Q4 2022 OGE Energy Corp Earnings Call

February 23, 2023

The conference will begin shortly to raising Malawi Johan during Q&A, you can dial star one one.

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Yeah.

Got it.

And thank you for standing by and welcome to the Q4 2022 O G Energy Corp earnings 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 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 to withdraw your question Press Star one again.

Please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to your Speaker today, Jason Bailey Director of Investor Relations. Please go ahead.

Thank you Rebecca and good morning, everyone and welcome to <unk> Energy Corp, 's fourth 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 results 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 GE 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 states 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 being with US. This morning before we get started on our financial results I want to take some time to highlight our team who safely delivers reliable resilient and secure energy at low rates to our customers every day.

Once again in 2022, our team delivered results for our customers our communities and our shareholders, even as continued economic and inflationary pressure impacted all of us.

Our confidence in our team and the company to deliver a great future for all of our stakeholders.

We're pleased with the financial plan that we are presenting to you. This morning and proud to extend our long term earnings guidance another year into 2027 without the need for any additional equity.

Let me be clear the plan, we've put together for 2023 is exactly in line with the commitment we made to you to consistently deliver 5% to 7% earnings per share growth at the electric company based off 2020 one's original midpoint.

Brian will discuss more in a moment, but my message to you is this we've certainly got this and our sustainable business model provides numerous opportunities from driving load growth to grid investments in generation for many years to come we are mindful of ensuring a smooth customer impact and delivering consistent growth.

Turning to 2020 twos financial results. This morning, we reported consolidated earnings of $3 32 per share for the year, including $2 19 per share for Oh, Jamie a holding company loss of <unk> <unk> per share.

And earnings from natural gas midstream operations of $1 16.

Now this will be the last time, we report results from natural gas midstream operations as we have fully exited that business. We are pleased with how that investment has helped transform our company over.

Over the years, we've utilized cash from the midstream segment to reinvest in our core business and in fact, the utility earnings today are larger than the entire company's earnings were just seven years ago.

Today I want to talk to you about four key aspects of our work to drive our results safety reliability resilience and affordability.

Our solid performance. This year is due to exceptional execution by our team to continually focus on safety and kept the energy flowing through the grid during a very hot summer.

Certainly proud of the superior safety performance, while maintaining rates that are 13% below the regional and 21% below the national average.

We've done our part two I am pleased to report our O&M per customer was 4% lower in 'twenty two than just three years ago.

There's been a lot of industry discussion about winter storm Elliott in December .

Fleet ramp and our customers experienced no impact thanks to the weather hardening and preparation we undertake.

Again, I am very proud of our team's work everyday, particularly during the weather extremes, we experience here in Oklahoma and Arkansas.

We continue our grid and whether hardening investments that deliver great results for customers our grid enhancement investments benefited nearly 150000 customers in 2022 and from a safety perspective over 20 automated restoration saved our customers more than 4 million customer minutes of interruptions.

We built seven new Substations upgraded another nine added 65 miles of transmission line all to better serve our customers.

This foundation powers, our growing communities and economic development engine that has delivered 81 new projects in our service area that are projected to create more than 10000 jobs and garner $4 2 billion an additional investment.

This type of growth is not by accident.

We set the stage for these results five years ago, when we said investing in our communities with pay dividends for all stakeholders customers and shareholders alike. Our communities maintained strong unemployment rates and continue to attract expanding and new businesses that are low rates helped secure.

Our load forecast for 2023 continues to keep pace with the outstanding growth we've experienced over the last two years and our long term load forecast remains strong as our service area continues to grow.

Today's macroeconomic environment continues to create pressure on our customers and we remain committed to affordability and keeping bills low we've doubled down on connecting customers to programs and services to help them manage their energy use.

Enrolling a 100000 customers and new to them programs in 2022, let me just highlight a few our energy efficiency programs delivered 238000 megawatt hours of savings in 2022 alone Weatherized, another 3000 homes and our team connected <unk> customers to $41 $5 million and below.

Systems, two federal state and local agencies as well as our own company sponsored programs. We're excited about the future and advancing innovation in Oklahoma, and Arkansas and recently the department of energy encouraged the Halo hydrogen hub, a three state partnership to build hydrogen infrastructure in the U S of which <unk> is a <unk>.

Hey, Colby.

To apply for funding through the investment in infrastructure and jobs Act. Additionally, <unk> is competing for two Doe grants as part of the Iga for good news aliens and smart grid.

After assessing our initial submissions Doa encouraged us to submit full applications or.

Our investment plan gives us confidence in our ability to grow electric company earnings per share at a consistent rate of 5% to 7% the.

The investment opportunities are outlined earlier will serve to extend that level of consistent growth with a dedicated focus on reliability and affordability for our customers.

