Q2 2022 OGE Energy Corp Earnings Call
Good day, and thank you for standing by welcome to the O G Energy Corp.
Second quarter 2022 earnings call at this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is right.
Be advised that today's conference call is being recorded.
I would now like to hand, the conference over to your Speaker today, Jason Bailey Director of Investor Relations. Please go ahead.
Thank you hope and good morning, everyone and welcome to <unk> Energy Corp, second quarter 2022 earnings call with me today, I have Sean <unk>, our chairman, President and CEO and Brian Butler, our CFO and.
In terms of the call today, we will first hear from Sean followed by an explanation from Brian of financial 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 at GE 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.
This is an SEC requirement for financial statements and simply states that we cannot guarantee forward looking financial results, but this is our best estimate today.
I will now turn the call over to Sean for his opening remarks, Sean. Thank you Jason Good morning, everyone. Thank you for joining us certainly great to be with you. This morning.
Earlier. This morning, we reported second quarter utility earnings of <unk> 50 per share, which represents an increase of eight <unk> per share over the same period last year. Overall, we reported consolidated earnings of 36 per share, which includes a five cent loss from the holding company and the non <unk> loss from natural gas midstream operations.
The second quarter was very productive and.
And included the following through the end of July we've exited 77% of our.
Energy transfer investment at an average sales price of $11 nine per unit, which represents a 33% premium to where the units were when we closed the transaction last December interesting interestingly, we've already received more net proceeds than the value of our investment on the transaction closed and we havent even <unk>.
Pleated the exit.
We're pleased with the pace of our progress and the value that we've captured for our shareholders. Brian will go into more details shortly.
Regarding the Oklahoma rate review at the end of June we reached an uncontested settlement to the rate review pending before the Oklahoma Corporation Commission and the ALJ has recommended approval of the settlement we await a final order from the commission, which will likely be this quarter.
Moving to winter storm here in early May the Oklahoma Supreme Court authorized the sale of the bonds. The state of Oklahoma issued the bonds and we received the proceeds two weeks ago.
In Arkansas, we had a productive quarter, where we implemented new rates on April one associated with our fourth formula rate filing we continue to work through a five year extension of the Formula rate plan in Arkansas also we filed a request to recover approximately $80 million of <unk> related costs over a 10 year period, and our weighted average cost of capital.
This is consistent with other approvals by the Arkansas Commission.
Turning to operations temperatures over the last several weeks have been extremely high across the service area with 18 days above 100 degrees since June <unk>, our generation fleet has performed well supplying the grid with electricity for our customers and across the SPP.
And our generation capacity that grid is serving customers, it's not strength and unlike other areas of the country. We have not caution the public a potential blackouts nor called on the public to take conservation measures. The system was designed was built and it was maintained for days like these and our customers experienced the benefits of our generation invest.
<unk> and enhancements to the grid, our investments in technology and equipment deliver improved reliability resiliency communication and security to energize their homes businesses and lives as we maintain affordability for our customers. Additionally.
Additionally, S&P <unk> annual report on rates was announced in the second quarter and <unk> energy was listed as having the second lowest rates in the nation.
A reflection of our continued commitment to affordability for our customers as we invest in the grid and technology to improve reliability resiliency and security.
We are billing programs like the guaranteed flat Bill and average monthly bill, which allow customers to manage their budget and cash flow more easily so to quickly recap the second quarter, we exited more than three quarters of our energy transfer investment at a significant premium we filed an uncontested settlement in Oklahoma rate review.
We received bond proceeds from Oklahoma securitization of Winter storm year expenses in Arkansas, we implemented new rates and filed a request to recover winter storm related costs, and we continue to provide safe and reliable stable electric service to nearly 900000 customers during an extremely hot summer.
We're accomplishing what we set out to do what we told you we would do and have great momentum for the remainder of the year as we continue our strong operational performance, we reaffirm our utility earnings guidance for the year and expect to be in the top half of our utility earnings guidance range, given the warmer than normal weather.
I am really incredibly proud of every single employee each of whom is solely focused on safely ensuring our customers have the life enhancing and life sustaining electricity they need to live their lives.
I used that word safely for emphasis is I'm extremely proud of the level of safety excellence, we exhibit here at the company.
Turning to future operations, we continue the needed investment in the grid utilizing automation and self healing technologies.
Improve reliability and resiliency.
Work, we're undertaking on our Substations distribution circuits and other portions of our grid will provide great benefit to our customers in terms of reliability.
And resiliency to date, we've seen results from enhanced circuits, following storms, where customer outages were eliminated or reduced to the tunes of hundreds of thousands of minutes safe.
