Q3 2021 OGE Energy Corp Earnings Call
Ladies and gentlemen, thank you for standing by and you're welcome to D. O T E Energy Corp, third quarter 2021 earnings Conference call. At this time, all participants Arnold listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this.
Fashion, you would need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
Would not like to hand, the conference over to your Speaker today, Mr. Jason Bailey director of Investor Relations. Thank you. Please go ahead Sir.
Thank you and Italian and good morning, everyone and welcome to O. G. E Energy course third quarter of 2021 earnings call I'm, Jason Bailey Director of Investor Relations with me today, I have Sean Trotsky, Chairman, President and C. E O of O G E Energy Corp, and Brian Butler CFO of O G E Energy Corp in terms of the call.
Today, we will first hear from Sean followed by when they Super I'm, Brian of third 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 fall along on our website at O D. E. Dot Com. In addition, the conference call and accompanied slides will be car archive falling the call on that same web site.
Before we begin the presentation I'd like to direct your attention to the Safe Harbor statement regarding forward looking statements.
This is an S E C requirement for financial statement and simply state that we cannot guarantee forward looking financial results, but this is our best estimate today.
I will now turn the call over to Stan for his opening remarks, John. Thank you Jason Good morning, everyone. It's great to be with you again this morning, and thank you for joining the phone call today.
Earlier. This morning, we reported third quarter consolidated earnings of $1.26 per share, which includes utility earnings of $1.12 per share and earnings associated with our investment and enable a 15 cents per share in a holding company loss of a pin.
The teams worked hard on behalf of our customers and shareholders and on our February call. After winter Storm Uri I told you we were going to work to get back to our original guidance and I'm pleased to announce we've done just that and narrowed our guidance range to $1.79 to $1.83.
We remain encouraged by our exceptional utility operations and all of our employees as they focus on energizing life for our customers and our communities.
This morning, I want to provide a few update and then Brian will discuss our financial results in more detail.
First are great enhancement programs in Oklahoma, and Arkansas continue on pace.
Work, we're undertaking on our Substations distribution circuits and other portions over grid have already had a significant positive impact on the reliability and resilience of the grid for the benefit of our customers.
Or solar subscription program continues to grow construction on the five megawatt solar farm and branch, Arkansas is now complete the five megawatt expansion of the chalk donations solar farm will be completed in the coming weeks and customers will soon have an opportunity to purchase electricity from this facility.
These two projects increase our total solar capacity to 32 megawatts in 2022, we have plans for an additional five megawatt solar farm in billings, Oklahoma with two additional solar farms in the planning stages are.
Securitization filing in Oklahoma is on track covering nearly all of the fuel and purchase power costs associated with February Winter Storm Uri.
We reached the joint settlement P parties and an order is expected by the end of the year.
Earlier this month, we submitted our final integrated resource planning with both the Oklahoma and Arkansas commissions detailing our resource needs over the next several years <unk>.
<unk> components include replacing retired generation with a combination of solar and hydrogen capable combustion turbines.
We planned annually add 100 150 megawatts of solar over the next several years. This plan is a significant step to meet our objectives of reliability resiliency fuel diversity and provide our customers with claimer solutions, while maintaining our affordable rates.
In Arkansas, we filed our fourth Formula ready valuation report in October with rates going into effect April of 2022 at.
At the same time, we also filed for a five year extension of the Formula rate plan.
We plan to file a rave review in Oklahoma towards the end of this year a significant portion of this case will involve future grid enhancement investments and a continuation of the established regular recovery mechanism the.
The process is working quite well and we want to continue to work to enhance the resiliency and reliability of the grid for the benefit of our customers.
Arkansas securitization is expected to be filed in early 2022 is the Arkansas statute somewhat different from the Oklahoma statute, we continue to work through that process with every expectation of positive regulatory outcome.
Nor strong customer growth continues at 1.3% compared to the third quarter of 2020, reflecting the combination of are highly affordable rates and the ability to service commercial expansion in our markets.
You may recall that prior to the pandemic.
<unk> pointed to higher low growth than our historical 1% growth rate.
With the first nine months of the year now behind US, we expect 2021 weather normalized low to be approximately 2.2% above 2020 levels and also expect this level of low growth to continue into 2022.
Last last quarter. We discussed. The addition of 75 megawatts of load. We led by the end of the year due to our slate of business and economic development activities at that time.
I'm pleased to say that the pace of these activities continues to increase we now estimate 200 megawatts of new connections by the end of 2021 again with these trends continuing into 2022.
