Q3 2024 OGE Energy Corp Earnings Call
Welcome to the OGE Energy Corp Q3 20204 earnings conference call. At this time, all participants are in a listen only mode. After the senior presentation, there will be a question and session to ask a question during the session you will need.
and Telephone.
You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jason Bailey, Director of Investor Relations. Please go ahead.
Jason Bailey: Thank you, Corinne, and good morning, everyone, and welcome to our call. With me today, I have Sean Trauschke, our Chairman, President, and CEO, and Chuck Walworth, Interim CFO.
In terms of the call today, we will first hear from Sean, followed by an explanation from Chuck of financial results, and finally, as always, we will answer your questions.
Jason Bailey: I'd like to remind you that this conference is being webcast and you may follow along at oge.com. In addition, the conference call and accompanying slides will be archived following the call on that same website.
Jason Bailey: 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 a financial statement and simply states that we cannot guarantee forward-looking financial results, but this is our best estimate to date.
Speaker Change: 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. It's certainly great to be with you.
Sean Trauschke: Today I'll address our financial results, as well as provide you an update on year-end guidance, regulatory items, and load growth.
Speaker Change: Before we get into the details of the quarter, I'd like to reflect on the most recent storms, including six confirmed and perhaps as many as 12 tornadoes that impacted tens of thousands of people in Oklahoma and western Arkansas over the last two days.
Speaker Change: Fortunately, no lives were lost, but many are left without homes, they're dealing with damaged property, and have countless hours ahead of them to recover.
Speaker Change: I'm incredibly proud of our team's response. Within 24 hours, 86% of the impacted customers were restored, and more than 90% of essential services were back up and running.
Speaker Change: One thing you may not have considered, our team has worked alongside state and county election officials to ensure all polling places are energized today for our citizens to vote.
Jason Bailey: Our reliability investments, automated technology, and continuous improvement efforts are reducing outages before they happen and driving down outage time when they do.
Jason Bailey: Now, turning to our financial results, earlier this morning we reported third quarter consolidated earnings of $1.09 per share, including an electric company earnings of $1.12 per share and a holding company loss of three cents.
Jason Bailey: Our solid performance this quarter is due to robust demand for energy across all sectors and continued customer growth outpacing historical norms combined with outstanding operational excellence and increased digital self-service technologies delivered by our team.
Jason Bailey: As we noted last quarter, we are operating ahead of plan this year and now expect to be at the top of our original earnings guidance of $2.06 to $2.18 per share. Chuck will share more about that in just a bit.
Jason Bailey: On the regulatory front, we anticipate an order in our Oklahoma rate review by the end of the year.
Jason Bailey: Additionally, we've reached an uncontested settlement with stakeholders on our five-year energy efficiency portfolio, which includes demand response.
Jason Bailey: and we expect that order by the end of the year. As we meet our growing capacity needs for the future, energy efficiency and demand response will play a critical role in reducing overall capacity requirements.
Jason Bailey: As our team continues to work through the generation capacity RFPs, we plan to file for approval in the first half of 2025.
Jason Bailey: Together with our system reliability investments, we will continue to invest in generation capacity through the IRP-RFP process and transmission capacity through the SPPs process.
Jason Bailey: And we continue to expect constructive regulatory outcomes in both states.
Jason Bailey: Demand growth remains strong with our forecast for the year now at the top of the revised range of four to six percent that we gave you in the second quarter.
Jason Bailey: We are experiencing growth across all customer classes, led by commercial, followed by extraordinarily strong residential growth.
Jason Bailey: We know our low rates drive broad-based business expansion, creating that future demand. Some of the most recent expansions announced include defense, manufacturing, and continued electrification across a number of sectors.
Jason Bailey: We've been working on a project to solidify our supply chain and drive local business expansion that I look forward to sharing with you in the near future.
Jason Bailey: We're working on a handful of data center projects, including a franchise election today in one community for OG&E to serve a new data center in the state.
Jason Bailey: The economic picture in Oklahoma and Arkansas remains bright, with unemployment rates well below the national average.
Jason Bailey: In addition to top-line growth, we continue to manage our costs, delivering some of the best O&M per megawatt hour costs in the industry.
Jason Bailey: Our relentless focus on affordability results in increased self-service digital tools for our customers to do business with us 24-7.
Jason Bailey: Before I close, I'd like to recognize two milestone anniversaries our company celebrated last month, centennials for two of our power generation sites, Muskogee and Horseshoe Lake. A century ago, these plants began generating power for communities that were just beginning to electrify.
