Q3 2022 OGE Energy Corp Earnings Call

November 3, 2022

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Good morning, and thank you for standing by and welcome to the O G Energy Corp, third quarter 2022 conference 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 the session you will need to press star one one.

Star one one on your telephone and then you'll hear an automated message confirming that your hand is raised.

Please be advised that today's conference is being recorded and I will now hand, the conference over to your first Speaker, Jason Bailey Director of Investor Relations at GE go ahead, Jason.

Thank you, Eric and good morning, everyone and welcome to <unk> Energy Corp, third quarter 2022 earnings call with me today, I have Sean <unk>, our chairman, President and CEO and Brian Butler, our CFO in terms of the call today, We will first hear from Sean followed by an explanation from Brian a financial risk.

And finally as always we will answer your questions.

I would like to remind you that this conference is being webcast and you may follow along at <unk> Dot Com and.

In addition, the conference call and accompanying slides will be archived following the call on that same website.

Before we begin the presentation I would like to direct your attention to the safe Harbor statement regarding forward looking statements.

This is an SEC requirement for financial statements 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 Sean for his opening remarks, Sean. Thank you Jason Good morning, everyone. Thank you for joining us today.

Before we get started I do want to reflect on the economic and inflationary pressures our customers and all of us are experiencing today.

We understand our customers' concerns about household costs, increasing across the board and understand that the rising cost of fuel to produce electricity contributes to the concerns of our customers have about increasing energy bills.

I'll talk about the specific actions we are taking after we discuss the quarter's results.

Turning to our financial results earlier. This morning, we reported third quarter consolidated earnings of $1 31 per share. This includes utility earnings of $1 26 per share a holding company loss of <unk> <unk> and earnings from natural gas operations of <unk>.

Our solid performance in this quarter is due to exceptional execution by our team who work to keep energy flowing to the grid during a very hot summer with upwards of $20 100 degree days across our service area.

Unlike other areas of the country there were no costs for public conservation to protect the grid. Our system is designed our system is built and it's operated for these conditions and I'm incredibly proud of our team for their work 24 hours a day to keep the lights on for our customers.

The third quarter was highly productive and it was really a reflection of the investments and planning we undertake to be prepared in the third quarter. We also completed the exit of our midstream investments with the final sale of our energy transfer units. While this will be the last time I discuss midstream financial results.

Want to take a moment to reflect on the end of what has been a decade long effort to close this part of our business and move forward.

We've doubled down on business and economic growth in our service area and taken a measured approach to planning for the future to protect customers with equal focus on reliability and affordability.

We continue to accomplish what we said we will do setting us up to deliver strong results for our customers in the future.

Our grid reliability resiliency and security work continues including a multiyear initiative to underground lines that run over Interstate major highlights this.

This year, we will underground approximately 30 lines and by the end of 'twenty three we anticipate having been buried more than 100 of those lines across our service area.

Underground in these lines, both improved reliability and safety for customers and emergency response vehicles during weather events.

We continue to upgrade existing substations and build new substations to support our growing service area, even amid supply chain constraints of equipment availability.

We continue to see results from outages eliminated or significantly reduced as a result of enhanced distribution circuits.

These investments continued to pay off for our customers and improve our restoration process saving hundreds of thousands of minutes during outages.

Additionally to support our service area, we continue to invest in our system to support local economic growth one such investment nearing completion at the port of Muskogee involves the construction of new transmission facilities that will enable approximately 900 megawatts of new load to serve local customers.

As many of you are aware, we reissued the solar RFP given the favorable opportunities following inflation reduction Act.

As our service area continues to grow combined with the increased reserve margin requirements. We will review the three active rfps for long term generation holistically to ensure our path forward meets those requirements and delivers reliable generation for our customers and will provide an update once we review the results from all of the RFP.

Yeah.

The good news is our communities are growing in Oklahoma, and Western Arkansas, even with the economic challenges facing our nation. This growth comes from their position of strength with lower than average unemployment and low rates for electric service.

With fuel prices remaining at high levels Houston concern for grid reliability in some regions of the country as we head into winter that's.

That's simply not true here are investments in generation and grid resiliency and reliability paid off this summer and will continue to ensure our customers have reliable electric service in the future.

We are committed to helping our customers. During this tough economic season with inflation continuing to rise we are increasing communications to customers about how they can manage their energy use and monthly bill.

Our Weatherization program provides thousands of dollars of home upgrades at no additional cost to customers with household incomes at $60000 or below our silver energy offers our customers 60 years of age and older suite of options to lower the monthly bill and reduce their energy usage additional energy efficiency program.

<unk> residential and commercial customers deliver thousands of megawatts savings and help reduce our future generation needs. Our billing programs average monthly billing guaranteed flat bill in Oklahoma <unk> billing in Arkansas give customers more predictable monthly bills and we have seen an increase in both of these programs this last quarter.

Our team is also focused on connecting customers to bill assistance.

This year alone <unk> customers have received $30 million and bill assistance through federal state local agencies as well as company sponsored programs.

We know today's macroeconomic environment creates challenges for our customers and we are committed to keeping their bills as low as possible.

Portable rates with debt outstanding and service is a hallmark of who we are as we maintain our operational focus to deliver the life sustaining and life enhancing electricity our customers need.

Our load forecast for 2022 continues to keep pace with the outstanding growth, we experienced in 2021, and we expect growth of approximately 3% for the full year.

Our long term load forecast remained strong as our service area continues to grow.

Our business and economic development efforts continue to pay dividends through the first half of 'twenty to 'twenty four new projects secured in announced by our economic and business development partnerships will help add nearly 3000, new jobs across the territory.

This growth is all across our service area from the expansion of the Coke fertilizer plant in Enid, Oklahoma to the expansion by Cold Compass storage in Mulberry, Arkansas.

