Business context and reporting period
OGE Energy Corp. (OGE Energy) filed this unaudited Form 10-Q for the three months ended March 31, 2022. The filing also presents results for its wholly owned regulated electric utility, Oklahoma Gas and Electric Company (OG&E). OGE Energy’s other segment held its investment in Energy Transfer after the December 2021 merger with Enable.
Key financial metrics
| Metric | OGE Energy consolidated | OG&E |
|---|---|---|
| Operating revenue | $589.3 million; prior-year quarter $1,630.6 million | $589.3 million; prior-year quarter $1,630.6 million |
| Operating income | $83.1 million; prior-year quarter $48.6 million | $83.9 million; prior-year quarter $49.1 million |
| Net income | $279.5 million; diluted EPS $1.39; prior-year $52.7 million and $0.26 | $39.0 million; prior-year $11.2 million |
| Operating cash flow | $58.9 million; prior-year use of $940.2 million | $51.4 million; prior-year use of $939.9 million |
| Capital expenditures | $220.1 million | $220.1 million |
| Debt at March 31 | $731.5 million short-term; $4,497.0 million long-term | $182.5 million short-term; $3,997.1 million long-term; also $90.3 million advances from parent |
| Liquidity | $368.1 million net available under revolving credit agreements; no cash and cash equivalents | No cash and cash equivalents |
OGE Energy’s $279.5 million net income included a $282.3 million pre-tax unrealized gain on its Energy Transfer investment. The investment was valued at $1,067.4 million at quarter-end. OG&E declared no separate dividend; OGE Energy declared $0.41 per common share.
Material changes versus the prior comparable period
OGE Energy net income rose $226.8 million, primarily because of the Energy Transfer fair-value gain and higher OG&E earnings. OG&E net income increased $27.8 million, reflecting higher revenues from capital investment recovery and the prior-year Guaranteed Flat Bill loss during Winter Storm Uri, partly offset by higher depreciation, operating and maintenance, and income tax expense.
Revenue fell sharply because first-quarter 2021 included unusually high fuel and purchased-power costs from Winter Storm Uri, which are generally recoverable from customers and largely offset in expense. Accordingly, the revenue decline and improved operating cash flow versus 2021 should not be read as simple changes in underlying demand or recurring earnings. OGE Energy’s midstream results are also not directly comparable: 2021 included Enable equity-method earnings, while 2022 included Energy Transfer investment gains and distributions.
Outlook, management commentary, risks and contingencies
- OG&E maintained 2022 earnings guidance of approximately $375 million to $395 million, or $1.87 to $1.97 per average diluted share. OGE Energy did not provide consolidated earnings guidance.
- OGE Energy targets 5% to 7% annual utility EPS growth and a 65% to 70% dividend payout ratio based on utility earnings. It intends to exit its midstream investment and become a pure-play electric utility. Through April 2022 it had sold 21.75 million Energy Transfer units for $246.0 million of pre-tax net proceeds, reducing ownership to approximately 2%.
- OG&E expects to issue $300 million of long-term debt in the second half of 2022. Oklahoma securitization bonds of up to $760 million for Winter Storm Uri costs were approved by the Oklahoma Supreme Court on May 3, 2022; issuance was expected in mid-2022. The filing reports $749.2 million of Oklahoma Uri regulatory assets and $86.3 million of Arkansas Uri regulatory assets at quarter-end.
- OGE Energy reserved $13.0 million plus estimated interest for a possible refund related to SPP sponsored transmission-upgrade charges; the matter remained pending. Separately, pending Oklahoma service-territory cases could expose OG&E to review of approximately $28.0 million of plant investments and potential lost-revenue payments, with amounts dependent on court and regulatory outcomes.
- Management cited inflation, supply-chain disruption, equipment shortages, and construction delays as risks to capital projects. Environmental rules, rate recovery, fuel and power prices, severe weather, financing access, and regulatory decisions are also material uncertainties. Management said operations were substantially compliant with current environmental standards; future impacts of proposed rules were not clear.
- Other unusual item: pension settlement charges followed increased retirements and lump-sum payments; the charges accelerated recognition of costs, required no cash outlay, and did not increase pension expense over time.
Important facts for investors to verify
- Whether OG&E achieves its 2022 earnings guidance and receives timely recovery of fuel, storm, and capital costs through rates or securitization.
- The final costs, timing, and customer-rate effects of Oklahoma and Arkansas Winter Storm Uri recovery.
- Further Energy Transfer unit sales, realized proceeds versus carrying value, and the impact of ending distributions as OGE Energy exits the investment.
- Funding needs and liquidity, including the planned $300 million debt issuance, short-term borrowings, capital spending, and access to revolving facilities.
- Outcomes of the SPP refund proceedings and Oklahoma service-territory litigation, as well as the effect of environmental and other regulatory developments.