With a growing service area, increasing reserve margin requirements, we recognize our future capacity requirements are changing.
We have three active rfps for long term generation in the market and we will evaluate all of the proposals before making decisions with regard to how we will meet the capacity needs in our service area will provide an update once we once we review the results from all the Rfps and.
And at the same time, we have other capacity initiatives underway. We continue to offer programs that help customers manage their energy usage in their bill through smart hours. Our demand response program more than 100000 customers are shifting their energy usage and helping achieve 90 megawatts and demand reduction this year alone our.
Our energy efficiency programs continue to provide strong results for all customers. These programs provide energy savings and demand reduction and enable customers to better manage their energy use.
In the current filing years, we expect to achieve savings of more than 100 megawatts and demand and nearly 500000 megawatt hours of energy savings, helping us to efficiently operate the generation fleet as we grow our customer base and maintain affordability.
So in times of economic uncertainty these programs offer customers, an incredible value for home improvement with no out of pocket costs as well as tools to manage and understand their energy usage. We file these extensions for programs like this every three years with the next filing in 2024.
Our load forecast for 2022 is outpacing 2021, and expect growth above three 5% this year.
Our long term load forecast remains strong as our service area continues to grow.
Ryan I'll talk about load here, shortly but our business and economic development efforts continued to pay dividends for our communities.
The first half of 'twenty, two the new 12, new projects secured announced by our economic and business development partnerships will help add more than 70, 275, new jobs across Oklahoma and Arkansas.
Businesses large and small continue to grow for Mercy hospital. Unfortunately, with the no man's land beef jerky and aimed at Oklahoma.
Affordability of our rates is central to our sustainable business model as the cost of electricity is a significant factor the companies consider when deciding expansion or relocation.
Before I hand, the call over to Brian I, just want to take a moment to touch on a few important points.
First the economies across our service area are thriving unemployment rates are better than the national average business and economic development is active in our communities are strong and continuing to grow stronger.
Our sustainable business model is designed to grow revenues by attracting new customers and managing expenses by utilizing technology.
Helps us maintain some of the most affordable rates in the nation, which in turn attracts more customers continuing the virtuous cycle and sustaining the momentum for our shareholders employees and our customers. So thank you and I'll now turn the call over to Bryan Bryan.
Alright, Thank you Sean Thank you, Jason and good morning, everyone.
Starting with second quarter results on slide six we reported consolidated earnings of 36 per share compared to <unk> 56 per share in the same period in 2021 <unk>. The electric utility contributed earnings of <unk> 50 per share in the second quarter compared to <unk> 42 per share in the same period in 2021.
The increase was primarily driven by higher sales volumes and increased recoveries of capital investments.
These favorable drivers were partially offset by expected higher depreciation on a growing asset base O&M.
O&M was flat this quarter compared to the same period in 2021, reflecting our employees' continued focus on cost management.
Our natural gas midstream segment experienced a loss of <unk> <unk> per share in the second quarter compared to earnings of <unk> 16 per share in the same period in 2021. The decrease in net income was primarily due to mark to market adjustments on our energy transfer units coupled with the elimination of equity in earnings of enable on a year to date basis. However, we have seen significant <unk>.
<unk> and the fair value of ETE units as I'll discuss in a moment.
Other operations, including our holding company experienced a loss of <unk> per share compared to a loss of <unk> <unk> per share in the same period in 2021 the.
The increase in net loss was primarily due to the partial reversal of the consolidating tax benefit recorded in the first quarter of the year.
Turning to our economic indicators and load results on slide seven customer numbers grew one 1% over the past 12 months and in line with our expectations, reflecting the attractiveness of our service territory in Oklahoma and Arkansas we.
We continue to see our LOE rates for all businesses to our service territory in 2022 as of June 30.
We have added 60 megawatts for the year from data mining companies alone.
And his connections began to accelerate in June .
We are encouraged by how this customer subgroup is methodically working through supply chain constraints.
And we still expect the overall commercial customer group to grow and grow in excess of 10% for the year.
Companywide for all customer groups based on year to date results and updated projections. We now expect to see total retail load growth of around three five to $4 two 5% in 2022.
Zooming out when you look at the two 4% load growth we experienced in 2021.
Along with the three 5% to 4.25% we're forecasting for 2022, our confidence is growing that 2023 will be another year of load growth in excess of the historical level of 1%.
Let's move to slide eight where we are reaffirming our guidance issued in February given the favorable weather and solid operational execution by our employees in the first half of the year, we expect results to be in the top half of our 2022 utility guidance range of $1 87 to $1 97 per share.