We know the cost of electricity is a significant factor that companies consider when deciding expansion or relocation and we continue to offer highly competitive rates when compared to others.

We continue to work with communities and partners to advance innovation and technologies in Oklahoma and Arkansas.

For example, we work with rural and low income school districts to apply for the EPA Clean School bus program is part of IAA JA and just last week, the EPA announced $18 million was awarded for these schools. We are delighted to support these districts as they bring electric school buses to the states.

I do want to close with a few important thoughts.

First the economies across our service area are growing.

Unemployment rates are better than the national average business and economic development is active in these communities are strong and continuing to grow stronger.

And this leads me to talk about our greatest strength, our employees with all of the economic development activity and reliability investments. Our safety performance continues to excel just as last year 2022 is on track to be one of the safest years on record.

Our cruise just recently returned from Florida after supporting restoration efforts following hurricane in.

One letter of many that I received about our team and went to Florida stood out.

Gentlemen from Melbourne, Florida had been without power and when our crew arrived to his neighborhood he watched their dedication and professionalism as they work together as a team both efficiently and effectively to get as electricity back on.

It's what our people do every single day, and it's what we expect of him.

But to receive a letter from someone who is not our customer but saw their excellence firsthand brought home for me once again, how important our customer relationships are.

And building on that example to broaden recognition to all of our employees Forbes magazine recently named <unk> energy as the number two employer in the state of Oklahoma.

We're not the largest employer in the state, but our employees live in the communities, where they work and we're in it really tied to the fabric of the community and the state.

I'm incredibly proud of every person here and know their dedication to our customers and our purpose to energize life and I'm grateful to work alongside them every day.

So simply put.

More and more families more and more businesses are coming to our service area. This growth combined with our continuous investment in reliability and resiliency. After all it's Oklahoma and Arkansas two of the most weather prone states in the country.

We have tremendous opportunities for many many years to come and we manage all of this through the lens of affordability for our customers. We worked hard over the last few years to create this growth for our communities and we intend to keep that going so with that I'll turn the call over to Bryan Bryan.

Thank you Sean Thank you, Jason and good morning, everyone.

Starting with third quarter results on slide five we reported consolidated earnings of $1 31 per diluted share compared to $1 26 in the same period in 2021.

<unk> the electric utility contributed earnings of $1 26 per share in the third quarter compared to $1 12 in the same period in 2021.

The increase was primarily driven by higher sales volumes from strong load growth and warmer weather as well as increased recoveries of capital investments. These favorable drivers were partially offset by expected higher depreciation on a growing asset base as well as revised depreciation rates that became effective in July consistent with the Oklahoma General.

Rate review order from the Commission.

Our natural gas midstream segment contributed earnings of <unk> <unk> per share in the third quarter compared to earnings of <unk> 15 in the same period in 2021 the.

The decrease in net income was primarily due to the elimination of equity in earnings of enable partially offset by a gain on our energy transfer units I will discuss the completion of our exit from energy transfer in a moment.

Other operations, including our holding company experienced a loss of <unk> <unk> per share compared to a loss of a penny in the same period in 2021.

The increase in net loss was primarily due to the partial reversal of an interim period consolidated tax benefit that was recorded in the first quarter of 2022.

For full year 2022, we now expect earnings at the electric utility to be in the range of $2 <unk> to $2 12 per diluted share and holding company earnings to be a loss of approximately <unk> <unk> per share.

Turning to economic indicators and load results on slide six our customer count grew one 2% over the past 12 months in line with our expectations and reflecting the attractiveness of our service territory in Oklahoma and Arkansas.

Our year to date weather normalized load growth remained strong at two 4% supported by the commercial public authority and oilfield classes.

Weather normalized residential volumes were below expectations with a decline of one 1%, which we believe was impacted by customer conservation to reduce usage during the unusually hot weather.

Taking a closer look at the commercial class our service territory is experiencing especially strong business growth.

For the third quarter weather normalized growth for the commercial class was 11, 6% higher than in 2021, driven by many industries, including including data mining agriculture and manufacturing.

For all customer groups, we are adjusting our full year total total weather normalized retail load growth forecast to be approximately 3%.

This outstanding 2022 growth drives ever increasing confidence that 2023 load will again exceed to 1% load growth. We've historically experienced even before consideration of potential upside from incremental load from data mining companies.

Moving to slide seven as Sean mentioned, we completed the exit of the remainder of the energy transfer units in the third quarter.

We are very pleased with our prudent measured sell down of shares during the year.

We no longer have an interest in midstream operations, which should allow our investors to better focus on the true value of what we believe is a premium electric utility business.

Let me now briefly update you on a topic, garnering a lot of attention in our industry interest rate risk.

First we have less than $200 million of floating rate debt.

Secondly, with respect to refinancing risk, we have no fixed rate debt maturities through 2026.

And in 2027 that maturity is only $125 million.

Accordingly, we believe we are positioned very well in our industry.

Shifting gears.

Similar to what other utility companies across the country are experiencing I wanted to provide an update on our fuel regulatory asset balance.

With fuel while fueling our recoveries are typically recovered in 12 months or less we have proposed longer recovery periods to help mitigate impacts to customers monthly bills.

In Arkansas, we implemented new fuel rates effective November one that will recover to 40 $40 million balance over 17 months.

In Oklahoma for the annual recovery balance as of August month end of $424 million, we have begun recovery based on a 24 month recovery period.

While I've provided you with a fair amount of financial information today, and I want to remind you that we will provide official 2023 EPS guidance during our fourth quarter call as well as an updated financing and capital investment plan, a refresh look at load and other key financial assumptions.

Let me wrap up by summarizing where we stand.

