Q1 2021 OGE Energy Corp Earnings Call
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Good day and thank you for standing by welcome to the first quarter 2021 O G Energy earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance during the conference.
Please press Star then zero on your Touchtone telephone as a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Jason Bailey.
Thank you Mary and good morning, everyone and welcome to O G Energy Corp, first quarter 2021 earnings call I'm, Jason Bailey director of Investor Relations and with me today I have Sean Trotsky, Chairman, President and CEO of O G Energy Corp, and Bryan Buckler CFO of O G Energy Corp.
In terms of the call today, we will first hear from Sean followed by an explanation from Brian Our first quarter results and finally as always we will answer your questions.
I'd like to remind you that this conference is being webcast and you may follow along on our website at O G Energy Dot Com. In addition, the conference call and accompanying slides will be archived following the call on that same website.
Before we begin the presentation I'd like to direct your attention to the Safe Harbor statement regarding forward looking statements.
It's a cold winter conditions imaginable during the storm.
Then we quickly got to work on legislative and regulatory solutions to address the financial impacts of year.
We now have a regulatory asset for the recovery at the winter storm costs in Oklahoma and in Arkansas, We now have securitization legislation in Oklahoma and in Arkansas, and we have filed for securitization in Oklahoma and in Arkansas.
Turning to other positive regulatory outcomes in the first quarter in March the Arkansas Public Service Commission approved the settlement and our third Formula Ray and new rates were implemented April 1st in Oklahoma under our great enhancement mechanism. The work is going well, we file regulatory reports <unk>.
Each quarter as projects are placed in service and I'm pleased to say that the entire program is going smoothly.
On the last call.
I mentioned that we have a lot of really exciting projects in and around our communities in various stages of development. The two projects I am sharing today or only the first and there are more to come.
We announced an innovative deal with Dobson fiber to upgrade the resiliency and capacity of our utility communications network to accommodate new great automation and mitigate the risk of wireless interference.
This is part of our continued great enhancement efforts to deploy increased automation monitoring and operational technologies. This.
This initiative enables us to essentially future proof, our communications network with saving more than 60% over standard capital deployment and O&M costs. Those are just real savings for our customers.
We also announced an expansion of the chalk Tarnation Ogn, a solar energy center.
Proud to continue our work with the chalk Tarnation and expand our commitment to renewable energy is commitment is based off customer driven demand for renewable energy offerings. We.
Annual load growth and better unemployment rates in most of the nation.
This is all part of our Great story that further supports our sustainable business model of growing revenues by attracting new customers managing expenses by utilizing technology and becoming more efficient. This helps us maintain low rates, which in turn attracts more customers. This virtuous cycle continues.
Our results this year will rest on our operational execution and I'm very confident in our ability to achieve that for the remainder of the year. We will achieve final regulatory approval of cost recovery plans for winter storm Yuri.
Submit integrated resource plans in Oklahoma, and Arkansas file our fourth formula rate in Arkansas, including a request for an extension of its term.
Finished construction of the two solar farms continue our grid enhancement investments in Oklahoma, which are on track to deliver results to our customers and finally, we continued to prepare for our next Oklahoma rate case, which we plan to file later this year.
So we've accomplished a lot already in the first quarter, but we're still going and this all sets us up for a great year and years to come.
Turning to enable we expect the transaction to close in 2021 subject to the satisfaction of customary closing conditions, including the HSR clearance our intention to prudently exit our midstream investment remains the same and we will provide information upon closing of the transaction.
On our last call, we talked about our solid compelling investment thesis supported by a track record of performance.
Put in motion our vision to become a pure play utility targeted 5% earnings growth based off low risk investments that will enhance our customers' experience we.
We have some of the most affordable rates in the nation, helping to drive economic growth and our communities.
We've made great progress towards getting back to our 2021 guidance our ability to meet guidance rests on our operational execution and I am confident in our ability to do so our company is strong and while COVID-19 and extreme weather presented challenges. It's important to understand that we have always been determined to more than simply.
Manage the downturn instead set our sights on excelling through the recovery so with that thank you very much and I'll now turn the call over to Bryan Bryan.
Thank you, Sean and good morning, everyone.
As Sean mentioned, we are seeing strong employment figures in our service territory and we are especially pleased with the customer growth of one 4% year over year illustrating the attractiveness of living and working in Oklahoma and Arkansas.
Furthermore, our commercial segment is showing encouraging strength with year over year load growth of approximately 6% in the month of March alone leading to the one 8% quarterly flow increased figure you see on the slide.
For the full year, we continue to expect total weather normal load results to be approximately two 4% higher in 2020 levels.
Let's move to slide 11, we have made outstanding.
Standing progress in the quarter towards mitigating the aforementioned GSD program impacts and currently project OMG <unk> full year 2021 results within the lower half of our original guidance range of $1 76 to $1 86 per share.
On the fourth quarter call, we outlined our initial estimate of approximately <unk> <unk> of headwinds associated with the weather event.
