate review that set Oncor’s authorized regulatory capital structure ratio at 57.5% debt to 42.5% equity, its authorized ROE at 9.70%, and its authorized cost of debt at 4.39%. We discuss Oncor’s most recent comprehensive base rate proceeding and a settlement request that, with PUCT approval, would change Oncor’s capital structure, authorized ROE and authorized cost of debt in “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Texas Utilities.”
In November 2025, the PUCT approved Sharyland Utilities’ total revenue requirement at $53 million, with a capital structure ratio of 59% debt to 41% equity, an ROE of 9.60%, and a long-term cost of debt of 4.52%.
Sempra Infrastructure
Ecogas’ revenues are derived from service and distribution fees charged to its customers in Mexican pesos. The price Ecogas pays to purchase natural gas, which is based on international price indices, is passed through directly to its customers. The service and distribution fees charged by Ecogas are regulated by the CNE, which performs a review of rates every five years and monitors prices charged to end-users. Ecogas’ rate case for 2021 through 2025 was approved by the CNE in December 2023. The tariffs operate under a return-on-asset-base model. In the annual tariff adjustment, rates are adjusted to account for inflation or fluctuations in exchange rates, and inflation indexing includes separate U.S. and Mexican cost components so that U.S. costs can be included in the final distribution rates.
ENVIRONMENTAL MATTERS
We discuss environmental issues affecting us in Note 16 of the Notes to Consolidated Financial Statements and “Part I – Item 1A. Risk Factors.” You should read the following additional information in conjunction with those discussions.
Hazardous Substances
The CPUC’s Hazardous Waste Collaborative mechanism allows California’s IOUs to recover hazardous waste cleanup costs for certain sites, including those related to certain Superfund sites. For sites that are covered by this mechanism, SDG&E and SoCalGas are permitted to recover in rates 90% of hazardous waste cleanup costs and related third-party litigation costs, and 70% of related insurance-litigation expenses. In addition, SDG&E and SoCalGas can retain a percentage of any recoveries from insurance carriers and other third parties to offset the cleanup and associated litigation costs not recovered in rates.
We record estimated liabilities for environmental remediation when amounts are probable and estimable. In addition, we record amounts authorized to be recovered in rates under the Hazardous Waste Collaborative mechanism as regulatory assets.
Air Quality and GHG Emissions
The natural gas and electric industries are subject to increasingly stringent air quality and GHG emissions standards. Our operations in California are subject to the requirements described below, and our operations in other locations may be subject to laws and regulations in applicable jurisdictions governing similar topics, including GHG emissions reduction objectives, GHG emissions reporting standards and carbon taxes in certain states. AB 32, the California Global Warming Solutions Act of 2006, assigns responsibility to CARB for monitoring and establishing policies for reducing GHG emissions. The law requires CARB to develop and adopt a comprehensive plan for achieving real, quantifiable, and cost-effective GHG emissions reductions, including a statewide GHG emissions cap, mandatory reporting rules, and regulatory and market mechanisms to achieve reductions of GHG emissions. CARB is a department within the California Environmental Protection Agency, an organization that reports directly to the Governor’s Office. SI Partners is also subject to the rules and regulations of CARB. Sempra Infrastructure is also subject to the rules and regulations of CARB.
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California requires certain electric retail sellers, including SDG&E, to deliver a significant percentage of their retail energy sales from renewable energy sources. The rules governing this requirement, administered by the CPUC and the CEC, are generally known as the RPS Program. The rules governing this requirement, administered by both the CPUC and the CEC, are generally known as the RPS Program. SB 100 (enacted in 2018) and SB 1020 (enacted in 2022) require each California electric utility, including SDG&E, to procure at least 50% of its annual retail electricity delivered from renewable energy or zero-carbon sources by the end of 2026, 60% by the end of 2030, 90% by the end of 2035, 95% by the end of 2040, and 100% by the end of 2045. SDG&E expects to be in compliance with these RPS program requirements. State law also requires California’s retail electricity supply to be met with a mix of RPS Program-eligible and zero-carbon sources by 2045 without increasing carbon emissions elsewhere in the western grid or allowing resource shuffling, and instructs the CPUC, CEC, CARB and other state agencies to incorporate this requirement into all relevant planning. In addition, AB 1279 (enacted in 2022) requires the State of California to achieve net-zero GHG emissions no later than 2045, and to achieve and maintain net negative GHG emissions thereafter. AB 1279 also directs CARB to address this goal in future scoping plans, which affect major sectors of California’s economy, including energy utilities, transportation, agriculture, construction and manufacturing. Other state climate initiatives in line with this statewide goal include executive orders requiring sales of all passenger vehicles, including SDG&E’s and SoCalGas’ light-duty fleet vehicles, to be zero-emission by 2035. In 2025, the U.S. Administration rescinded the Clean Air Act waiver on which California’s zero-emission vehicle mandate is based, rendering the mandate unenforceable pending the resolution of related litigation.
California has implemented a biomethane procurement program, whereby IOUs providing gas service in California will procure a portion of the natural gas they deliver from CPUC-approved sources of biomethane. The program establishes a Renewable Gas Standard for biomethane procurement that will be phased in through the end of 2030. The CPUC is currently reviewing IOUs’ renewable gas procurement plans and related public comments and considering potential enhancements to the program structure to increase market competition and reduce entry barriers for biomethane producers.
SDG&E and SoCalGas generally recover the costs to comply with these standards in rates. We discuss GHG emissions standards, allowances and obligations and RECs in Note 1 of the Notes to Consolidated Financial Statements. We discuss GHG emissions standards and credits further in Note 1 of the Notes to Consolidated Financial Statements.
The South Coast Air Quality Management District is the air pollution control agency responsible for regulating stationary sources of air pollution in the South Coast Air Basin in Southern California. The district’s territory covers all of Orange County and the urban portions of Los Angeles, San Bernardino and Riverside counties.
Sempra aims to have net-zero scope 1 and 2 GHG emissions by 2050 and has an interim aim of 50% scope 1 and 2 GHG emissions reductions by 2035 (this interim target is relative to a 2019 baseline, applies to Sempra California’s operations and Sempra Infrastructure’s Mexico (non-LNG) operations, and may be subject to further revision if Sempra’s planned sale of a portion of its equity interest in SI Partners is completed). Sempra and its subsidiaries also continue to advocate for programs and initiatives that support regulatory, consumer and market demand for lower- and zero-carbon energy. Additionally, although SDG&E and SoCalGas continue to align with California’s goal to achieve net-zero GHG emissions by 2045, their respective abilities to achieve their net-zero aspirations, as well as Sempra’s ability to achieve its 2035 and 2050 aims and meet the demand for lower-carbon and reliable energy in California and elsewhere, will depend on the development, commercialization and regulatory acceptance of affordable, alternative and lower-carbon energy sources, including cleaner fuels, among other factors. For a discussion of risks and uncertainties related to our net-zero and other climate aims, see “Part I – Item 1A. Risk Factors.”
With respect to our net-zero aims, even in a state of “net-zero,” GHG emissions may still be generated, but innovation and continued development of new technology and solutions could allow an equal amount of carbon dioxide or its equivalent to be removed from the atmosphere, resulting in a zero net increase in emissions. In addition, for purposes of these net-zero aims, we expect that achievement of net-zero GHG emissions will be determined based on operations at the time the applicable goal is to be reached, and GHG emissions will be calculated according to widely accepted emissions reporting guidelines or mandates at that time. Our net-zero aim does not include Oncor, which sets its own goals due to certain ring-fencing measures that limit Sempra’s ability to direct the management, policies and operations of Oncor.
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OTHER MATTERS
Information About Our Executive Officers
(1) Ages are as of February 26, 2026.
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(1) Ages are as of February 26, 2026.
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(1) Ages are as of February 26, 2026.
Human Capital
Our ability to advance our mission to build America’s leading utility growth business by investing in U.S. utilities, modernizing critical infrastructure and deploying next-generation technology at scale largely depends on the safety, engagement, and responsible actions of our employees.
Safety is foundational at Sempra and its subsidiaries. We strive to foster a strong safety culture and reinforce this culture through various policies, programs and systems designed to mitigate the occurrence and extent of safety incidents, including training programs, benchmarking, review and analysis of safety trends, internal compliance assessments and audits, and sharing lessons learned from safety incidents and near misses across our businesses. Our businesses also engage in safety-related scenario planning and simulation, develop and implement operational contingency plans, and review safety plans and procedures with work crews regularly. We also participate in emergency planning and preparedness in the communities we serve and train critical employees in emergency management and response each year. The SST Committee assists the Sempra board of directors in overseeing the company’s oversight programs and performance related to safety, and our executives’ annual incentive compensation is based in part on safety metrics established by the Compensation and Talent Development Committee of the board.
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In addition, we strive to create a high-performing, inclusive and supportive workplace where employees of all backgrounds and experiences feel valued and respected. We invest in recruiting, developing and retaining high-performing employees who represent the communities we serve, and we provide a range of programs for employees, including internal and external mentoring and leadership training and workshops, employee resource groups, and a benefits package including wellness benefits and a tuition reimbursement program. We invest in recruiting, developing and retaining high-potential employees who represent the communities we serve, and we provide a range of programs to advance those objectives, including internal and external mentoring and leadership training, workshops and a tuition reimbursement program. We also invest in internal communications programs, including in-person and virtual learning and networking opportunities as well as regular executive communications to employees on topics of interest. In addition, we offer a variety of employee community service opportunities, and at our U.S. operations, we support employees’ personal volunteering and charitable giving through the charitable matching program of Sempra Foundation, which was founded and is solely funded by Sempra. Employees participate in annual ethics and compliance training, which includes a review of Sempra’s Code of Business Conduct as well as information about resources such as Sempra’s ethics and compliance helpline. Employees participate in annual ethics and compliance training, which includes a review of Sempra’s Code of Conduct as well as resources such as Sempra’s ethics and compliance hotline. We measure culture and employee engagement through a variety of channels including pulse surveys, suggestion boxes and a biannual engagement survey administered by a third party.
We continue to advance our workforce modernization efforts to enhance operational performance. Key elements include retaining high performing talent, streamlining organizational structures, and aligning our workforce with evolving business needs. We intend to shift our workforce toward higher-value roles through talent reskilling and upskilling, redeployment strategies, and driving adoption of artificial intelligence and modern technologies. As we implement these initiatives, we expect certain roles to be consolidated or modified over time. While these actions may result in changes in overall headcount over time, the primary focus is on building a more agile, skilled, and technology-enabled workforce capable of supporting the company’s long-term strategy and value for customers.
The table below shows the number of employees for each of the Registrants at December 31, 2025, as well as the number of those employees represented by labor unions under various collective bargaining agreements that generally cover wages, benefits, working conditions and other terms and conditions of employment. The table below shows the number of employees for each of our registrants at December 31, 2021, as well as the percentage of those employees represented by labor unions under various collective bargaining agreements that generally cover wages, benefits, working conditions and other terms and conditions of employment. We did not experience any major work stoppages in 2025, and we maintain constructive relations with our labor unions.
(1) Excludes employees of equity method investees. Includes 3,048 employees, four of whom are covered under collective bargaining agreements, that are included in the disposal group that is classified as held for sale.
COMPANY WEBSITES
The Registrants’ website addresses are:
▪Sempra – www.sempra.com
▪SDG&E – www.sdge.com
▪SoCalGas – www.socalgas.com
We make available free of charge on the Sempra website, and for SDG&E and SoCalGas, via a hyperlink on their websites, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
The references to our websites in this report are not active hyperlinks and the information contained on, or that can be accessed through, the websites of Sempra, SDG&E and SoCalGas or any other website referenced herein is not a part of or incorporated by reference in this report or any other document that we file with or furnish to the SEC.
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ITEM 1A. RISK FACTORS
When evaluating our company and its businesses and any investment in our or their securities, you should carefully consider the following risk factors and all other information contained in this report and the other documents we file with the SEC (including those filed subsequent to this report). We also may be materially harmed by risks and uncertainties not currently known to us or that we currently consider immaterial. If any of these risks occur, our results of operations, financial condition, cash flows and/or prospects could be materially adversely affected, our actual results could differ materially from those expressed or implied in our forward-looking statements, and the trading prices of our securities and those of our businesses could decline. If any of these risks occurs, our results of operations, financial condition, cash flows and/or prospects could be materially adversely affected, our actual results could differ materially from those expressed in any forward-looking statements made by us or on our behalf, and the trading price of our securities and those of our subsidiaries could decline. These risk factors are not prioritized in order of importance or materiality, and they should be read together with the other information in this report, including in the Consolidated Financial Statements and in “Part II – Item 7. MD&A.”
RISKS RELATED TO SEMPRA
Operational and Structural Risks
Sempra’s ability to pay dividends and meet its obligations largely depends on the performance of its subsidiaries and entities accounted for as equity method investments.
We are a holding company and substantially all the assets that produce our earnings are owned by our subsidiaries or equity method investees, which are entities we do not control.We are a holding company and substantially all our assets are owned by our subsidiaries or entities we do not control, including equity method investments. SI Partners, which primarily constitutes our Sempra Infrastructure reportable segment, will be accounted for as an equity method investment subject to closing the planned sale of 45% of our equity interest, which we expect to occur in the second or third quarter of 2026. Our ability to pay dividends and meet our debt and other obligations largely depends on distributions from our subsidiaries and equity method investees, which in turn depend on their ability to execute their business strategies and generate cash flows in excess of their own expenditures, dividend payments to third-party owners (if any) and debt and other obligations. In addition, our subsidiaries and entities accounted for as equity method investments are all separate and distinct legal entities that are not obligated to pay dividends or make loans or distributions to us and could be precluded from doing so by legislation, regulation or contractual restrictions, in times of financial distress or in other circumstances. In addition, entities accounted for as equity method investments, which we do not control, and our subsidiaries are all separate and distinct legal entities that are not obligated to pay dividends or make loans or distributions to us and could be precluded from doing so by legislation, regulation, court order or contractual restrictions, in times of financial distress or in other circumstances. Any inability to access capital from our subsidiaries and equity method investees could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. The inability to access capital from our subsidiaries and entities accounted for as equity method investments could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Sempra’s rights to the assets of its subsidiaries and equity method investees are structurally subordinated to the claims of each entity’s trade and other creditors.Sempra’s rights to the assets of its subsidiaries and equity method investments are structurally subordinated to the claims of each entity’s trade and other creditors. When Sempra is a creditor of any such entity, its rights as a creditor are effectively subordinated to any security interest in the entity’s assets and any indebtedness of the entity senior to that held by Sempra. In addition, if Sempra is a creditor of any such entity, its rights as a creditor would be effectively subordinated to any security interest in the entity’s assets and any indebtedness of the entity senior to that held by Sempra. In addition, Sempra may elect to make additional capital contributions to its subsidiaries or equity method investments, which are not required to be repaid and are structurally subordinated to claims by creditors of the applicable subsidiary.
Our investments in businesses we do not control expose us to risks.
We have investments in businesses we do not control or manage or in which we share control, including Oncor and SI Partners (subject to closing our planned sale of a portion of our equity interest in SI Partners). We discuss these investments in Note 5 of the Notes to Consolidated Financial Statements. We discuss these investments further in Notes 5, 6 and 16 of the Notes to Consolidated Financial Statements. In some cases, we engage in arrangements with or for these businesses that could expose us to risks in addition to our investment, including guarantees, indemnities and loans. For businesses we do not control, we are subject to the decisions of others, which may be adverse to our interests. For businesses we do not control, we are subject to the decisions of others, which may not always be in our interest and could negatively affect us. When we share control of a business with other owners, any disagreements among the owners about strategy, financial, operational, transactional or other important matters could hinder the business from moving forward with key initiatives or taking other actions and could negatively affect the relationships among the owners and the efficient functioning of the business. In addition, irrespective of whether we control these businesses, we would be responsible for certain liabilities or losses related to these businesses, may be subject to disproportional funding obligations for certain matters or priority distributions in favor of other partners or members, and may be required or elect to make additional capital contributions to these businesses. In addition, irrespective of whether or not we control these businesses, we could be responsible for liabilities or losses related to the businesses or elect to make capital contributions to these businesses during times of financial distress that could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
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Our business could be negatively affected by activist shareholders.
We have been and may in the future be subject to activist shareholder attention, including proxy solicitations, shareholder proposals or other attempts to effect changes in or assert influence on our board of directors and management. In connection with these efforts, activist shareholders could seek to acquire our capital stock, despite the provisions of our governing documents that may delay, deter or prevent a change of control or other takeover of our company even if our shareholders might prefer such a change of control. At certain ownership levels, these common stock acquisitions could threaten our ability to use some or all of our NOL or tax credit carryforwards if our corporation experiences an “ownership change” under applicable tax rules. Responding to activist shareholders can be costly and time-consuming and requires time and attention from our board of directors and management, diverting their attention from our business strategies.
Any actual or perceived instability in our future direction, inability to execute our strategies, or changes in our board of directors or management team arising from activist shareholder campaigns could be exploited by our competitors and/or other activist shareholders, result in the loss of business opportunities, and make it more difficult to pursue our strategic initiatives or attract and retain qualified personnel and business partners, any of which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Financial and Capital Stock-Related Risks
Successfully executing our five-year capital expenditures plan is subject to risks.
