OGE Energy Corp. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a standalone fourth-quarter filing. OGE Energy operates regulated electric utility OG&E in Oklahoma and western Arkansas and holds a 26.3% equity-method interest in Enable Midstream Partners.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Consolidated operating revenue | $2,453.1 million | $2,867.7 million |
| Operating income | $536.8 million | $553.5 million |
| Net income attributable to OGE Energy | $395.8 million | $387.6 million |
| Diluted earnings per share | $1.98 | $1.94 |
| Cash from operating activities | $721.6 million | $623.2 million |
| Capital expenditures | $569.3 million | $990.6 million |
- Revenue declined 14.5% and operating income declined 3.0%, primarily because Enogex was deconsolidated when Enable was formed in May 2013. The revenue decline therefore does not represent a like-for-like contraction in the utility business.
- OG&E revenue increased 8.4% to $2,453.1 million and utility gross margin, a company-defined non-GAAP measure, rose 3.9% to $1,346.5 million. OG&E net income was essentially flat at $292.0 million.
- Equity earnings from unconsolidated affiliates increased to $172.6 million from $101.9 million; 2013 included only eight months of Enable equity-method earnings. OGE Energy received $143.7 million in distributions from Enable in 2014.
- Operating cash flow rose 15.8%. Net cash used in investing activities was $559.1 million, while financing activities used $163.8 million. Cash and cash equivalents were $5.5 million at year-end.
- Year-end total debt was approximately $2.85 billion, combining $2,755.3 million of long-term debt and $98.0 million of short-term debt. Revolving credit facilities totaled $1.15 billion, with $1.05 billion of net available liquidity. Stockholders’ equity was $3,244.4 million; total assets were $9,527.8 million.
- Declared dividends were $0.95 per share for 2014. The quarterly rate increased 11% to $0.25 per share effective October 2014.
Outlook, commentary and material risks
- For 2015, OGE Energy projected net income of $352–$378 million, or $1.76–$1.89 per diluted share. OG&E guidance was $282–$298 million, or $1.41–$1.49 per diluted share, assuming normal weather and approximately 1% weather-adjusted sales growth.
- Management projected 2015 Enable distributions of $139–$142 million and an earnings contribution of $70–$80 million. Enable’s distribution growth was expected to be affected by commodity prices and producer activity. OGE Energy targeted 3–5% long-term annual weather-normalized OG&E earnings growth and approximately 10% annual dividend increases through 2019; these are objectives, not guarantees.
- OG&E sought regulatory approval for an environmental compliance plan estimated at approximately $1.1 billion, including dry scrubbers at Sooner Units 1 and 2, conversion of two Muskogee coal units to natural gas, and replacement generation at Mustang. The OCC proceeding was pending, and cost recovery and prudence approval were not assured.
- Key exposures include utility rate and cost-recovery decisions; environmental rules and litigation; weather, fuel supply and power-market changes; and Enable’s commodity exposure, customer concentration, producer drilling activity, contract renewals, financing needs and the fact that OGE Energy does not control Enable.
- OG&E’s fuel and purchased-power costs are generally recovered through adjustment clauses, but reviews, timing differences and regulatory limits can affect recovery. Fuel-clause under-recoveries were $68.3 million at year-end, versus $26.2 million a year earlier.
- The filing reported an unqualified audit opinion and effective internal controls. The independent auditor relied on another auditor for Enable’s financial statements. Management said reasonably possible losses above accrued amounts from pending claims were not expected to be quantitatively material; some environmental litigation outcomes and potential costs remained uncertain.
Most important facts for investors to verify
- Whether regulators approve OG&E’s environmental plan, associated cost-recovery mechanism and requested prudence determinations, and whether actual project costs remain near estimates.
- Whether 2015 earnings and Enable distribution guidance are achieved, particularly given commodity-price effects and changes in producer activity.
- How comparable results are when accounting for Enable’s formation, IPO, equity-method treatment and OGE Energy’s reduced ownership interest.
- Whether operating cash flow, available credit and planned financing can support capital spending, debt service and dividend objectives.
- Developments in Clean Air Act claims and appeals, fuel-cost reviews, and other regulatory or environmental matters that could affect costs, operations or recovery.