Taking a longer term view our business fundamentals are strong with growing economies in Oklahoma, and Arkansas and constructive regulation in these states. Furthermore, our company has prudently manage its balance sheet, putting us in a position to invest in the generation and T&D investments that our customers and communities need and keeping us on the path to.
5% to 7% long term EPS growth.
Let's move to slide nine for an update on our 2022 financing plan Shawn provided you with an update on the exit of our energy transfer position, we've been consistent with our approach to exit the shares in a dollar cost averaging matter and that approach has proved crude it.
As you can see in the chart, we are projecting total pretax proceeds of over $1 billion.
Which would be nearly $400 million more than our fair value as of the February 22021 announcement date. This is real value creation that will accrete to our shareholders in the form of a permanent improvement in our balance sheet strength and order levels of holding company debt.
Turning to recovery of the winter storm costs incurred in February 2021, the state of Oklahoma issued a securitization bonds in July the proceeds of $750 million have been received and will be used to retire the associated debt that was incurred at the time of the winter storm event.
Before we take your questions. Let me make two points first we are very well positioned with respect to interest rate risk.
Through prudent management of our debt maturity ladder, we have only approximately $100 million of maturing debt over the next five years to be refinanced.
Furthermore, we have very low levels of short term floating rate debt. Thanks to the proceeds received from the energy transfer cells.
Secondly, our balance sheet and credit metrics are strong <unk>.
Listening to us to deploy the capital investments in our five year plan without the need to issue equity. This balance sheet will also be there for our customers to support emerging investments that will be required to continue to provide quality service to our thriving communities in Oklahoma and Arkansas.
With that we will open the line for your questions.
Thank you at this time, we will conduct a question and answer session.
As a reminder to ask a question you will need to press star one one on your telephone.
<unk> for your name to be announced.
Our first question comes from Shar <unk>.
<unk> <unk> with Guggenheim partners.
Good morning, Sean and team, it's actually Constantine here for Shar, Congrats on a great quarter.
Thank you <unk> good to hear from you.
Well.
So my first question on the progress addressing generation needs for for <unk>.
Rfps that are out there including existing resources.
And given some of the near term going to generation needs and now that you can monetize the majority of the <unk> share then you have some dry powder and any thoughts on accelerating the investment in new or existing resources and how interchangeable do you anticipate the rfp's of aegis and.
In light of the changing economics and supply chain conditions.
Yes, I think that's certainly a factor Constantine I mean, that's why we want to get all of the Rfps in and kind of stack them up and look at them all in terms of availability and cost.
Obviously.
I mentioned in my remarks, the increased reserve margin requirements at the SPP, we're certainly watching that.
We're certainly.
Watching whether the <unk> gets approved and passed that could have an impact on the RFP results and the benefit to our customers. So we want to see the results we're going to stack. All these up and we're going to we're going to go from there.
I don't think.
Sure.
The balance sheet per se is the driver I think the driver is just the availability and the economics coming out of these rfps.
Excellent.
And just a quick follow up low <unk>, obviously been very very strong trend in <unk> and 'twenty two in general both weather normalized and in absolute terms and customer count kind of continued around that 1%.
The anticipated.
Actual C&I usage to contain growing in excess of customer accounts, especially as we're kind of looking at the oilfield segment and starting to see some activity picking up.
And would that cause you to track a little bit ahead of kind of whats the assumptions that are contemplated for 2003.
Brian you want to tackle that sure sure Les Constantine load results have been strong in.
For this year as expected I would say.
On the commercial front, we do anticipate being around that kind of double digit area for growth this year.
As I mentioned in my comments, we have really strong momentum in that sector and believe theres a good chance that will carryover into 2023.
As you look to oilfield.
You can see you may recall that we had about 2% year over year growth in the first quarter in the oilfield sector.
On a year to date basis, that's bumped up to three 7% so.
Youre seeing some improved volumes and activities in that sector.
Versus 2019, we're actually still below our 2019 levels in oilfield. So that gives you a sense that there's still room to grow just from pre pandemic levels.
So certainly we expect that momentum in the oilfield to continue the industrial sector was strong in the second quarter for us.
From a fertilizer companies and are still manufacturers. So those two sectors have been.
<unk> for us and overall, we're starting to get more and more confidence that 2023, it could be another year of above 1% load growth.
Excellent.
That's a great quota.
Thanks for taking the questions.
Thanks Constantine.
Thanks Constantine.
Thank you for your question. Please hold while we load the next Q&A.
Our next question comes from Julien Dumoulin Smith with Bank of America.