Our service territories in Oklahoma, and Western Arkansas continued to grow.

And we continue to plan for and make important infrastructure investments to support the growth of these communities backed by one of the strongest balance sheets in the industry.

As we approach 2023, we continue to have confidence in our ability to drive a long term <unk> EPS CAGR of 5% to 7%, which when coupled with our plans for a stable and growing dividend offers investors an attractive total return proposition.

With that we will open the lines for your questions.

Operator, we are ready for questions.

Daryl Ventura at Bank of America. Your line is open.

Please go ahead.

Hey, good morning, it's Julien here.

Thanks for taking the time for the questions and appreciate the update thank you Doug.

Hey, good morning, Hey, Bob Good morning.

And if I may just pivoting here too.

Fuel conversation I appreciate the remarks.

Can we just talk at the outset here about how you think about fuel procurement hedging strategies writ large I know theres been some conversation in the state how do you think about maybe looking in reevaluating our longer term opportunities there to avoid that.

You talked about longer term amortization can you be a little bit more specific on that and then related.

In earlier in the comments you talked about the solar RFP that was reissued in light of IRA how does the renewable opportunity here coincide with hedging and fuel practices in light of this.

Rapid uptick in the <unk> balance.

Yes.

Julian Thanks for the question. This is it's good it's good to hear from you again.

Thanks.

On the hedging discussion we've certainly.

Had that discussion and we have that discussion a lot with the commission about the hedging what we have done is we've taken on a much larger storage position. So we've got the physical supply.

That was really one of the.

Key factors coming out of winter storm urea was the physical supply of natural gas in that case so.

We're continually looking at we've changed some we've already changed some of our procurement practices already.

To see if we can better mitigate the impacts there. So the hedging discussion will be continuing discussion, we'll see where that plays out.

<unk>.

As I think about.

The Rfps, we have out there and you are correct I appreciate you mentioning that about.

The solar RFP, so we're going to get all of those back and we're going to look at all of those and see how they.

Fifth our need as you recall, we don't have a need.

All at once it's spread out over a number of years, but certainly to the extent that we have an opportunity to.

Reduced some of that fuel volatility that would be helpful.

That would be helpful to us I think the IRS provides some opportunity there in terms of credits that could be beneficial to our customers. But then again. We've also got to make sure that we have that reliability that we rely on and.

Yes.

My intent to own these assets has not changed.

I think if anything it's probably been.

More resolute in terms of that we must down these in it because one of the points, we recognized coming out of here and coming out of this summer's how does it was us.

We are good operators and we know how to run our plants and at the end of the day, we're accountable to making sure that.

Energy is flowing to all of our customers and we want to control that we want to make sure that were in charge of that and we don't want to rely on.

Others.

To support us so.

I hope that was helpful. There did I get your point stealing all your questions.

Yes, I think.

I'll leave it there and then if I can squeeze in one more question here I mean, the commentary on load growth.

I may add.

At 3% here for the year still.

And sticking with the exceeding 1% to 23.

I get the economies dynamic here, but maybe if you could add a little bit granularity here on exceeding 1% I mean, that's just an exceptional trend here year to date, we must be having conversations with some of your larger loads to be <unk>.

Zero in on some of that conversation I know you said you could provide more formal guidance here next quarter, but just perhaps.

Perhaps add a little bit of clarity that you have on where that may land here in the year ahead.

Yes, I don't know that we've got the crystal ball to see.

Where exactly it's going to land sitting here in November when we announced this in February , but I think Brian's remarks, and what we've seen.

There is a lot of activity and it's it's new development.

Expansion of existing facilities.

We see it we see the population growth coming we saw.

Certainly on the commercial side of new businesses.

I think the probably the hesitancy we have of anything is just kind of really pinpointing when that when next year, that's going to hit right.

We're very confident in.

Our development pipeline.

I was just in some discussions here in the city last week.

Some very exciting opportunities and so there is a lot of things going on there and so.

It's difficult to kind of pinpoint that sitting here today or whether something is going to come online in may versus November of next year, but I think your thesis is absolutely correct Julien it's growing.

It's it's it's a validation of what we've been really focused on for a number of years here in terms of really creating this economic engine in.

In our service territory.

Yes, it's pretty remarkable here versus many of your peers. So I just wanted to fall back. Thank you guys I appreciate it.

Julien lacks Julien take care.

Okay.

As a reminder to ask a question press Star one one star one one on your telephone.

Wait for your name to be announced.

And our next caller is Brandon Lee from Mizuho Brandon. Your line is open. Please go ahead.

Hey, good morning.

Sean and Bryan.

Good evening.

Good morning.

Okay.

And then you briefly mentioned data mining load how do you view that.

Load in your service territory.

<unk> load and is it dependent on.

Corn prices are kind of crypto prices.

Yes.

Thanks, Brandon for the question I'm going to let Brian tackle that one he's he's knee deep into this Bryan go ahead, Hey, Brandon good morning.

Yes, just add.

A little bit on Julians question as well.

<unk> residential we're seeing that.

Strong population growth that John mentioned.

I'll come back to commercial industrial and oilfield.

Reasonably good this year, but we've seen <unk>.

Several outages on those sectors that give us great confidence that that growth will bounce back some next year and in public authority growth has been really strong at inclusive school systems, and casinos and things like that in the state on the commercial front, it's a lot of different business types, but.

On a data mining topic in particular, that's been a nice.

Balance and oil growth here in the third quarter less so in the first half of the year.

The biggest customer we have there is an Oklahoma owned and managed company their warehouses are kind of your traditional brick and mortar.

The data mining equipment is house in there with state of the art cooling systems. So it is in Oklahoma Company.

We will have some other potential data mining companies that come in it may not be as is rooted into to stay as they are but.