Jason Bailey: While the original units are long since retired, today we serve an increased demand for the electricity to power homes, businesses, transportation, workplaces, and lives that could not be imagined back then.
Jason Bailey: And that demand has not subsided, it's only growing, and we've continued to invest in generation at these sites over the years, and just broke ground on Horseshoe Lake for units 11 and 12, another 450 megawatts of hydrogen-capable natural gas units.
Jason Bailey: Investing in existing sites helps keep costs low for our customers as we serve growing demand and a growing customer base.
Jason Bailey: These investments also drive the local economy, with the expected economic impact of $536 million for the Horseshoe Lake investment.
Jason Bailey: Recently, 110 of our employees returned from Florida, and before that another similar-sized group returned from Georgia, where they helped rebuild after Hurricanes Milton and Helene knocked out power to millions of folks across the Southeast.
Jason Bailey: Mutual assistance is one of the most incredible aspects of our industry and I'm so proud of our purpose-driven team who readily volunteer to spend weeks away from family to help others.
Jason Bailey: We're also happy to go because we have our share of extreme weather, as I just mentioned a few minutes ago.
Jason Bailey: As I close my remarks, I want to leave you with a couple of thoughts on this election day.
Jason Bailey: As Americans, we hold the incredible right and responsibility to elect leaders at the local, state, and national level. I hope your voting plans are set for today, if you haven't already voted, and we encourage our employees to vote and know they've made their voices heard. With that sense of duty in mind, thank you.
Jason Bailey: It's a good reminder to remind us that we serve all, our obligation to equally serve customer without favor drives every person, every project, and every decision in our company.
Jason Bailey: Second, stability. We do what we say we'll do, and we are driving economic prosperity for the future in Oklahoma and western Arkansas. And as we celebrate centennials at Muskogee and Horseshoe Lake, we're building business for the next century.
Jason Bailey: And finally, our investment opportunities for reliability and system growth are numerous.
Jason Bailey: Whether distribution, whether transmission, or generation capacity, we will remain nimble and flexible to manage for the long-term success of the company and our communities.
Jason Bailey: Delivering safe, reliable, affordable, and resilient electricity to our customers is our North Star.
Jason Bailey: And with these priorities in mind, I'm very pleased with how the company is positioned for the future.
Jason Bailey: A consistently solid execution lays a foundation.
Jason Bailey: a foundation for not only this year, a foundation for not only 25, not only 26, but many years thereafter.
Speaker Change: So thank you very much, and now I'll turn the call over to Chuck. Chuck?
Chuck Walworth: Thank you, Sean, and thank you, Jason, and good morning, everyone.
Chuck Walworth: In our core business, the electric company achieved net income of $225 million, or $1.12 per diluted share, compared to approximately $246 million, or $1.22 per share in the same period, 2023.
Jason Bailey: The decrease was primarily driven by higher depreciation and interest expense related to our capital investments.
Jason Bailey: High Road Operation Maintenance Expense, and Income Tax Expense.
Jason Bailey: These drivers were partially offset by continued exceptional load growth, which offset the impact of milder weather compared to last year.
Jason Bailey: We have reserved the earnings impact of the interim rates in Oklahoma that began on July 1st, and we will recognize the earnings consistent with the final order we received from the Commission.
Jason Bailey: Other operations, including our holding company, reported a loss of approximately $6 million, or $0.03 per diluted share, in the third quarter, compared to a loss of approximately $4 million, or $0.02 per diluted share, in the same period, 2023.
Jason Bailey: The increase in net loss was primarily due to higher interest expense, partially offset by higher income tax benefit.
Jason Bailey: I will discuss our expectations for full year 2024 Consolidated Earnings in a moment.
Jason Bailey: Let's review our load results by turning to slide 8.
Jason Bailey: Our weather-normalized load growth was exceptional at 8.4%, which I believe is the largest quarter-over-quarter growth that I've ever seen during my 24 years with the company.
Jason Bailey: Additionally, our customer count continued its strong year-over-year growth at 1.2 percent.
Jason Bailey: We continue to attract new business and business expansions in our service area and deliver results for our communities, customers, and shareholders.
Jason Bailey: As we've said in the past, we've got a great pipeline of development activities. And Sean highlighted some of those with you a moment ago.
Jason Bailey: In addition to that, we are also seeing expansions in tribal enterprises, health care, and energy.
Jason Bailey: Looking closer at weather normalized load for this quarter, the strength was across all customer classes.
