Business context and reporting period
OGE Energy Corp. filed this combined, unaudited Form 10-Q for the quarter and six months ended June 30, 2021. OGE Energy is a holding company whose principal operations are regulated electric utility OG&E, serving Oklahoma and western Arkansas, and a 25.5% equity-method investment in natural-gas midstream operator Enable.
Financial performance and position
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| OGE Energy operating revenue | $577.4 million, versus $503.5 million | $2,208.0 million, versus $934.8 million |
| OGE Energy operating income | $129.5 million, versus $125.4 million | $178.1 million, versus $181.7 million |
| OGE Energy net income (loss) | $112.9 million, versus $85.9 million | $165.6 million, versus $(405.9) million |
| OGE Energy diluted EPS | $0.56, versus $0.43 | $0.83, versus $(2.03) |
| OG&E net income | $85.1 million, versus $78.9 million | $96.3 million, versus $98.8 million |
| OG&E utility margin | $377.4 million, versus $366.1 million | $661.2 million, versus $662.4 million |
OG&E utility margin is a non-GAAP measure defined as operating revenue less fuel, purchased-power and direct-transmission expense. Six-month revenue and expense were markedly higher largely because Winter Storm Uri fuel and purchased-power costs are generally recoverable from customers; the revenue increase therefore did not translate into a comparable increase in utility margin.
For the six months, OGE Energy used $767.8 million in operating cash, compared with generating $263.3 million in the prior-year period. Capital expenditures were $353.5 million; financing provided $1,123.5 million. Cash at June 30 was zero. OGE Energy reported $4,495.2 million of long-term debt and $384.5 million of short-term debt. OG&E reported $3,995.4 million of long-term debt. Net available liquidity under revolving credit agreements was $615.1 million.
OGE Energy declared dividends of $0.4025 per share for the quarter and $0.805 per share for the six months. OG&E’s total regulatory assets were $1,278.3 million, including $754.8 million of Oklahoma Uri costs and $92.3 million of Arkansas Uri costs.
Material changes versus the prior comparable period
- OGE Energy’s six-month return to profit mainly reflects the $780.0 million pre-tax impairment of its Enable investment recorded in 2020; the comparison is not solely indicative of underlying operating improvement.
- OG&E’s six-month net income declined $2.5 million. Its utility margin was nearly flat, with Uri-related losses in the guaranteed flat bill program offsetting other favorable factors.
- OGE Energy operating cash flow turned sharply negative, chiefly reflecting vendor payments, including Uri-related fuel and purchased-power costs, and the recognition of large regulatory assets.
- OGE Energy and OG&E each issued $500 million of senior notes in May at 0.703% and 0.553%, respectively, due May 26, 2023. Proceeds helped repay $900 million of OGE Energy’s $1.0 billion Uri-related term loan.
- Oklahoma enacted a corporate tax-rate reduction from 6% to 4%, effective January 1, 2022. OG&E recorded a $97.7 million regulatory liability expected to be returned to customers; OGE Energy recognized a $6.6 million tax benefit related to Enable and other holding-company operations.
Outlook, commentary, risks and unusual items
- OG&E’s 2021 earnings guidance remained $352 million–$373 million, or $1.76–$1.86 per diluted share; management projected results in the lower half of the range after first-half Uri impacts and mitigation. Guidance assumes approximately 200 million diluted shares and normal weather. OGE Energy did not provide consolidated 2021 guidance.
- OGE Energy targets 5% long-term EPS growth at the electric utility, investment-grade credit ratings and a reliable dividend. Planned 2021–2025 capital expenditures total $4.14 billion, excluding Enable.
- Enable agreed to an all-equity merger with Energy Transfer: Enable holders are to receive 0.8595 Energy Transfer units per Enable unit. Required unit-holder approval was obtained, but antitrust approval and customary closing conditions remained; closing was anticipated in 2021. OGE Energy expected to hold about 3% of Energy Transfer after closing and said it intended to exit midstream operations prudently.
- OG&E’s recovery of Uri costs remains subject to regulatory decisions. Oklahoma securitization and the prudence review were pending; Arkansas interim recovery is over ten years at a 0.8% carrying rate, subject to true-up and further decisions. The final recovery period, financing method and carrying costs could affect cash flows and credit metrics.
- Moody’s and S&P revised both registrants’ outlooks to negative in March, citing regulatory uncertainty and Uri-related financial and refinancing risks; S&P also cited execution risk for the Enable merger. The filing reported compliance with debt agreements.
- OG&E had an estimated $13.0 million potential net refund exposure in the ongoing SPP/FERC sponsored-transmission-upgrade dispute, plus interest; no reserve had been recorded. The filing estimated $5.0 million would affect the registrants and $8.0 million customers if refunds were required.
- Oklahoma certified-territory complaints remain on appeal. An adverse outcome could require review of approximately $28.0 million of plant investment and potential lost-revenue reimbursement estimated at $22.2 million–$30.7 million across the cases.
- Other notable items include pension settlement charges of $31.7 million for OGE Energy in the first half, described as noncash acceleration of future expense, and potential environmental compliance costs whose amounts were not clear or quantifiable in the filing.
Important facts for investors to verify
- Regulatory decisions, securitization timing and ultimate recovery terms for the approximately $847 million of Uri costs recorded as regulatory assets.
- OG&E’s progress against the lower-half 2021 earnings outlook, particularly guaranteed flat bill losses, weather and cost recovery.
- Liquidity, borrowing needs and credit-rating developments while operating cash flow remains pressured and debt is elevated.
- Completion and terms of the Enable–Energy Transfer merger, including resulting distributions and OGE Energy’s stated midstream exit plans.
- Outcomes of the SPP refund proceeding and certified-territory cases, along with any resulting financial exposure.