We will release, our inaugural corporate stewardship report next week, which highlights how we live our values.

Leafs and center of our decisions on customer impact support communities steward of the environment and develop our employees to meet the energy needs of the future. We are excited about our story and how this report helps us tell it.

I do want to close with a few important thoughts we've accomplished a great deal over the last five years, particularly how nearly $4 billion in capital investments have produced significant results in reliability and resiliency with a $99 96.

6% system uptime.

Technology has improved both operations and security.

These achievements are underpinned by a continuous focus on safety and keeping affordability front and center for our customers with rates well below the regional and national averages.

We are committed to growth for our communities to serve our customers and to financial growth for our shareholders and employees.

All of these pieces are really coming together, we built the economic development engine, that's really driving this load growth.

We've built one of the strongest balance sheets to fund this growth and we've simplified our business by exit exiting the natural gas midstream business, which all of which support our 5% to 7% growth level or.

Our team and our bias is the best in the business focused on safety, taking care of each other and our communities and delivering results for all stakeholders I'm proud of each of them and the results they deliver with that I'll turn it over to you Brian .

Thank you Sean Thank you, Jason and good morning, everyone, let's start on slide seven and discuss full year 2022 results on a consolidated basis net income was $666 million or $3 32 per diluted share compared to $737 million or $3 68 per <unk>.

Share in 2021.

Electric company achieved net income of $440 million or $2 19 per diluted share compared to $360 million or $1 80 per share in 2021.

The increase in electric company net income in 2022 was primarily due to increased recoveries of capital investments as well as higher sales volumes, primarily driven by strong economic growth and a 26% increase in cooling degree days.

These favorable drivers were partially offset by expected higher O&M and increased depreciation on a growing asset base.

With respect to our natural gas midstream operations segment, we reported net income of $231 million or $1 16 per diluted share compared to net income of $385 million or $1 92 per share in 2021.

The decrease in net income was primarily due to the prior year's gain on the enable merger transaction in 2021 and the subsequent elimination of equity in earnings of enable partially offset by gains on the sale of energy transfer equity securities in 2022.

As we discussed during the third quarter earnings call. We have completed the exit of the natural gas midstream segment, simplifying our story and enabling our investors to have a more clear line of sight into our core business the regulated electric company.

Other operations, including our holding company reported a loss of $5 million or <unk> <unk> per diluted share compared to a loss of $8 million or <unk> per share in 2021.

The decrease in net loss was primarily due to higher other income partially offset by an increase in interest expense.

Please see the appendix for details on fourth quarter 2022.

Turning to our 2022 customer growth and load results on slide eight our customers continued to increase at a robust rate of one 1% or.

Our weather normalized retail load growth in 2022 was very strong at three 1% coming on the hills of a two 4% increase in 2021.

<unk> back to back expansion of load is remarkable and indicative of economic strength in Oklahoma and Arkansas.

The biggest driver of load growth is coming from the business sector with a variety of companies contributing including those in data mining agriculture and manufacturing in 2022, the commercial class load was 12, 2% above 2021 levels.

Sean often speaks to the pent up demand in Oklahoma that was set to take off going into 2020 and that is playing out as commercial sector load is now 15% above 2019 as pre pandemic levels.

Our 2022 load results provide evidence that our sustainable business model works, where we grow our communities with revival resilient and affordable service enhanced by a focus on economic and business development.

Turning to 2020 'twenty turning to 2023 as shown on slide nine we forecast total retail weather normalized load growth to be between four 5% above 2022.

Even if we were to take a very conservative approach and assume the load from data mining customers at the end of 2022, just stayed flat throughout 2000 2023 with no additional growth and total retail load growth would be between two five to three 5%.

In other words, the fundamentals of our customer base are strong and expected to expand across the board.

Turning to slide 10.

In 2023 at the regulated electric company, we expect earnings of $1 99 to 209 per share with a midpoint of $2 <unk> per share.

<unk> earnings guidance midpoint is consistent with the commitment we've made and represents a compound annual growth rate of six 2% for the midpoint of our 2021 guidance of $1 81. The drivers of expected EPS growth in 2023 are very similar to the drivers we executed upon in 2022.

Reflecting the predictable growth you expect from our company.

Furthermore, we are extending our utility 5% to 7% annual EPS growth forecast through 2027%, reflecting our confidence in the long term financial prospects of the company.

On a consolidated basis in 2023, we are forecasting EPS of $1 93 to 207 with the midpoint of $2 per share, which includes the holding company loss of approximately <unk> <unk> per share.

Thus over the period of 'twenty, one through 2023 on a combined utility and Holdco basis. This would be an approximate 6% compound annual growth rate.

Let's turn to financing considerations on slide 11, as you know one of our company's core strengths as the balance sheet.