In addition to the logo. These projects also bring new jobs and increased economic activity to our communities.
To date this year, the 40, new projects secured their economic and business development partnerships bled, nearly 6000, new jobs across our service area and $27 billion in capital investments.
Affordability remains a key competitive advantage grow jeanie and is evident in our economic development activity and customer growth, which combined have us on track for sustained low growth.
Quickly turning to enable we expect that transaction to close this year subject to the satisfaction of customary closing conditions, including the HSR clears our intention to prudently exit are in midstream investment remains the same and we will provide information upon closing in our exit of this business will posit.
Ably impact our ability to grow earnings and dividends into the future.
Ah focused on our customers and key stakeholders has never been stronger we continue to engage customers directly to media social media and community engagement and just last week, we refreshed our website at <unk> Dot com.
A side is much easier to navigate and allows us to directly tell our story to both customers and stakeholders.
We will continue telling our compelling story to deliver the information customers and stakeholders need and the way they need us to deliver.
One of the efforts I've discussed with the numbers you as our disclosures specifically around all of the great things, we're accomplishing on the <unk> front.
We continue to tell the <unk> story watch for our latest says B report at the end of the month and upcoming Tcf D report in early 2022.
Forehand the call over to Brian I, just want to touch on a few important points. The first is the strength of the economy's across our service territory.
Oklahoma the unemployment rate in September was 3% compared to the national rate of four 8% in Oklahoma City, the largest metro area in our service territory has a rate of just 1.9% <unk>.
The best the modem large metropolitan areas.
Our hometown low Parma city grew by more than 100000 residents in 2010.
One of only 14 cities to do so jumpy.
Jumping to the 22nd largest city in the country.
In addition to Oklahoma City Fort Smith, Arkansas had an unemployment rate of 2.7%.
These economies are strong growing and continue to grow stronger.
Secondly, our business and economic development efforts are driving logo with even greater potential ahead and all of this leads to the third and final point of our sustainable business model.
Growing revenues by attracting new customers managing expenses by utilizing technology and this helps us maintain some of the most affordable rates in the nation, which in turn attracts more customers. So with that I'll turn the call over to Bryan Bryan Alright, Thank you, Sean and good morning, everyone.
Let me start with a focus on our utility operations <unk> third quarter results for 12 cents higher than 2020, driven by a favorable weather compared to the prior year quarter strong load results in increased revenues from the recovery of our capital investments, partially offset by higher depreciation from our growing asset base and <unk>.
Summary, our core utility operations performed very well during the third quarter.
On a consolidated basis for the third quarter of 2021 and inclusive of our natural gas Midstream segment, we achieved net income of $252 million or one dollar and 26 cents per share as.
As compared to 177 million or 89 cents per share in 2020.
Midstream results for 15 cents per share in the third quarter compared to <unk> in 2020.
The increase in income was primarily a result of improved margins and higher natural gas gathering and processing volumes add enable.
Let's turn to our economic update on slide nine.
We experienced strong load growth again in the third quarter with total retail load up to 3%.
Our commercial customer classes, especially healthy.
With year over year load growth of 4.7% in the third quarter and 6% year to date.
For the full year 2021, we continue to expect total weather normal load results to be approximately 2.2% about 2020 levels.
Importantly, as Sean mentioned, a strategic advantage of our company is the affordability of our right.
This year, our team assigned contracts with new and expanding C&I customers that total approximately 200 megawatts of load that has or is expected to come online by the end of this year.
As we looked at a future we believe the recent trends in total retail load growth will continue in 2022.
Let's move now to slide 10, where I would like to update you on our 2021 full year utility EPS forecast.
As discussed during our protocols, we began the year with the midpoint EPS target of $1 81 per share, but immediately faced the net headwind for February weather event of 10 cents per share.
Since February our employees across the company have banded together to achieve excellence and operations driving initiatives that benefit our customers, while allowing us to deliver on our commitment to our shareholders.
Our efforts are expected to result in 10% to 14 cents, a favorability, including benefits from cost discipline and our customer programs.
Companies outstanding O&M reduction efforts in 2020, and 2021 will help moderate future rate increases for our customers and our upcoming great proceedings in Oklahoma and Arkansas.
We are thus raising our expectations for 2021 and narrowing R. O G. Any utility EPS guidance range to $1 79 to $1.83 per share for full year 2021.
As Shawn stated it is a testament to the performance of our great employees that we have been able to overcome 12 steps of negative whether in a year.
Arrived back at the midpoint of original guidance.