The growth we've seen so far to date is more anchored in web perhaps you've seen in some other states.

But youre right.

To finish off your question Bitcoin pricing does matter that our economics.

We've been told is anywhere from eight to $10000, a bitcoin or above they're running and they're profitable. So that's just the indicator for you to watch but that is not what's given us our enthusiasm for 'twenty three.

I can add a 1% or higher growth rate next year it completely excluding incremental growth from data mining. So I just want to be clear on that point too.

Great. That's perfect. That's all I had thanks a lot.

Thank you.

Okay standby for our next caller.

Yes.

And next up is Greg oral at UBS, Greg. Your line is open. Please go ahead.

Yes, thanks for the question.

Sure.

I was wondering if you have a.

And after tax.

Number on the proceeds from energy transfer and any additional.

Okay.

Users.

Thanks, Brian .

Yeah, absolutely Hey, Greg good morning.

As you are modeling that we've given you the per unit price that we.

Settled.

Our transactions and exiting ETE and the slide deck.

Kind of a.

Just as a reminder, we had a negative tax basis on the E. T shares. So when you consider that the negative tax basis, plus just kind of your normal tax rate on the gross proceeds the effective tax rate played out to be kind of a net 40% to 45% area from a cash perspective, so hopefully that helps you with your modeling.

And so on proceeds we've of course.

Use that to.

Paydowns Mahoney short short term holding company debt and so we're in a good position on the balance sheet.

Okay sounds good thank you.

Standby for our next caller.

Okay. Mr. A DTI gondi is calling in from Wolfe Research. Mr. Gandhi. Please go ahead.

Thank you good morning, Shawn good morning, Brian .

Good morning.

Good morning, just first on the 5% to 7% growth rate I noticed that your sort of changed the way I would express this from an annual utility earnings growth rate too.

<unk> CAGR.

Does that.

Is there a utility earnings still.

Linear or should we now think of the shape is not being linear just wanted to make sure im not set of over eating into that.

Yes.

<unk>.

You shouldn't read anything in that at all.

Been pretty consistent that the growth rate is 5% to 7%.

And Thats what were working to achieve each year.

Yes got it.

100% agree with that so we had $1 81 base in 2021, you saw us hit the.

Dollars 92 midpoint in our guidance this year, which was 6% growth.

And you should expect us to be trying to achieve that 5% to 7% every year.

Throughout the future.

Got it thanks. Thank you.

I guess the second question I know Youll Wolfcamp formal 'twenty three guidance at Q4.

Yes.

Just sort of.

At the last full quarter.

Utility earnings.

Catch us Joe Shadow above.

Our current change should be should be assume you're sort of pulling forward. Some O&M from 'twenty three into 'twenty. Two are are taking any other steps to derisk 'twenty trail a little bit if you could just add some color on that.

Yes, I think it's fair to say, we're always moving things around and.

We've certainly had years in the past, where we haven't had the benefit of weather, but I think it's safe to say we.

We are intent on growing our business, but I would just caution you.

Don when we move things around we move things around for the long term, so very likely we could be pulling things in from 2024 other years to do them in 'twenty three as well so.

We're managing this business for long term and we're still laser focused on identifying through efficiencies and technologies the opportunities to reduce those some of those costs too so.

But I think your thesis is right, we're moving some things around.

That's helpful. Thank you.

One last question if I can squeeze it in.

Yes.

Just.

Intervenor testimony on so it looks like the.

No.

The show cause investigation and Oklahoma regarding your fuel cost came out a few days ago with most central venous recommending longer amortization periods men 24 years sorry.

Sorry, 24 months.

Are you thinking.

Abbas Abbas potential implications of that on your cash flow and just credit metrics, if you've had any conversations with the credit rating agencies again.

Understand that your balance sheets extremely strong.

Great Thats, all for which a desk numbers, but just how should we be thinking about that.

Yes, I think.

As you are.

Aware the hearings are scheduled for this afternoon I think at 130.

And I'm sure there's probably some interested parties listening on this cost so I don't want to say anything that maybe.

It may prejudice the outcome for sure, but I think it's safe to say, we expect to be treated fairly by the commission.

We are all very sensitive to the impact of customers and we expect this to get resolved pretty quickly.

Okay, great. Thank you so much alright. Thank you.

Okay. Our next caller is constant team led NAV from Guggenheim Constantine Your line is open. Please go ahead.

Hi, good morning, Sean and team.

Congrats on a great quarter.

Good morning, Thank you morning casting.

I think you have.

Very comprehensive remarks, and a lot of questions have been answered I just wanted to maybe follow up a little bit.

Youre thinking about the availability of the generation resources, playing a factor in the RFP process. There were some potential delays across the supply chain previously.

But curious how you see that playing out in our view.

Well, we haven't received the bids back on the solar RFP. So time will tell on that those are due in coming weeks.

But I think that is a very real.

Parameters that we've got to deal with because we have windows or slots, where we need generation.

To complete our portfolio and we've got to match that up with availability and I don't know how many times in our remarks, we've talked about affordability that matters to end and we also talked about reliability. So we've got to make sure that.

It touches all of those points, but cost teen I think availability.

As we saw earlier in the year was a bit of a problem.

We're hopeful that.

We're going to be able to.

Slots and things in and.

Get a better result for our company.

And maybe at a higher level on what kind of load in the connection of new business across our service area.

Just any detail that you can provide on any pullback or pull forward on any specific sector as you're kind of looking out in the future.

I didn't get pulled back or pull forward on.

The sector.

Your connection or business.

<unk> previously talked about a variety of different.

Kind of sub sectors contributing to that growth, we obviously talked about the crypto side of it but any other trends that you are seeing or.

Starting to plan for and 'twenty three.

