Activist investor Voss Capital has urged Sempra to spin off its Oncor electricity unit, creating a high-growth Texas-focused utility unencumbered by the $60 billion energy giant’s predominant California business, according to sources familiar with the matter and a letter seen by Reuters on Thursday.
The Houston-based hedge fund, which owns roughly 2 million shares, or less than 1%, of Sempra, argues that a newly independent Oncor Electric Delivery Company would be the highest-growth public transmission utility in the U.S., and could be worth as much as $78 billion by the end of 2028. Since Sempra controls around 80% of Oncor, its stake in the spinoff would be worth more than Sempra’s current market value as a combined company, Voss said in the letter to its investors.
It would make it easier for investors to understand Sempra, which Voss said is now unnecessarily complicated because it has three distinct businesses: its Southern California utility operations, Texas-based Oncor, and Sempra Infrastructure, which develops liquefied natural gas export facilities.
Voss’ faith in separating Oncor is supported by the fact that much of its capital spending for the coming years is on projects that have already been approved by regulators, and that serve broad economic growth. The Texas utility also would not have any exposure to the wildfires that have devastated parts of California over the last decade and depressed the valuations of utilities operating in the state.
Investors have broadly wanted companies to separate these types of risks, industry analysts said, so others may back Voss Capital’s position.
Oncor did not have any immediate comment. Sempra did not respond to a request for comment. Voss declined further comment beyond the letter.
Voss Capital is an activist hedge fund with roughly $2 billion in capital that has become more vocal recently, industry analysts said. The fund has largely focused on the consumer products, industrial and technology, media and telecom sectors.
The hedge fund exerted forceful pressure on manufacturing conglomerate Griffon Corp that led to a significant restructuring and portfolio overhaul. The stock price nearly quadrupled since the campaign began in 2021. Last month it reached a settlement with food service technology company PAR Technology for a one-year non-voting board observership.
Power and energy stocks have been attracting broader investor interest as artificial intelligence and industrial electrification drive energy demand.
Texas has one of the fastest-growing economies among U.S. states and is projecting significantly higher power needs in the coming years. The Electric Reliability Council of Texas, which manages much of Texas’ electric grid, forecast last month that peak electricity demand would climb from about 98,087 megawatts in 2026 to about 111,318 megawatts by 2032.
Oncor distributes power to more than 4 million Texas homes and businesses across more than 144,000 miles of transmission lines, according to its website. Sempra bought its Oncor stake in 2018 for $9.45 billion.
Sempra closed Thursday at $90.03 per share, up 2% since the beginning of the year. Over the same time period, the S&P utilities index has risen 4.1%.