The execution of our five-year capital expenditures plan may not be completed in accordance with current expectations or produce the desired results. Factors that have historically impacted and could continue to impact the amount, timing and types of capital expenditures we make include the cost and availability of financing; economic and market conditions; regulatory decisions; changes in tax law; business opportunities providing desirable rates of return; forecasts related to safety, reliability and load growth, gas system planning and transportation electrification; safety and environmental requirements and climate-related policies; and cooperation of third parties, including customers, partners, suppliers, lenders and others. We discuss these and other relevant factors with respect to each of our businesses below. We aim to finance our five-year capital expenditures plan in a manner that will maintain our investment-grade credit ratings and capital structure, but we may not be able to do so. Any failure to successfully execute our capital expenditures plan could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Settlement provisions contained in forward sale agreements in connection with our ATM program subject us to certain risks.
In November 2024, Sempra established an ATM program, which we discuss in Note 13 of the Notes to Consolidated Financial Statements. We are permitted to sell shares of our common stock in the ATM program pursuant to forward sale agreements, including 4,996,591 shares under existing forward sale agreements that remain subject to future settlement as of February 26, 2026. These forward sale agreements grant each counterparty (forward purchaser) the right to accelerate its forward sale agreement (or, in certain cases, the portion affected by the relevant event) and require us to physically settle the forward sale agreement upon the occurrence of certain events, some of which are not within our control.
A forward purchaser’s decision to exercise this right and require us to physically settle the relevant shares will be made irrespective of our interests, including our capital and other needs. In such cases, we could be required to issue and deliver shares of our common stock under the terms of the physical settlement, which would result in dilution to our EPS and may adversely affect the market price of our common stock and any series of preferred stock we may issue in the future.
The forward price that we expect to receive upon physical settlement of a forward sale agreement will be subject to adjustment on a daily basis based on a floating interest rate factor. If the specified daily rate is less than the applicable spread on any day, this will result in a daily reduction of the forward price. In addition, the forward price will be subject to decrease on certain dates specified in the relevant forward sale agreement by the amount per share of quarterly dividends we expect to declare on our common stock during the term of such forward sale agreement.
We generally have the right, in lieu of physical settlement of any forward sale agreement, to elect cash or net share settlement in respect of any or all of the shares of our common stock subject to each forward sale agreement. If we elect to cash or net share settle all or any part of any forward sale agreement, we would expect to issue a substantially lower number of shares than if we settled by physical delivery, but would not receive the cash for the shares that would have otherwise been issued if we settled the entire forward sale agreement by physical delivery and, as a result, would not derive the same liquidity or credit metrics benefits.
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If the price of our common stock at which purchases are made by a forward purchaser (or its affiliate) exceeds the applicable forward price, we will pay the forward purchaser an amount in cash equal to such difference (if we elect to cash settle) or we will deliver to the forward purchaser a number of shares of our common stock having a market value equal to such difference (if we elect to net share settle). Any such difference could be significant and could require us to pay a significant amount of cash or deliver a significant number of shares of our common stock to a forward purchaser.
The purchase of shares of our common stock by a forward purchaser (or its affiliate) to unwind the forward purchaser’s hedge position could cause the price of our common stock to increase above the price that would have prevailed in the absence of those purchases (or prevent a decrease in such price), thereby increasing the amount of cash (in the case of cash settlement) or the number of shares (in the case of net share settlement) that we would owe the forward purchaser upon settlement of the applicable forward sale agreement or decreasing the amount of cash (in the case of cash settlement) or the number of shares (in the case of net share settlement) that the forward purchaser would owe us upon settlement of the applicable forward sale agreement.
The economic interest, voting rights and market value of our outstanding common stock may be adversely affected by any additional equity securities we may issue.The economic interest, voting rights and market value of our outstanding common and preferred stock may be adversely affected by any additional equity securities we may issue.
At February 19, 2026, we had 653,284,140 shares of our common stock outstanding. Our businesses have substantial capital needs, and we may seek to raise capital by issuing additional equity, including in our ATM program, or convertible debt securities in potentially significant amounts depending in part on the prevailing market price of our common stock, which at times experiences substantial volatility. Any future issuance of equity or convertible debt securities may materially dilute the voting rights and economic interests of holders of our outstanding common stock and materially adversely affect the trading price of our common stock.
RISKS RELATED TO ALL SEMPRA BUSINESSES
Operational Risks
Our infrastructure and its supporting systems subject us to risks.
Our facilities and the systems that interconnect and/or manage them are subject to risks of, among other things:
▪equipment or process failures due to aging infrastructure or otherwise
▪human error
▪loss or outage of a key technology platform or system
▪shortages of or delays in obtaining equipment, materials, supplies, commodities or labor, which have been and may continue to be exacerbated by supply chain and gas transportation capacity constraints, tight labor markets, and cost increases due to inflation, tariffs or otherwise, that may not be recoverable in a timely manner or at all
▪operational restrictions resulting from governmental interventions, including environmental requirements, or permitting delays
▪inability to enter into, maintain, extend or replace long-term supply or transportation contracts
▪performance below expected levels
Our businesses undertake capital investment projects to construct, replace, operate, maintain and upgrade facilities and systems, but such projects may not be completed or effective at managing these risks and involve significant costs that may not be recoverable in a timely manner or at all. We often rely on third parties, including contractors, to perform work related to these projects and other activities, which may subject us to liability for safety issues or lower standards of work quality. Because some of our facilities are interconnected with those of third parties, including customer-side-of-meter facilities, natural gas pipelines and power generation facilities, the operation of our facilities could also be materially adversely affected by these or similar risks to such third-party systems, which may be unanticipated or uncontrollable by us.
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Additional risks associated with our facilities and systems, which may be beyond our control, include:
▪failure to meet customer demand for electricity and/or natural gas, including electric or gas outages
▪gas surges into homes or other properties
▪release of hazardous or toxic substances, including gas leaks
▪public contact with energized equipment
▪worksite accidents and other incidents impacting the health, safety or security of employees, contractors, the public or our infrastructure
▪failure to respond effectively to catastrophic events
▪severe weather, which we discuss further in the following risk factor
The occurrence of any of these events could affect supply and demand for electricity, natural gas or other forms of energy, cause unplanned outages, damage our assets and/or operations or those of third parties on which our businesses rely, damage property owned by customers or others, and cause personal injury or death, such as recent contractor fatalities on certain Sempra Infrastructure projects under construction. In addition, if we are unable to defend and retain title to the properties we own or obtain or retain rights to construct and operate on the properties we do not own in a timely manner, on reasonable terms or at all, we could lose our rights to occupy and use these properties and related facilities, which could prevent, limit or delay existing or proposed operations or projects, increase our costs, and result in breaches of permits or contracts and related impairments, fines or penalties. If we are unable to defend and retain title to the properties we own or if we are unable to obtain or retain rights to construct and operate on the properties we do not own on reasonable financial and other terms, we could lose our rights to occupy and use these properties and the related facilities, which could delay or derail proposed projects, increase our development costs, and result in breaches of one or more permits or contracts related to the affected facilities that could lead to legal costs, fines or penalties. Any such outcome could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. Any such outcome could have a material adverse effect on Sempra’s results of operations, financial condition, cash flows and/or prospects. Any such outcome could have a material adverse effect on Sempra’s results of operations, financial condition, cash flows and/or prospects.
We face risks related to severe weather, natural disasters, physical attacks and other similar events.
Our employees and contractors may be harmed and our facilities and infrastructure may be damaged as a result of physical risks, such as extreme temperatures, storms, droughts and other severe weather; natural disasters, including wildfires, land movement, earthquakes, and solar flares; climate-related conditions, including sea level rise and coastal erosion; accidents, including explosions, excavation damage to pipelines and automobile accidents; or acts of terrorism, war or criminality, including physical attacks and unauthorized drone incursions. Because we are in the business of using, storing, transporting and disposing of highly flammable, explosive and radioactive materials and operating highly energized equipment, the risks such incidents pose to our facilities and infrastructure, as well as to the surrounding communities for which we could be liable, are substantially greater than the potential risks to a typical business. Because we are in the business of using, storing, transporting and disposing of highly flammable, explosive and radioactive materials and operating highly energized equipment, the risks such incidents may pose to our facilities and infrastructure, as well as the risks to the surrounding communities for which we could be held responsible, are substantially greater than the risks such incidents pose to a typical business. Efforts to mitigate these risks could decrease revenues and earnings and/or increase costs, which for our regulated utilities may not be recoverable in rates on a timely basis or at all, including expenditures on infrastructure maintenance and resiliency, physical and employee safety and security, emergency preparedness, wildfire mitigation and grid modernization.
Such incidents, which have occurred from time to time, could result in operational disruptions, electric or gas outages, property damage, personal injury or death and could cause secondary incidents that also may have these or other negative effects, such as fires; leaks or spills of gases, natural gas odorant or radioactive material; damage to natural resources; or other impacts to affected communities. Such incidents could result in business and project development disruptions, power outages, property damage, injuries and loss of life for which we could be liable and could cause secondary incidents that also may have these or other negative effects, such as fires; leaks of natural gas, natural gas odorant, propane, ethane, other GHG emissions or radioactive material; spills or other damage to natural resources; or other nuisances to affected communities. Any of these occurrences could decrease revenues and earnings and/or increase costs, including restoration expenses, amounts associated with claims against us, and regulatory fines, penalties and disallowances. Any of these occurrences could decrease revenues and earnings and/or increase costs, including maintenance costs or restoration expenses, amounts associated with claims against us, and regulatory fines, penalties and disallowances. In some cases, we may be liable for damages even though we are not at fault, such as when the doctrine of inverse condemnation applies, which we discuss below under “Risks Related to Sempra California – Operational Risks.” Insurance coverage for these costs may continue to increase or become prohibitively expensive, be disputed by insurers, or become unavailable for certain of these risks or at adequate levels or in certain geographic locations, and any insurance proceeds may be insufficient to cover our losses or liabilities due to limitations, exclusions, high deductibles, failure to comply with procedural requirements or other factors. Insurance coverage for these costs may increase or become prohibitively expensive, be disputed by insurers, or become unavailable for certain of these risks or at sufficient levels, and any insurance proceeds may be insufficient to cover our losses or liabilities due to limitations, exclusions, high deductibles, failure to comply with procedural requirements or other factors. We discuss the risks related to insurance for wildfire liabilities below under “Risks Related to Sempra California – Operational Risks. We discuss the risks related to these arrangements above under “Risks Related to Sempra – Operational and Structural Risks. ” Such incidents that do not directly affect our facilities may impact our business partners, supply chains and transportation and communication channels, which could negatively affect our ability to operate. Such incidents that do not directly affect our facilities may impact our business partners, supply chains and transportation, which could negatively impact construction projects and our ability to provide electricity and natural gas to customers. Moreover, weather-related incidents have become more prevalent, unpredictable and severe due to climate change or other factors. As a result, these incidents could have a greater impact on our businesses than currently anticipated and, for our regulated utilities, rates may not be adequately or timely adjusted to reflect any such increased impact. Any such outcome could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. Any such outcome could have a material adverse effect on Sempra’s results of operations, financial condition, cash flows and/or prospects. Any such outcome could have a material adverse effect on Sempra’s results of operations, financial condition, cash flows and/or prospects.
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We face evolving cybersecurity, technology resiliency and data security and governance risks, including with respect to increasing use of artificial intelligence.
Cybersecurity and Technology Resiliency
Our significant reliance on complex technologies and increasing deployment of new technologies, such as advanced forms of automation and artificial intelligence and virtualization of many business activities, represent large-scale opportunities for attacks on or failures of our information systems, the energy grid and our other infrastructure. Our digitalization and grid modernization efforts, including the networking of operational technology assets such as substations, continue to increase the potential vulnerabilities and points of failure in our systems. We are also at risk of attacks on, vulnerabilities in or other failures of technologies and systems used by certain third-party vendors, regulators and/or ISOs, including third-party systems that are integral to our electric utilities’ operations in their respective ISO markets. Viruses, ransomware, malware and other forms of cyber-attacks targeting utility systems and other energy infrastructure continue to increase in sophistication, magnitude and frequency, may not be recognized until launched against a target and may further escalate during periods of heightened geopolitical tensions. Adversaries increasingly use artificial intelligence to develop new hacking tools, exploit vulnerabilities, obscure malicious activities and increase the difficulty of detecting threats. Accordingly, we may be unable to anticipate these techniques or to implement adequate preventative measures, making it impossible to eliminate these risks.
Although we make significant investments in risk management, technology resiliency and cybersecurity measures for the protection of our systems and data, these measures could be insufficient or otherwise fail, particularly against unknown software flaws, insider threats, attacks involving sophisticated adversaries, including nation-state actors, or outages involving key technology vendors and systems. The costs and operational consequences of implementing, maintaining and enhancing these measures are significant and expected to increase to address evolving cyber risks. The costs and operational consequences of implementing, maintaining and enhancing these protection measures are significant, and they could materially increase to address increasingly intense and complex cyber risks. We increasingly rely on third-party vendors to deploy new technologies and host, maintain and update our systems (including providing security updates), and these third parties may not have adequate risk management, technology resiliency and cybersecurity measures with respect to their systems or may fail to timely provide and install software updates. Certain of our key externally hosted systems depend on global cloud service providers as well as their respective vendors, some of which have experienced significant system failures and outages in the past.
Although we have not experienced a material breach of our information systems or data, we and some of our vendors have been and will likely continue to be subject to breaches of and attempts to gain unauthorized access to our systems or data or efforts to otherwise disrupt our operations. Any actual or perceived noncompliance with applicable legal or regulatory requirements or any incidents impacting our or our vendors’ systems, the integrity of our data or assets or the energy grid could result in disruptions to our business operations; legal or regulatory compliance failures; inability to produce accurate and timely financial statements; energy delivery failures; financial and reputational loss; litigation; and fines or penalties, any of which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. Although we currently maintain cyber liability insurance, this insurance is limited in scope and subject to exceptions, conditions and coverage limitations and may not cover the costs associated with a cybersecurity incident, and this insurance may not continue to be available on acceptable terms.
Data Security and Governance
Our businesses collect, process and retain large volumes of data, including personal, sensitive and confidential information from customers, employees, contractors and other third parties. SDG&E and SoCalGas are increasingly required to disclose large amounts of data (including customer personal information and energy use data) to support state energy initiatives, increasing the risks of inadvertent disclosure or unauthorized access of sensitive information. Our businesses operating in California are subject to the California Consumer Privacy Act, which requires companies that collect information about California residents to, among other things, disclose their data collection, use and sharing practices; allow consumers to opt out of certain data sharing with third parties; and assume liability for unauthorized disclosure of certain highly sensitive personal information. Certain of our other businesses may operate in jurisdictions with similar laws.
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In addition to security and privacy risks related to data, we face challenges related to data governance, including the need to manage our data with the aim to meet regulatory requirements and create a foundation for the use of artificial intelligence tools. Our current and potential future uses of such tools (and use by our vendors and agents) may expose us to heightened security and privacy risks as well as operational, legal, and reputational risks. Data produced by or contained in artificial intelligence tools may contain inaccuracies, and our investments in such technologies and related organizational changes may not deliver the expected benefits, which could result in operational disruptions, inefficiencies, unexpected costs and regulatory disallowances. Beginning in January 2027, our businesses that are subject to the California Consumer Privacy Act will also be subject to new regulations related to, among other things, the use of artificial intelligence tools to automate certain decisions. These regulations may limit some potential applications of such technologies, particularly with respect to previously collected personal data. The regulations require companies to disclose any covered use of such technologies and how the relevant decisions will be made and to allow consumers to opt out of such use, subject to limited exceptions. The regulations also require companies to conduct risk assessments before initiating certain data processing activities, disclose information about these assessments to the California Privacy Protection Agency, conduct an annual cybersecurity audit and submit a written compliance certification to the agency.
We will continue to incur costs related to our deployment of artificial intelligence and compliance with applicable laws and regulations governing data collection, processing and retention. Any actual or perceived noncompliance could result in reputational harm, enforcement actions or other proceedings and fines or penalties, any of which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. Any such labor disruption or negotiated wage or benefit increases, whether due to 37Table of Contentsunion activities, employee turnover or otherwise, could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Conditions in global markets, including the impact of enacted and proposed tariffs and other trade actions, may materially and adversely affect us.
Our businesses import various materials, including steel and aluminum, and purchase foreign-sourced goods, such as electrical transformers, from domestic distributors. SI Partners also generates a material portion of its earnings from LNG exports to customers located outside the U.S., including countries in Asia and Europe. Our ability to continue importing materials and purchasing foreign-sourced goods at competitive prices and reaching positive FIDs on LNG and other projects in development is subject to a number of risks, including adverse impacts on the affordability of projects in development and under construction due to the imposition of tariffs by the U.S. Administration, and adverse impacts caused by (i) legal and regulatory requirements or limitations imposed by foreign governments, including tariffs, quotas or other trade barriers, sanctions, adverse tax law changes, nationalization, currency restrictions, or import restrictions, and (ii) disruptions or delays in shipments caused by customs compliance or other actions of government agencies.