Looking ahead, the solid performance in 2021, along with the capital investments, we're making for our customers and communities position our company well for sustained earnings growth into 2022 and beyond.
Our business fundamentals are strong and we continue to have great confidence in our ability to grow <unk> at a 5% of long term EPS growth rate through 2025.
Before we open that answer your question. So I would like to provide a quick update on our financing plan.
As shown on side of 11.
We expect a securitization of the Oklahoma portion of the February fuel costs to occur in mid 2022, restoring our credit metrics to their pre Uri weather event levels.
As a reminder, we have the financial strength to support substantial infrastructure investments without the need to issue equity.
Additionally, as our infrastructure investment opportunities continue to expand we look forward to providing an updated five year capital plan during our fourth quarter call.
Let me finish by summarizing where we stand.
Our utility operations are on plan to deliver on our 2021 EPS target after a very strong third quarter.
Our service territories in Oklahoma, Arkansas, growing and we will make the necessary infrastructure investments to support these communities.
Backed by one of the strongest balance sheets in the industry.
All of this provides us great confidence in our ability to drive long term, Oh Genie EPS growth of 5% based off the midpoint of 2021 guidance of $1.81.
Which when coupled with a stable and growing dividend offers investors and attractive total return proposition.
That concludes our prepared remarks, and we will now open to answer your questions.
At this time, if you would like to ask a question. Please press star and the number one on your telephone keypad again, that's star one to withdraw your question press the pound key.
Paul for just a moment to compiled acuity last day.
My first question is from the line of shy Perez outlet Guggenheim partners.
Hi, Good morning is actually a cough contain here congrats on a great quarter.
Hey, good morning, Constantine Thank you.
Get closer to the end of 21, and you know the Guy dancing.
Moving towards the tail end how are you thinking about inputs entered 21 planning just in time with low bad customer connections crime from 21 kind of being repeatable in 22 is it kind of have to push that level.
And any implied targets for cost reductions in maintaining the trajectory of their.
Yeah.
Great question and.
My remarks, and Brian's as well, we talked about we don't see the load growth.
Declining we actually continue we expect it to continue to grow.
You saw what's transpired just in this past quarter, where our original estimate for the year was to add 75 megawatts of new load and we moved into 200 and so it's growing by the quarter will certainly update that in February but.
We are very positive about the low growth.
That has returned.
And is on the cusp of connecting in the future. So I think that's that's just more to come in or anything. We said today, we will be updated in February because our expectations are that it's going to continue to grow.
As far as the Ellen M reductions.
That's going to continue.
Our our view of the work we do.
Benefits, our customers and helps us redeploy more investments in our business and mitigate that impact the customers. So.
I don't have any specifics for Ya Constantine, but you should expect us to continue.
On both those fronts going into the future I don't want Brian do you have anything to add to that or Hey, Constantine good morning.
Just add to what John said.
The.
Broad economy here in Oklahoma in Western Arkansas is really doing well.
We were just at a chamber of Commerce event, this week, where the mayor spoke in.
It's it's pretty amazing all the other great <unk>.
Economic.
Factors, you are able to point to in this region.
There's a lot of pride in this state and its things are going very well for the state and it's playing out in our load growth and you know that all.
Kind of intertwined with the sustainable business model, Sean speaks to load growth helps us.
To invest for our customers.
That plays out in rape cases to help not only on spreading a revenue requirement across viral load, but also these O&M reductions keep rates very affordable, which just brings more investment into the state. So it's really good place. We are right now in the state of Oklahoma.
Does that actually takes me to my second question on customer Billhead room, and that's obviously a factor that kind of helps.
Just kind of seeing the commodity cost increases in particular that or running.
So the customer bell.
Just as he balanced the affordability asked I doing well what else can you see potential offsets to bill pressure does that put any kind of.
Pressure on the other side of like Capex governing.
Governing factor.
Well I think I think affordability is always something you ought to be aware of and it ought to be part of your thinking.
But as we've said repeatedly we are fortunate to be in a growing economy.
And we've worked really hard to attract businesses to our.
Service area.
And the ability for us to spread those costs over more people.
Actually creates headroom for that bill and.
That in combination with a lot of the work we've done in our company.
To continue to just drive out.
Drive efficiencies in our business and reduce our costs just creates more headroom. So I think the combination of just the operating excellence that we demonstrated here over the last number of years and a growing service territory that we are actively engaged in I mean, we are at the front recruiting these businesses brings.
And I'm here.
They are wanting to be in our service territory, that's creating a lot of headroom. So.
I think those are very two very big catalyst scores.
