OGE ENERGY CORP. annual report, FY2022

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OGE Energy Corp. 2022 Form 10-K Summary

Business context and reporting period. This combined 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, 2022. OG&E serves approximately 889,000 customers in Oklahoma and western Arkansas. OGE Energy sold all of its Energy Transfer limited partner units by September 2022 and is now primarily an electric utility holding company. Financial figures below are in U.S. dollars; amounts are generally in millions unless stated otherwise.

Financial performance and position

  • OGE Energy consolidated: Operating revenue was $3,375.7, down 7.6% from $3,653.7 in 2021. Net income was $665.7 versus $737.3; diluted EPS was $3.32 versus $3.68.
  • OG&E: Revenue was $3,375.7 versus $3,653.7, while operating income rose to $662.5 from $546.1 and net income increased 22.1% to $439.5 from $360.0. System sales increased 8.3% to 30.0 million MWh; year-end customers rose to 888,759 from 879,447. Operating margin, calculated as operating income divided by revenue, was approximately 19.6%, compared with 14.9% in 2021.
  • Revenue and expense drivers: Revenue fell mainly because fuel, purchased-power and direct-transmission expense declined $465.2, largely reflecting the unusually high 2021 Winter Storm Uri costs that are generally passed through to customers. Lower fuel-related revenue and reduced SPP integrated-market revenue offset growth in retail sales, weather-driven usage and rates. Fuel, purchased-power and direct-transmission expense was $1,662.4, down from $2,127.6.
  • Cash flow and investment: OGE Energy generated $843.1 of operating cash flow, compared with cash used of $313.3 in 2021. Investing activities provided $12.9, including $1,067.2 of proceeds from Energy Transfer unit sales, against $1,050.9 of capital expenditures. Financing used $767.9. OG&E’s operating cash flow was $1,238.4.
  • Debt and liquidity: At year-end, OGE Energy had $4,548.6 of long-term debt including $999.9 due within one year, and $8,131.3 of total liabilities. Cash was $88.1; reported net available liquidity under revolving facilities, commercial paper and letters of credit was $1,149.6. A combined $1.0 billion of OGE Energy and OG&E notes was due in May 2023. OG&E issued $450.0 of 5.40% notes in January 2023, and OGE Energy said Energy Transfer sale proceeds would help repay the maturing notes.
  • Dividends: OGE Energy declared $1.6482 per share for 2022, versus $1.6250 in 2021.

Material changes versus 2021

  • OGE Energy net income declined despite higher OG&E earnings. The 2021 comparison included a $344.4 pre-tax gain on the Enable/Energy Transfer transaction and $169.8 of equity-method earnings from Enable. In 2022, the company recorded a $282.1 gain on Energy Transfer securities and $34.0 of Energy Transfer distributions before selling all remaining units.
  • OG&E earnings improved on stronger weather-related demand and rate recovery, including new Oklahoma rates effective July 1, 2022. Higher depreciation, operating and maintenance expense, and income taxes partly offset those benefits.
  • OG&E received approximately $750 of securitization proceeds in July 2022 for Oklahoma Winter Storm Uri costs, clearing the corresponding Oklahoma regulatory asset. Arkansas Uri costs remain subject to recovery over 10 years.
  • OGE Energy’s operating cash flow improved substantially from the prior-year outflow, reflecting customer collections, securitization proceeds and lower vendor payments related to Uri. Working capital still includes a significant fuel clause under-recovery.

Outlook, risks and contingencies

  • 2023 outlook: OGE Energy projected net income of approximately $387–$416, or $1.93–$2.07 per diluted share. OG&E projected $400–$421, or $1.99–$2.09 per diluted share; assumptions include normal weather, weather-normalized retail load growth of 4–5% (2.5–3.5% assuming datamining load stays at its year-end 2022 level), and up to $400 of additional OG&E debt issuance beyond the $450 issued in January. Management targets long-term electric-company EPS growth of 5–7% and a 65–70% dividend payout ratio. OG&E earnings are seasonal, with most typically earned in the third quarter.
  • Capital plan: Estimated capital expenditures are $950 annually for 2023–2027, or $4,750 total, principally for distribution, grid, transmission and generation. This plan excludes potential new generation capacity investments; supply-chain delays could affect project timing and costs.
  • Fuel recovery and regulation: At December 31, 2022, fuel clause under-recoveries were $514.9. An OCC show-cause proceeding concerning Oklahoma’s $424.0 under-recovery balance as of August 31, 2022 and the recovery methodology had no final order at filing. Updated fuel factors were implemented on an interim basis, subject to refund. Arkansas’s Formula Rate Plan extension was denied, although the APSC authorized two further true-up updates, with rate adjustments scheduled for April 2023 and April 2024.
  • Other regulatory and legal matters: The APSC initiated a review of the prudence and allocation of Arkansas Winter Storm Uri costs; its 2023 order approved recovery terms but did not decide prudence. Five Oklahoma certified-territory cases are on appeal; potential plant-investment recoverability and lost-revenue exposure are described, with lost revenue estimated at $16.2–$63.9 across all cases. A potential SPP transmission-upgrade refund of $13.0 plus interest has been reserved. Management said reasonably possible losses beyond accruals are not expected to be quantitatively material overall.
  • Key risks: Timely recovery of fuel, capital and operating costs through regulated rates; commodity-price volatility; weather and grid reliability; rising interest rates, inflation and supply-chain constraints; environmental rules and possible compliance costs; cybersecurity and physical attacks; pension funding and workforce retirements; and dependence of OGE Energy on distributions from OG&E. SPP raised its planning reserve margin requirement from 12% to 15% effective summer 2023 and approved a new conventional-generation accreditation method effective 2024; OG&E was evaluating capacity needs.
  • Controls and audit: Management and Ernst & Young reported effective internal control over financial reporting, and the auditors issued unqualified opinions on both registrants’ financial statements. Regulatory assets and liabilities were identified as a critical audit matter because recoverability depends on regulatory judgments.

Important facts for investors to verify

  • How the OCC resolves the fuel-cost show-cause proceeding and whether interim recovery factors are modified or subject to refund.
  • How the $1.0 billion May 2023 maturities are funded, including use of the January 2023 note proceeds and Energy Transfer sale proceeds.
  • Whether Arkansas Uri-cost prudence review or future rate proceedings change expected recovery or carrying charges.
  • OG&E’s capacity plan and resulting capital needs following the SPP reserve-margin and accreditation changes.
  • Actual load growth, especially datamining demand, and performance against the 2023 earnings assumptions.
  • Potential outcomes of the Oklahoma certified-territory appeals and the SPP upgrade-refund matter.
  • Whether environmental requirements, financing costs or supply-chain issues materially change the five-year capital plan or regulated cost recovery.