In 2018, the U.S. imposed tariffs on certain imported steel and aluminum products, as well as tariffs in various ranges on imports from China. Those tariffs remain in effect. Beginning in January 2025, the U.S. Administration has announced a number of new and increased tariffs, both threatened and imposed, including a higher total tariff rate on goods from China and numerous other tariffs on imports from all countries with only limited exclusions. The U.S. Administration has delayed the effectiveness of certain tariffs and tariff rate increases and threatened to accelerate the effectiveness of others. In particular, the U.S. Administration has imposed new tariffs on Mexico and Canada, and additional tariffs have been threatened and these and other changes, including in connection with the planned joint review of the U.S.-Mexico-Canada Agreement in 2026, may become effective in the near term. Additionally, the U.S. Administration has expanded the application of the 2018 steel and aluminum tariffs to countries and products that had previously been excluded, including a broad range of derivative products, increased steel and aluminum tariff rates, and imposed tariffs on certain imported copper products. The U.S. Administration also is considering new tariffs on additional imported products, including power grid equipment, large-scale batteries and plastic piping. These threatened and imposed tariffs have created uncertainty in our business development efforts and for projects currently under construction, and we expect them to impact our businesses’ costs related to construction, pipeline transportation, electricity procurement and financing, among other areas, and increase costs across the LNG value chain. These impacts may result in delays, cost overruns or reduced profitability for construction and development projects, denials or delays of recovery in rates of higher costs at our regulated utilities, or other adverse effects, any of which could be material.
We also face uncertainty in the interpretation and application of these tariffs, including with respect to customs valuation, product classification and country-of-origin determinations. Any disagreement with regulators on these matters could result in the retroactive assessment of additional tariffs with interest, the imposition of penalties, or other enforcement actions, any of which could be material. The uncertainties inherent in lawsuits and other proceedings make it difficult to estimate with any degree of certainty the timing, costs and ranges of costs and effects of resolving these matters.
These recent tariffs, along with other U.S. trade actions, have triggered retaliatory actions by certain affected countries, including China’s announcement of a tariff on U.S. LNG. The Mexican government has announced it may implement retaliatory tariffs in response to the U.S. Administration’s tariffs, and other foreign governments may also impose trade measures, including retaliatory tariffs, on LNG or other U.S. goods in the future. These tariffs and other trade actions could negatively impact demand for our LNG exports, which would adversely impact our LNG projects and development pipeline.
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While the U.S. Administration has announced various trade deals, many such agreements are preliminary and may be subject to change. Certain of the announced deals, including the agreement with the European Union, require further governmental approvals, and certain announced deal terms, including purported commitments by the European Union and Japan to purchase more U.S. energy, may be non-binding or subject to voluntary implementation by the private sector. Any disagreement between the U.S. and other countries over the implementation of such trade deals or any failure to obtain required governmental approvals or otherwise reach a final agreement could result in prolonged uncertainty regarding the scope and duration of these trade actions by the U.S. and other countries. Such actions and any resulting economic, financial or geopolitical instability could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
We actively seek opportunities in the market through acquisitions, partnerships, JVs and divestitures, and we may be unable to complete or realize the anticipated benefits from such transactions.
We diligently analyze the financial viability of acquisitions, divestitures, partnerships and JVs we pursue. However, our diligence may prove to be insufficient and there could be latent or unforeseen defects. However, our diligence may prove to be insufficient, and there could be difficulties in integrating acquired assets to our standards or in a timely manner or latent unforeseen defects. In addition, we may not realize the anticipated benefits from future transactions for various reasons, including difficulties integrating or separating operations and personnel effectively or in a timely manner, higher or unexpected transaction or operating costs, unknown liabilities, and fluctuations in markets. In addition, we may not realize all of the anticipated benefits from future acquisitions, partnerships or JVs such as increased earnings, cost savings, or revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher and unexpected acquisition and operating costs, unknown liabilities, and fluctuations in markets. We discuss these and other risks related to our planned sale of a portion of our equity interest in SI Partners below under “Risks Related to Sempra Infrastructure – Risks Related to Planned Sales of Certain Assets and Businesses.” Any of these outcomes could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
We face risks related to activities and projects intended to advance new energy-related technologies.
We participate in research, development and demonstration projects and other activities designed to develop and implement new technologies in the energy space, including those related to hydrogen, liquefaction, energy storage, microgrids, carbon sequestration, wildfire mitigation and grid modernization.We may periodically undertake or become involved in research and development projects and other activities designed to develop new technologies in the energy space, including those related to hydrogen, energy storage, carbon sequestration, grid modernization and others. These activities and projects involve significant employee time, as well as substantial capital resources, and we may be required to impair or write off amounts we have invested if any project is unsuccessful or its book value is less than the amount of our investment. These activities and projects can involve significant employee time, as well as substantial capital resources that may not be recoverable in rates or, with respect to our non-regulated utility businesses, may not be able to be passed through to customers. As has happened in the past, regulators may deny rate recovery to our regulated utilities for some of these investments. We have sought and continue to seek a variety of related federal and state funding opportunities for these activities and projects, such as government incentives and subsidies under the IRA, some of which were revised by the OBBBA. These efforts can involve significant compliance requirements and have not always been successful in securing funding on acceptable terms or at all. In addition, the timing to complete these activities and projects is inherently uncertain and may require significantly more resources than we initially anticipate. In addition, the timing to complete these activities and projects is inherently uncertain and may require significantly more time and funding than we initially anticipate. Moreover, many of these technologies are in the early stage of development and may not prove economically and technically feasible or be accepted by regulators, and the applicable activities and projects may not be completed. Moreover, many of these technologies are in the early stage of development, and the applicable activities and projects may not be completed or the applicable technologies may not prove economically and technically feasible. If any of these circumstances occur, we may not receive an adequate or any return on our investment, and our results of operations, financial condition, cash flows and/or prospects could be materially adversely affected. If any of these circumstances occurs, we may not recover or receive an adequate or any return on our investment and other resources invested in these activities and our results of operations, financial condition, cash flows and/or prospects could be materially adversely affected.
The operation of our facilities depends on good labor relations with our employees and our ability to attract and retain qualified personnel.
Our businesses depend on recruiting, developing and retaining qualified personnel. Several of our businesses have collective bargaining agreements with different labor unions, which are negotiated on a company-by-company basis.Several of our businesses have in place collective bargaining agreements with different labor unions, which are generally negotiated on a company-by-company basis. At December 31, 2025, employees covered under collective bargaining agreements were 38%, 36% and 56%, respectively, of Sempra’s, SDG&E’s and SoCalGas’ workforce (exclusive of equity method investees), of which the collective bargaining agreements covering 26%, 100% and 0%, respectively, of such employees expire within one year (the SDG&E agreements will expire in August 2026). Any prolonged negotiation or failure to reach an agreement on these labor contracts as they are up for renewal could result in work stoppages or other labor disruptions. Additionally, we have faced a shortage of experienced and qualified personnel in certain specialty operational positions and could experience disruptions from recruiting or retention challenges for personnel in those positions. Any labor disruption, negotiated wage or benefit increases or other challenges, whether due to union activities, employee turnover, labor shortages or otherwise, could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. Any such labor disruption or negotiated wage or benefit increases, whether due to 37Table of Contentsunion activities, employee turnover or otherwise, could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
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Our businesses depend on the performance of counterparties.
Our businesses depend on the performance of business partners, customers, suppliers, contractors, and other counterparties under contractual and other arrangements to provide, among other things, services, supplies, equipment or commodities. If they fail to perform their obligations in accordance with these arrangements or elect to exercise early termination rights, we may be unable to meet our obligations and may be required to secure alternative arrangements, if available, or honor our underlying commitments at then-current market prices, which may result in losses or delays or other operational disruptions. In particular, existing and potential new or amended legislation and regulation relating to the control and reduction of GHG emissions and climate change may materially restrict our operations, negatively impact demand for our services and/or the energy we transmit, limit development opportunities, force costly or otherwise burdensome changes to our operations or otherwise materially adversely affect us. Any efforts to enforce the terms of these arrangements through legal or other means could involve significant time and costs and may not succeed. Any efforts to enforce the terms of these arrangements through legal or other means could involve significant time and costs and would be unpredictable and may not be successful. We may not be able to secure replacement agreements on favorable terms, in a timely manner or at all if any of these arrangements terminate. We often face counterparty credit risk with respect to customers, suppliers, and other counterparties and, although we perform credit analyses prior to extending credit or entering into transactions with such counterparties, we may not be able to collect the amounts owed to us. Further, we often extend credit to customers and other counterparties and, although we perform credit analyses prior to extending credit, we may not be able to collect the amounts owed to us, which presents an increased risk for our long-term supply, sales and capacity contracts. Volatility and disruptions in capital and credit markets could have a negative impact on our counterparties and their ability to meet their obligations. SI Partners also faces risks related to doing business with PEMEX and the CFE, which are Mexican state-owned enterprises, including their financial solvency and performance of their respective contractual obligations. Any delay or default in payment could result in our recording of a provision for expected credit losses on past due receivable balances and lower revenues, as was the case in 2024 and 2025 for a customer at SI Partners. The failure of any of our counterparties to perform their obligations could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. The failure of any of our counterparties to perform in accordance with their arrangements with us could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Financial Risks
Our debt service obligations expose us to risks.
We have significant debt service obligations and an ongoing need for significant amounts of additional capital, which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects by, among other things:
▪making it more difficult and costly to service, pay or refinance debts as they come due, particularly when interest rates increase or economic or industry conditions are otherwise unfavorable
▪limiting flexibility to pursue strategic opportunities or react to business developments or industry changes causing lenders to require materially adverse terms for new debt, such as restricting uses of proceeds, imposing liens on our assets and limiting our ability to incur additional debt, pay dividends, repurchase stock, or receive distributions from subsidiaries or equity method investees
The availability and cost of financing could be negatively affected by market and economic conditions and other factors.
Our businesses are capital-intensive, with significant and increasing capital spending expected in future periods. In general, we rely on long-term debt to fund a significant portion of our capital expenditures and to repay or refinance outstanding debt, and we rely on short-term debt to fund a significant portion of day-to-day operations. In general, we rely on long-term debt to fund a significant portion of our capital expenditures and repay outstanding debt and short-term borrowings to fund a significant portion of day-to-day business operations. Certain of our businesses also rely on other funding sources, such as Sempra Infrastructure’s use of capital contributions from its owners and various forms of project financing, which may involve guarantees, indemnities or other arrangements that expose us to additional risks, such as potential losses upon the occurrence of events related to the development, construction, operation or financing of the applicable projects. Sempra has also raised and may continue to seek capital by issuing equity, including in our ATM program, or selling equity interests in our subsidiaries or investments.
External sources of capital may not be adequate or available on reasonable terms, in a timely manner or at all. Limitations on the availability of credit, increases in interest rates or credit spreads due to inflation or otherwise or other negative effects on the terms of any financing we pursue could cause us to fund operations and capital expenditures at a higher cost or fail to raise our targeted amount of funds, which could negatively impact our ability to meet contractual and other commitments, progress development projects, make non-safety related capital expenditures and effectively sustain operations. Limitations on the availability of credit, increases in interest rates or credit spreads or other negative effects on the terms of any debt or equity financing could cause us to fund operations and capital expenditures at a higher cost or fail to raise our targeted amount of funding, which could negatively impact our ability to meet contractual and other commitments, pursue development projects, make non-safety related capital expenditures and sustain operations. Any of these outcomes could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
In addition to market and economic conditions, factors that can affect the availability and cost of capital include:
▪adverse changes to laws and regulations
▪for Sempra and SDG&E, risks related to California wildfires
▪for Sempra, SDG&E and SoCalGas, any deterioration of or uncertainty in the political or regulatory environment for companies operating in California
▪credit ratings downgrades
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Credit rating agencies may downgrade our credit ratings or place them on negative outlook, and our efforts to maintain these ratings could require additional equity securities issuances by Sempra or sales of equity interests in subsidiaries or projects in development.
Credit rating agencies routinely evaluate Sempra, SDG&E, SoCalGas, SI Partners and certain of our other businesses, whose ratings are based on many factors, including, as applicable, the ability to generate cash flows; terms and levels of indebtedness, including the credit rating agencies’ treatment of certain types of indebtedness, such as subordinated indebtedness which is given partial equity credit but carries a higher interest rate than comparable senior indebtedness; overall financial strength; specific transactions or events, such as share repurchases and significant litigation; the status of certain capital projects; and general economic and industry conditions. The Rating Agencies also have specified certain events that could lead to negative ratings actions, including, among others:
▪weakening of certain financial measures or failure to meet certain financial credit metrics
▪ratings downgrades at certain affiliated entities
▪for Sempra, expansion of unregulated businesses in a manner inconsistent with its present level of credit quality
▪for Sempra and SDG&E, catastrophic wildfires caused by SDG&E or any other California electric IOU that participates in the Wildfire Fund and Continuation Account
▪for SDG&E and SoCalGas, a deterioration of the legislative or regulatory environment, including credit negative outcomes of regulatory proceedings
▪for Sempra and SI Partners, the PA LNG Phase 1 project or PA LNG Phase 2 project experiencing higher construction costs, delays or other challenges
In an effort to maintain these credit ratings, we may seek to reduce our outstanding indebtedness or our need for additional indebtedness by reducing or postponing discretionary, non-safety or reliability related capital expenditures or investments in new businesses. We may also issue additional equity securities, including in our ATM program, or sell additional equity interests in our subsidiaries or development projects. We may not be able to complete any such equity sales on acceptable terms or at all, and any new equity issued by Sempra may dilute the voting rights and economic interests of Sempra’s existing equity holders. We may not be able to complete equity issuances on terms we consider acceptable or at all, and any new equity we do issue may dilute the voting rights and economic interests of existing holders of Sempra’s common and/or preferred stock. Any such outcome could have a material adverse effect on Sempra’s results of operations, financial condition, cash flows and/or prospects.
Although we aim to maintain or improve these credit ratings, they could be downgraded or subject to other negative rating actions at any time, such as S&P’s January 2025 actions that revised Sempra’s outlook to negative from stable and downgraded SoCalGas’ issuer credit rating, and Moody’s March 2025 action that revised Sempra’s outlook to negative from stable. A downgrade of any of our businesses’ credit ratings or ratings outlooks, as well as the reasons for such downgrades, could materially adversely affect the interest rates at which borrowings can be made and debt securities issued and the various fees on our credit facilities. This could make it more costly to borrow money, issue securities and/or raise other types of capital, any of which could reduce our ability to meet our debt obligations and contractual commitments and, in the case of our regulated utilities, increase customer rates, and otherwise materially adversely affect our results of operations, financial condition, cash flows and/or prospects. This could make it more costly for the affected businesses to borrow money, issue equity or debt securities and/or raise other types of capital, any of which could materially adversely affect our ability to meet our debt obligations and contractual commitments, and our results of operations, financial condition, cash flows and/or prospects.
We discuss these credit ratings in “Part II – Item 7. MD&A - Capital Resources and Liquidity.”
We do not fully hedge our assets or contract positions against changes in commodity prices or interest rates, and for positions that are hedged, our hedging mechanisms may not mitigate our risk or reduce our losses as intended.
We use forward contracts, futures, financial swaps and/or options, among other mechanisms, to hedge a portion of our known or anticipated purchase and sale commitments, inventories of natural gas and LNG, natural gas storage and pipeline capacity and electric generation capacity in an effort to reduce our, and for SDG&E and SoCalGas, customers’ financial exposure related to commodity price fluctuations. In addition, we have used and may continue to use similar financial instruments to hedge against changes in interest rates. The extent to which we hedge our positions varies over time. Certain derivative instruments are recorded at fair value through earnings to reflect movements in the price of the derivative, which has recently and could in the future create volatility in our earnings. The effect of such commodity derivative instruments for SDG&E and SoCalGas are passed through to customers in rates without markup. To the extent we have unhedged positions, if any hedging counterparty fails to fulfill its contractual obligations, or if our hedging strategies do not work as intended, fluctuating commodity prices and interest rates could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. However, these measures may not fully or substantially offset any increases in operating expenses or financing costs caused by inflationary pressures and their use could introduce additional risks, any of which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
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Risk management procedures may not prevent or mitigate losses.
Although we have risk management and control systems designed to quantify and manage risk, these systems may not prevent material losses.Although we have in place risk management and control systems designed to quantify and manage risk, these systems may not prevent material losses. Risk management procedures may not always be followed as intended or function as expected. In addition, daily VaR and loss limits, which are primarily based on historic price movements and which we discuss in “Part II – Item 7A. In addition, daily value-at-risk and loss limits, which are primarily based on historic price movements and which we discuss further in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” may not protect us from losses if prices significantly or persistently deviate from historic prices. As a result of these and other factors, our risk management procedures and systems may not prevent or mitigate losses that could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
An impairment of our long-lived assets could result in a material charge to earnings.