This is illustrated by our forecast that includes no need to issue equity under our current five year $4 $75 billion investment plan, which has now been roll forward, an additional year through 2027, we.

We forecast <unk> to debt metrics of approximately 17, 5% to 18% throughout this five year period supportive of our current credit ratings at S&P Fitch and Moody's.

As Sean mentioned, there are ample emerging investment needs and we look forward to addressing these capital projects in a manner that balances affordability, while sustaining our strong credit metrics and lengthening the earnings growth prospects of the company.

With respect to to 2023 capital forecast, we plan to issue up to an additional $400 million of long term debt at <unk> in the second quarter of 2023 to fund our customer centric investments.

To wrap up on the slide here a couple of additional updates first we are making progress on our fuel under recovery balance, which was $515 million at the end of 2022.

As of year end in Oklahoma, we have $474 million remaining to be recovered over 21 months.

We submitted a new fuel factors in December and those were implemented in January .

In Arkansas as of year end, we have $41 million remaining to be recovered over 15 months.

Lastly, we are well positioned with respect to interest rate risk. For example, we have low levels of floating rate debt and no fixed rate debt maturities through 2026, excluding <unk> related debt that matures in may.

Before I turn the call back over to Sean Let me summarize where we stand our employees have built a strong foundation for this company and they delivered outstanding results again in 2022.

Looking forward, we have put together an operational and financial plan for 2023 through 2027 intended to deliver great value to our customers.

Drive economic development in our communities and meet our commitments to our shareholders. We expect strong earnings per share growth of 6% in 2023 over our 2022 utility guidance midpoint.

And lastly, our 5% to 7% long term earnings per share growth rate at utility coupled with a stable and growing dividend offers our investors an attractive total return proposition with that we will open the line for your questions.

Okay.

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 on your telephone and wait for your name to be announced with.

To withdraw your question Press Star one again, please standby, while we compile the Q&A roster.

Our first question comes from the line of Paul Zimbardo of Bank of America. Your line is now open.

Hey, good morning, Dan.

Hey, good morning, Paul.

Hey, nice to see the update.

First question was could you. Please walk through some of the changes in the Capex plan just within the categories I noticed other moved up in the near term transmission moderate a little bit in the later period that plan. If you could just walk through some of those changes that would be helpful. Yes, Brian .

Brian do you want to tackle that one sure good morning, Paul.

Paul we do have a.

ERP system, we are implementing in 'twenty three 'twenty four.

That was part of our regulatory filing in the last rate case, where we are.

We're granted a deferral treatment on the O&M related to that project. So that's what you see any other category. So a lot of our it projects falling there.

As those investments are completed at the end of 2024.

You can see that we.

We then.

Turning back to the transmission and distribution investment plan for some of those critical projects.

We're looking at that kind of steady $950 million investment plan.

Per year over the five year period, and John mentioned some of the other investment opportunities that we have coming as well.

Okay. That's helpful. Thank you.

Another I know you talked a lot about the data mining load in conservative keeping it basically flat from December 2022.

I know that the margin profile there can be a little dynamics of could you help unpack like what the sensitivity is on that or even just what the contribution was in 2022 in terms of earnings.

Yes sure.

I'll take that one as well.

In 2022, just to give you a feel for the total.

The impact of the data mining load, it's it's a little under a 5% of our of our margins in.

In 2022.

And Youre right. Its a customer class that has a much lower margin profile. They do have load reduction requirements, where we're able to take the road down on peak.

Peak days of load and so they have a discounted or bill for that.

And some of the newer projects also received some economic incentives. So that has lower margin. We tried to give you a feel for the potential impact of the crypto load on our 2023 load forecast.

You can see even without that load, we're still expecting overall growth to be at least two five to three 5%.

So really strong.

Load and that incremental to taken a $4 five.

Sorry, 4% to 5% rather has a very.

Minor impact to our to our EPS in 2023.

Okay great.

Great that's helpful.

And then last quick if I can just I know very strong weather in 2022.

Then you talked about expected O&M increases just the normal factors for 2022 did you use any of that favorability to pull forward some spending into 2022, perhaps out of 2023.

Yes, sure I mean, just a normal course of managing the business, we pulled some stuff in early.

<unk>.

Took care of that late in the year.

Okay excellent. Thank you all very much hi, thanks, Bob.

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

Please standby for our next question.

Okay.

Our next question comes from the line of <unk> Gandhi of Wolfe Research. Your line is now open.

Hi, Good morning, Sean Brian and Jason can you can you hear me, yes, we can good morning.

Good morning.

You reaffirmed your 5% to 7% utility EPS growth target through 2027.

Midstream now gone how should we think about consolidated earnings forecast.

I guess more specifically what I'm asking is how should we think about the parent drug.