Hey, good morning, it's actually Cody on for Julian Thanks for taking my questions Hey, Good morning, Cody Good morning Cody.
So just first following up on <unk> question around load your expectation on 2022 growth looks like it.
At the top end can you talk through some of the drivers there maybe crypto stepping down and just as we look forward to 2023 and that kind of gets to your point.
Previous question, but just wondering if you can share a little bit more about your C&I customer sentiment on the current economic backdrop and in any conversations that you've had recently.
Brian you want to tackle the first part of that and then I'll tackle the second part of that.
Absolutely.
So Cody you arrived.
We're looking at a broader range of potential load growth for the year of three 5% to 5%.
The delta between that and where we where we're currently forecasting is is around the data mining.
Companies in particular as I mentioned in my comments.
They had some supply chain issues getting some of their mining equipment in.
On a timely basis, so that's coming in a little slower than we thought we did see a strong pick up towards the end of first quarter and here here in July as far as connections.
And we had very little margin from those customers into our financial plan. This year, so it's not really having.
To have an impact to this year and in fact.
Poke too earlier.
Given the recent momentum we think this gives us some nice tailwind going into 2023.
And Cody I would just in terms of longer term.
As I speak to people around the states.
The economic development activity I've never.
I've never experienced the.
Pipeline or the backlog that's out there and some of the potential projects that are coming in that are in early stages. So I think this is something this.
Commercial segment and just looking at the start and looking at.
Certain site preparations and things like that this is something we think is going to continue.
Great. Thanks curious if you could share any updated thoughts on the solar RFP. That's outstanding I think you had previously pointing to new generation not being available until at least 2025, but with the tariff waiver or are you seeing resources available sooner.
Yes, we haven't seen a material change in that.
<unk>.
To the extent, it's going to affect our RFP, but again, we're going to look at all three of the Rfps and stack them all up together.
And.
<unk>.
Proceed down that path in terms of what's available.
To meet our capacity requirements, so, but no I haven't seen a material change in that.
Okay, and one last one if I can just squeeze it in quickly as it relates to the EPA has potential stricter Nox regulations. How are you thinking about accelerated retirement versus retrofitting your plants.
Factored in into the to analyzing the results of the ongoing Rfps apps.
Absolutely and I think Thats a.
We've been we've been through Casper once before and.
We reviewed that.
We will await to see if it is actually filed.
As you remember the last time and went through a lot of legal hoops and delays in stays and things like that we'll see there is a bunch of different alternatives to be able to address that rule.
You mentioned retirements, but.
Your conclusion, there is spot on that we will certainly see that and factor that into our analysis of all the rfps as well.
Awesome, that's all I had very helpful. Thanks Scotty.
Take care.
Thank you for your question please standby.
Our next question comes from and Sue.
Jim.
With Goldman Sachs.
Hey, guys.
Good morning, I Hope you guys are at Stifel.
Yeah.
So far.
Yeah.
Got it.
Great <unk>.
Christy provider here, so we're going to be plenty coupe.
Maybe I will turn the call right when you're inside.
Yeah.
Just going back to the RFP.
Our RFP process on the three Rfps that are out there can you just give a little bit more color on the next set of timelines and ultimately.
Whether it's 23 or beyond.
What type of.
When we could see that the purchase or the capital spend.
Yes so.
The bit on the second two rfps. The bids are due in August and September we're going to evaluate all of those stack them up certainly.
We will have the benefit of if anything comes out of.
The inflation recovery Act, we will see how that impacts things.
The previous question talked about Casper will certainly be cognizant of that but we're going to go through all those and so the other point that is.
I think is relevant here is just in terms of availability when these could be slotted in and fill some of these gaps and so availability. Your timing is going to be a key component, we're going to lay all that out and then when we finish that.
We will certainly communicate to you and make any requisite filings at the various commissions.
Based on those results, but I don't want to I mean, I would expect.
To have.
An idea of what we're going to do and recommendation by year end, but.
We will see.
Got it and then.
Whatever capital you end up spending as part of these rfps as it still is it a bit if it's too early to think about the mix of financing for those incremental.
What is it that would accelerate the timing of the.
RFP capacity coming online what are those things that would do that.
I think its availability.
I mean, if we've talked before with some of the constraints coming out of our solar RFP.
That wasn't going to be as timely as we'd hoped.
So I think I keep coming back to it's really about availability and how we're going to be able to layer all of these in.
Over over a number of years.
Okay. Thanks.
Alright, Thank you Greg.
Sure Greg Thank you.
At this time I would like to turn it back to Jason Daly for closing remarks.
Yes. Thank you for joining us on the call today and I Hope you guys have a safe day.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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