We test long-lived assets, including equity method investments, for recoverability when events or changes in circumstances have occurred that may affect the recoverability or the estimated useful lives of the assets. We could experience events or changes in circumstances from, among other things, (i) an inability to operate our existing facilities; (ii) an inability to collect from customers; (iii) changes to laws or regulations or other circumstances affecting the energy sector or our assets in Mexico; (iv) adverse rulings in lawsuits, binding arbitrations, regulatory proceedings, audits and other proceedings materially impacting our businesses and (v) more generally any loss of permits or approvals that requires us to adjust or cease certain operations and any failure to complete or receive an adequate return on our investments in capital projects. A material charge to earnings from an impairment loss could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. Any of the foregoing could cause reputational damage and materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Market performance, significant transactions or changes in other assumptions could require unplanned contributions to pension and PBOP plans.Market performance or changes in other assumptions could require unplanned contributions to pension and other postretirement benefit plans.
Sempra, SDG&E and SoCalGas provide defined benefit pension and PBOP plans to eligible employees and retirees. The cost of providing these benefits is affected by many factors, including the market value of plan assets, the partial termination of Sempra’s pension plan in connection with the planned sale of a portion of our equity interest in SI Partners and the other factors described in Note 9 of the Notes to Consolidated Financial Statements and “Part II – Item 7. MD&A – Capital Resources and Liquidity.” A decline in the market value of plan assets or an adverse change in any of these other factors could cause a material increase in our funding obligations for these plans, which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Legal and Regulatory Risks
We face risks related to the evolving regulatory environment, including failures or delays in obtaining and maintaining franchises and other required approvals and potential negative impacts of our legislative and regulatory advocacy efforts.
The industries in which we operate are subject to extensive regulation, increasing regulatory uncertainty and political influence and polarization.
Our businesses require numerous permits, licenses, rights-of-way, franchises, certificates and other approvals from federal, state, local and foreign governmental agencies. These approvals may not be granted in a timely manner (including due to potential staffing and funding issues at regulatory agencies) or at all or may be modified, rescinded or fail to be extended for a variety of reasons, including due to legal or regulatory changes or political considerations. The City of San Diego is studying the feasibility of municipalization as a potential alternative to SDG&E’s existing electric franchise agreement, and various aspects of SDG&E’s natural gas and electric franchise agreements have also been challenged in a lawsuit that we discuss in Note 16 of the Notes to Consolidated Financial Statements. At SI Partners, amendments to Mexico’s Constitution and the 2025 Energy Laws have increased government control and participation in the energy sector and may create novel challenges for infrastructure development and operations. Obtaining or maintaining required approvals could result in higher costs or the imposition of conditions or restrictions on our operations. Obtaining or maintaining these approvals could result in higher costs or the imposition of conditions or restrictions on our operations. Further, noncompliance by us or certain of our customers with the terms of these approvals could result in their modification, suspension or rescission and subject us to reduced revenue, fines and penalties. Further, these approvals require compliance by us and may require compliance by our customers, which could result in modification, suspension or rescission and subject us to fines and penalties if these requirements are not complied with. If any of these approvals are suspended, rescinded or otherwise terminated or modified in a manner that makes our continued operation of the applicable business prohibitively expensive or otherwise impracticable, we may be required to adjust or temporarily or permanently cease certain of our operations, sell the associated assets or remove them from service and/or construct new assets intended to bypass the impacted area, in which case we may lose some of our rate base or revenue-generating assets, our development and construction projects may be negatively affected and we may incur impairment charges or other costs that may not be recoverable. If one or more of these approvals were to be suspended, rescinded or otherwise terminated, including due to expiration or legal or regulatory changes, or modified in a manner that makes our continued operation of the applicable business prohibitively expensive or otherwise undesirable or impossible, we may be required to adjust or temporarily or permanently cease certain of our operations, sell the associated assets or remove them from service and/or construct new assets intended to bypass the impacted area, in which case we may lose some of our rate base or revenue-generating assets, our development projects may be negatively affected and we may incur impairment charges or other costs that may not be recoverable. The occurrence of any of these events could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
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From time to time, we invest funds in projects prior to receiving all regulatory approvals. Any inability to recover funds invested in these projects could materially increase our costs, result in material impairments, and otherwise materially adversely affect our results of operations, financial condition, cash flows and/or prospects. The inability to access capital from our subsidiaries and entities accounted for as equity method investments could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. We may be unable to recover any or all amounts invested in such projects if:
▪there is a delay in obtaining these approvals
▪any approval is conditioned on changes or other requirements that increase costs or impose restrictions on our existing or planned operations
▪we fail to obtain or maintain these approvals or comply with them or other applicable laws or regulations
▪we are involved in litigation that adversely impacts any approval or rights to the applicable property or assets
▪management decides not to proceed with a project
▪for our regulated utilities, expenditures are required before rate recovery can be requested or remain subject to subsequent regulatory filings and/or reasonableness reviews that could result in extended delays or denial of rate recovery or disallowance of some or all incurred costs
Our businesses engage in lobbying at the federal, state and local levels with the aim to support sound and stable governmental policies and shape the legal and regulatory framework for the energy sector. As has happened in the past, these advocacy efforts may be unsuccessful or result in adverse publicity. We also incur costs related to these activities, and for our regulated utilities, such costs are not recoverable in rates. Any of these impacts could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any of these outcomes could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
We face risks related to environmental and climate change regulation and the costs of the energy transition.
The impacts from efforts to mitigate climate change and related regulations may increase the costs we incur to procure and transmit energy and provide other services. The changes in costs and preferences for lower carbon and renewable energy sources may impact the demand for, consumption of, and types of energy we transmit and distribute.
Environmental and Climate Change Regulation
We are subject to extensive federal, state, regional, local, tribal and foreign laws and regulations relating to climate change and environmental protection. To comply with these laws and regulations, we must expend significant capital and employee resources on environmental monitoring, surveillance and other measures to track and disclose performance; acquisition and installation of pollution control equipment; implementation of environmental safety practices; other mitigation efforts; and emissions fees, taxes, penalties and other payments. These requirements could increase as a result of various factors we may not control, including changes to laws and regulations, many of which are becoming more burdensome in light of increasing environmental concerns and related changes to legal and regulatory frameworks; increased readiness and enforcement activities; delays in the renewal and issuance of permits; evolving expectations of investors and other stakeholders; and changes to the mix of energy we transmit and distribute, any of which could negatively impact our operations, costs and corporate planning, demand for our services, customer affordability, and the scope and economics of proposed infrastructure projects or other capital expenditures. Maintaining investor confidence and attracting capital will be dependent on successfully demonstrating our ability to reduce emissions associated with our operations and the energy we transmit, consistent with our aim to have net-zero emissions by 2050. Our ability to reach net-zero emissions by 2050 depends on many factors, some of which we do not control, including supportive energy laws and policies, development and availability of alternative fuels, successful research and development efforts focused on low-carbon technologies that are economically and technically feasible, cooperation from our partners, financing sources and commercial counterparties, and customer participation in conservation and energy efficiency programs. In particular, legislation and regulation designed to reduce GHG emissions and mitigate climate change are proliferating, as we discuss in “Part I – Item 1. Environmental Matters.” California’s goals are facing cost pressures and may experience delays or other challenges that could cause the state to modify its laws and rules, resulting in significant uncertainty. Any failure to comply with these or other environmental laws and regulations may subject us to fines and penalties, including criminal penalties in some cases, and/or curtailment of our operations. Failure to comply with environmental laws and regulations may subject our businesses to fines and penalties, including criminal penalties in some cases, and/or curtailments of our operations.
In addition, we are generally responsible for hazardous substances and other contamination on, and the conditions of, our projects and properties, regardless of when these conditions arose and whether they are known or unknown. We have been and may in the future be required to pay environmental remediation costs at former facilities and off-site waste disposal sites where any of our businesses is identified as a PRP under federal, state and local environmental laws. For our regulated utilities, some or all of these costs may not be recoverable in rates. For our regulated utilities, some of these costs may not be recoverable in rates.
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Additionally, California laws requiring expansive disclosures on GHG emissions and other environmental measures, targets and claims subject us to potential liability for these disclosures as well as significant compliance costs and could have other consequences that may be difficult to predict, including negative sentiment from current and potential investors, regulators, legislators or other groups. These California disclosure requirements, which remain subject to rulemaking by CARB and have been the subject of legal challenges, and other voluntary disclosures we make may use different reporting frameworks, methodologies and boundaries from each other, which may further increase compliance costs and the risk of compliance failures and may create confusion for stakeholders. Moreover, these disclosure requirements could increase the risk that we become subject to climate change lawsuits. Defense costs associated with such litigation could be significant, and any adverse outcome could require substantial capital expenditures or payment of substantial penalties or damages.
Any of these outcomes could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Other Energy Transition Risks
The energy transition in California and elsewhere, including decarbonization goals and increasingly divergent investor sentiment regarding climate change efforts, has led to contradictory expectations from various investors and other stakeholders and uncertainty in long-term investor support, including some investors reducing participation in or divesting from our sector. Maintaining investor confidence and attracting capital at a competitive cost will depend, in part, on demonstrating our ability to address material business risks related to climate and our efforts to help achieve the goals of our consumers and the markets and jurisdictions where we operate. In an effort to maintain a sustainable and durable business risk profile and continue to focus on value creation, Sempra updated its climate aspirations to reflect the changing policy, regulatory, commercial and technological landscape, including stakeholders’ evolving focus on reliability, resiliency and affordability and the pace and impact of climate and other public policies. Sempra aims to have net-zero scope 1 and 2 GHG emissions by 2050 and has an interim aim of 50% scope 1 and 2 GHG emissions reductions by 2035 (this interim target is relative to a 2019 baseline, applies to Sempra California’s operations and Sempra Infrastructure’s Mexico (non-LNG) operations, and may be subject to further revision if Sempra’s planned sale of a portion of its equity interest in SI Partners is completed). Sempra’s, SDG&E’s and SoCalGas’ abilities to advance their respective net-zero and other climate objectives and meet the demand for lower-carbon and reliable energy in California and elsewhere will depend on many factors, some of which we do not control, including supportive federal and state energy laws, policies, incentives, tax credits and regulatory decisions; cost and affordability considerations; development, commercialization and regulatory acceptance of affordable, alternative and lower-carbon energy sources, including cleaner fuels; successful research and development efforts focused on lower carbon technologies that are economically and technically feasible; cooperation from our partners, financing sources and commercial counterparties; and consumers’ decisions and preferences. In addition, we will need to continue to expend capital and employee resources to develop and deploy new technologies and modernize grid systems, which may not be recoverable in rates or, with respect to our businesses that are not regulated utilities, may not be able to be passed through to customers. Even if such costs are recoverable, these costs, coupled with necessary safety and reliability investments, may negatively impact the affordability of SDG&E’s and SoCalGas’ services and, for our businesses that are not regulated utilities, may cause costs to increase to levels that reduce customer demand and growth. Moreover, forecasting specified targets over longer-term periods is inherently uncertain and could be significantly impacted by the trajectory of the energy transition. As a result, although we are dedicated to making progress on our climate aims and are continuing to develop capabilities designed to reduce GHG emissions from our own operations as well as to support consumers’ and markets’ climate goals and applicable legislative and regulatory mandates, we may not be successful in achieving these objectives. We could suffer difficulties attracting investors and business partners, reputational harm and other negative effects if we do not meet or if we further modify our GHG emissions reduction aims or there are negative views about our environmental disclosures or practices generally.
We develop our capital expenditure plans based on assumptions and forecasts as well as regulatory and compliance requirements, including those related to safety, reliability and load growth, gas system planning, and transportation electrification, which generally assume that California will continue to pursue consistent environmental and climate-related policies. If the federal government continues to reduce its support for grid and infrastructure modernization or takes further action to prohibit California from pursuing its environmental and climate-related policies, or if California changes its policies, the assumptions and forecasts underlying our capital expenditure plans may prove to be inaccurate, and our investment plans could suffer significant negative effects.
The occurrence of any of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. The occurrence of any of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
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We are subject to complex tax and accounting requirements that expose us to risks.
We are subject to complex tax and accounting requirements. These requirements may undergo changes at the federal, state, local and foreign levels, including in response to economic or political conditions. These regulations and requirements may undergo changes at the federal, state, local and foreign levels, including in response to economic or political conditions. Compliance with these requirements and any changes to them or how they are implemented, interpreted or enforced could increase our operating costs and materially adversely affect how we conduct our business. Compliance with these regulations and requirements, including in the event of changes to them or how they are implemented, interpreted or enforced, could increase our operating costs and materially adversely affect how we conduct our business. New tax legislation, such as the OBBBA, and new regulations or interpretations or changes in tax policies in the U.S., Mexico or other countries in which we do business could negatively affect our tax expense and/or tax balances and our businesses generally. Any failure to comply with these requirements could subject us to fines and penalties, including criminal penalties in some cases. The occurrence of any of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. The occurrence of any of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
We may be negatively impacted by the outcome of litigation or other proceedings in which we are involved.We may be materially adversely affected by the outcome of litigation or other proceedings in which we are involved.
Our businesses are involved in a number of lawsuits, appeals, binding arbitrations, regulatory investigations and other proceedings.Our businesses are involved in a number of lawsuits, binding arbitrations and regulatory proceedings. We discuss material pending proceedings in Note 16 of the Notes to Consolidated Financial Statements. Our businesses also may become involved in proceedings that we do not consider material, such as the approximately 28,000 proofs of claim that have been filed on behalf of persons who assert the right to file lawsuits in the future based on alleged exposure to asbestos in power plants designed and/or built by certain predecessor entities we acquired in connection with our acquisition of our majority interest in Oncor. We have spent, and continue to spend, substantial capital and employee resources on lawsuits and other proceedings. The uncertainties inherent in lawsuits and other proceedings and the broad range of potential outcomes make it difficult to estimate with any degree of certainty the timing, costs and other potential impacts of these matters, and changes or disruptions to judicial systems, such as the nationwide strike by the Mexican judiciary in 2024 in response to judicial reforms and the limitations on operations of U.S. federal courts in 2025 due to lapses in congressional appropriations, could result in delays, increased costs, or unfavorable outcomes. In addition, juries have demonstrated a willingness to grant large awards, including punitive damages, in response to personal injury, product liability, property damage, nuisance, and other claims. In addition, juries have demonstrated a willingness to grant large awards, including punitive damages, in personal injury, product liability, property 42Table of Contentsdamage and other claims. Accordingly, actual costs incurred have and may continue to differ materially from insured or reserved amounts and may not be recoverable, in whole or in part, from insurance or in customer rates. Accordingly, actual costs incurred may differ materially from insured or reserved amounts and may not be recoverable, in whole or in part, by insurance or in rates from customers. Any of the foregoing could cause reputational damage and otherwise materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any of the foregoing could cause reputational damage and materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
RISKS RELATED TO SEMPRA CALIFORNIA
Operational Risks
Wildfires in California pose risks to Sempra, SDG&E and SoCalGas.
More and Increasingly Severe Wildfires
In recent years, California has experienced some of the largest wildfires (measured by acres burned and/or structures destroyed) in its history. Frequent and severe drought conditions, inconsistent and extreme swings in precipitation, changes in vegetation, unseasonably warm temperatures, low humidity, strong winds and other factors have increased the duration of the wildfire season and the intensity, prevalence and difficulty of preventing and containing wildfires in California, including in SDG&E’s and SoCalGas’ service territories. Changing weather patterns, including as a result of climate change, could exacerbate these conditions. Changing weather patterns, including as a result of climate change, could cause these conditions to become even more extreme and unpredictable. Certain California local land use policies and forestry management practices, as well as expanded construction and development of residential and commercial projects in high-risk fire areas, could lead to increased third-party claims and greater losses related to fires for which SDG&E or SoCalGas may be liable.
The LA Fires burned in SoCalGas’ service territory. The California Department of Forestry and Fire Protection estimates that the Palisades and Eaton fires destroyed approximately 16,200 structures and damaged approximately 2,000 structures. Although the majority of SoCalGas’ infrastructure in the fire-affected areas is underground, these fires resulted in service disruptions, response costs and damage to some of SoCalGas’ infrastructure and third-party property. SoCalGas and Sempra are subject to pending litigation with respect to the operation of SoCalGas’ system and damage sustained as a result of the fires, which we discuss in Note 16 of the Notes to Consolidated Financial Statements. As with other litigation, the timing, impacts and ultimate outcome of these matters is inherently uncertain and may result in substantial costs, some or all of which may not be recoverable from insurance, third parties or in customer rates. We discuss these and other risks associated with litigation above under “Risks Related to All Sempra Businesses – Operational Risks.”
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Future wildfires in SDG&E’s or SoCalGas’ service territories could compromise SDG&E’s and SoCalGas’ electric and natural gas infrastructure and result in further service disruptions, which could have a material adverse effect on Sempra’s, SDG&E’s and SoCalGas’ results of operations, financial condition, cash flows and/or prospects. We discuss these risks further in this risk factor below and above under “Risks Related to All Sempra Businesses – Operational Risks.”
