OGE Energy Corp. (NYSE:OGE) Q1 2023 Earnings Call Transcript May 4, 2023

OGE Energy Corp. beats earnings expectations. Reported EPS is $0.19, expectations were $0.17.

Operator: Good day, and thank you for standing by. Welcome to the OGE Energy Corp First Quarter 2023 Earnings Conference Call [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Bailey, Director of Investor Relations. Please go ahead, Jason.

Jason Bailey: Thank you, Hope and good morning, everyone. And welcome to the call. With me today, I have Sean Trauschke, our Chairman, President and CEO; and Bryan Buckler, our CFO. In terms of the call today, we will first hear from Sean, followed by an explanation from Bryan of financial results. And finally, as always, we will answer your questions. I’d like to remind you that this conference is being webcast and you may follow along at oge.com. In addition, the conference call and accompanying slides will be archived following the call on that same Web site. Before we begin the presentation, I’d like to direct your attention to the safe harbor statement regarding forward-looking statements. This is an SEC requirement for financial statements and simply states that we cannot guarantee forward-looking financial results but this is our best estimate to date. I will now turn the call over to Sean for his opening remarks. Sean?

Sean Trauschke: Thank you, Jason. Good morning, everyone. Thank you for joining us on today’s call. We’re off to a really strong start for the year. As you know, the first quarter typically represents less than 10% of the electric company’s earnings. However, this quarter does provide momentum for the year and I really like what I see. Earlier this morning we reported consolidated earnings for the quarter of $0.19 per share with $0.20 per share from OG&E and holding company loss of a penny. I’m pleased with the overall performance of electric company with results up year-over-year, and Bryan will discuss our financial results in more detail shortly. Our plan for the future is strong when you consider increased demand for electricity to support our growing communities.

Business expansion is broad, representing many sectors, including manufacturing, defense, tribal enterprises and healthcare, in both Arkansas and Oklahoma. Some of these expansions include significant job growth, including 900 new military personnel who will be stationed at Ebbing Air National Guard Base in Fort Smith, Arkansas, along with Pratt and Whitney’s announcement last month of the new sustainment center associated with its operations near Tinker Air Force Base in Oklahoma. Our customer initiatives have gained steam, particularly in the digital experience. One quarter after launching our new mobile app, more than 10% of our customer base has downloaded the app and more importantly, they’re using it from bill payment to outage reporting.

We’re making it easier for customers to self serve online and rolling programs and rolling in services that help them manage their energy usage and monthly bill. These efforts pay off in a multitude of ways from improving our customer experience to driving cost out of our business. Our grid and weather hardening investments are also paying off for customers and helping us achieve strong operational performance. Something that’s really important when you know that Oklahoma is a top five state for federally declared storms. These investments are eliminating and reducing outages during severe weather. Two weeks ago, severe storms hit our service area with two communities highly impacted Shawnee in Cole, Oklahoma. That night, there were 18 tornadoes and what struck Shawnee left more than a mile wide path of destruction and people without power.

And yet, within 48 hours 75% of our customers were back online and by Monday, that number was 95%. The total customer impact to our system on the night of the storms was less than one half of 1% of our customer base. You just don’t see those results following severe storms in other parts of the country. The folks in those towns have a long road ahead to rebuild and we’ll be right there with them all along the way. I’m proud to work alongside our team every day and its times like these that I’m in awe of the dedicated men and women who understand our obligation to serve and don’t stop until the work is done. We continue to invest in the grid, improving distribution circuits, substations and structural resiliency to mitigate the impact of severe weather like the storms I mentioned earlier.

We’re excited about the opportunities through the IIJA to advance our reliability and resiliency work for our customers, while grounding our work and affordability with a 50% cost share through the federal grants. Supporting a growing customer base and thriving communities translates to a growing need for generation capacity. As you know, we’re actively working through multiple RFPs to meet our capacity needs and we’re making progress on finalizing agreements, and plan to file for approval this summer. Not all the RFP responses deliver the value we were looking for, so we will be issuing a new IRP later this year with updated planning assumptions, as well as exploring how opportunities in the IIJA and IRA to advance clean energy for the future might fit into the overall plan.

Our goal is to implement a generation plan that supports our customers and the business, smoothing investments in a steady incremental way without large spikes or bumps. We’ll deal with all of these factors in the most cost effective way ensuring we lead with affordability. And I’ve mentioned IIJA a couple of times, and we continue to pursue opportunities through the app, with two full proposals under review, one for good resiliency and one for storm protection. Last month, we also submitted two concept papers under the energy improvements in rural or remote areas program. With three quarters of our service area considered disadvantaged or tribal communities, we will relentlessly pursue every opportunity to improve reliability and resiliency for those customers.

Along with these programs, we’re excited to be part of the HALO Hydrogen Hub. A three state partnership between Arkansas, Louisiana and Oklahoma, which is applying for the regional clean hydrogen hubs program, allocated to the IIJA. The full application is for 1.25 billion in federal funding and was submitted just last month. We were also pleased the Oklahoma Corporation Commission approved our 2021 fuel prudency audit last month. And given the robust growth of our communities and the capital investments required to ensure reliable and resilient electricity, we’re evaluating the timing of our next rate review, which could be filed during the second half of this year. In March, the Arkansas Public Service Commission approved a settlement in the annual formula rate plan review in new rates went into effect April 1st.