Jason Bailey: with residential growing at an impressive 1.8 percent, commercial at an extraordinary 24.7 percent, and very strong showings for industrials at 3.7 and oil field at 1.7.
Jason Bailey: Year-to-date, we've experienced weather-normalized load growth of 6.8%, and expect to finish at the top of our 2024 load growth guidance of 4-6%.
Jason Bailey: Now, let's address our full year earnings expectations on slide nine.
Jason Bailey: Due to excellent load growth year to date, as well as a warmer than normal summer, we expect to be at the top of 2024's consolidated earnings per share guidance range of 206 to 218 per average diluted share.
Jason Bailey: assuming approval of the uncontested Oklahoma Rate Review Settlement in 2024.
Jason Bailey: Turning to slide 10, we have completed our planned financings for the year.
Jason Bailey: Strong credit ratings, no fixed rate maturities until 2027, and no need for external equity issuances in the current plan.
Jason Bailey: In closing, our third quarter results reflect continued operational excellence.
Jason Bailey: Based on the strong load I described earlier, in a warmer than normal summer, we believe we will achieve consolidated EPS at the top of the current guidance range.
Jason Bailey: Our strong execution this year allows us to turn our focus on 2025 and beyond.
Jason Bailey: We believe our bright future is based on what we call our sustainable business model defined by low rates, excellent load growth, a constructive regulatory environment, and a customer-centric investment plan.
Jason Bailey: Our plan provides flexibility to address investments that are required to meet the electric demand of our growing communities.
Jason Bailey: and our customers' expectation of a safe, reliable, and affordable system, while at the same time keeping a keen eye on maintaining our low rates.
Jason Bailey: This competitive advantage is the bedrock of our success in attracting new and expanding loads in our communities.
Jason Bailey: We believe we will continue to deliver consistent yearly consolidated EPS growth of 5 to 7 percent based off of 2024's original guidance.
Jason Bailey: In combined with an expected stable and growing dividend, that offers a compelling total shareholder return proposition.
Jason Bailey: Our confidence to deliver on the commitments we've made to our customers and our shareholders is based on our strong fundamentals and backed up by the dedication of our employees.
Jason Bailey: That concludes our prepared remarks and we'll now open the line for your questions.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Jason Bailey: Please stand by while we compile the Q&A roster.
Jason Bailey: Our first question comes from Nick Campanella from Barclays. Your line is now open.
Jason Bailey: Hey everybody, it's Nathan Richardson on for Nick.
Speaker Change: Hey, good morning Nathan, how are you? I'm doing all right, how about you?
Speaker Change: Very well, very well.
Nathan Richardson: Just a couple of questions for you. First, what is your opportunity set for SPP and would that be incremental to the plan?
Speaker Change: Yes, so they've made some announcements here, and we're awaiting some notices to construct that we expect to see in December.
Speaker Change: And, you know, there's a process by which you go through and finalize your estimates. We will do that, and just like we do with all of our, like, the generation stuff, once we nail that down, we'll layer that into our plans. And as Chuck mentioned many times,
Jason Bailey: will pursue that. But yeah, there's some opportunities there.
Speaker Change: Got it. Thank you. And then we've seen recently some other utilities raise rate-based growth, CapEx.
Speaker Change: How are you thinking about the
Speaker Change: in the future, given the current 5% to 7% EPS
Speaker Change: Haggar, take into account Bill Headroom, and...
Speaker Change: Thank you.
Speaker Change: Yeah, I think you kind of helped me answer the question there. Good question, Nathan. But, you know, I think what's really going to drive that for us is load growth.
Jason Bailey: and we've been, you know, really blessed with what we've already experienced and what we see in the pipeline for many years out, it's not
Jason Bailey: It's not waning. And so, you know, it's very difficult to kind of forecast with any specificity more than a year out of what we're going to see, you know,
Jason Bailey: As we think about it, our ability to deploy that capital and spread it over more customers, and that's what we refer to.
Jason Bailey: refer to as that sustainable business model and
Jason Bailey: My
Jason Bailey: My drive here, our intention, is really to focus on to keep this going for many, many years. We're not focused on kind of a two-year blip, we're focused on, you know, a very, very long runway of this continue to materialize.
Speaker Change: Got it. That makes a lot of sense. Thank you very much.
Speaker Change: Thank you.
Speaker Change: One moment for your next question.
Speaker Change: Our next question comes from Shahr Pereza of Guggenheim Partners. Your line is now open.
Speaker Change: Hi. Good morning, team. It's actually Constantine here for Char, and congrats on a great quarter. Hey, good morning, Constantine. Good to hear from you.
