OGE Energy Corp. Form 10-Q — Third Quarter 2023
Reporting period: Three and nine months ended September 30, 2023. The combined filing covers OGE Energy Corp. and its wholly owned regulated electric utility, Oklahoma Gas and Electric Company (OG&E). OGE Energy’s business is now primarily electricity generation, transmission and distribution in Oklahoma and western Arkansas; it sold its Energy Transfer limited partner units in 2022. Financial statements are unaudited.
Financial performance and position
| OGE Energy consolidated | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $945.4m | $1,270.8m | $2,107.6m | $2,663.8m |
| Operating income | $331.1m | $317.9m | $554.0m | $557.6m |
| Net income | $241.9m | $262.8m | $368.6m | $615.4m |
| Diluted EPS | $1.20 | $1.31 | $1.83 | $3.07 |
| Operating cash flow | — | $848.9m | $767.8m | |
| Capital expenditures | — | $879.6m | $690.8m |
OG&E, the regulated utility, reported net income of $246.1m for Q3 and $377.8m for the first nine months, versus $253.1m and $392.8m, respectively, in 2022. Revenue declines largely reflect lower fuel and purchased-power costs that are generally recovered from customers and do not directly affect earnings.
- Cash flow: OGE Energy generated $848.9m from operations and used $882.6m in investing activities in the first nine months. Capital spending exceeded operating cash flow by $30.7m.
- Debt and liquidity: At September 30, OGE Energy had $4.34bn of long-term debt and $411.4m of short-term debt, with $2.8m cash. Reported net available liquidity under credit facilities, commercial paper borrowings and letters of credit was $738.2m. The company said it was compliant with debt agreements.
- Capital and dividends: Net property, plant and equipment was $11.11bn. OGE Energy declared dividends of $1.2464 per share during the first nine months.
Changes versus the prior period
- Q3 OGE Energy net income fell $20.9m; nine-month net income fell $246.8m. A principal comparison item is the 2022 gain on Energy Transfer securities: $39.4m in Q3 and $282.1m for the first nine months. OGE Energy had exited that investment by September 2022.
- OG&E earnings declined despite higher revenue excluding recoverable fuel-related amounts. Higher depreciation and interest expense weighed on results; the latter reflected $800m of senior notes issued in 2023 at 5.40% and 5.60%.
- OGE Energy’s operating cash flow increased, while investing cash flow shifted from a 2022 inflow—primarily proceeds from the Energy Transfer unit sale—to substantial capital spending in 2023.
- OGE Energy’s long-term debt increased from $3.55bn at year-end 2022 to $4.34bn at September 2023; short-term debt was $411.4m versus none at year-end.
Outlook, regulation and risks
- 2023 guidance: OGE Energy raised and narrowed its diluted EPS range to $2.02–$2.07, from $1.93–$2.07. OG&E guidance rose to $2.09–$2.13, from $1.99–$2.09. Other operations are expected to contribute a loss of $0.06–$0.07 per share. Guidance assumes normal weather for the rest of the year and approximately 201m diluted shares.
- Management targets long-term electric-company EPS growth of 5%–7%, supported by customer growth and infrastructure investment. Capital spending estimates are trending above the plan in the 2022 Form 10-K. OG&E plans to file its next Oklahoma rate review by year-end 2023 and update its integrated resource plan in early 2024.
- OG&E received a $50m federal grant for a grid resilience and automation project. Its proposed Horseshoe Lake project comprises 448 MW of combustion turbines, estimated at $331m excluding financing costs and property taxes, with service expected in late 2026. Arkansas approved construction; Oklahoma approval proceedings were pending at the filing date.
- Environmental exposure: OG&E estimated potential compliance costs under the EPA’s Good Neighbor Plan at up to approximately $2.7bn, including $100m–$300m in the 12–18 months following the plan’s effectiveness. The filing describes litigation, a court stay and an EPA stay affecting implementation; costs and recovery through rates remain uncertain.
- Other contingencies: OG&E reserved $13m plus estimated interest for possible SPP transmission-credit refunds; the matter remains under regulatory and court proceedings. A lawsuit related to an Oklahoma City apartment fire seeks more than $60m; OG&E disputes the claims and expects insurance to cover liability above a non-material retention, but the outcome cannot be predicted.
- Management cited inflation, supply-chain constraints and higher interest rates as pressures, although their financial impact had not been material to date. Utility results are seasonal and sensitive to weather, fuel costs, regulatory recovery, environmental rules and construction execution.
Investor verification priorities
- Confirm progress on the Oklahoma rate review, Horseshoe Lake approvals and planned capital expenditures, including expected customer-rate recovery.
- Track environmental rule litigation and whether the estimated Good Neighbor compliance exposure changes.
- Monitor SPP refund proceedings and the apartment-fire litigation, including insurance coverage and any changes to reserves.
- Assess whether the raised 2023 EPS guidance remains achievable under actual weather, financing costs and operating conditions.
- Review debt maturities, short-term borrowing levels and available liquidity as capital investment continues.