OGE

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2024, for OGE Energy Corp. (OGE Energy) and its wholly-owned subsidiary, Oklahoma Gas and Electric Company (OG&E). OGE Energy is a holding company whose primary investment is OG&E, the largest electric company in Oklahoma, serving approximately 907,000 customers in Oklahoma and western Arkansas. The company operates as a vertically integrated utility, generating, transmitting, distributing, and selling electric energy. Rates are regulated by the Oklahoma Corporation Commission (OCC), the Arkansas Public Service Commission (APSC), and the Federal Energy Regulatory Commission (FERC).

Key Financial Metrics

Note: Total Debt calculated as Short-term debt ($469.3M) + Long-term debt ($5,020.9M) + Long-term debt due within one year ($32.4M) for 2024.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 11.6% to $2,985.3 million, driven primarily by higher operating revenues excluding recoverable fuel costs, load growth, and recovery of capital investments. A base rate revenue increase of $126.7 million became effective July 1, 2024, following an OCC settlement.
• Net Income Increase: Net income rose 6.0% to $441.5 million. OG&E net income increased by $43.5 million, offset partially by a higher net loss in other operations (holding company) due to increased interest expense from new debt issuances.
• Expense Increases: Fuel, purchased power, and direct transmission expenses rose 18.1% to $1,076.4 million, largely due to higher market prices and increased MWhs purchased from the Southwest Power Pool (SPP). Depreciation and amortization increased 6.5% due to new assets placed in service.
• Cash Flow Decline: Net cash provided by operating activities decreased 34.0% to $812.8 million, primarily due to decreased cash received from customers (including fuel recoveries) and increased interest payments, partially offset by decreased vendor payments.
• Debt Issuances: OGE Energy issued $350.0 million of senior notes in May 2024, and OG&E issued $350.0 million of senior notes in August 2024 to fund capital investments and repay short-term debt.

Guidance, Outlook, and Risks

2025 Outlook

OGE Energy projects 2025 earnings of approximately $447 million to $471 million ($2.21 to $2.33 per diluted share), with a midpoint of $459 million ($2.27 per share). Key assumptions include:

• OG&E earnings of $491 million ($2.43 per share).
• Total retail load growth of 7.5% to 9.5%.
• Operating expenses of $1.205 billion to $1.217 billion.
• Net interest expense of $281 million to $284 million.
• Effective consolidated tax rate of approximately 16.5%.

Capital Requirements

Estimated capital expenditures for 2025 through 2029 total $6.25 billion. The 2025 estimate is $1.15 billion, focused on transmission, distribution, generation reliability, and technology.

Risks and Contingencies

• Regulatory Risk: Profitability depends on the ability to recover costs, including capital and fuel, through regulated rates. Delays or denials in rate increases could adversely impact results.
• Environmental Compliance: Significant costs may be incurred to comply with EPA regulations, including the "Good Neighbor" FIP and Section 111(d) rules for greenhouse gas emissions. Preliminary estimates for FIP compliance range from $2.4 billion to $2.8 billion, though litigation outcomes remain uncertain.
• Climate Change: Physical risks from extreme weather and transition risks related to a lower carbon economy could impact operations and asset values.
• Cybersecurity: The company faces risks from cyberattacks, ransomware, and data breaches, which could disrupt operations and incur significant costs.
• Workforce: A significant portion of the workforce is nearing retirement, creating challenges in hiring and training replacements.

Investor Verification Checklist

• Rate Recovery: Verify the final approval and implementation timeline of the $126.7 million base rate increase in Oklahoma and the status of the Arkansas formula rate rider.
• Environmental Costs: Monitor the outcome of litigation regarding the EPA's "Good Neighbor" FIP and Section 111(d) rules, as compliance costs could be material ($2.4B–$2.8B).
• Load Growth: Confirm actual load growth against the 7.5%–9.5% forecast for 2025, particularly driven by commercial and industrial sectors.
• Debt Covenants: Ensure compliance with debt-to-capitalization covenants (70% for OGE Energy, 65% for OG&E) given the increased debt load from 2024 issuances.
• Capital Expenditures: Track the execution of the $6.25 billion five-year capital plan, specifically the timing of new generation capacity projects to meet SPP reserve margin requirements.