No not not a particular sector and I think Brian mentioned, we are seeing it across the board in and we're seeing some.

Manufacturing.

<unk> facilities.

Up and so that creates in new homes, and new businesses new residential customers.

That also has a compounding benefit of new commercial establishments, whether it's a restaurant or a grocery store or something like that so.

Aye.

Hopefully.

<unk> heard from US we are bullish on the growth of our service territory.

Yes.

Maybe you don't look Youll love. This one of our team one of the new manufacturing facility as Sean mentioned that are that is opening up here late this year as Hubble and electronics.

Electric industry supplier so equipment.

Materials for our own industry, and we couldnt be more thrilled to have them just miles away from our own warehousing.

Given the supply chain dynamics in the country. So that was a really exciting one for us, but John's right it's across the board.

Yes, I'm very familiar with that one.

Maybe just a quick follow up in terms of oil and gas activity kind of web.

Cities, where they are are you seeing a bit more of a pickup in.

In that sector or kind of the supporting services.

Maybe slight.

Just in conversations with people there there is certainly more volume flowing but.

Yeah.

I am not sure Thats the driver either we're not we're not counting on that as is.

Is the real driver.

Okay.

Thanks for taking my questions and congrats again alright.

Thank you.

Okay.

At this time I would like to turn it back to Jason Bailey Director of Investor Relations at <unk> for closing remarks.

Hey, Thank you Eric and thank you everyone for your interest in <unk> and please have a safe day.

Very good that concludes our session you may disconnect.

The conference will begin.

<unk> T to raise your hand during Q&A you can dial star one one.

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Good morning, and thank you for standing by and welcome to the <unk> Energy Corp, third quarter 2022 conference 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 the session you will need to press Star one one Thats star one one on your telephone and then you'll hear an automated message confirming that your hand is raised please.

Please be advised that today's conference is being recorded and I will now hand, the conference over to your first Speaker, Jason Bailey Director of Investor Relations at GE go ahead, Jason.

Thank you, Eric and good morning, everyone and welcome to <unk> Energy Corp, 's third quarter 2022 earnings call with me today, I have Sean <unk>, our chairman, President and CEO and Brian Butler, our CFO .

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 <unk> Dot Com and.

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 state that we cannot guarantee forward looking financial results, but this is our best estimate to date.

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 today.

Before we get started I do want to reflect on the economic and inflationary pressures our customers and all of us are experiencing today.

I'll talk about the specific actions we are taking after we discuss the quarter's results.

Our solid performance in this quarter is due to exceptional execution by our team who work to keep energy flowing to the grid during a very hot summer with upwards of 2100 degree days across our service area.

Unlike other areas of the country. There were no cost Republic conservation to protect the grid. Our system is designed our system is built and it's operated for these conditions and I'm incredibly proud of our team for their work 24 hours a day to keep the lights on for our customers.

Want to take a moment to reflect on the and what has been a decade long effort to close this part of our business and move forward.

We've doubled down on business and economic growth in our service area and taken a measured approach to planning for the future to protect customers with equal focus on reliability and affordability.

We continue to accomplish what we said we will do setting us up to deliver strong results for our customers in the future.

Our grid reliability resiliency and security work continues including a multi year initiative to underground lines that run over Interstate major highlights.

This year, we will underground approximately 30 lines and by the end of 'twenty three we anticipate having buried more than 100 of those lines across our service area.

Underground in these lines, both improved reliability and safety for customers and emergency response vehicles during weather events.

We continue to upgrade existing substations and build new substations to support our growing service area, even amid supply chain constraints of equipment availability.

We continue to see results from outages eliminated or significantly reduced as a result of enhanced distribution circuits. These investments continued to pay off for our customers and improve our restoration process saving hundreds of thousands of minutes during outages.

As many of you are aware, we reissued the solar RFP given the favorable opportunities following inflation reduction Act.

As our service area continues to grow combined with the increased reserve margin requirements.

We will review the three active rfps for long term generation Holistically to ensure our path forward meets those requirements and delivers reliable generation for our customers and we will provide an update once we review the results from all of the RFP.

With fuel prices remaining at high levels, you're seeing concern for grid reliability in some regions of the country as we head into winter.

Our Weatherization program provides thousands of dollars of home upgrades at no additional cost to customers with household incomes at $60000 or below our silver energy offers our customers 60 years of age and older suite of options to lower their monthly bill and reduce their energy usage additional energy efficiency program.

Residential and commercial customers deliver thousands of megawatts savings and help reduce our future generation needs. Our billing programs average monthly billing guaranteed flat bill in Oklahoma Legalised billing in Arkansas give customers more predictable monthly bills and we have seen an increase in both of these programs this last quarter.

Our team is also focused on connecting customers to bill assistance.

This year alone <unk> customers have received $30 million and bill assistance to federal state local agencies as well as company sponsored programs.

We know today's macroeconomic environment creates challenges for our customers and we are committed to keeping their bills as low as possible affordable rates with debt outstanding service is a hallmark of who we are as we maintain our operational focus to deliver the life sustaining and life enhancing electricity our customers need.

Our load forecast for 2022 continues to keep pace with the outstanding growth, we experienced in 2021, and we expect growth of approximately 3% for the full year.

Our long term load forecast remained strong as our service area continues to grow.

Our business and economic development efforts continue to pay dividends through the first half of 'twenty two to 24, new projects secured announced by our economic and business development partnerships will help add nearly 3000, new jobs across the territory.

This growth is all across our service area from the expansion of the Coke fertilizer plant in Enid, Oklahoma to the expansion by code Compass storage in Mulberry, Arkansas.

We know the cost of electricity is a significant factor that companies consider when deciding expansion or relocation and we continue to offer highly competitive rates when compared to others.

