OGE Energy Corp. Form 10-Q Summary
Business context and reporting period
Quarter ended March 31, 2024. OGE Energy is a holding company whose principal business is regulated electric utility OG&E, serving customers in Oklahoma and western Arkansas. Unless noted, financial results below are consolidated OGE Energy figures; OG&E is its wholly owned subsidiary. Results are unaudited, and management cautions that first-quarter results are seasonal and not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Operating revenue | $596.8 million | $557.2 million |
| Operating income | $74.0 million | $76.5 million |
| Net income | $18.6 million | $38.3 million |
| Diluted EPS | $0.09 | $0.19 |
| Operating margin | 12.4% | 13.7% |
| Operating cash flow | $83.0 million | $172.3 million |
| Capital expenditures | $226.9 million | $286.0 million |
| Cash and cash equivalents | $4.3 million | $0.2 million at Dec. 31, 2023 |
| Short-term debt | $755.7 million | $499.2 million at Dec. 31, 2023 |
| Long-term debt, including current maturities | $4,341.3 million | $4,340.5 million at Dec. 31, 2023 |
Operating cash flow less capital expenditures was negative $143.9 million in Q1 2024. OGE Energy reported $393.9 million of net available liquidity under revolving credit agreements, commercial paper borrowings and letters of credit, in addition to cash. Total stockholders’ equity was $4.45 billion at March 31, 2024, compared with $4.51 billion at year-end. OGE Energy declared dividends of $0.4182 per share for the quarter.
Changes versus the prior comparable period
- Revenue rose 7.1%, principally from customer and load growth; system sales increased to 7.2 million MWh from 6.9 million, and customer count rose to 899,871 from 890,413.
- Net income fell $19.7 million, or 51%, and diluted EPS declined by $0.10. OG&E earnings fell $14.6 million; other operations’ net loss widened by $5.1 million.
- Higher depreciation and amortization, reflecting assets placed in service and storm-related regulatory asset amortization, and higher interest expense weighed on results. Lower net other income also contributed.
- Fuel, purchased power and direct transmission expense rose $31.6 million, largely from higher SPP market purchase costs and increased generation. These costs are generally recoverable through regulatory mechanisms and are offset in revenue.
- Operating cash flow decreased $89.3 million, primarily because fuel recoveries from customers were lower. Capital spending was lower by $59.1 million, largely due to project timing.
- Interest expense increased $12.4 million consolidated, including higher long-term debt costs following OG&E’s April 2023 senior note issuance and increased short-term borrowing costs.
Guidance, outlook and management commentary
- 2024 consolidated earnings guidance is unchanged at $415 million–$439 million, or $2.06–$2.18 per diluted share; midpoint is $427 million, or $2.12 per share. Guidance assumes about 201.5 million average diluted shares and normal weather for the remainder of the year.
- OG&E is projected to earn approximately $447 million, or $2.22 per diluted share; other operations are expected to generate a $20 million loss, approximately $0.10 per share.
- OG&E expects to issue $300 million–$350 million of long-term debt in the second half of 2024. OGE Energy separately expects to issue up to $350 million in the second quarter to help fund general operating needs.
- Management’s long-term strategy targets 5%–7% consolidated earnings-per-share growth, supported by load growth and infrastructure investment. It expects operating cash flow, borrowing capacity and capital-market access to meet anticipated funding needs.
- The March 2024 integrated resource plan identifies capacity needs of 556 MW in 2026, 431 MW in 2027 and 1,096 MW in 2028. OG&E plans to seek proposals beginning in Q2 2024. The plan assumes retirements of Horseshoe Lake unit 7 in 2024, Tinker units 5A and 5B in 2025, and Horseshoe Lake unit 8 in 2027.
Regulatory matters, risks and contingencies
- OG&E’s Oklahoma general rate review, filed in December 2023, seeks a $332.5 million increase and a 10.5% return on equity. A hearing was scheduled for June 17, 2024. In Arkansas, an approved settlement provides a $3.5 million annual revenue increase effective April 1, 2024.
- OG&E estimates potential compliance costs of approximately $2.4 billion–$2.8 billion under the EPA Good Neighbor Plan, including $100 million–$300 million in the 12–18 months following effectiveness. Litigation and regulatory uncertainty remain; recovery of any expenditures through rates is not assured.
- OG&E has reserved $13.0 million plus estimated interest for a potential FERC-related SPP transmission-upgrade refund. Of that amount, the filing estimates $5.0 million would affect the Registrants and $8.0 million would affect customers through rate mechanisms.
- A lawsuit relating to a 2023 apartment-building fire seeks more than $60 million. OG&E disputes the claims, says insurance is expected to cover liability above a retention it describes as immaterial, and cannot estimate a possible loss range.
- OG&E says it is in substantial compliance with current environmental requirements. Environmental rulemaking, emissions-control requirements, generation capacity needs, weather, fuel and power prices, financing costs, rate recovery, and litigation are among material uncertainties. Management reported no significant changes to risk factors from the 2023 Form 10-K.
- Both registrants reported effective disclosure controls and procedures and no material quarterly change in internal control over financial reporting. They were in compliance with debt agreements at March 31, 2024.
Important facts for investors to verify
- Progress and outcome of the Oklahoma rate review, including the amount and timing of any approved rate relief.
- Whether projected earnings guidance and capital plans change as capacity procurement, generation retirements and regulatory approvals advance.
- EPA rule implementation and litigation outcomes, potential compliance spending, and the extent and timing of recovery from customers.
- Short-term borrowing levels, planned debt issuance, interest costs and available liquidity as capital spending continues.
- Disposition and potential financial effect of the SPP refund proceedings and the apartment-fire litigation.
- Whether customer/load growth, weather and recoverable fuel and power costs develop consistently with management’s assumptions; Q1 results are not necessarily representative of the year.