We’ll follow the last formula rate plan update later this year. And as I close, I want to share a few thoughts on where we’re headed. This is an exciting time to be part of this industry and work at this company, especially when you do business in the service area that is growing. We are truly in an opportunity rich environment. Our significant investment opportunities correlate directly to our economic development engine that drives community growth and business expansion in our service area. This widens the competitive advantage we have in adding customers to the cities and towns we serve. As we ground our plans and affordability for our customers and maintaining our low rates, the future of OGE Energy is bright. Our investments are delivering results with a 99.96% uptime, our service area is thriving, our business — our customer base is growing, our business fundamentals are excellent and our team, I think, is very best in the business and they’re focused on delivering premium electric company results.

So we’re operating from a strong base and are confident in delivering our commitments to you and as well to our customers. Now I’ll turn the call over to Bryan. Bryan?

Bryan Buckler: Thank you, Sean. Thank you, Jason. And good morning, everyone. Let’s start on Slide 5 and discuss first quarter 2023 results. On a consolidated basis, first quarter net income was $38 million or $0.19 per diluted share compared to $280 million or $1.39 per share in the same period 2022. Earnings for the first quarter of last year included $1.15 per share from natural gas midstream operations, which we fully exited in 2022 through the sell of our energy transfer units. The Electric Company achieved net income of $40 million or $0.20 per diluted share in the first quarter compared to $39 million or $0.19 per share in the same period 2022. The increase in electric company net income was primarily due to increased recoveries of capital investments and strong load growth, partially offset by higher O&M and favorable weather and increased appreciation on a growing asset base.

Other operations, including our holding company, reported a loss of $1.5 million or a penny loss per diluted share in the first quarter compared to net income of $10 million or $0.05 per share in the same period 2022. The decrease in net income was primarily due to a consolidating interim tax benefit of $12 million in the first quarter 2022 related to OG&E’s investment in energy transfer that reversed over the course of the year. Turning to customer growth and load results on Slide 6. Our customers grew at a rate of approximately 1% and weather normalized load grew at a rate of 3.9% compared to first quarter 2022. This trend of strong growth and customers and load is a testament to the vibrancy of the economies in Oklahoma and Arkansas and our sustainable business model of economic and business development enabled by OG&E’s low customer rates.

While residential load was lower as more and more of our customers returned to the office oilfield and public authority had very solid growth and the commercial sector turned in its third straight quarter of double digit year-over-year increases in weather normal load. As Sean alluded to, the pipeline of prospective business expansions continues to be as robust as the company has seen in many years, coming from data mining, manufacturing, defense, healthcare and travel enterprises, among others. The economic situation in Oklahoma and Arkansas is outstanding and for the full year we continue to forecast total weather normal load growth of 4% to 5% compared to 2022. Now let’s move to Slide 7 for an update on our 2023 financing plan. As you know, OGE Energy is fortified by one of the strongest balance sheets in the industry with no need to issue equity for our current capital forecast.

Furthermore, our projection of FFO to debt metrics of 17.5% to 18% throughout the five year forecast period is one of the best in the industry. At the electric company, we issued $350 million of 5.6% notes in April and have now completed our planned long term debt issuances for the year. Later this month, we will pay off the $500 million of senior notes at the electric company and $500 million senior notes at the holding company that were issued in 2021 after winter storm Uri. With these repayments, we will be in a short term deposition at the holding company and expect to end the year with a balance of approximately $300 million. Accordingly, our relative holding company debt position will be one of the lowest in the industry at well less than 10% of consolidated debt.

As a reminder, we have no additional fixed rate maturities through 2026. Before transitioning to our final slide, let me provide an update on our fuel under recovery status. At the end of March, our fuel under recovery balance was approximately $370 million, a reduction of $145 million since year end. While we still have several months before we will catch up on the recovery of last year’s fuel costs, we’re hopeful these fuel price trends continue and ultimately lead to lower bills for our customers. Let’s wrap up on Slide 8. In summary, our first quarter EPS came in as expected and I have great confidence in our employees’ ability to execute on our plan for the full year 2023 and to deliver financial results consistent with our earnings guidance.

Simply said, I really like where we stand for 2023 and that allows us to focus on achieving our longer term commitments to customers, communities, employees and shareholders. As Sean mentioned, the fundamentals of OG&E’s business are encouraging, including strong economic, infrastructure and load growth with a foundation of a solid balance sheet, all of which underpin our confidence in a 5% to 7% long term earnings per share growth rate at the electric company. We believe this projected earnings trajectory coupled with an expected stable and growing dividend offers our investors an attractive total return proposition. With that, we will open the line for your questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Shahriar Pourreza with Guggenheim Partners.

Operator: [Operator Instructions] Our next question comes from Julien Dumoulin-Smith with Bank of America.

Operator: Our next question comes from Alex Mortimer with Mizuho.

Operator: [Operator Instructions] Our next question comes from Aditya Gandhi with Wolfe Research.

Operator: Our last question comes from Shahriar Pourreza with Guggenheim Partners.

Operator: At this time, I would now like to turn it back to Sean for closing remarks.

Sean Trauschke: Thank you, Hope. And thank everybody for joining us this morning. Thank you for your interest in the company, and I hope everyone has a wonderful day.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.