The Wildfire Legislation
In July 2019 and September 2025, respectively, the 2019 Wildfire Legislation and the 2025 Wildfire Legislation (collectively, the Wildfire Legislation) were signed into law, which we discuss in Note 1 of the Notes to Consolidated Financial Statements. The 2019 Wildfire Legislation established the Wildfire Fund and the 2025 Wildfire Legislation established the Continuation Account, which offer liquidity to reimburse wildfire-related claims incurred by participating California electric IOUs in excess of $1 billion, subject to the coverage of each fund. The Wildfire Legislation’s legal standards for the recovery of wildfire costs may not be implemented effectively or applied consistently. Moreover, the Wildfire Fund and the Continuation Account, if it becomes operative, could be materially reduced, exhausted, or terminated due to claims by SDG&E or other participating IOUs related to fires caused by utility conduct or operations, or SDG&E could fail to maintain a valid annual safety certification from the OEIS or meet other requirements, any of which could result in SDG&E losing eligibility for the Wildfire Legislation’s liability cap and the other protections afforded by these funds. As a result, a fire resulting from the conduct or operations of any participating California electric IOU could have a material adverse effect on Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects, with potentially material additional exposure if SDG&E’s conduct or operations is determined to be a cause of a fire and SDG&E is found to have acted imprudently.
In February 2026, a participating IOU publicly disclosed that it has received, or expects to receive, approximately $1.26 billion in aggregate reimbursements from the Wildfire Fund for eligible claims related to wildfires that occurred in 2019 and 2021. Also in February 2026, another participating IOU publicly disclosed it has received, or expects to receive, approximately $134 million in aggregate reimbursements from the Wildfire Fund for losses incurred and expected to be incurred in connection with one of the LA Fires, the cause of which remains under investigation and has not been conclusively determined. The administrator of the Wildfire Fund has confirmed that this wildfire qualifies as a “covered wildfire” for purposes of accessing the Wildfire Fund, and the scope of potential damages caused by this fire could materially reduce or exhaust the Wildfire Fund. The participating IOU stated that it is currently unable to reasonably estimate a range of potential losses associated with this event. Accordingly, SDG&E is unable to estimate a range of potential loss resulting from any reduction in available coverage from the Wildfire Fund. In addition to the risks described above, a material reduction, exhaustion or termination of the Wildfire Fund may require SDG&E to recognize a reduction to its Wildfire Fund asset up to its carrying value.
The Wildfire Legislation did not change the doctrine of inverse condemnation, which imposes strict liability for certain types of claims (meaning that liability is irrespective of negligence or intent) on a utility whose equipment is determined to be a cause of a fire. In such an event, the utility would be responsible for the costs of damages, including business interruption losses, interest and attorneys’ fees, even if the utility is not found negligent. In such an event, the utility would be responsible for the costs of damages, including potential business interruption losses, and interest and attorneys’ fees, even if the utility has not been found negligent. In the past, the CPUC has denied recovery of incurred costs associated with wildfire claims despite the doctrine of inverse condemnation, which was historically based on the ability of a utility to pass such costs through to rate payers. The doctrine of inverse condemnation also is not exclusive of other theories of liability, such as negligence, under which additional liabilities, such as fire suppression, clean-up and evacuation costs, medical expenses, and personal injury, punitive and other damages, could be imposed. The doctrine of inverse condemnation also is not exclusive of other theories of liability, including if the utility were found negligent, in which case additional liabilities, such as fire suppression, clean-up and evacuation costs, medical expenses, and personal injury, punitive and other damages, could be imposed. We are unable to predict the impact of the Wildfire Legislation on SDG&E’s ability to recover costs and expenses if SDG&E’s equipment is determined to be a cause of a fire.
The 2025 Wildfire Legislation also established a multi-stakeholder task force, coordinated by the Wildfire Fund’s administrator, to prepare and submit to the California legislature and Governor of California on or before April 1, 2026, a report that evaluates and sets forth recommendations on new models to complement or replace the Wildfire Fund and, if it becomes operative, the Continuation Account. We are unable to predict the impact on Sempra or SDG&E of further legislative or regulatory action with respect to the Wildfire Fund or the Continuation Account or wildfire claims liability generally.
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Cost Recovery Through Insurance or Rates
As a result of California’s doctrine of inverse condemnation, substantial losses recorded by insurance companies, and increased wildfire risk, obtaining insurance coverage for wildfires potentially associated with SDG&E’s equipment (or, to a lesser extent, SoCalGas’ equipment) has become increasingly difficult and costly. If these conditions continue or worsen, including as a result of the LA Fires, insurance for wildfire liabilities may become unavailable or may become prohibitively expensive and we may be denied recovery of insurance cost increases through the regulatory process. If these conditions continue or worsen, insurance for wildfire liabilities may become unavailable or may become prohibitively expensive and we may be challenged or unsuccessful when we seek recovery of increases in the cost of insurance through the regulatory process. In addition, insurance for wildfire liabilities may not be sufficient to cover all losses we may incur, or it may not be available to meet the $1.0 billion of primary insurance required by the Wildfire Legislation. In addition, insurance for wildfire liabilities may not be sufficient to cover all losses we may incur, or it may not be 43Table of Contentsavailable in sufficient amounts to meet the $1 billion of primary insurance required by the Wildfire Legislation. Wildfire insurance may also become prohibitively expensive or unavailable for homeowners and businesses in SDG&E’s service territory, potentially increasing SDG&E’s financial exposure if a wildfire is found to be caused by SDG&E’s equipment. We may be unable to recover in rates or from the Wildfire Fund or the Continuation Account the amount of any uninsured losses (including amounts paid for self-insurance and other costs). A loss that is not fully insured, is not sufficiently covered by the Wildfire Fund or the Continuation Account and/or cannot be recovered in customer rates could materially adversely affect Sempra’s and one or both of SDG&E’s and SoCalGas’ results of operations, financial condition, cash flows and/or prospects.
Regulatory Actions Related to Wildfire Mitigation Efforts
Although we expend significant resources on measures designed to mitigate wildfire risks, these measures may not be effective in preventing wildfires or reducing our wildfire-related losses, and their costs may not be fully recoverable in rates. SDG&E is required by California law to submit WMPs for approval by the OEIS and could be subject to increased risks if these plans are not approved in a timely manner or SDG&E is determined to not have substantially complied with its approved plans, including the risk of fines or penalties for non-implementation or denial of its safety certification. Moreover, wildfire mitigation investments incremental to those authorized in a GRC may be subject to reasonableness reviews after they are made and could be subject to disallowances as a result of such reviews, as was the case with the FD issued in connection with SDG&E’s Track 2 request in its 2024 GRC. One of SDG&E’s wildfire mitigation strategies is to de-energize certain circuits for safety when there is elevated weather-related wildfire ignition risk. These “public safety power shutoffs” have been subject to scrutiny by various stakeholders, including customers, regulators and lawmakers, which could increase the risk of regulatory fines and penalties, claims for damages and reputational harm if SDG&E is found not to have acted within applicable guidelines and regulations. Such costs may not be recoverable in rates. Unrecoverable costs, adverse legislation or rulemaking, stakeholder scrutiny, ineffective wildfire mitigation measures or other negative effects associated with these efforts could materially adversely affect Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects.
The electricity industry is undergoing significant change.
Electric utilities in California are experiencing increasing deployment of solar and wind generation, including DER, energy storage and energy efficiency and demand management technologies, and California’s environmental policy objectives are accelerating the pace and scope of these changes. This growth will require further modernization of the electric grid to, among other things, accommodate increasing two-way flows of electricity and increase the grid’s capacity to interconnect these resources. This growth of DERs will require modernization of the electric distribution grid to, among other things, accommodate increasing two-way flows of electricity and increase the grid’s capacity to interconnect these resources. In addition, attaining California’s clean energy goals will require sustained investments in transmission and distribution grid modernization, renewable energy integration projects, operational and data management systems, and electric vehicle and energy storage infrastructure, which may increase exposure to overall grid instability and technology obsolescence. The growth of third-party energy storage alternatives and other technologies also may increasingly compete with SDG&E’s traditional transmission and distribution infrastructure in delivering electricity to consumers. Certain FERC transmission development projects are open to competition, allowing independent developers to compete with incumbent utilities for the construction and operation of transmission facilities. The CPUC is conducting various proceedings regarding DER, including the evaluation of special programs and pilot projects; changes to the planning and operation of the electric grid to prepare for higher penetration of DER; future grid modernization investments; the deferral of traditional grid investments by DER; and the role of the electric grid operator. These proceedings and the broader changes in California’s electricity industry could result in new regulations, policies and/or operational changes that could materially adversely affect Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects.
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Most of SDG&E’s customers receive electric commodity service from a load-serving entity other than SDG&E through programs such as CCA and DA. CCA is only available if a customer’s local jurisdiction (city or county) offers such a program, as is the case with the City of San Diego and certain other jurisdictions in SDG&E’s service territory, and DA is currently limited by a cap based on gigawatt hours. Due to this departed load, SDG&E’s historical energy procurement commitments for future deliveries exceed the needs of its remaining bundled customers. To help achieve the goal of ratepayer indifference (as to whether customers’ energy is procured by SDG&E or by CCA or DA), the CPUC revised the Power Charge Indifference Adjustment framework. The framework is intended to more equitably allocate SDG&E’s historical energy procurement cost obligations among customers served by SDG&E and customers now served by CCA and DA. If the framework or other mechanisms designed to achieve ratepayer indifference do not perform as intended, if the law changes, or if the law is not interpreted or enforced as expected, SDG&E’s remaining bundled customers could experience large increases in rates for ongoing historical commodity costs under commitments made on behalf of CCA and DA customers prior to their departure or, if all such costs are not recoverable in rates, SDG&E could experience material increases in its unrecoverable commodity costs. Any of these outcomes could have a material adverse effect on Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects.
Additionally, if a CCA or DA in SDG&E’s service territory were to fail, SDG&E, as the provider of last resort, would be responsible for providing uninterrupted electric service to customers and would be entitled to cost recovery for temporary service, and the CCA or DA would be required to post financial security to cover the cost of returning load. Once returned, SDG&E would be required to provide commodity service to those customers and would be required to meet the increased commodity compliance requirements resulting from service of the additional load. The CPUC has established an application process for non-IOU load serving entities to potentially step into the role of provider of last resort. If a non-IOU load serving entity was permitted to serve as provider of last resort in SDG&E’s service territory, SDG&E may not be responsible for providing commodity service from the failure of a CCA or DA, the impact of which remains uncertain. Any of these outcomes could have a material adverse effect on Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects.
Natural gas continues to be the subject of political and public debate, including a desire by some to reduce or eliminate reliance on natural gas as an energy source.
Certain California legislators, regulators and other stakeholders have expressed a desire to limit or eliminate reliance on natural gas as an energy source through increased use of renewable electricity and electrification. Reducing methane emissions also has become a major focus of certain local and state agencies, resulting in passed or proposed legislation, regulation, policies and ordinances to prohibit or restrict the use of natural gas in new buildings, appliances and other applications, including proposed and recently enacted requirements regarding space and water heaters in newly constructed buildings and an open CPUC proceeding to establish long-term gas system infrastructure planning for natural gas utilities in alignment with California’s decarbonization goals. Additionally, customer preferences may drive increased disconnections from gas service. These actions could result in reduced natural gas use over time and changes to rate and cost recovery policies, and the combination of reduced load and increasing costs to maintain the gas system could negatively impact affordability for remaining natural gas customers. Moreover, a substantial reduction in or the elimination of natural gas use in California could result in impairment of some or all of SDG&E’s and SoCalGas’ natural gas infrastructure assets without adequate recovery of investments, if they were not permitted to be repurposed, or if they were required to be depreciated on an accelerated basis or were to become stranded, in which case, SDG&E and SoCalGas could be required to incur significant decommissioning or other costs, which may require additional funding and may not be recoverable in rates. For instance, in a prior proceeding that is now closed, the CPUC evaluated the feasibility of minimizing or eliminating SoCalGas’ Aliso Canyon natural gas storage facility. The authorized storage level and reliance on the facility in general remain subject to a biennial administrative staff review by the CPUC and additional CPUC proceedings. A permanent closure, which could only be achieved through a new CPUC proceeding, could result in an impairment of the facility that could be material, and a closure or significant reduction in authorized capacity could risk energy and electric reliability in the region. Any such outcome could have a material adverse effect on Sempra’s, SoCalGas’ and SDG&E’s results of operations, financial conditions, cash flows and/or prospects.
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SDG&E may incur significant costs and liabilities from its partial ownership of a nuclear facility being decommissioned.
SDG&E has a 20% ownership interest in SONGS, which we discuss in Note 15 of the Notes to Consolidated Financial Statements. SDG&E is responsible for financing its proportionate share of the facility’s expenses and capital expenditures, including those related to decommissioning activities. Although the facility is being decommissioned, SDG&E’s ownership interest in SONGS continues to subject it to risks, including:
▪the potential release of radioactive material
▪the potential harmful effects from the former operation of the facility
▪limitations on the insurance commercially available to cover losses associated with operating and decommissioning the facility
▪uncertainties with respect to the technological, financial, and political aspects of decommissioning the facility and the long-term storage of radioactive materials
SDG&E maintains the SONGS NDT to provide funds for nuclear decommissioning. Trust assets generally have been invested in equity and debt securities, which are subject to market fluctuations. A decline in the market value of trust assets, an adverse change in the law regarding funding requirements for decommissioning trusts, or changes in assumptions or forecasts related to decommissioning timing and costs could increase the funding requirements for these trusts, which costs may not be fully recoverable in rates. A decline in the market value of trust assets, an adverse change in the law regarding funding requirements for decommissioning trusts, or changes in assumptions or forecasts related to decommissioning dates, technology and the cost of labor, materials and equipment could increase the funding requirements for these trusts, which costs may not be fully recoverable in rates. In addition, CPUC approval is required to make withdrawals from the NDT, which may be denied if the expenditures are found to be unreasonable. In addition, CPUC approval is required to make withdrawals from the NDT, and CPUC approval for certain expenditures may be denied if the CPUC determines the expenditures are unreasonable. In addition, decommissioning may be materially more expensive than we currently anticipate and therefore decommissioning costs may exceed the amounts in the NDT. Rate recovery for overruns would require CPUC approval, which may be denied.
The occurrence of any of these events could result in a reduction in our expected recovery and have a material adverse effect on Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects.
Legal and Regulatory Risks
SDG&E and SoCalGas are subject to extensive regulation.
Rates and Other Financial Matters
The CPUC regulates SDG&E’s and SoCalGas’ customer rates and conditions of service, except for SDG&E’s interstate electric transmission and wholesale electric rates and conditions of service, which are regulated by the FERC. The CPUC also regulates SDG&E’s and SoCalGas’ sales of securities, rates of return, capital structure, rates of depreciation, long-term resource procurement and other financial matters in various ratemaking proceedings. The CPUC periodically approves SDG&E’s and SoCalGas’ customer rates based on authorized capital expenditures, operating costs, including income taxes, and an authorized rate of return on investments while incorporating a risk-based decision-making framework, as well as certain settlements with third parties and mandatory social programs. The timing and outcome of ratemaking proceedings can be affected by various factors, many of which are not in our control, including the level of opposition by intervening parties; any rejection by the CPUC of settlements with third parties; increasing levels of regulatory review; changes in the political, regulatory, or legislative environments; and the opinions of regulators, customers and other stakeholders. The outcome of ratemaking proceedings can be affected by various factors, many of which are not in our control, including the level of opposition by intervening parties; any rejection by the CPUC of settlements with third 45Table of Contentsparties; potential rate impacts; increasing levels of regulatory review; changes in the political, regulatory, or legislative environments; and the opinions of regulators, consumer and other stakeholder groups and customers. These ratemaking proceedings include decisions about major programs in which SDG&E and SoCalGas make investments under an approved CPUC framework, such as wildfire mitigation, pipeline and storage integrity and safety enhancement programs, but which investments may remain subject to CPUC filings or reasonableness reviews that may result in the disallowance of incurred costs, as was the case with SDG&E’s Track 2 request in its 2024 GRC. SDG&E and SoCalGas also may be required to make investments and incur other costs before they can request rate recovery for certain projects or to comply with proposed legislative and regulatory requirements, including those related to California’s climate goals and policies, before finalization of the requirements and corresponding ratemaking mechanisms, which investments may not ultimately be fully recoverable. Recovery may be delayed and/or insufficient if ratemaking mechanisms involve a significant time lag between when costs are incurred and when those costs are recovered in rates or if there are material differences between the authorized costs embedded in rates (which are set on a prospective basis) and the actual costs incurred. Recovery can also be affected by the timing and process of the ratemaking mechanism in which there can be a significant time lag between when costs are incurred and when those costs are recovered in customers’ rates and material differences between the forecasted and authorized costs embedded in rates (which are set on a prospective basis) and the actual costs incurred. As was the case with respect to the 2024 GRC FD, delays may also result from the regulatory process and the CPUC may deny recovery altogether on the basis that costs were not reasonably or prudently incurred or for other reasons, such as customer affordability. Even if recoverable, simultaneously investing in support of necessary safety and reliability and regulatory requirements and demand for reliable lower-carbon energy may negatively impact the affordability of SDG&E’s and SoCalGas’ services and their and Sempra’s results of operations, financial condition, cash flows and/or prospects.