We continue to work with communities and partners to advance innovation and technologies in Oklahoma and Arkansas.

For example, we worked with rural and low income school districts to apply for the EPA Clean School bus program is part of IAA JA and just last week, the EPA announced $18 million was awarded for these schools. We are delighted to support these districts as they bring electric school buses to the state.

I do want to close with a few important thoughts.

The economies across our service area are growing unemployment rates are better than the national average business and economic development is active in these communities are strong and continuing to grow stronger.

Our cruise just recently returned from Florida after supporting restoration efforts following hurricane in.

One letter of many that I received about our team and went to Florida stood out.

Gentlemen from Melbourne, Florida had been without power and when our crew arrive to his neighborhood, we watch their dedication and professionalism as they work together as a team both efficiently and effectively to get as electricity back on.

It's what our people do every single day, and it's what we expected him.

But to receive a letter from someone who is not our customer but saw their excellence firsthand brought home for me once again, how important our customer relationships are.

And building on that example to broaden recognition to all of our employees.

<unk> magazine recently named O G energy as the number two employer in the state of Oklahoma.

We're not the largest employer in the state, but our employees live in the communities, where they work and we're in it really tied to the fabric of the community and the state I'm.

I'm incredibly proud of every person here and their dedication to our customers and our purpose to energize life and I'm grateful to work alongside them every day.

Simply put.

All of this through the lens of affordability for our customers. We worked hard over the last few years to create this growth for our communities and we intend to keep it going so with that I'll turn the call over to Bryan Bryan.

Thank you Sean Thank you, Jason and good morning, everyone.

Starting with third quarter results on slide five we reported consolidated earnings of $1 31 per diluted share compared to $1 26 in the same period in 2021.

<unk> the electric utility contributed earnings of $1 26 per share in the third quarter compared to $1 12 in the same period in 2021.

The increase was primarily driven by higher sales volumes from strong load growth and warmer weather as well as increase recoveries of capital investments. These favorable drivers were partially offset by expected higher depreciation on a growing asset base as well as revised depreciation rates that became effective in July consistent with the Oklahoma General.

Rate review order from the Commission.

Our natural gas midstream segment contributed earnings of <unk> <unk> per share in the third quarter compared to earnings of <unk> 15 in the same period in 2021 the.

Other operations, including our holding company experienced a loss of <unk> <unk> per share compared to a loss of a penny in the same period in 2021.

The increase in net loss was primarily due to the partial reversal of an interim period consolidated tax benefit that was recorded in the first quarter of 2022.

Yes.

For full year 2022, we now expect earnings at the electric utility to be in the range of $2 eight to $2 12 per diluted share.

And holding company earnings to be a loss of approximately <unk> <unk> per share.

Our year to date weather normalized load growth remained strong at two 4% supported by the commercial public authority and oilfield classes.

Weather normalized residential volumes were below expectations with a decline of one 1%, which we believe was impacted by customer conservation to reduce usage any unusually hot weather.

Taking a closer look at the commercial class our service territories experiencing especially strong business growth.

For the third quarter weather normalized growth for the commercial class was 11, 6% higher than in 2021, driven by many industries, including including data mining agriculture and manufacturing.

For all customer groups, we are adjusting our full year <unk>.

Total weather normalized retail load growth forecast to be approximately 3%.

This outstanding 2022 growth drive ever increasing confidence that 2023 load will again exceed the 1% load growth, we've historically experienced even before consideration of potential upside from incremental load from data mining companies.

Moving to slide seven as Sean mentioned, we completed the exit of the remainder of the energy transfer units in the third quarter.

We are very pleased with our prudent measured sell down of shares during the year.

We no longer have an interest in midstream operations, which should allow our investors investors to better focus on the true value of what we believe is a premium electric utility business.

Let me now briefly update you on a topic, garnering a lot of attention in our industry interest rate risk.

First we have less than $200 million of floating rate debt.

<unk> with respect to refinancing risk, we have no fixed rate debt maturities through 2026 and in 2027 that maturity is only $125 million.

Accordingly, we believe we are positioned very well in our industry.

Shifting gears.

Similar to what other utility companies across the country are experiencing I wanted to provide an update on our fuel regulatory asset balance.

With fuel while fuel under recoveries are typically recovered in 12 months or less we have proposed longer recovery periods to help mitigate impacts to customers monthly bills and.

In Arkansas, we implemented new fuel rates effective November one that will recover to 40 $40 million balance over 17 months and.

In Oklahoma for the under recovery balance as of August month end of $424 million, we have begun recovery based on a 24 month recovery period.

Well I have provided you with a fair amount of financial information today, and I want to remind you that we will provide official 2023 EPS guidance during our fourth quarter call as well as an updated financing and capital investment plan, a refresh look at load and other key financial assumptions.

Let me wrap up by summarizing where we stand our service territories in Oklahoma and Western Arkansas continued to grow.

We continue to plan for and make important infrastructure investments to support the growth of these communities backed by one of the strongest balance sheets in the industry.

With that we will open the lines for your questions.

Daryl Ventura at Bank of America. Your line is open.

Please go ahead.

Hey, good morning, it's Julien.

Julien here.

Thanks for taking the time and the questions and appreciate the update thanks, Doug.

Hey, good morning.

So if I if I may just pivoting here too.

Fuel conversation I appreciate the remarks.

Can we just talk at the outset here about how you think about fuel procurement hedging strategies writ large I know theres been some conversation. This date, how do you think about maybe looking in reevaluating our longer term opportunities there to avoid that.

Can you talk about longer term amortization can you be a little bit more specific on that and then related.

Earlier in the comments you talked about the solar RFP that was reissued in light of IRI.

How does the renewable opportunity here coincide with hedging and fuel practices in light of this.