2023 could you give any color on how much burn that needs to be raised in the outcomes.

Yes so.

We'll take this maybe in two parts.

I will address the consolidated and then maybe Brian you can tackle the.

The holding company. So we wanted to be very clear.

One of the messages, we heard a lot and it wasn't about our company, but we heard a lot.

Out on the road.

That's a lot of discussion around re basing in changing growth rates and changing start points and all of that we want to be very clear that.

We are maintaining the same starting point and we actually rolled forward the growth rate an additional year and on top of that we said, we do not require any equity and so I just I wanted to make sure that there was absolutely no confusion around that and I hope it's coming through that we are very bullish on.

On the growth prospects that we have here and absolutely confident in our ability to execute on those so that was going on there.

Hi.

My belief or my expectation is I do believe we will consolidate all of this and provide us consolidated growth rate at some point, but I want to be very clear.

With regards to the utility business and the growth <unk>.

Prospects, we have there so with that Brian maybe talk what's going on at the holding company yeah, absolutely. So maybe just to help you model of data.

So we've given you the utility guidance this year and for the five year plan.

Our holding company numbers in the area of <unk> is expected drag here in 2023.

As Sean mentioned, we really are bullish on the utility going forward, you've seen us deliver a little bit above the 6% growth rate mid point for the last couple of years and have great optimism going forward for.

We're holding company you should expect the debt levels to to grow.

In 2020 for 2025 as the utility invest reinvest in its business. So think of the <unk>. This year, maybe that goes up roughly in the neighborhood of <unk> next year, so that kind of nine set area in 2024.

We'll firm all of this up.

Over time, as Sean mentioned give ya.

Unsolved added CAGR at a future date, but hopefully that's enough for you to model for now and.

And again really strong optimism at the utility level with some of this level of holding company drag.

Got it that's helpful. Thank you.

Just wanted to confirm one Brian did you say it goes up five another 524 or so so it looks like the <unk> drag in 2024 is that what you said, yes.

Yes, that's a really rough early estimate, but that's that's what's going to get you're going for your modeling.

Okay got it and just.

One last question on the.

I have one more question, but just a follow up one last question on the Paris seven Dragon 23.

Is that is that the causes higher interest rates I don't believe you have much better than that.

<unk>.

Exactly is that coming from.

Yes, So you should think of our holding company data being in the neighborhood of $300 million as the dust settles here at the end of 2023.

And kind of growing roughly net area each year thereafter.

And you're right interest rates are a lot higher than what we were thinking they would be a year ago.

<unk>.

Thank you.

How.

The holding company with price on the interest rate front, but if you need some additional help modeling that.

Jason can help you after the call.

Okay got it Super helpful. Thank you.

Last question could you maybe give us a quick update on the kind of the dataset.

States that have come into our Rfps and maybe just some color on the approval filing that you will make.

When exactly will we get a sense of the investment opportunity and when will that be baked into your capex plan.

I'm smiling here because.

Think we're all.

Interested in.

Closing the book on this one for sure. So just remember we have three different rfps in each one of them.

We are following to the T. All of the commission rules and procedures and timelines and notifications and all of that we've completed all of that we are negotiating the agreements right now and so once we conclude the negotiations of the agreement we will file with the commission for approval.

I expect that to be very.

Shortly but we're negotiating those when we file that we will submit that in both states once we get the approval.

We will layer that in.

Two our plans going forward.

And.

We'll see how that plays out but.

We are in the middle of negotiating those agreements and.

The amount and the timing.

Negotiable items and so we're working through that right now.

Does that help super helpful.

Okay Super helpful. Thank you so much have a good day.

Please standby for our next question.

Our next question comes from the line of Brandon Lee of Mizuho. Your line is now open.

As Shawn Hey, Brian Hey, Jason.

Good morning granted.

Good morning, just a quick question for me.

So in your 5% to 7% target.

Targeted utility EPS growth rate.

I guess is there a bias towards the midpoint to upper end or the lower end and I guess, what gets you to the high end and the low end.

As you go move on through the years.

Yeah, Brian This is Sean.

I don't think we have a particular bias.

We're just we have a commitment to hit it and.

I think obviously from year to year.

<unk>.

If we see some surprises there in terms of load growth little higher it could be higher weather certainly plays a role in that but.

I kind of envision this that we're committed to hitting the number.

And probably the variable you should be thinking about is more around weather.

Okay, Great all my other questions. Thanks.

Thanks for that.

Thanks, Brent have a good day.

Thank you.

I'd like to turn the call back over to Sean trustee for closing remarks.

Thank you Rebecca well. Thank you all for your interest in <unk> Energy Corp. I appreciate your engagement and <unk>.

Please have a great day, and we are John .

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

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Q4 2022 OGE Energy Corp Earnings Call

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