As I mentioned earlier, our estimates continue to come in at approximately this level <unk>.
Included in <unk> <unk> of headwinds was estimated financing costs associated with the incremental fuel and purchase power, which is no longer an earnings headwind as we were recently able to obtain regulatory orders in Oklahoma and Arkansas for the deferral of the financing cost.
The <unk> team has worked hard during the quarter to further mitigate these impacts and already has line of sight to <unk>, a favorable mitigation, including including strong O&M management.
Approximates the effective cost of financing.
As Sean mentioned, both Oklahoma, and Arkansas have passed securitization halls and.
And some of the key parameters of those wells are shown on the slide.
In Oklahoma, We filed an application on April 26, seeking authorization from the OCC to securitize the costs associated with the extreme February weather.
Based on the timeline outlined it in the legislation we would expect to receive proceeds from the securitization by mid 2022.
Which would which would restore our credit metrics to the levels, we expected prior to the weather event.
In Arkansas on May 4th we made a filing indicating <unk> intention to pursue securitization of the fuel and purchase power costs.
As a reminder, the Arkansas legislation dictates that a carrying charge equivalent to a whack is the appropriate.
As appropriate from the date of cost occurrence to the issuance date of the securitization bonds.
This securitization has pursued in Arkansas. It will replace our open docket that is requesting a 10 year recovery period with a carrying charge at our weighted average cost of capital.
Before I turn the call back over to Sean I would like to provide an update on our financing plan as shown on slide 14.
As we noted on our fourth quarter call. We closed on a $1 billion credit commitment agreement that provided short term funding for our incurred fuel and purchase power costs.
We intend to refinance this short term loans by issuing longer term debt in 2021 likely with a call feature that coincides with the expected timing of the securitization of the fuel and purchase power costs.
Our balance sheet continues to be one of the strongest in the industry and our equity plans have not changed while our credit metrics are expected to weaken temporarily due to the fuel and purchase power costs incurred we believe the metric metrics will return to the targeted 18% to 20% level once the securitizations are complete.
Separately as a procedural matter later today, we will update our standard S. Three shelf filing with the SEC, which ensures our continued access to the capital markets.
Sure.
Finally, we remain confident in our ability to drive long term <unk> EPS growth of 5%, which when coupled with a stable and growing dividend offers an investors and.
An attractive total return proposition.
That concludes our prepared remarks, and we will now open the line for your questions.
As a reminder, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
First question is from the line of sharp Forever from Guggenheim Partners. Your line is now open.
Hi, Good morning, it's actually Constantine here for Shar, Thanks for taking our questions.
Good morning constant team until Shanghai low as well.
I will absolutely do that where the spread a little thing but.
I just had a quick question on enable at the club directly related to the transaction with maybe just a little bit more on the strategic side.
Curious.
How you envision the options.
That you would utilize kind of for the exited that you talked about and is it just a straightforward to the market sell down because you don't really have equity financing needs.
Is there a business mix that youre kind of targeting for 'twenty, one 'twenty, two and the timing of the exit dictated by the ability because when we invest effectively.
Yes, good question Constantine and I think the.
We don't have a targeted business mix per se in 'twenty, one or 'twenty two.
But we've been clear, we're going to exit the midstream business and our ownership and I think you hit on the key point, we've got the balance sheet to do it prudently and really optimize that Brian and his team.
Looking at a lot of different things and have been very thoughtful, but I think a lot can happen between now and closing in that space for sure.
And so we certainly have the.
The growth opportunities at the utility.
But line of sight to those.
Non of site to the recovery of those are very important to us. So we'll continue to be good allocators of capital but.
I think <unk>.
You should expect us as we've said many times just to really be prudent about this and we own we would own roughly 3% of the energy transfer units. So we're not burdened by.
A big move we will be able to do this on our own terms and.
Without creating any kind of unnecessary overhang on the energy transfer units.
Brian you have anything to add to that or.
I think that's that's.
Exactly how we're thinking through it of course.
The reinvestment opportunities in utility or are.
<unk> shown through strong customer growth that we're seeing.
In our jurisdiction.
So.
That business mix over time is important to us to become more of a pure electric utility and.
We would expect that.
Provide us an even stronger balance sheet capacity with the credit rating agencies as well.
That's great color. It actually also takes us to my second question.
In line of the upcoming IR P as kind of as a resource costs that are shifting and we have seen this more and more with solar and wind displacing fossil resources total cost savings do you feel your jurisdictions are well positioned for that transition and kind of is anything currently being reflected in kind of the five.
Percentage kind of long term growth rate that you're envisioning.
Yes so.
What we've what we've laid out in our five year capital forecast does not include any.
Generation needs as a result of the integrated resource plan.
So that would all be incremental.
Far as.
What youre seeing.
What youre pointing to is terms of trends and where things are going.
Would say that we've been on that trend for a while.