So no pressure on Capex Vikings.
No that's correct.
Thanks.
I'll go back in the queue can you also make that quota guys. Thanks, Cathy Thank you.
Your next question is from the line of dealing in demo linked Smith with Bank of America.
Hey, it's actually Covid Clarke author Julian Thanks for taking my questions and congrats on the update.
Good morning coding.
So first if I can't on energy transfer.
Wondering if Ah centerpoint announcement to fully exited steak by the end of 22 has changed how you are thinking about your cadence of exit does it kind of clear the way for a fast exit then perhaps here previously contemplating and I understand that we will get some more clarity here soon but wondering if you have any thoughts.
Yeah.
I don't have anything to comment on necessarily the cadence, but I think.
The transaction that day announced certainly remove some of the headwind.
That would have been.
And our way and so glad to see that happen.
Got it Okay and then just one second question on on.
On how you are thinking about the long term 5%.
EPS growth target as we think about some of the upside the capex.
Obviously, the VIP that's been filed and you mentioned in your prepared remarks around grid marred and and the great enhancement program there.
Yeah, just just thinking about that and pairing it with some of the strong low growth that you are seen as well as no equity needs. There's any color that you can you can provide.
Yeah, I think I'm good question, and we're certainly going to update our our forecast in our guidance in terms of investment opportunities in February but I hope you are taking from our prepared remarks, we're very bullish on the company and the prospects we have and.
We're watching very closely this.
This growing load.
And.
That's a that's a a good indicator for us because.
It really drives a lot of that capital investment so.
We've we're continuing to deliver and.
We feel pretty good goatee I think I'll just leave it at that.
We'll update all this as as we get closer.
Got it thanks, so much for taking my questions.
<unk>.
Thanks, Coty look forward to seeing seeing you guys down in Florida.
At the conference.
Your next question I saw on the line is into Kim with Goldman Sachs.
Yeah. Thank you.
First question.
Shine when you when we look at the proposed items in the bite infrastructure bother right reconciliation package now who knows if if and when some version of that will will go through but.
As it relates to clean energy and renewables there.
Potentially change the the longterm generation planner cadence or timing of anything that you've laid out in the recent therapy.
Well I think.
I Love your assessment, there if and when [laughter], we've been we've been all waiting for this for a while now but.
In the way I would say certainly cognizant of the <unk>.
Ptc's, particularly around the solar investments, obviously, you've got some potential there around transmission and storage.
We're pleased about the extension the potential extension of those obviously if.
As you get to the end of that term if they were going to expire in a you would accelerates and things towards the back in if they were going to.
Only be good for eight years or 10 years or something you would you would amount to make sure that you maximize all of those opportunities, but I don't think it necessarily changes anything in the near term.
Got it.
Makes sense.
And then just give us a little bit of a preview of.
Solid item that we should expect in the Oklahoma right case is it just more blocking and tackling of items that you've been spending money on or is there anything.
I guess that we may not be thinking about that.
That we should.
Yeah. So some.
Brian.
Will be quick to say, we've got to go in there and recover all of our investments that we've already made certainly offset by load growth and some of the O&M savings that we've created but the two primary issues in this case are.
To really set up the Mac to continue the mechanism we have around these great enhancement investments for making there they are delivering huge results.
We done this in Arkansas, we started this in Oklahoma we had this.
Program already and that's going to be the key component there as well.
Will be the recovery of those investments and continuing the mechanism we have going forward.
Got it.
And lastly for me just any.
Oh.
As we look to see you down to Florida and you.
Update in terms of capital or other items that we should expect that it seems like the language is more in the February timeframe for any major heightened.
Yeah, that's correct February will be the time, we we do that we are watching this again, we're watching this load growth.
By the day [laughter] definitely.
Yeah, it's very curious how that.
How much of that it has more channels Tori in terms of.
What's been going on the past 18 months, but it seems like definitely a portion of it is not so that'll be interesting to monitor.
Alright. Thank you so much thanks into take care into.
Your next question is from the line of Travis Miller with Morningstar.
Good morning, Thank you for taking my question Tomorrow.
Good morning.
You you just answered the like my one question the high level thoughts Oklahoma.
Right case elements, but I'll continue on that.
Grin enhancement program, obviously, you have a history here of settling cases is that program something that you've gotten buying from enough parties that.
It could be a part of a settlement Pat.
Package come next year.
Or do you think it's going to be more contentious I guess being the opposite.
You would hope that we could reach agreement with interested parties and made the results are.
Pretty obvious and people can really see the benefits of what you're doing.