Rapid uptick in the <unk> balance.

Yeah.

Jonathan Thanks for the question. This is it's good it's good to hear from you again.

Thanks.

On the hedging discussion we've certainly.

Had that discussion and we have that discussion a lot with the commission about the hedging what we have done is we've taken on a much larger storage position. So we've got the physical supply.

That was really one of the.

Key factors coming out of winter storm Euro it was the physical supply of natural gas in that case so.

We're continually looking at we've changed some we've already changed some of our procurement practices already.

To see if we can better mitigate the impacts there. So the hedging discussion will be continuing discussion, we'll see where that plays out.

<unk>.

As I think about.

The Rfps, we have out there and you are correct I appreciate you mentioning that about.

The solar RFP, so we're going to get all those back and we're going to look at all of those and see how they.

Fifth our need as you recall, we don't have a need.

All of that want to spread out over a number of years, but certainly to the extent that we have an opportunity to.

We reduced some of that fuel volatility that would be helpful.

That would be helpful to us I think the IRR provide some opportunity there in terms of credits that could be beneficial to our customers. But then again. We've also got to make sure that we have that reliability that we rely on and.

Yes.

My intent to own these assets has not changed.

I think if anything it's probably been.

More resolute in terms of that we must own the easing it because one of the points, we recognized coming out of here and coming out of this summer as hot as it was.

We are good operators and we know how to run our plants and at the end of the day, we're accountable to making sure that.

Energy's flowing to all of our customers and we want to control that we want to make sure that we're in charge of that and we don't want to rely on.

Others.

To support us so.

I hope that was helpful. There.

But your point's dealing all your questions.

Yes, I think so.

I'll leave it there and then if I can squeeze in one more question here I mean, the commentary on load growth.

Okay.

At 3% here for the year still.

And sticking with the exceeding 1% in the 'twenty three again I get the economies dynamic here, but maybe if you could add a little bit granularity here on <unk>.

<unk>, 1% I mean, that's just an exceptional trend here year to date, we must be having conversations with some of your larger loads to be zeroing in on some of that conversation. I know you said you could provide more formal guidance here next quarter, but just perhaps add a little bit of clarity that you have on where that may land here in the year ahead.

Yes, I don't know that we've got the crystal ball to see.

Where exactly it's going to land sitting here in November when we announced this in February , but I think Brian's remarks, and what we've seen.

There is a lot of activity and it's it's new development, it's expansion of existing facilities.

We see it we see the population growth coming we.

We see certainly on the commercial side of new businesses.

<unk>.

I think the probably the hesitancy we have of anything is just kind of really pinpointing when that when next year, that's going to hit right.

We're very confident in the <unk>.

<unk> pipeline.

I was just in some discussions here in the city last week.

Some very exciting opportunities and so there is a lot of things going on there and so.

It's it's a validation of what we've been really focused on for a number of years here in terms of really creating this economic engine.

Our service territory.

Yes, it's pretty remarkable here versus many of your peers. So I just wanted to follow up back. Thank you guys I appreciate it.

Julien Thanks, Julien take care.

Okay.

As a reminder to ask a question press star one one.

<unk> one on your telephone.

And wait for your name to be announced.

And our next caller is Brandon Lee from Mizuho Brandon. Your line is open. Please go ahead.

Hey, good morning.

John and Bryan just a quick one.

Good morning.

And then you briefly mentioned data mining load how do you view that.

Load in your service territory and the transient load and is it dependent on go ahead.

Corn prices are.

<unk> prices.

Yeah.

Thanks, Brandon for quest Nonetheless.

Brian tackle that one he's he's knee deep into this Bryan go ahead, Hey, Brandon good morning.

Just add a little bit on Julians question as well.

Residential we're seeing at <unk>.

Strong population growth that John mentioned.

I'll come back to commercial industrial and oilfield.

Reasonably good this year, but we've seen.

Several outages on those sectors that give us great confidence that that growth will bounce back some next year and in public authority growth has been really strong.

School systems, and casinos and things like that and to stay on the commercial front, it's a lot of different business types, but.

On the data mining.

<unk> in particular, that's been a nice.

Bounce in oil growth here in the third quarter less so in the first half of the year.

The biggest customers we have there is an Oklahoma owned and managed company.

Their warehouses are kind of your traditional brick and mortar.

The data mining equipment is house in there with state of the art cooling systems. So it is in Oklahoma Company.

We will have some other potential data mining companies that come in it may not be as is rooted into to stay as they are but.

The growth we've seen so far to date is more anchored in wet perhaps you've seen in some other states.

But you're right.

Finish off your question you know bitcoin pricing does matter that our economics.

We've been told is anywhere from eight to $10000, a bitcoin or above they're running and they are profitable. So that's just the indicator for you to watch but that is not what's given us our enthusiasm for 'twenty three we're looking at a 1% or higher growth rate next year it completely excluding incremental.

<unk> growth from data mining so I just wanted to be clear on that point too.

Great. That's perfect. That's all I had thanks a lot.

Thank you.

Okay standby for our next caller.

And next up is Greg oral at UBS, Greg. Your line is open. Please go ahead.

Yes, thanks for the question.

I was wondering if you have a.

And after tax.

Number on the proceeds from energy transfer and any additional.

Okay.

Users.

Thanks, Brian .

Yeah, absolutely Hey, Greg good morning.

As you are modeling that we've given you the per unit price that we.

Settled.

Our transactions and exiting ETE and the slide deck.

Kind of a.

Just as a reminder, we had a negative tax basis on the E. T shares. So when you consider that the negative tax basis, plus just kind of your normal tax rate on the gross proceeds the effective tax rate played out to be kind of net 40% to 45% area from a cash perspective, so hopefully that helps you with your modeling.