We built the first wind farm first solar farm and we've been very active in the transmission front and I think you should expect us to be.
<unk> engaged in all of those fronts going forward as.
As we look at our look at our RP, yes.
Think there is any.
New information there that we do see.
Prices come down.
The economics are certainly changing.
And our view is.
And to be focused on affordability reliability, and resiliency and Thats, how we think about a lot of our investments in <unk>.
Don't see any reason generation would be any different.
Perfect.
Thats summed it up pretty well thanks for taking the questions. Thanks casting.
Thank you next.
Next question is from the line of <unk> Kim from Goldman Sachs. Your line is now open.
Hey, good morning, guys. How are you hey, good.
Good morning.
Thanks.
Good morning, My first.
Question is just for me coming out of Winter Storm Yuri.
And.
Thinking about resiliency reliability in the state going forward to mitigate that from happening whether it's from <unk> perspective, or just your conversations with various stakeholders in the <unk>.
<unk> what are some of the conversations that are taking place now on whether it's on the T&D side generation side.
What potential investments may be needed.
Yes.
Great question and.
Actually really pleased you asked this question because it gives me the opportunity to maybe brag a little bit.
Think what's important here well every single one of our plants generated megawatts every day during this event.
So we had put the.
The winners Asian packages on the Mustang Energy Center, when we built that.
We put we winterized, our two big combined cycle plants.
And our customers had minimal disruptions.
And so coming out of this you always have lessons learned.
I do think that.
We're certainly going to take a hard look at our supply chain.
Specifically, if you think about gas.
So to make sure that we understand where the gas is coming from and as that facility winterize such that it can be ready in events like this but.
We certainly saw some things with that extreme weather, how we an event that we were going to receive a notice from the SPP to shed load, how we would do that in.
There's always learnings there, but I would tell you that the.
The fleet perform.
Just strength and.
We were.
Prepared we've made those investments and I think when you when you live work and play in the community.
You kind of have a higher calling to make sure that you're accountable and ready to go and I'm really proud of the team here because they work.
Got it thanks for that color.
The other question is just.
Guidance for this year what are some.
Puts and takes are opportunities that could help you improve within the range for 2021.
<unk>, it's Brian good morning.
Sure.
Two points on the going back to your question on investments to Sean was speaking to the February weather event in.
Was right on we're also looking at.
T&D investment needs around the October 2020 ice storm, we really had 100 year storms in October and again in February it's pretty amazing. So we're always looking for ways to invest to improve our system for our customers and communities.
Going to your point on your question on the guidance range for 2021.
We're really proud of the progress we've made to date when we when we discuss this with you back in February.
We were looking at $1 81, built a very strong financial plan to achieve that and immediately had to February weather event that.
10 cents of headwinds honest.
We were pointing to $1 71, but we also indicated that we were not done that we were going to work hard to operationally and with our regulatory teams to.
To get earnings back inside the guidance range of $1 76 at <unk> 86, So we're proud of the <unk>.
Yes, we have made to date you can see on the slide that we've.
We've made about six to eight a progress that gets you in that range of about $1 78.
In 2021.
We have three quarters ahead of us.
Cost management is an area that this company's excelled at for years.
We continue to explore O&M agility to help.
Mitigate earnings impacts during the year, but we have a lot in front of us with nine months in our I believe at 75% of our earnings come from June through September.
So that's a lot of.
A lot of time for us to work through.
Operating plants in the grid as well as we can and continue to explore opportunities to get us all the way back to dollars 81, but right now we're at $1 78, and we're proud of our progress and we'll keep working it.
Understood. That's all I have thank you and helping drive some of the warm weather.
Thanks.
Thank you.
Next is Brandon Lee from Mizuho. Your line is now open.
Hey, Shawn Hey, Brian Thanks for taking my question.
Thanks Brandon.
How are you.
Doing well doing well things are good really good.
I just had a quick question.
So the 5% EPS growth rate at the utility how do you guys view that.
I guess some utilities.
Sure.
O&M costs, if they have a really good weather year, and then maybe pull forward or pull forward some.
To keep it within that 5% range or whatever their ranges.
Or are they.
They differ if theyre, having a tougher year.
Do you view that as.
Like your target your goal for that 5% or.
Are there going to be ups and downs.
Well I think we're going to deliver 5% I think we're hopeful that we have more ups and downs and.
That's what you referenced there that's certainly a lever as a company that we will pull.
But more importantly, I want to hear I want you to hear from us that.
We've got a robust.
Capital plan, we're not for many many years and we're very.
Confident in the 5%.
Okay.
Great. That's all I had thanks guys.
Brian.
No further question I will turn the call back over to Mr. Sean cash key.
Okay. Thank you.
And thank you all for your time this morning, and your interest in <unk> Energy Corp, and I wish you all the very best please take care of yourselves and those around you and I look forward to seeing you all very soon take care.
Yes.
This concludes today's conference call you may now disconnect.
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