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A CPUC cost of capital proceeding every three years determines a utility’s authorized capital structure and return on rate base. The CPUC applies the CCM, which we describe in “Part I – Item 1. Business – Ratemaking Mechanisms” and Note 4 of the Notes to Consolidated Financial Statements, in the interim years to consider changes in the cost of capital using changes in interest rates. Any rate changes due to a downward trigger of the CCM, the denial by the CPUC of an automatic upward trigger of the CCM or further structural changes to the CCM could have a material adverse effect on Sempra’s and the applicable utility’s results of operations, financial condition, cash flows and/or prospects. We discuss the CCM in “Part I – Item 1. Business – Ratemaking Mechanisms – Sempra California – Cost of Capital Proceedings,” and in Note 4 of the Notes to Consolidated Financial Statements.
The FERC regulates electric transmission rates, transmission and wholesale sales of electricity in interstate commerce, transmission access, rates of return and rates of depreciation on electric transmission investments, and other similar matters involving SDG&E. These ratemaking mechanisms are subject to many risks similar to those described above regarding CPUC ratemaking proceedings. In particular, SDG&E’s authorized TO5 settlement provided for an ROE of 10.60%, consisting of a base ROE of 10.10% plus the California ISO adder. In December 2024, the FERC issued an order, which SDG&E has appealed, finding that SDG&E is not eligible for the California ISO adder and that the TO5 adder refund provision had been triggered, requiring SDG&E to refund customers the California ISO adder retroactively from June 1, 2019. In October 2024, SDG&E submitted its TO6 filing to the FERC and requested it to be effective January 1, 2025. SDG&E’s TO6 filing proposed, among other items, an increase to SDG&E’s currently authorized base ROE from 10.10% to 11.75% plus the California ISO adder, for a total ROE of 12.25%. In December 2024, the FERC accepted SDG&E’s TO6 filing, subject to refund; suspended the effective date to June 1, 2025; established hearing and settlement judge procedures; and disallowed the inclusion of the California ISO adder, the last of which SDG&E has appealed. In February 2026, the settlement judge in the TO6 proceeding reported to the FERC that the participants had reached an agreement in principle on all issues in the proceeding. The parties will draft an offer of settlement to be filed with the FERC for approval. Any unfavorable outcome in these proceedings, such as an authorized ROE that is materially lower than the requested ROE, could have a material adverse effect on Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects.
Operational Matters
Our operations are subject to CPUC rules (and similar FERC rules), commonly referred to as “affiliate rules,” relating to transactions among SDG&E, SoCalGas and other Sempra businesses. These rules primarily impact market transactions and marketing activities involving transmission supply and capacity, including sales or other trades of natural gas or electricity within or among SDG&E and SoCalGas and Sempra and its covered affiliates. Noncompliance with these rules, as well as any changes or additions to these rules or their interpretations, could materially adversely affect our operations and, in turn, our results of operations, financial condition, cash flows and/or prospects. As a result of these and other factors, our risk management procedures and systems may not prevent or mitigate losses that could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
Additionally, the CPUC has regulatory authority related to safety standards and practices, reliability and planning, competitive conditions and a wide range of other operational matters, including restrictions on funding of lobbying or other political activities, promotional advertising and certain other costs, as well as citation and enforcement programs concerning matters such as safety activity, disconnection and billing practices, commodity pricing, resource adequacy and environmental compliance. The regional and other markets in which we purchase these commodities are competitive and can be subject to significant pricing volatility as a result of many factors, including adverse weather conditions, supply and demand changes, availability of competitively priced alternative energy sources, commodity production levels and storage 55Table of Contentscapacity, energy and environmental legislation and regulations, and economic and financial market conditions. Many of these standards and citation and enforcement programs are becoming more stringent and could subject a utility to significant penalties and fines, as well as higher operating costs. Many of these standards and programs are becoming more stringent and could impose severe penalties, including enforcement programs under which the CPUC staff can issue citations that in some cases can impose substantial fines. The CPUC conducts reviews and audits of the matters under its authority and may launch investigations or open proceedings at its discretion, the results of which could include citations, disallowances, fines and penalties, as well as requirements for corrective or mitigation actions to address any noncompliance, any of which may not be sufficiently funded by customer rates or at all. The CPUC conducts reviews and audits of the matters under its authority and could launch investigations or open proceedings at any time on any such matter it deems appropriate, the results of which could lead to citations, disallowances, fines and penalties, as well as corrective or mitigation actions required to address any noncompliance that may not be sufficiently funded in customer rates or at all. Any such occurrence could result in other regulatory exposure, significant litigation, and reputational harm and could have a material adverse effect on Sempra’s, SDG&E’s and SoCalGas’ results of operations, financial condition, cash flows and/or prospects.
The FERC enforces mandatory reliability standards developed by the North American Electric Reliability Corporation, including standards designed to protect the power system against potential disruptions from cyber and physical security breaches. Under the Energy Policy Act of 2005, the FERC can impose penalties (up to $1.6 million per day per violation) for any failure to comply with these standards, which could have a material adverse effect on Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects.
We discuss various CPUC and FERC proceedings relating to SDG&E and SoCalGas in Note 4 of the Notes to Consolidated Financial Statements.
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Regulatory and Legislative Changes and Influence of Other Organizations
SDG&E and SoCalGas incur significant capital, operating and other costs associated with regulatory compliance. Sempra, SDG&E and SoCalGas may be materially adversely affected by revisions or reinterpretations of existing or new legislation, regulations, decisions, orders or interpretations of the CPUC, the FERC or other regulatory bodies, any of which could change how SDG&E and SoCalGas operate, affect their ability to recover various costs through rates or adjustment mechanisms, require them to incur additional compliance or other costs, including fines and penalties, or otherwise materially adversely affect their and Sempra’s results of operations, financial condition, cash flows and/or prospects.
SDG&E and SoCalGas are also affected by numerous advocacy groups, including California Public Advocates Office, The Utility Reform Network, Utility Consumers’ Action Network and the Sierra Club. Success by any of these groups in directly or indirectly influencing legislators and regulators could have a material adverse effect on Sempra’s, SDG&E’s and SoCalGas’ results of operations, financial condition, cash flows and/or prospects.
Failure by the CPUC to adequately reform SDG&E’s electric rate structure could negatively impact Sempra and SDG&E.
The NEM program is an electric billing tariff mechanism designed to promote the installation of on-site renewable energy generation (primarily solar) for residential and business customers.The NEM program is an electric billing tariff mechanism designed to promote the installation of on-site renewable generation (primarily solar installations) for residential and business customers. Depending on when the on-site generation is installed, NEM customers receive a full retail rate or a reduced retail rate for energy they generate but do not use that is fed to the utility’s power grid, which results in these customers not paying their proportionate share of the cost of maintaining and operating the electric transmission and distribution system, subject to certain exceptions, but still receiving electricity from the system when their self-generation is inadequate to meet their electricity needs. Under the current mechanism, NEM customers receive a full retail rate for energy they generate but do not use that is fed to the utility’s power grid, which results in these customers not paying their proportionate share of the cost of maintaining and operating the electric transmission and distribution system, subject to certain exceptions, but still receiving electricity from the system when their self-generation is inadequate to meet their electricity needs. As more and higher electric-use customers switch to NEM and self-generate energy, the burden on remaining non-NEM customers, who effectively subsidize the unpaid NEM costs, increases, which in turn encourages more self-generation and further increases rate pressure on remaining non-NEM customers.
In December 2023, a new Net Billing Tariff was implemented for customers who interconnect their qualifying on-site renewable energy generation after April 2023. The new Net Billing Tariff revised the NEM structure for new customers with a retail export compensation rate that is better aligned with the value provided to the grid by behind-the-meter energy generation systems and retail import rates that encourage electrification and adoption of solar systems paired with storage. The new Net Billing Tariff is designed to compensate customers for the value of their exports to the grid based on avoided cost. In addition, prior to the fourth quarter of 2025, the electric residential rate structure in California was primarily based on consumption volume, which placed a higher rate burden on customers with higher electric use while subsidizing lower-use customers. In response to California legislation adopted in 2022, the CPUC broadly restructured the way certain residential fixed costs are collected, moving away from volumetric -only charges and incorporating an income-based fixed charge for default residential rates. The intent of such a fixed charge is to allow the utility to collect a greater portion of its fixed costs on a non-volumetric basis, advance the state’s climate goals through end-use electrification and provide a more affordable rate design on average for lower-income customers. The residential fixed charge was implemented in the fourth quarter of 2025. Depending on the effectiveness of the new Net Billing Tariff and fixed charge, which are uncertain, the risks associated with the existing NEM tariff and rate design could continue or increase, including adverse impacts on electricity rates and the reliability of the transmission and distribution system and the potential for increases in customer dissatisfaction, likelihood of noncompliance with CPUC or other safety or operational standards, and power procurement, operating, capital and other costs that may not be recoverable, any of which could have a material adverse effect on Sempra’s and SDG&E’s results of operations, financial condition, cash flows and/or prospects.
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RISKS RELATED TO SEMPRA TEXAS UTILITIES
Operational and Structural Risks
Ring-fencing measures, governance mechanisms and commitments limit our ability to influence the management, policies and operations of Oncor.
Various “ring-fencing” measures, governance mechanisms and commitments are in place that create legal and financial separation between Oncor Holdings, Oncor and their subsidiaries, on the one hand, and Sempra and its affiliates and subsidiaries, on the other hand. These measures are designed to enhance Oncor’s separateness from its owners and mitigate the risk that Oncor would be negatively impacted by a bankruptcy or other adverse financial development affecting its owners. These measures subject us and Oncor to various restrictions, including:
▪seven members of Oncor’s 13-person board of directors must be independent directors in all material respects under the rules of the NYSE in relation to Sempra and its affiliates and any other owners of Oncor, and also must have no material relationship with Sempra or its affiliates or any other owners of Oncor currently or within the previous 10 years; of the six remaining directors, two must be designated by Sempra, two must be designated by Oncor’s minority owner, TTI, and two must be current or former Oncor officers
▪Oncor will not pay dividends or other distributions (except for contractual tax payments) if (i) a majority of Oncor’s independent directors or any of the directors appointed by TTI determines that it is in the best interest of Oncor to retain such amounts to meet expected future requirements, (ii) the payment would cause Oncor’s debt-to-equity ratio to exceed the debt-to-equity ratio approved by the PUCT, or (iii) unless otherwise allowed by the PUCT, Oncor’s senior secured debt credit rating by any of the Rating Agencies falls below BBB (or Baa2 for Moody’s)
▪certain “separateness measures” must be maintained to reinforce the legal and financial separation of Oncor from Sempra, including a requirement that dealings between Oncor and Sempra or Sempra’s affiliates (other than Oncor Holdings and its subsidiaries) must be on an arm’s-length basis, limitations on affiliate transactions and a prohibition on pledging Oncor assets or membership interests for any entity other than Oncor
▪a majority of Oncor’s independent directors and the directors designated by TTI that are present and voting (with at least one required to be present and voting) must approve any annual or multi-year budget if the aggregate amount of capital expenditures or O&M in the budget differs by more than 10% from the corresponding amounts in the budget for the preceding fiscal year or multi-year period, as applicable
As a result of these measures, we do not control Oncor Holdings or Oncor, and we have limited ability to direct the management, policies and operations of Oncor Holdings and Oncor, including the deployment or disposition of their assets, declarations of dividends or other distributions, strategic planning, risk management, climate-related activities, cybersecurity practices and other important matters. Moreover, all directors of Oncor, including the directors we have appointed, have considerable autonomy and have a duty to act in the best interest of Oncor consistent with the approved ring-fence and Delaware law, which may in some cases be contrary to our interests. To the extent the directors approve or Oncor otherwise pursues actions that are not in our interest, our results of operations, financial condition, cash flows and/or prospects may be materially adversely affected. To the extent the directors approve or Oncor otherwise pursues actions that are not in our interests, our results of operations, financial condition, cash flows and/or prospects may be materially adversely affected.
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Industry-Related Risks
Changes in the regulation of Oncor or the regulation or operation of the electric utility industry and/or ERCOT market could negatively affect Oncor.
Oncor operates in the electric utility industry and is subject to many of the same or similar risks as SDG&E and SoCalGas as we describe above under “Risks Related to All Sempra Businesses” and “Risks Related to Sempra California,” particularly with respect to our operational risks, financial risks and specifically regulation by federal, state, and local legislative and regulatory authorities regarding rates and other financial and operational matters. Oncor is subject to a complex regulatory oversight structure with several different regulators, including the PUCT, FERC, North American Electric Reliability Corporation and Texas Reliability Entity, Inc. Oncor operates in the ERCOT market, which is subject to oversight by the PUCT and the Texas legislature, either of which could impose changes to the ERCOT market that could impact Oncor. In ERCOT, rates are set by the PUCT based on a historical test year, and as a result, the rates Oncor is allowed to charge generally will not exactly match its costs at any given point in time and it may not be able to timely or fully recover its actual costs and/or earn its full return on invested capital, particularly during periods of increased capital spending by Oncor, high inflation, or increases in interest rates, storm-related costs, and other operating costs relative to Oncor’s most recent base rate review. Further, the levels and timing of any approved recovery could significantly differ from Oncor’s requests. In addition to requests to recover its costs, Oncor’s rate proceedings may contain other requests. Failure to receive approval of its requests in any rate proceeding could adversely impact Oncor, and those impacts could be material.
The costs and burdens of complying with the various federal, state, and local legislative and regulatory requirements applicable to Oncor and adjusting Oncor’s business and operations in response to legislative and regulatory developments, including changes in ERCOT, and any fines or penalties that could result from any noncompliance, may have a material adverse effect on Oncor.” In particular, the costs and burdens associated with complying with the various legislative and regulatory requirements to which Oncor is subject at the federal, state, and local levels and adjusting Oncor’s business and operations in response to legislative and regulatory developments, including changes in ERCOT, and any fines or penalties that could result from any noncompliance, may have a material adverse effect on Oncor. In addition, insufficient electric generation capacity within ERCOT or significant changes within ERCOT or to the ERCOT market structure that impact transmission and distribution utilities, including adverse publicity or public perception or additional regulatory requirements or oversight, could materially adversely affect Oncor. Moreover, legislative, regulatory, market or industry activities could adversely impact Oncor’s collections and cash flows and jeopardize the predictability of utility earnings. For instance, in June 2025, legislation was signed into law to reduce regulatory lag on transmission and distribution capital investments through the UTM process, which we describe in “Part I – Item 1. Business – Ratemaking Mechanisms.” Oncor anticipates filing a UTM on or after March 16, 2026 for eligible transmission and distribution investments placed into service after December 31, 2024 through December 31, 2025, and as a result has recorded regulatory assets for recoverable costs associated with those investments and recognized a corresponding amount in other regulated revenues. However, the PUCT has not finalized rules with respect to use of the UTM, and as a result any positions Oncor has taken with respect to interpreting the legislation could be revised as a result of the PUCT’s final rules and interpretations, and such revisions could have a material adverse impact on our results of operations, financial condition, cash flows and/or prospects. In addition, irrespective of whether or not we control these businesses, we could be responsible for liabilities or losses related to the businesses or elect to make capital contributions to these businesses during times of financial distress that could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Additionally, projected load growth across the ERCOT system could, if not sufficiently addressed through generation resources, system design and reliability measures, negatively impact electric infrastructure reliability and potentially cause system-wide stresses, which may be exacerbated by extreme weather events, climate-related conditions, wildfires, cyberattacks and other emergencies. Oncor is not a generator of electricity and has no control over the generation supply in ERCOT. If electricity generation is inadequate or disrupted, Oncor’s electricity delivery services may be interrupted or diminished, which could have an adverse impact on our results of operations, financial condition, cash flows and/or prospects.
Oncor is subject to periodic audits of its compliance with operations and critical infrastructure protection standards, including reliability and cybersecurity standards, as well as periodic inspections of its facilities for compliance with weatherization standards. Oncor is also required to report to the PUCT on its reliability and weather preparedness. If Oncor is found to be noncompliant with applicable reliability, service quality, weatherization or other standards, it could be subject to reputational harm, regulatory scrutiny or sanctions, including monetary penalties.
If Oncor does not successfully manage these risks and respond to any other applicable legislative, regulatory, market or industry developments, Oncor could suffer a deterioration in its results of operations, financial condition, cash flows and/or prospects, which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
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Financial Risks
Oncor’s capital expenditures plan may not be executed as planned or achieve its business objectives.
Oncor’s capital expenditures plan may not be successful or completed in accordance with currently forecasted amounts, and the capital expenditures Oncor currently intends to make may not be implemented as contemplated or produce the desired improvements to service and reliability or cost management. A significant portion of Oncor’s five-year capital expenditures plan is attributable to addressing expected growth in ERCOT. Changes to the timing, location or scope of these planned projects or to the overall projected demand growth in Oncor’s service territory could materially impact Oncor’s capital expenditures plan and consequently our capital expenditures plan, which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. These arrangements could expose us to additional risks, including exposure to losses upon the occurrence of certain events related to the development, construction, operation or financing of the applicable projects, that could have a material adverse effect on our future results of operations, financial condition, cash flows and/or prospects.
