OGE Energy Corp. — 2020 Form 10-K Summary
Business context and reporting period
This combined annual filing covers OGE Energy Corp. and its wholly owned regulated electric utility, Oklahoma Gas and Electric Company (OG&E), for the fiscal year ended December 31, 2020. OGE Energy operates through OG&E and a 25.5% equity-method investment in Enable Midstream Partners. The filing provides annual results, not standalone fourth-quarter results.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| OGE Energy operating revenue | $2,122.3 million | $2,231.6 million |
| OGE Energy net income (loss) | ($173.7) million; diluted EPS ($0.87) | $433.6 million; diluted EPS $2.16 |
| OGE Energy operating cash flow | $712.8 million | $681.5 million |
| OGE Energy capital expenditures | $650.5 million | $635.5 million |
| OGE Energy total assets | $10,718.8 million | $11,024.3 million |
| OGE Energy long-term debt | $3,494.4 million | $3,195.2 million |
| OGE Energy short-term debt | $95.0 million | $112.0 million |
| OGE Energy shareholders’ equity | $3,631.8 million | $4,139.5 million |
| OG&E net income | $339.4 million | $350.2 million |
| OG&E gross margin | $1,477.7 million | $1,444.7 million |
OGE Energy’s 2020 reported loss primarily reflects a $780 million non-cash impairment of its Enable investment. Excluding that charge and its associated tax effect, management reported non-GAAP ongoing earnings of $415.9 million, or $2.08 per diluted share. This measure also excludes neither Enable-related impairment and retirement charges recorded through equity earnings nor other adjustments beyond those specified in the company’s reconciliation; it should not be treated as GAAP earnings.
OGE Energy had $1.1 million of cash and $804.6 million of net available liquidity under revolving credit agreements at year-end. Long-term debt plus short-term debt was approximately $3.59 billion. The company declared dividends of $1.58 per share in 2020, up from $1.505 in 2019.
Changes versus the prior comparable year
- OGE Energy moved from $433.6 million of net income in 2019 to a $173.7 million net loss in 2020, driven principally by the Enable investment impairment and lower Enable earnings.
- OG&E revenue fell 4.9%, largely reflecting lower fuel and purchased-power costs passed through to customers. Gross margin rose 2.3%, but net income declined 3.1% as depreciation, interest, taxes and milder weather weighed on results.
- OG&E system sales declined 4.9% to 27.0 million MWh. Customer count increased to 867,389 from 857,754.
- Enable’s revenue decreased to $2.463 billion from $2.960 billion; net income fell to $52 million from $360 million. Natural gas gathered volumes declined to 4.26 TBtu/day from 4.56 TBtu/day, and transported volumes to 5.45 TBtu/day from 6.18 TBtu/day.
- OGE Energy’s cash distributions from Enable fell to $91.7 million from $144.0 million after Enable cut its quarterly distribution by 50% effective April 2020.
Outlook, commentary, risks and unusual items
- OG&E 2021 outlook: Before the February 2021 extreme cold event, management projected net income of $352–$373 million, or $1.76–$1.86 per diluted share, assuming normal weather and 2.4% retail load growth. The range excludes the event’s impacts.
- February 2021 cold-weather event: OG&E estimated $800 million–$1.0 billion of fuel and purchased-power costs to be recorded as a regulatory asset, subject to recovery and regulatory review. It requested an intra-year fuel-clause increase and regulatory-asset treatment for remaining costs. Management estimated 3–4 cents per share of incremental financing costs, 3–4 cents per share of higher retail margins, and potentially 10 cents per share of unrecoverable costs for about 58,000 guaranteed-flat-bill customers. OGE Energy arranged a $1.0 billion short-term financing commitment to support liquidity.
- Enable transaction: In February 2021, Enable agreed to be acquired by Energy Transfer in an all-equity transaction. Enable common unitholders, including OGE Energy, are to receive 0.8595 Energy Transfer common units per Enable unit. Closing was anticipated in 2021 and remained subject to approvals and other conditions. If completed, OGE Energy expected to hold approximately 3% of Energy Transfer rather than 25.5% of Enable.
- Capital plans: OGE Energy forecast $4.04 billion of electric-utility capital expenditures for 2021–2025, excluding Enable. Management cited grid, distribution, transmission and generation investment as priorities.
- Principal risks: Timely recovery of utility costs through regulated rates; fuel-cost prudence and recovery; severe weather and system reliability; environmental and climate regulation; cybersecurity; pension funding; and Enable’s commodity, producer-volume, contract-renewal, customer-concentration and financing risks. OGE Energy does not control Enable.
- Other contingencies: OG&E’s appeal concerning SPP transmission-upgrade credits could result in an estimated $13 million refund, plus interest; no reserve had been recorded at year-end. Separate Oklahoma service-territory complaints could expose OG&E to plant-recovery and lost-revenue questions if decided adversely. Management stated that reasonably possible losses beyond accrued amounts from pending or threatened claims were not expected to be quantitatively material.
- Auditors issued unqualified opinions on both registrants’ financial statements and internal controls. OGE Energy’s audit relied on another auditor for Enable’s financial statements.
Important facts for investors to verify
- Whether OG&E ultimately recovers the February 2021 storm-related fuel and purchased-power costs, and the timing and financing cost of recovery.
- The final loss, if any, associated with guaranteed-flat-bill customers and other storm-related costs.
- Completion and final terms of the Enable–Energy Transfer merger, including the value and liquidity of the units OGE Energy receives.
- Enable’s future cash distributions and OGE Energy’s resulting cash flow after the distribution reduction and any merger.
- Whether OG&E’s planned capital spending is recovered in rates and whether the $13 million SPP refund exposure or service-territory cases change materially.