And so on proceeds.

Of course, yeah.

Use that to.

To Paydown some of holding short short term holding company debt and so we're in a good position on the balance sheet.

Okay sounds good thank you.

Standby for our next caller.

Okay. Mr. A DTI gondi is calling in from Wolfe Research. Mr. Gandhi. Please go ahead.

Thank you good morning, Shawn good morning, Brian .

Hey, good morning.

Good morning, just first on the 5% to 7% growth rate.

Just sort.

<unk> changed the way you would express this from an odd Neal utility earnings growth rate to do a CAGR.

Got it.

Is there a utility earnings growth still.

Totally linear or should we now think of the shape is not being linear just wanted to make sure I'm not reading into that.

Yes.

You shouldn't read anything in that at all.

We've been pretty consistent that the growth rate is 5% to 7% and.

And Thats what were working to achieve each year.

Yes got it.

100% agree with that so we had $1 81 base in 2021, he saw us hit that.

$1 92 midpoint in our guidance this year, which was 6% growth.

And you should expect us to be trying to achieve that 5% to 7% every year.

Throughout the future.

Got it thank you.

I guess the second question I know Youll Wolfcamp formal 'twenty three guidance at Q4.

Got it.

Just sort of.

At the last full quarters.

<unk> done that.

Catch us to shadow above.

Your current range should be should be assume you're sort of pulling forward. Some O&M from 'twenty three into 'twenty. Two are are taking any other steps to derisk 23, a little bit if you could just add some color on that.

Yes, I think it's fair to say, we're always moving things around and.

We've certainly had years in the past, where we haven't had the benefit of weather, but I think it's safe to say we.

We are intent on growing our business, but I would just caution you.

Don when we move things around we move things around for the long term, so very likely we could be pulling things in from 2024 other years to do them in 'twenty three as well so.

We're managing this business for long term and we're still laser focused on identifying through efficiencies and technologies the opportunities to reduce some of those costs too so.

But I think your thesis is right, we're moving some things around.

That's helpful. Thank you.

One last question if I can squeeze it in.

Yes.

Just.

Intervenor testimony on so it looks like the.

No.

The show cause investigation and Oklahoma regarding your fuel cost came out a few days ago with most central venous recommending longer amortization periods than 24 years sorry.

Sorry, 24 months, just how are you thinking.

About about potential implications of that on your cash flow and just credit metrics, if you've had any conversations with the credit rating agencies again.

Understand that your balance sheets extremely strong.

Great. That's all I would just ask numbers, but just how should we be thinking about that.

Yes, I think.

As you are.

Aware the hearings are scheduled for this afternoon I think at $1 30.

And I'm sure there's probably some interested parties listening on this cost so I don't want to say anything that.

It may prejudice the outcome for sure, but I think it's safe to say, we expect to be treated fairly by the commission.

We are all very sensitive to the impact of customers and we expect this to get resolved pretty quickly.

Okay, great. Thank you so much alright. Thank you.

Okay. Our next caller is constant team led NAV from Guggenheim Constantine Your line is open. Please go ahead.

Hi, good morning, Sean and team.

Congrats on a great quarter.

Hey, good morning, Thank you morning casting.

I think you have.

Very comprehensive remarks, and a lot of questions have been answered I just wanted to maybe follow up a little bit.

Youre thinking about the availability of the generation resources, playing a factor in the RFP process. There were some potential delays across the supply chain previously.

But curious how you see that playing out in our view.

Well, we haven't received the bids back on the solar RFP. So time will tell on that those are due in coming weeks.

But I think that is a very real.

Parameters that we've got to deal with because we have windows or slots, where we need generation.

It touches all of those points, but cost teen I think availability.

As we saw earlier in the year was a bit of a problem.

We're hopeful that.

We're going to be able to.

Slots and things in and.

Get a better result for our company.

Thanks, Sean and maybe at a higher level on what kind of load in the connection of new business across our service area.

Just any detail that you can provide on any pullback or pull forward on any specific sector as you're kind of looking out in the future.

I didn't get pulled back or pull forward on.

The sector.

The connection or business.

Previously you talked about a variety of different.

Kind of sub sectors contributing to that growth.

You talked about the crypto side of it but any other trends that you are seeing or starting to plan for and 'twenty three.

No not not a particular sector and I think Brian mentioned, we are seeing it across the board in and we're seeing some.

Manufacturing.

Facilities.

<unk> up and so that creates in new homes, and new businesses, new residential customers and then that also has a compounding benefit of new commercial establishments, whether it's a restaurant or a grocery store or something like that so.

Hopefully.

Heard from US we are bullish on the growth of our service territory.

Yes.

Yes, maybe I'll look Youll love this one of our.

One of the new manufacturing facility as Sean mentioned that are that is opening up here late this year as Hubble and electronics.

Electric industry supplier so equipment.

Materials for our own industry, and we couldn't be more thrilled to have them just miles away from our own warehousing.

The supply chain dynamics in the country. So that was a really exciting one for us, but John's right it's across the board.

Yes, I'm very familiar with that one.

Maybe just a quick follow up in terms of oil and gas activity kind of web commodities, where they are are you seeing a bit more of a pickup in.

And that factor or kind of the supporting services.

Maybe slight.

Just in conversations with people there they are certainly more volume flowing but.

Okay.

I am not sure Thats the driver either we're not we're not counting on that as.

Is the real driver.

Thanks for taking the questions and congrats again alright.

Thank you.

Okay.

At this time I would like to turn it back to Jason Bailey Director of Investor Relations at <unk> for closing remarks.

Hey, Thank you Eric and thank you everyone for your interest in <unk> and please have a safe day.

Very good that concludes our session you may disconnect.

Q3 2022 OGE Energy Corp Earnings Call

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