Oncor’s capital expenditures plan contemplates the large-scale buildout of new transmission lines, including the planned introduction of the 765-kV voltage class to the ERCOT market through ERCOT’s 765-kV Strategic Transmission Expansion Plan. In addition, Oncor’s capital expenditures plan includes projects to service increasing amounts of transmission interconnection requests from LC&I customers, including data centers. Data center development in Oncor’s service territory is expected to drive increasing electric demand and require a rapid and significant increase in Oncor’s grid infrastructure. The resources required to serve these new LC&I requests, including activities related to the planning, analysis, financing, and construction of transmission infrastructure required to meet the projected demand of these customers, are significant in terms of both cost and time, and Oncor may not be able to effectively or efficiently plan, receive required regulatory approvals for, finance, and execute on these requests. Additionally, forecasting future demand involves the risk that one or more high-usage customers may decide not to take energy, to take less energy than anticipated, or not to take service on the anticipated schedule, which may result in lower than expected demand growth. In addition, various statutes, regulatory requirements, and ERCOT rules and policies increasingly govern the connection of new LC&I customers to the grid and these regulations and procedures are under significant and rapidly evolving scrutiny, development and modification. How these provisions are ultimately implemented could significantly impact the desirability of the ERCOT market to prospective customers or Oncor’s ability to interconnect projects on their requested timelines. Certain of these new customers may be transitory and exit Oncor’s service territory for reasons outside of Oncor’s control.
If expected projects in Oncor’s service territory are cancelled or do not materialize or actual demand is lower than projected for any of the reasons described above or any others, Oncor’s ability to obtain cost recovery from the PUCT for related expenditures or the affordability of Oncor’s customer rates may be adversely impacted, which could materially adversely impact our results of operations, financial condition, cash flows and/or prospects.
Oncor’s capital expenditures plan will result in significant liquidity needs that may necessitate additional investments.
Oncor’s business is capital-intensive, with significant expected increases to capital spending in future periods.Oncor’s business is capital-intensive, and it relies on external financing as a significant source of liquidity for its capital requirements.
Oncor relies on external financing as a significant source of liquidity for its capital requirements. In the past, Oncor has financed much of its cash needs from operations and with proceeds from indebtedness, but these sources of capital may not be adequate or available in a timely manner, on reasonable terms or at all. In the past, Oncor has financed much of its cash needs from operations and with proceeds from indebtedness, but these sources of capital may not be adequate or available in the future. Oncor’s access to capital and credit markets and its cost of debt could be directly affected by changes to its credit ratings or ratings outlook. Adverse action with respect to Oncor’s credit ratings or ratings outlooks generally causes debt issuance and borrowing costs to increase. Moreover, legislative, regulatory, market or industry activities could negatively impact Oncor’s credit ratings or ratings outlooks. For example, rating agencies have noted concern that, in Texas, regulators have mandated equity ratios significantly lower than the national average for rate-making purposes. Additionally, in July 2025, S&P lowered Oncor’s senior secured debt and commercial paper ratings, citing elevated wildfire risk as a result of changing climate conditions and the lack of certain legal protections for wildfire litigation in Texas.
Because our commitments to the PUCT prohibit us from making loans to Oncor, we may elect to increase our capital contributions to Oncor if it is unable to meet its capital requirements, access sufficient capital, or raise capital on favorable terms. Any such investments could be substantial, would reduce the cash available to us for other purposes, may not be recovered, and could increase our indebtedness, any of which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such investments could be substantial, would reduce the cash available to us for other purposes, and could increase our indebtedness, any of which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
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Sempra could incur substantial tax liabilities if EFH’s 2016 spin-off of Vistra is deemed to be taxable.
As part of its bankruptcy proceedings, in 2016, EFH distributed all the outstanding shares of common stock of its subsidiary Vistra Corp.As part of its ongoing bankruptcy proceedings, in 2016, EFH distributed all the outstanding shares of common stock of its subsidiary Vistra Energy Corp. (formerly Vistra Energy Corp. and referred to herein as Vistra) to certain creditors of TCEH LLC (the spin-off), and Vistra became an independent, publicly traded company. Vistra’s spin-off from EFH was intended to qualify for partially tax-free treatment to EFH and its shareholders under Sections 368(a)(1)(G), 355 and 356 of the U.S. Internal Revenue Code of 1986 (as amended) (collectively referred to as the Intended Tax Treatment). In connection with and as a condition to the spin-off, EFH received a private letter ruling from the IRS regarding certain issues relating to the Intended Tax Treatment, as well as tax opinions from counsel to EFH and Vistra regarding certain aspects of the spin-off not covered by the private letter ruling. In connection with and as a condition to the spin-off, EFH received a private letter ruling from 50Table of Contentsthe IRS regarding certain issues relating to the Intended Tax Treatment, as well as tax opinions from counsel to EFH and Vistra regarding certain aspects of the spin-off not covered by the private letter ruling.
In connection with the merger of EFH with a subsidiary of Sempra in 2018 (the Merger), EFH received a supplemental private letter ruling from the IRS and Sempra and EFH received tax opinions from their respective counsels that generally provide that the Merger will not affect the conclusions reached in, respectively, the IRS private letter ruling and tax opinions issued with respect to the spin-off described above.In connection with the signing and closing of the merger of EFH with an indirect subsidiary of Sempra (the Merger), EFH sought and received a supplemental private letter ruling from the IRS and Sempra and EFH received tax opinions from their respective counsels that generally provide that the Merger will not affect the conclusions reached in, respectively, the IRS private letter ruling and tax opinions issued with respect to the spin-off described above. Similar to the IRS private letter ruling and opinions issued with respect to the spin-off, the supplemental private letter ruling is generally binding on the IRS and any opinions issued with respect to the Merger are based on factual representations and assumptions, as well as certain undertakings, made by Sempra and EFH. If such representations and assumptions are untrue or incomplete, any such undertakings are not complied with, or the facts upon which the IRS supplemental private letter ruling or tax opinions (which will not impact the IRS position on the transactions) are based are different from the actual facts relating to the Merger, the tax opinions and/or supplemental private letter ruling may not be valid and could be challenged by the IRS. Even though Sempra Texas Holdings Corp. would have administrative appeal rights if the IRS were to invalidate its private letter ruling and/or supplemental private letter ruling, including the right to challenge any adverse IRS position in court, any such appeal would be costly, subject to uncertainties and could fail. If it is ultimately determined that the Merger caused the spin-off not to qualify for the Intended Tax Treatment, Sempra, through its ownership of Sempra Texas Holdings Corp., could incur substantial tax liabilities, which would materially reduce the value associated with our investment in Oncor and could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
RISKS RELATED TO SEMPRA INFRASTRUCTURE
Operational Risks
Project development activities may not be successful, projects under construction may not be completed on schedule or within budget, and completed projects may not operate at expected levels or generate expected earnings or cash flows.
Energy Infrastructure Projects
We are involved in a number of energy infrastructure projects in various stages of development and construction, which subject us to numerous risks. Success in developing each project depends on, among other things:
▪our financial condition and cash flows and other factors that impact our ability to invest sufficient funds in the project, including for preliminary activities conducted before we determine whether the project is viable
▪project assessment and design and our ability to foresee and incorporate emerging trends and technologies
▪our ability to reach a positive FID or meet other milestones, which may be influenced by factors outside our control, including the global economy and energy and financial markets, actions by regulators, internal and external approval requirements, and many of the other factors described in this risk factor
▪negotiation of satisfactory EPC agreements and renegotiation in the event of delays in reaching an FID or other specified deadlines
▪identification of suitable partners, customers, contractors, suppliers and other necessary counterparties
▪progressing relationships from MOUs, HOAs or other non-binding arrangements to execution of binding, definitive agreements
▪negotiation and maintenance of satisfactory equity, purchase, sale, supply, transportation and other appropriate commercial agreements, and satisfaction of any conditions to effectiveness of such agreements, including reaching an FID within agreed timelines
▪timely receipt and maintenance of required governmental permits, licenses and other authorizations on acceptable terms
▪our project partners’, contractors’, equipment providers’, lenders’ and other vendors’ and counterparties’ willingness and financial or other ability to fulfill their contractual commitments
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▪timely, satisfactory and on-budget completion of construction, which could be negatively affected by engineering problems; stakeholder relations issues, such as the opposition by some members of the Yaqui tribe to the construction of the Guaymas-El Oro segment of the Sonora pipeline, which we discuss in in Note 1 of the Notes to Consolidated Financial Statements; work stoppages; unavailability or increased costs of materials, equipment, labor and commodities due to inflation, tariffs or supply chain or other issues; and a variety of other factors, many of which we discuss above under “Risks Related to All Sempra Businesses – Operational Risks” and elsewhere in this risk factor
▪implementation of new or changes to existing laws or regulations, including increasing influence of the Mexican government on economic and energy matters and risks related to laws and regulation in Mexico generally, which we discuss further in the risk factors below
▪obtaining satisfactory financing for the project
▪the absence of hidden defects or inherited environmental liabilities on the project site
▪timely and cost-effective resolution of any litigation or unsettled property rights affecting the project
▪geopolitical events and other uncertainties
Any failures with respect to the above factors or other factors relevant to any particular project could involve additional costs, otherwise negatively affect our ability to successfully complete the project and force us to impair or write off amounts we have invested in the project. If we are unable to complete a development project, if we experience delays, or if construction, financing or other project costs exceed our estimated budgets and we are required to make additional capital contributions, we may not receive an adequate or any return on our investment and other resources expended on the project and our results of operations, financial condition, cash flows and/or prospects could be materially adversely affected. If we are unable to complete a development project, if we experience delays, or if construction, financing or other project costs exceed our estimated budgets and we are required to make additional capital contributions, we may never recover or receive an adequate or any return on our investment and other resources invested in the project and our results of operations, financial condition, cash flows and/or prospects could be materially adversely affected.
The operation of existing facilities and any future projects we complete involves many risks, including the potential for unforeseen design flaws, engineering challenges, or breakdowns of facilities, equipment or processes; labor disputes or shortages; fuel interruption; environmental contamination; increasing regulatory requirements, including from regulations aiming to reduce GHG emissions; and the other operational risks that we discuss above under “Risks Related to All Sempra Businesses – Operational Risks.The operation of existing facilities and any future projects we are able to complete involves many risks, including the potential for unforeseen design flaws, engineering challenges, equipment failures or the breakdown for other reasons of facilities, equipment or processes; labor disputes; fuel interruption; environmental contamination; and the other operational risks that we discuss above under “Risks Related to All Sempra Businesses – Operational Risks. ” Any of these events could lead to our facilities being idle or operating below expected levels, which may result in lost revenues or increased expenses, including higher maintenance costs and penalties.” Any of these events could lead to our facilities being idle for an extended period of time or our facilities operating below expected levels, which may result in lost revenues or increased expenses, including higher maintenance costs and penalties. Any such occurrence could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
LNG Projects
In addition to the risks described above that are applicable to all our energy infrastructure projects, our LNG projects, which we discuss in “Part II – Item 7. MD&A – Capital Resources and Liquidity – Sempra Infrastructure,” also face distinct disadvantages relative to some LNG projects being pursued by other project developers, including:
▪The proposed Cameron LNG Phase 2 project is subject to certain restrictions and conditions under the JV project financing agreements for the Cameron LNG Phase 1 facility and requires unanimous consent of all the members, including with respect to the equity investment obligation of each member. We may not be able to satisfy these conditions, receive members’ consent, obtain satisfactory conclusion on the EPC process, or obtain the extension of our non-FTA approval, in which case our ability to develop the Cameron LNG Phase 2 project would be jeopardized.
▪The ECA LNG projects under construction and in development are subject to the Mexican regulatory process and an overlay of U.S. regulation for natural gas exports to LNG facilities in Mexico, which are not well developed and, among other factors, contributed to delays in obtaining a necessary permit from the Mexican government for the ECA LNG Phase 1 project and could cause similar delays or other hurdles in the future. In September 2025, we submitted a filing with the DOE to extend the construction deadline associated with our non-FTA permits for the ECA LNG Phase 1 project until the end of summer 2026, but we may not receive this extension on a timely basis or at all. In addition, the Baja California region does not have extensive sources of natural gas, and at times, natural gas supply to the region is severely constrained and may impact our costs and our ability to source all feed gas required under our ECA LNG Phase 1 supply contracts. Further, while we do not expect the construction or operation of the ECA LNG Phase 1 project to disrupt operations at the ECA Regas Facility, we expect construction of the proposed ECA LNG Phase 2 project would conflict with the current operations at the ECA Regas Facility, which currently has a firm storage and nitrogen injection service agreement with Shell that expires in May 2028.
▪The PA LNG Phase 1 project under construction is located at a greenfield site and is therefore subject to certain disadvantages relative to projects being constructed or developed at brownfield sites, such as increased time and costs to develop and construct the project due to lack of existing infrastructure. The PA LNG Phase 2 project under construction is located at the site of the PA LNG Phase 1 project and is therefore subject to potential disadvantages, such as increased complexity of integrating new facilities with existing infrastructure.
Development and operation of these or any other LNG projects will depend on the expansion of our existing pipeline interconnections or the ability to permit and construct new pipeline facilities, each of which may require us to enter into additional pipeline interconnection agreements with third-party pipelines, which may not be possible on reasonable terms or at all.
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The capital requirements for our LNG projects can be significant, even if we do not reach a positive FID. As has happened in the past, our proposed facilities may not be completed in accordance with estimated timelines or budgets or at all as a result of the above or other factors, and delays, cost overruns or our inability to complete one or more of these projects could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. In addition, our proposed facilities may not be completed in accordance with estimated timelines or budgets or at all as a result of the above or other factors, and delays, cost overruns or our inability to complete one or more of these facilities could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
We face risks from increasing competition.
The markets in which we operate are characterized by numerous capable competitors, many of which have extensive and diversified development and/or operating experience domestically and internationally and financial resources similar to or greater than ours. The markets in which we operate are characterized by numerous strong and capable competitors, many of whom have extensive and diversified development and/or operating experience domestically and internationally and financial resources similar to or greater than ours. In particular, the natural gas pipeline, storage and LNG market segments have been characterized by strong and increasing competition for winning new development projects and acquiring existing assets. In particular, the natural gas pipeline, storage and LNG market segments recently have been characterized by strong and increasing competition for winning new development projects and acquiring existing assets. These competitive factors could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
We are exposed to additional competitive risks in connection with our LNG projects. Our ability to reach a positive FID for each development project and, if a project is completed, the overall success of the project depend in part on global energy markets, which can increase competition for global LNG demand in a number of ways. In general, depressed natural gas and LNG prices in the markets intended to be served by any of our projects, including as a result of global oil prices and their associated current and forward projections or other factors, could reduce the pricing and cost advantages of exporting natural gas and LNG produced in North America, which could lead to decreased demand from our projects. Although demand for natural gas is currently strong due to increased focus on energy security and climate aims, a reduction in natural gas demand could also occur from higher penetration of alternative fuels in new power generation, reduced economic activity in general, or as a result of calls by some to limit or eliminate global reliance on natural gas. Further, because LNG projects take a number of years to develop and construct, it is difficult to match current and expected demand with the projected supply from projects under development. Moreover, shifts in U.S. and foreign energy policy could impact supply, demand and other matters critical to LNG projects, such as permitting and other approval processes. These factors could delay or hamper the development of U.S. LNG export facilities and make LNG projects in other parts of the world more feasible and competitive with LNG projects in North America, thus increasing supply and competition for global LNG demand. Any of these occurrences could impact competition and prospects for developing LNG projects and negatively affect the performance and prospects of any of our projects that are or become operational, which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
We may not be able to secure, maintain, extend or replace long-term supply, sales or capacity agreements.We may not be able to enter into, maintain, extend or replace long-term supply, sales or capacity agreements.
