OGE Energy Corp. Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023; filed August 8, 2023. This combined filing covers OGE Energy Corp. and its regulated electric utility subsidiary, Oklahoma Gas and Electric Company (OG&E). OGE Energy’s principal business is electricity generation, transmission and distribution in Oklahoma and western Arkansas. OGE Energy sold its Energy Transfer units in 2022 and no longer reports a natural gas midstream segment in 2023.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| OGE Energy operating revenue | $605.0 million | $803.7 million | $1,162.2 million | $1,393.0 million |
| OGE Energy net income | $88.4 million | $73.1 million | $126.7 million | $352.6 million |
| OGE Energy diluted EPS | $0.44 | $0.36 | $0.63 | $1.76 |
| OG&E net income | $91.9 million | $100.7 million | $131.7 million | $139.7 million |
| OG&E operating income | $147.0 million | $157.2 million | $223.8 million | $241.1 million |
- OGE Energy’s Q2 net income rose $15.3 million year over year, while OG&E’s Q2 net income fell $8.8 million. The parent-level increase mainly reflects the absence of a $39.6 million Energy Transfer investment loss recorded in Q2 2022, alongside changes in holding-company results.
- First-half OGE Energy net income fell $225.9 million. The prior-year period included a $242.7 million pre-tax gain on the Energy Transfer investment; that gain did not recur after the investment was sold.
- OG&E’s Q2 revenue decreased 24.7% and first-half revenue decreased 16.6%. The largest driver was lower fuel, purchased-power and transmission costs, which are generally recovered through customer mechanisms and do not directly affect earnings. Lower cooling-degree days also reduced sales volumes.
- OG&E earnings were pressured by higher depreciation and amortization, operation and maintenance costs, and interest expense. The utility said recovery of capital investment through rates and higher other income partly offset these effects.
- Cash flow: OGE Energy generated $456.9 million of operating cash in the first half, versus $8.1 million in 2022. Capital expenditures were $580.6 million, compared with $450.8 million. Investing cash flow was $(582.7) million; financing cash flow was $38.0 million. Ending cash was $0.3 million.
- Debt and liquidity: OGE Energy reported $418.1 million of short-term debt and $4.339 billion of long-term debt at June 30. OG&E reported $4.289 billion of long-term debt and no short-term debt. OGE Energy reported $731.5 million of net available liquidity under credit facilities, commercial paper and letters of credit. Both registrants said they were in compliance with debt agreements.
- OG&E issued $450 million of 5.40% senior notes due 2033 and $350 million of 5.60% notes due 2053. The registrants repaid $1.0 billion of senior notes that matured in May 2023. OGE Energy’s six-month dividends paid were $166.5 million; the declared dividend was $0.4141 per share in each of Q1 and Q2.
Outlook, management commentary and risks
- Management reaffirmed 2023 OGE Energy earnings guidance of $387 million to $416 million, or $1.93 to $2.07 per diluted share. OG&E guidance is $400 million to $421 million, or $1.99 to $2.09 per diluted share. Guidance assumes approximately 201 million average diluted shares and normal weather; management notes significant weather seasonality.
- OG&E expects to file its next Oklahoma rate review by the end of 2023 and an updated Oklahoma and Arkansas integrated resource plan in 2024. Capital expenditure estimates for 2023–2027 are trending above the levels discussed in the 2022 Form 10-K.
- OG&E sought state regulatory approval for two hydrogen-capable combustion turbines at Horseshoe Lake, totaling 448 MW and estimated to cost approximately $331 million, excluding financing costs and property taxes. The units are expected to enter service in late 2026; the OCC hearing was expected in October 2023.
- Environmental compliance is a key uncertainty. OG&E estimated that compliance with the EPA’s Good Neighbor final implementation plan could cost up to approximately $2.7 billion, including $100 million to $300 million over the 12–18 months following effectiveness. A court stay of the Oklahoma SIP disapproval was granted in July 2023; costs depend on litigation, selected controls and regulatory recovery.
- OG&E reserved $13.0 million plus estimated interest for potential refunds related to SPP transmission-upgrade charges; the matter remains pending. A separate lawsuit filed in July 2023 seeks more than $60 million over an apartment-building fire. OG&E disputes the claims and expects insurance to cover costs beyond a non-material retention, but says the outcome and possible loss range cannot be predicted.
- Management cited inflation, higher interest rates, supply-chain disruption and equipment shortages as potential pressures on construction costs and timing. It said the impact had not been material to operations to date but remained uncertain. Other risks include weather, fuel and power prices, regulatory rate recovery, environmental rules, and access to capital.
Most important facts for investors to verify
- Whether 2023 earnings guidance remains achievable, particularly given weather sensitivity and the gap between first-half results and full-year targets.
- How much of the estimated capital program will proceed, including the Horseshoe Lake project, and what rate recovery regulators authorize.
- The eventual cost, timing and recoverability of environmental compliance spending, especially under the Good Neighbor plan.
- Developments in the $13.0 million SPP refund matter and the apartment-fire litigation, including any change in reserves, insurance coverage or potential exposure.
- Debt and liquidity trends as investment spending continues, including borrowing costs and the availability of regulatory recovery for fuel and capital costs.
- The comparability of earnings: first-half 2022 included a substantial nonrecurring Energy Transfer gain, while 2023 results reflect the post-divestiture reporting structure.