Sempra SRE Business Risk Report

I. Market Risks

A. Volatility in commodity prices: Sempra’s performance can be significantly impacted by fluctuations in natural gas and electricity prices. As a major player in the utilities and energy sector, changes in commodity prices can affect the cost of energy production and distribution.

B. Competitive pressures impacting market share: Sempra faces competition from other energy service providers and newer entrants leveraging renewable energy technologies. These competitive pressures could potentially erode Sempra’s market share and influence profit margins.

II. Regulatory Risks

A. Changes in government policies and regulations: Sempra is subject to extensive regulations across various jurisdictions. Changes in energy policies, such as modifications in utility regulations or shifts in environmental law, could impact operations and costs.

B. Legal challenges and compliance issues: The company may face legal proceedings and challenges related to regulatory compliance, which could result in significant financial liabilities and affect its public reputation.

III. Operational Risks

A. Disruption in supply chain: Sempra’s operations depend on the smooth functioning of supply chains, including the availability of energy sources and infrastructure components. Disruptions, whether due to natural disasters or geopolitical events, can lead to operational delays and increased costs.

B. IT system failures or cybersecurity threats: The reliance on information technology systems exposes Sempra to risks of system failures and cyber-attacks. Any significant breach could compromise customer data and disrupt operations, leading to financial losses and damage to reputation.

IV. Financial Risks

A. Fluctuations in interest rates: Changes in interest rates can affect Sempra’s finance costs for its substantial borrowings. An increase in rates would lead to higher debt servicing costs, affecting the financial health of the company.

B. Liquidity constraints affecting financial stability: Maintaining liquidity is crucial for Sempra’s operational and strategic flexibility. Difficulties in accessing capital markets or significant decreases in cash flow could adversely impact its financial standing.

V. Environmental Risks

A. Climate change impacts on infrastructure: Sempra’s infrastructure, including pipelines and power stations, could be adversely affected by severe weather patterns driven by climate change, leading to increased operational and capital costs.

B. Environmental regulations impacting operations: Strong environmental regulations in the energy sector require compliance with stringent standards. Failure to meet these standards or changes in regulations could result in fines and necessitate expensive adjustments to operations.

VI. Mitigation Strategies

A. Diversification of product portfolio: Sempra invests in diversifying its product offerings to include renewable energy sources, which helps balance risks associated with traditional fossil fuels and respond to market demand shifts.

B. Regular monitoring and compliance checks: The company conducts regular compliance checks and monitoring to ensure adherence to legal and regulatory requirements, thus minimizing legal risks and enhancing governance.

C. Investment in robust cybersecurity measures: Sempra invests in enhancing its cybersecurity infrastructure to protect against data breaches and IT disruptions, securing its operations and customer information.

D. Hedging strategies for financial risks: Financial risks such as fluctuations in commodity prices, interest rates, and currency exchange rates are managed through hedging strategies to mitigate adverse financial impacts.

E. Sustainability initiatives to address environmental concerns: The company implements sustainability initiatives aimed at reducing carbon footprint and improving environmental compliance, thus aligning with global environmental goals and regulatory demands.

F. Collaborations with regulatory bodies for ongoing compliance: Sempra actively collaborates with various regulatory bodies to ensure ongoing compliance with regulations, thereby reducing the risk of penalties and supporting operational continuity.