Certain of SI Partners’ projects, including the ECA Regas Facility, Cameron LNG JV and all of its LNG projects under construction, have long-term agreements with a limited number of customers. The long-term nature of these agreements and the small number of customers exposes us to risks, including increased credit risks and amplified impacts of disputes or other similar issues, which we have experienced in the past. Any such issues that arise in the future with respect to these long-term contracts could lead to significant legal and other costs, result in termination of certain key contracts and negatively impact the reliability of revenues from the applicable projects and the prospects of any implicated development projects. Any such event could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
SI Partners’ obligations and those of its counterparties, such as its LNG customers, are contractually subject to suspension or termination for force majeure events, which generally are beyond the control of the parties. To the extent the directors approve or Oncor otherwise pursues actions that are not in our interests, our results of operations, financial condition, cash flows and/or prospects may be materially adversely affected. Force majeure declarations may have attendant negative consequences, such as loss or deferral of revenue arising from non-deliveries of natural gas from suppliers or LNG to customers in certain circumstances. Also, certain force majeure events may impact the contractors constructing SI Partners’ projects, which may result in delays or increased costs. SI Partners may have limited available remedies, including limitations on damages that may prohibit recovery of all costs incurred. Any such occurrence could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
SI Partners’ ability to secure new or maintain or extend existing long-term sales or capacity agreements for its natural gas pipeline operations depends on, among other factors, demand for and supply of LNG and/or natural gas from its transportation customers, which may include our LNG facilities.Sempra Infrastructure’s ability to enter into new or replace existing long-term capacity agreements for its natural gas pipeline operations is dependent on, among other factors, demand for and supply of LNG and/or natural gas from its transportation customers, which may include our LNG export facilities. A decrease in demand for or supply of LNG or natural gas from such customers or the occurrence of other events that hinder SI Partners from maintaining such agreements or establishing new ones could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. A decrease in demand for or supply of LNG or natural gas from such customers or the occurrence of other events that hinder Sempra Infrastructure from maintaining such agreements or establishing new ones could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
The electric generation and wholesale power sales industries are highly competitive. As more plants are built, supplies of energy and related products may exceed demand, competitive pressures may increase and wholesale electricity prices may decline or become more volatile. Without long-term power sales agreements, our revenues may be subject to increased volatility, and we may be unable to sell the power that SI Partners’ facilities can produce at favorable prices or at all, any of which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Without long-term power sales agreements, our revenues may be subject to increased volatility, and we may be unable to sell the power that Sempra Infrastructure’s facilities are capable of producing or sell it at favorable prices, any of which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
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We rely on transportation assets and services, much of which we do not control, to deliver natural gas and electricity.
We depend on electric transmission lines, natural gas pipelines and other transportation facilities and services owned and operated by third parties to, among other things:
▪deliver the natural gas, LNG, electricity and LPG we sell to customers or use at our LNG facilities
▪supply natural gas to our gas storage and electric generation facilities
▪provide retail energy services to customers
If transportation is disrupted, the construction of necessary interconnecting infrastructure is not completed on schedule or at all or capacity is inadequate, we may be delayed in completing projects under development and/or unable to meet our contractual obligations to customers of those projects or existing projects, in which case we may be responsible for damages they incur, such as the cost of acquiring alternative supplies at then-current spot market rates, and we could lose customers that may be difficult to replace. Any such occurrence could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Financial Risks
Fixed-price long-term contracts for services or commodities expose our businesses to risks.
SI Partners seeks long-term contracts for services and commodities to better utilize its facilities, reduce volatility in earnings and support the construction of new infrastructure. Certain of these contracts are at fixed prices, and their profitability may be negatively affected by inflation, tariffs, rising interest rates and changes in applicable exchange rates. We aim to mitigate these risks by, among other things, using variable pricing tied to market indices, contracting for direct pass-through of operating costs and/or entering into hedges. However, these measures may not fully or substantially offset any increases in operating expenses or financing costs and their use could introduce additional risks, any of which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. However, these measures may not fully or substantially offset any increases in operating expenses or financing costs caused by inflationary pressures and their use could introduce additional risks, any of which could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
Our international businesses and operations expose us to foreign currency exchange rate and inflation risks.
Our operations in Mexico pose foreign currency exchange rate and inflation risks.Our operations in Mexico pose foreign currency and inflation risks. Exchange and inflation rates with respect to Mexico and fluctuations in those rates may have an impact on the revenue, cash flows and costs from our international operations, which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Exchange and inflation rates with respect to the Mexican peso and fluctuations in those rates may have an impact on the revenue, costs and cash flows from our international operations, which could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. We sometimes attempt to hedge cross-currency transactions and earnings exposure through various means, including financial instruments and short-term investments, but these hedges may not fully achieve our objectives of mitigating earnings volatility that would otherwise occur due to exchange rate fluctuations. We may attempt to hedge cross-currency transactions and earnings exposure through various means, including financial instruments and short-term investments, but these hedges may not successfully achieve our objectives of mitigating earnings volatility that would otherwise occur due to exchange rate fluctuations. Because we do not hedge our net investments in foreign countries, we are susceptible to volatility in OCI caused by exchange rate fluctuations for entities whose functional currencies are not the U.S. dollar. Moreover, Mexico has experienced periods of high inflation and exchange rate instability in the past, and severe devaluation of the Mexican peso could result in governmental intervention to institute restrictive exchange control policies, as has occurred in Mexico and other Latin American countries. We discuss our foreign currency exposure at our Mexican subsidiaries in “Part II – Item 7. MD&A” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
Our businesses are exposed to fluctuations in commodity prices.
We buy energy-related commodities from time to time for pipeline operations, LNG facilities or power plants to satisfy contractual obligations with customers. The regional and other markets in which we purchase these commodities are competitive and can be subject to significant pricing volatility. Our results of operations, financial condition, cash flows and/or prospects could be materially adversely affected if the prevailing market prices for natural gas, LNG, electricity or other commodities we buy change in a direction or manner not anticipated and for which we have not provided adequately through purchase or sale commitments or other hedging transactions.
As we discuss in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” SI Partners enters into hedging transactions to help mitigate commodity price risk and optimize the value of its LNG, natural gas pipelines and storage, and power-generating assets. Some of these derivatives that we use as economic hedges do not meet the requirements for hedge accounting, or hedge accounting is not elected, and as a result, the changes in fair value of these derivatives are recorded in earnings. Consequently, significant changes in commodity prices have in the past and could in the future result in earnings volatility, which may be material, as the economic offset of these derivatives may not be recorded at fair value.
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If the CRNCI becomes redeemable, SI Partners may not have sufficient funds available to fulfill its obligation of redemption.
Blackstone’s equity interest represents an NCI in PA2 JVCo and is classified as contingently redeemable because Blackstone has certain redemption and exit rights that are outside the control of SI Partners. These rights include, among others, the ability to require redemption upon (i) failure to complete construction by a specified date; (ii) sustained priority distributions to Blackstone above specified thresholds and for specified time periods as a result of extended periods of operational underperformance exceeding certain thresholds, termination of LNG offtake contracts that have not been replaced within a specified timeframe, or material breach of certain affiliate contracts; or (iii) the occurrence of certain monetization events, including a third-party sale of PA2 JVCo. Because these redemption features are contingent on events not solely within SI Partners’ control, we present Blackstone’s equity interest as a CRNCI. If the CRNCI becomes redeemable, SI Partners may not have sufficient funds available to fulfill its obligation of redemption to satisfy Blackstone’s redemption right.
Legal and Regulatory Risks
Our international businesses and operations expose us to increased legal, regulatory, tax, economic, geopolitical, credit and management oversight risks and challenges.
We own or have interests in a variety of energy infrastructure assets in Mexico, and we do business with companies based in foreign markets, including particularly our LNG export operations.OverviewWe own or have interests in a variety of energy infrastructure assets in Mexico, and we do business with companies based in foreign markets, including particularly our LNG export operations. Conducting these activities in foreign jurisdictions subjects us to complex management, security, political, legal, economic and financial risks that vary by country, many of which may differ from and potentially be greater than those associated with our wholly domestic businesses, and the occurrence of any of these risks could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects. These risks include the following and the other risks discussed in this risk factor below:
▪compliance with tax, trade, environmental and other foreign laws and regulations, including legal limitations on ownership in some foreign countries and inadequate or inconsistent enforcement of regulations
▪actions by local regulatory bodies, such as the CNE, including setting rates and tariffs that may be earned by or charged to our businesses
▪adverse changes in social, geopolitical, economic or market conditions
▪adverse rulings by or instability in foreign courts or tribunals
▪challenges obtaining, maintaining and complying with permits or approvals
▪difficulty enforcing contractual and property rights and differing legal standards
▪expropriation or theft of assets
▪the stability of foreign governments or such foreign governments’ relations with the U.S. government
▪changes in the priorities and budgets of international customers, which may be driven by many of the factors listed above, among others
Mexican Government Influence on Economic and Energy Matters
The Mexican government exercises significant and increasing influence over the Mexican energy sector and has adopted additional changes that could impact private investment in this sector.
In 2024, the Mexican government adopted changes to the Mexican Constitution to reinforce state control over strategic sectors by granting a central role to government entities like the CFE and PEMEX, which have been converted from for-profit state-owned enterprises into public state-owned enterprises. Following these constitutional reforms, in March 2025, the Mexican government adopted the 2025 Energy Laws, which increase the government’s control and participation in the energy sector and may create novel challenges for infrastructure development and operations. Like the LIE and LH, the 2025 Energy Laws give Mexican authorities broad discretion to revoke or suspend permits under certain circumstances. In October 2025, the Mexican government enacted new regulations regarding the 2025 Energy Laws, which provide further detail on the legal and regulatory framework of the energy sector. These new regulations provide state-owned companies preferential treatment regarding open access, increase oversight by regulators and obligations for private companies and reduce the maximum term of certain permits for new projects. For the power sector, the new regulations provide for state prevalence and additional requirements for private projects, increase oversight by regulators and sanctions and establish that self-supply permits remain valid and can migrate voluntarily to the wholesale electricity market. Additionally, in December 2025, the Mexican government released proposed regulations that could adversely impact our self-supply power plants and the development of new power export projects by potentially increasing tariff rates and thereby reducing the competitiveness of projects operating under the self-supply framework.
2025 Form 10-K | 66
Although the new laws, regulations, and certain general administrative provisions in the energy sector have been published, the extent of the impact of the 2025 Energy Laws remains uncertain. These laws and future implementation of existing and any new regulations could adversely affect SI Partners’ ability to secure favorable rate cases and operate its existing assets at their current levels; result in increased costs to SI Partners and its customers; adversely impact SI Partners’ ability to secure and retain permits and develop new projects in Mexico; result in decreased revenues and/or cash flows; and negatively impact SI Partners’ ability to recover the carrying values of its investments in Mexico, any of which could have a material adverse impact on our business, results of operations, financial condition, cash flow and/or prospects.
In addition to the constitutional changes noted above, in 2024 the Mexican government introduced significant changes to the Mexican Constitution, including reforms requiring that all judges be elected rather than appointed, which may adversely impact, among other things, SI Partners’ ability to enforce its contracts with state-owned enterprises or challenge actions taken by regulators. These reforms and any further Mexican Constitutional, legal or regulatory changes could adversely affect the Mexican economy, energy sector and our businesses, the extent of which we currently are unable to predict. To the extent authorized amounts collected vary from actual costs, the differences are generally recovered or refunded within a subsequent period based on the nature of the balancing account mechanism.
U.S. and Foreign Laws and International Relations
Our international business activities are subject to laws and regulations in the U.S. and Mexico and other countries where we do business related to foreign operations and doing business internationally, including the U.S. Foreign Corrupt Practices Act, the Mexican Federal Anticorruption Law in Public Contracting (Ley Federal Anticorrupción en Contrataciones Públicas) and similar laws, and are sensitive to geopolitical factors in each of these countries. The current and the last U.S. Administrations have taken different stances with respect to international trade agreements, tariffs, immigration and other matters of foreign policy that impact trade and foreign relations. We discuss developments in tariff policies above under “Risks Related to All Sempra Businesses – Operational Risks.” Shifts in other aspects of foreign policy could create uncertainty and result in or increase adverse effects on our businesses. Violations or alleged violations of the laws referred to above, as well as foreign policy positions or sanctions, could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Violations or alleged violations of the laws referred to above, as well as foreign policy positions that adversely affect imports and exports between the US, Mexican and other economies and foreign companies with whom we conduct business, could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
We face risks related to unsettled property rights and titles in Mexico.
We are engaged in a dispute regarding our title to property in Mexico adjacent to and owned by the ECA Regas Facility, which we discuss in Note 16 of the Notes to Consolidated Financial Statements. In addition, we have and may in the future seek to obtain long-term leases or rights-of-way from governmental agencies or other third parties to operate our energy infrastructure on land we do not own. In addition, we may have or seek to obtain long-term leases or rights-of-way from governmental agencies or other third parties to operate our energy infrastructure located on land we do not own for a specific period of time. In addition to the risks associated with such property ownership and use that we describe above under “Risks Related to All Sempra Businesses – Operational Risks,” disputes regarding ownership or rights to any of these properties could lead to difficulties developing, constructing and, if completed, operating the affected facilities or proposed projects. Any of these outcomes could have a material adverse effect on our results of operations, financial condition, cash flows and/or prospects.
SI Partners’ energy infrastructure assets may be considered by the Mexican government to be a public service or essential for the provision of a public service, in which case these assets and the related businesses could be subject to expropriation or nationalization, loss of concessions, renegotiation or annulment of existing contracts, and other similar risks.57Table of ContentsSempra Infrastructure’s energy infrastructure assets may be considered by the Mexican government to be a public service or essential for the provision of a public service, in which case these assets and the related businesses could be subject to expropriation or nationalization, loss of concessions, renegotiation or annulment of existing contracts, and other similar risks. Any such occurrence could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
2025 Form 10-K | 67
Risk Related to Planned Sales of Certain Assets and Businesses
We may be unable to complete or realize the anticipated benefits from our planned sales of certain of our assets and businesses as part of our capital recycling program.
As we discuss in Note 6 of the Notes to Consolidated Financial Statements, in September 2025, we entered into an agreement to sell a 45% equity interest in SI Partners to the KKR Partners for $9.99 billion, subject to adjustments. We expect this sale to close in the second or third quarter of 2026, subject to certain conditions, including receipt of antitrust approvals in Mexico; receipt of other third-party consents or waivers, including from certain lenders, partners and others; the absence of a material adverse effect on SI Partners; the absence of specific downgrade events under certain financing arrangements; and other customary closing conditions. Additionally, in December 2025, we entered into an agreement to sell Ecogas. We expect to complete the sale of Ecogas in the second or third quarter of 2026, subject to closing conditions. These pending sales may not be completed in a timely manner or at all. Applicable regulatory authorities and other third parties may withhold the necessary approvals, seek to block or challenge the transactions in the case of certain regulatory authorities, or impose burdensome or costly requirements as conditions to approval. If the required approvals or consents are not received, the other closing conditions are not satisfied or waived, or any of the foregoing is not achieved in a timely manner or on satisfactory terms, then we may need to incur additional costs to complete these transactions, which costs could be significant, or the transactions may be abandoned, delayed or restructured, which would prevent us from realizing the potential benefits of the transactions while still bearing the substantial costs incurred to pursue them. Moreover, all our businesses operating in California are subject to enhanced state privacy laws, which require companies that collect information about California residents to, among other things, make disclosures to consumers about their data collection, use and sharing practices; allow consumers to opt out of certain data sharing with third parties; and be liable under a new cause of action for breaches of certain highly sensitive personal information, and other states in which we do business could adopt similar laws.
Even if they close, any efficiencies and benefits we expect from these transactions, including with respect to our capital recycling program, might be delayed or not realized. Our expectations are based on a number of assumptions, estimates, projections and other uncertainties about, among other things, closing and post-closing payments; purchase price adjustments; transaction-related tax and accounting impacts; performance by the KKR Partners of their respective contractual obligations; transition services and employee matters; the results of operations of SI Partners after the closing of the proposed transactions; and other factors beyond our control. Moreover, the planned decrease in our ownership of SI Partners would also decrease our share of the cash flows, profits and other benefits from this business. Additionally, the KKR Partners collectively would generally have control of SI Partners, subject to certain minority consent rights so long as the minority partners maintain specified ownership thresholds. The KKR Partners may not manage SI Partners in accordance with our current expectations, which could materially adversely affect the value of our minority ownership interest.
Any of these outcomes could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects. Any such circumstance could materially adversely affect our results of operations, financial condition, cash flows and/or prospects.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C.ITEM 1B. CYBERSECURITY
CYBERSECURITY RISK MANAGEMENT
Our cybersecurity processes are largely designed and assessed based on the National Institute of Standards and Technology Cybersecurity Framework and the DOE’s Cybersecurity Capability Maturity Model standards. This does not imply that we meet any technical standards, specifications, or requirements, only that we use these standards as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
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Our cybersecurity risk management processes include:
▪risk assessments performed by internal personnel and third-party advisors designed to help identify material cybersecurity risks to our critical systems, information, services, and our broader enterprise information technology environments
▪cybersecurity teams principally responsible for developing and implementing (1) cybersecurity risk assessment processes, (2) cybersecurity controls, and (3) response plans to cybersecurity incidents
▪the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our cybersecurity controls
▪cybersecurity awareness training and policies designed to address social engineering attacks targeting employees and contractors
▪cybersecurity incident response plans that include procedures for responding to and reporting, if applicable, certain cybersecurity incidents
▪risk management processes for third-party service providers, suppliers, and vendors
CYBERSECURITY GOVERNANCE
We have formed cybersecurity councils to provide overall corporate oversight for managing material risks from cybersecurity threats. The cybersecurity councils meet regularly to receive updates on cybersecurity developments at Sempra and our consolidated entities from their cybersecurity management teams.
Our cybersecurity management teams supervise efforts designed to prevent, detect, mitigate, and remediate cybersecurity risks and incidents. The cybersecurity management teams receive intelligence on emerging cybersecurity threats through various means, including internal cybersecurity personnel; governmental, public and private sources; subject matter experts and consultants; and cybersecurity tools deployed in the environment. Cybersecurity management also supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. Sempra’s director of cybersecurity governance & chief information security officer provides additional oversight and support for the operational cybersecurity activities at our consolidated entities.
2025 Form 10-K | 69
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