OGE Energy Corp. 10-Q Summary — Quarter Ended September 30, 2022
Business context and reporting period
OGE Energy is a holding company whose principal business is regulated electric utility OG&E, serving Oklahoma and western Arkansas. This unaudited filing covers the three and nine months ended September 30, 2022, with comparisons to 2021. OGE Energy sold all of its Energy Transfer limited partner units by September 30, 2022 and is now primarily an electric utility. Results are seasonal and are not necessarily indicative of full-year results.
Key financial metrics
| OGE Energy consolidated | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenues | $1,270.8 million | $864.4 million | $2,663.8 million | $3,072.4 million |
| Operating income | $317.9 million | $284.8 million | $557.6 million | $462.9 million |
| Net income | $262.8 million | $252.5 million | $615.4 million | $418.1 million |
| Diluted EPS | $1.31 | $1.26 | $3.07 | $2.09 |
Approximate consolidated operating margin was 25.0% in Q3 2022 versus 33.0% in Q3 2021, and 20.9% for the first nine months of 2022 versus 15.1% in 2021. These calculated ratios reflect the filing’s reported operating income and revenue, including fuel-cost recovery revenues.
- OG&E utility earnings: Net income was $253.1 million in Q3, up from $223.8 million, and $392.8 million for the first nine months, up from $320.1 million.
- Cash flow: OGE Energy generated $767.8 million of operating cash in the first nine months, compared with cash used of $494.1 million in 2021. Investing activities provided $372.9 million, including $1,067.2 million of proceeds from Energy Transfer unit sales; capital expenditures were $690.8 million. Dividends paid were $246.4 million.
- Debt and liquidity: At September 30, consolidated long-term debt was $3,548.2 million, with $999.9 million due within one year; there was no short-term debt outstanding. Cash was $456.2 million and reported net available liquidity under credit facilities, commercial paper and letters of credit was $1,149.6 million. The $1.0 billion senior notes due in May 2023 are a significant upcoming maturity.
- Fuel recovery balance: Fuel clause under-recoveries were $507.2 million on the consolidated balance sheet, up $355.3 million from year-end 2021.
Material changes versus the prior comparable period
- Q3 consolidated revenue rose 47.0%, largely because fuel and purchased-power recovery revenues increased; fuel and purchased-power costs are generally recoverable and do not necessarily increase earnings proportionately. OGE Energy net income increased $10.3 million.
- For the first nine months, consolidated revenue fell 13.3%, while net income rose $197.3 million. The revenue comparison reflects unusually high fuel and purchased-power charges during Winter Storm Uri in 2021. Earnings growth included a $282.1 million pre-tax gain on Energy Transfer equity securities sold during 2022.
- OG&E’s higher utility earnings reflected more favorable weather, customer growth and recovery of capital investments. Higher depreciation, income taxes and operating costs partly offset the increase.
- The Oklahoma Winter Storm Uri regulatory asset was recovered through approximately $750 million of securitization proceeds received in July 2022. Customers repay the securitization bonds through charges collected over 28 years.
Outlook, management commentary, risks and contingencies
- 2022 outlook: OG&E projected net income of approximately $417–$425 million, or $2.08–$2.12 per diluted share. OGE Energy projected a $2–$6 million holding-company loss and did not provide consolidated earnings guidance. Management’s longer-term objectives include 5%–7% annual utility EPS growth and a 65%–70% dividend payout ratio over time.
- Rates and fuel recovery: The OCC approved a $30 million annual Oklahoma base-rate increase in September 2022, with no refund of the matching interim increase required. Updated fuel factors took effect October 1 to recover under-recovered costs over 24 months, subject to refund. An OCC proceeding is reviewing the balance, recovery method and fuel forecasts.
- Other regulatory exposure: OG&E has $80.6 million of Arkansas Winter Storm Uri costs deferred while recovery terms remain pending. A potential FERC-ordered refund of $13.0 million plus interest relating to SPP transmission credits is reserved. Ongoing Oklahoma certified-territory cases could affect plant recoverability and potentially require lost-revenue reimbursements; the filing describes a range of possible amounts.
- Funding and operating risks: Management expects operating cash flow and debt and equity financing to meet anticipated needs. OG&E expected to issue $300–$400 million of long-term debt in the first half of 2023. Supply-chain disruption, inflation and equipment shortages could delay capital projects. The SPP’s higher reserve-margin requirement and new resource accreditation rules may require additional capacity investment.
- Other risks: Environmental regulations may increase compliance costs, and the filing notes uncertainty around proposed emissions and endangered-species rules. Management said operations were in substantial compliance with current environmental standards. The registrants reported no significant change in risk factors from the 2021 Form 10-K.
- Unusual items: The Energy Transfer investment gain materially boosted year-to-date earnings and is not a recurring utility operating contribution. Pension settlement charges were also recorded, but management said they accelerated costs otherwise expected in future periods and did not require cash payment.
Important facts for investors to verify
- Whether the $1.0 billion May 2023 maturity is repaid as planned using Energy Transfer sale proceeds and other available liquidity.
- The OCC’s final treatment of the fuel under-recovery balance and whether recovery over 24 months proceeds without material refund or timing changes.
- Final regulatory outcomes for Arkansas Winter Storm Uri recovery, SPP transmission-credit refunds and Oklahoma certified-territory disputes.
- Whether OG&E achieves its 2022 earnings outlook after seasonal weather effects and the nonrecurring Energy Transfer gain are considered.
- The timing, cost and recoverability of planned capital investments, including capacity needs under new SPP requirements amid supply-chain and inflation pressures.