In terms of reliability and resiliency and so.
I think this is a lot different than.
Take for comparison purposes, if you were building.
A new generation facility that was about a thousand megawatts, it's hard for customers and constituents to really see the benefit of that.
But here this is really touching each and every one of them. So I think there should be something everybody could get their arms around.
Okay, great and.
And then.
On your Capex plan is thinking about the last two bullet points there in terms of upside for the hierarchy and applied for additional great investment.
Hey, what's or something.
Magnitude of that upside, we're talking something like.
5% off on here.
Base budget here that you've put out or 10 or 15.
Well, it's kind of evolved in that upside potential hey.
Hey, Travis it's Brian we're still working through our five year capital plan, which will update in February.
A couple of data points, we've pointed to on this call and in the second quarter call, where the Irve that was finalized here in October.
John mentioned that we're looking to deploy 100 to 150 megawatts of solar per.
Per year in the future, which.
Which is really addressing some retirements of legacy gas plants that were built in the fifties 19, fifties and 19 sixties.
And this of course are needed investments to keep.
Our generation system reliable.
And you've also seen us look at.
The great investments here in 2021, you can kind of look at.
Where we started year and where we're ending year on our great investments really been being driven by large customers coming into the state and.
An expansion of customers.
But also additional grid reliability work to address some of the major ice storms that have hit the state.
In the past several years and I seem to be.
Becoming more intense so there's additional gregory viability work, we'd like to do on that front going forward. So directionally up too early to give you an exact number but it's something we're continuing planning with it I always stick to customer service of course.
Okay.
Thanks, So much that's all I had.
Your next question is from the line of Brandon Lee with them as in Hell.
Hey, Sean and Brian Congrats on a great quarter.
Just have a good morning, just have a quick question on.
Enable any energy transfer is there a way.
For you to.
Hedge or monetize.
The run up in price before the transaction closes.
Well.
You certainly could I think our view of all of this as we want to make sure that we optimize the exit very prudent way.
And.
We as I mentioned, we expect this to close this year. So we.
Two months left in the year.
Yeah, and then I guess another quick question and.
Can you compare your low growth.
Today.
I guess Prepandemic are 2019, how does it help there in relation to that.
Brian you want to take that one yeah, absolutely and they're Brandon. Thanks for the question in.
This is my.
Coming out towards the end of my first year with the company and Ah, but Jason Bailey did run the load growth numbers back 10 years ago through.
2019, and therefore, while we were bumping around.
5% to 1%, but then as you got the 2018 2019 <unk> growth more around one 5%.
Just over a 10 year period, it was a little over 1% kind of load load growth CAGR.
And you are right.
I think the gentleman before mentioning a date for the last 18 months that's made load following the load.
Line, it's almost like a rollercoaster, but it's it's back to being a steady growth page.
So you're seeing us we fully recovered two to 2019 levels now so on a year to date basis here. In 2021 are total load is right on where it was in 2019 cumulatively. So we're passing back at 2019 line.
Two years later, but.
The growth we're seeing here in 2021, we do expect to continue into 2022 and and beyond that for for a while and it's really driven by.
The affordability of customer rates.
A lot of these large commercial customers that are in across a lot of different industries, they're pulling out a map of the United States and they are looking at whether it's a good place to live and raise families and whereas.
Where utility rates really low and their finger off then lands on Oklahoma or Arkansas, and so we're getting a lot of interest from these large commercial customers to come into the state and you're starting to see that play out in our in our low numbers and it's exciting for for the state for us as a company.
Branded one piece that add to that is.
We do have a lot of interest of new entrance, but there's also.
A lot of pent up demand.
From our existing customers, who were looking at expansions and things like that Prepandemic and we're begin to see that come back as well. So is Brian mentioned, we've crossed over 2019 and.
We're we're again, we're pretty excited about the future growth opportunities we've got.
Community.
Great I'll leave it there and I look forward to seeing you next week at eight yet.
Say, Brian Thank you Brandon.
There are no further questions I will turn the call over to Sean for closing remarks.
Thank you and Italian thanks.
Thanks to the driving economies in our service area in the operating excellence of our team and our growth trajectory is on track with a very bright future ahead of us.
I do want to thank all of you for your interest in <unk> Energy Corp, and for being on the call. Today. Please take care of yourselves and I look forward to seeing many of you next week all the best.
This concludes to LTE Energy Corp, third quarter of 2021 earnings Conference call. Thank you for your participation you may now disconnect.
[music].
[music].
[music].
[music].