OGE Energy Corp. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. OGE Energy is a holding company with an electric utility, Oklahoma Gas and Electric Company (OG&E), and a 25.5% equity-method investment in natural-gas midstream partnership Enable. Amounts below are in millions unless stated otherwise.
Financial results and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $864.4 | $702.1 | $3,072.4 | $1,636.9 |
| Operating income | $284.8 | $258.0 | $462.9 | $439.7 |
| Net income (loss) | $252.5 | $177.4 | $418.1 | $(228.5) |
| Diluted EPS | $1.26 | $0.89 | $2.09 | $(1.14) |
- Utility earnings: OG&E net income was $223.8 in Q3 (up from $199.5) and $320.1 for the first nine months (up from $298.3). Higher revenue from weather and rates contributed, partly offset by depreciation and tax increases.
- Enable investment: OGE Energy recorded equity earnings of $41.2 in Q3 and $127.9 year to date, versus $15.8 and a $703.8 loss, respectively, in 2020. The prior-year period included OGE Energy’s $780.0 impairment of its Enable investment; comparisons are therefore substantially affected by that unusual item.
- Revenue and margins: Nine-month revenue increased sharply largely because Winter Storm Uri drove higher fuel and purchased-power costs that are generally recoverable from customers. Fuel and purchased-power expense rose $1,395.4 year over year. The revenue and expense gross-up means reported operating margins are not directly comparable as an indicator of underlying earnings.
- Cash flow: OGE Energy used $494.1 in operating activities in the first nine months, compared with $525.3 provided in 2020. Investing used $546.9, including $540.6 of capital expenditures; financing provided $1,041.4, mainly through debt. Cash at September 30 was $1.5.
- Debt and liquidity: OGE Energy reported $4,495.8 of long-term debt and $383.2 of short-term debt at September 30, versus $3,494.4 and $95.0 at year-end 2020. Net available liquidity under revolving credit agreements was $616.4. The company said it was in compliance with debt agreements; OG&E also reported $3,995.9 of long-term debt.
- Capital and dividends: Capital expenditures were $540.6 for the nine months. The 2021–2025 estimated capital plan totals $4.14 billion. OGE Energy declared dividends of $1.215 per share for the first nine months.
Material developments, outlook and risks
- Winter Storm Uri recovery: At September 30, OG&E had recorded regulatory assets of $756.3 for Oklahoma and $91.0 for Arkansas storm-related costs. An October 2021 settlement among Oklahoma proceeding parties proposed securitizing $760.0, subject to OCC approval and adjustments; a final order was expected by December 15, 2021. Arkansas recovery terms remained subject to review, and OG&E said it intended to consider a securitization application in early 2022.
- Guidance: OG&E narrowed 2021 earnings guidance to $1.79–$1.83 per diluted share, assuming approximately 200 million diluted shares and normal weather. OGE Energy did not issue consolidated 2021 guidance because Enable had not provided an outlook amid its pending merger.
- Enable merger: Enable agreed to an all-equity acquisition by Energy Transfer. OGE Energy’s Enable units would convert at 0.8595 Energy Transfer unit per Enable unit, leaving OGE Energy with about 3% of Energy Transfer if completed. The filing anticipated closing in 2021; OGE Energy intended to exit the midstream segment prudently after completion.
- Other regulatory and legal exposures: OGE Energy reserved $13.0 plus estimated interest for possible SPP transmission-credit refunds. Oklahoma certified-territory cases could affect plant investments of up to $28.0 and potentially require lost-revenue payments estimated at $26.0–$35.4 across all five cases. Outcomes remained pending.
- Credit and operating risks: Moody’s and S&P revised both registrants’ outlooks to negative in March 2021, citing storm-cost recovery uncertainty and related financing risks; S&P also cited Enable merger execution risk for OGE Energy. Management noted pandemic-related inflation, logistics challenges and component shortages, as well as uncertainty around proposed employee vaccine/testing mandates and evolving environmental rules.
- Other unusual item: Nine-month pension settlement charges increased because more employees retired and elected lump-sum payments. The filing said the charges were noncash and accelerated costs otherwise recognized in future periods.
Key facts investors should verify
- Whether and on what final terms the OCC approved Winter Storm Uri securitization, and how much of the recorded storm-cost regulatory assets is ultimately recoverable.
- The timing and completion of the Enable–Energy Transfer merger, the value and distributions of the resulting Energy Transfer interest, and the costs of OGE Energy’s planned midstream exit.
- The resolution and customer/company allocation of the potential $13.0 SPP refund, including interest.
- OG&E’s ability to recover fuel under-recoveries and sustain its earnings guidance under actual weather, fuel prices and regulatory outcomes.
- Developments in the Oklahoma certified-territory appeals and any resulting investment-recovery or lost-revenue exposure.