Constantine: Great to hear from you as well. Thanks for the updates and maybe can you talk about the expectations for a CapEx update? Will you be in position to update CapEx fully at year end given the expectations for the generation RFP?
Jason Bailey: And time frame or does that remain an upside opportunity with financing needs pushed out further and all those updates
Speaker Change: Yes, I think that's exactly right. I think by the time we get to February, we will not have filed
Jason Bailey: with the Commission yet for approval of our decision around the Generation RFP.
Jason Bailey: Just like we did with Horseshoe Lake.
Jason Bailey: Constantine, what we will do is we'll file that and get that approval with the regulatory compact in order. We'll show you that on our CAPEX table and you know if there's any adjustments to financing we'll tell you that as well.
Speaker Change: Okay, perfect. Maybe a quick follow-up as we're seeing some of the constraints around turbine availability.
Speaker Change: and more conventional generation in the near term. Does that change your view on resource mix going forward and maybe is there an opportunity for some near-term upgrade projects?
Speaker Change: Yeah, you're breaking up a little bit, but I think what I heard you say, some of the constraints around turbine availability, create an opportunity for certain upgrades at our plants. I would share with you...
Speaker Change: Yeah, I think certainly availability is important, you know, when these assets are available and can get into service.
Speaker Change: Your point about upgrades or plants.
Speaker Change: That is a continuous effort we're always looking at. We've got a number of studies underway. We've done some upgrades already, where you pick up 20, 30, 40 megawatts per unit. We continually look at that. So that's not a new development. That's kind of just in our...
Speaker Change: We're going to look at the best value for our customers.
Speaker Change: and as I've said many times, it's still our intention to own these assets for the long term.
Speaker Change: and depending on availability and construction timelines.
Speaker Change: There may be a scenario where we have to kind of bridge something with some short term capacity, but we're going to do what's right and serves our customers. So, I don't think I'm ready to commit to kind of a change in asset mix yet.
Speaker Change: Okay, and then maybe a last one on load growth. You're kind of trending to exceeding your guidance or assumption range for 2024 just on a year-to-date basis.
Speaker Change: Do you envision any kind of incremental TAPx or pull-forwards in support of this higher near-term low growth, or is there more focus on executing the RFPs that we've talked about?
Speaker Change: Chuck, you want to do that one? Yeah, sure. So hey, good morning, Constantine. I think that the two are really related in that. And you take a step back. We've been experiencing this low growth now for, this is not a new phenomenon for us, for multiple years.
Speaker Change: large load customers and clearly we'll address that as needed as the time comes.
Speaker Change: Okay, perfect.
Jason Bailey: Thanks so much for the time.
Speaker Change: Have a great day.
Speaker Change: Thank you. One moment for your next question.
Speaker Change: Our next question comes from Julian DeMillan-Smith of Jeffries. Your line is now open.
Speaker Change: Yeah, good morning. It's Brian Russo on for Jubilee.
Speaker Change: Hey, good morning, Brian.
Brian Russo: Good morning. Hey, just on the load growth, it seems to be accelerating with each quarter. At what point are you going to put pressure on
Speaker Change: The projections in the IRP that the RFP is based on, meaning, is there any scenario where you might need more?
Jason Bailey: You might have a greater capacity shortfall than what's identified, i.e. need more capacity and or investment.
Jason Bailey: Yeah.
Speaker Change: Brian, great question. You know, and so this is a, we file the IRP every three years in both states.
Jason Bailey: As we look at this, in the last IRP, there were a lot of assumptions in there. Some were aggressive, some were too conservative, and so as it all washes out, we have to reevaluate that.
Jason Bailey: I think it's, you know, and I think the big assumption change in there is that there was an assumption for a capacity reserve margin in the SPP of 18%, it actually turned out to be 16. So that changes some of the numbers there. Notwithstanding,
Jason Bailey: We're considering right now, you know, evaluating whether we should file a new IRP, just to update some of that and look at some of that. That's something we have the ability to do, you know, looking at
Jason Bailey: availability and all sorts of you know other factors but it is increasing. I think the other point I would just share with you on the load growth is
Jason Bailey: We've been bullish for a number of years about the growth and we're still bullish for the future and but it's the growth isn't linear either you know it kind of moves around but we know it's going to be outsized from historical levels.
Jason Bailey: really pinpoint exactly what year, what quarter some of these really large loads are going to come into service. But your thesis is right, you know, we're considering that right now and we're contemplating all of that as we make our final determination around the results of the RFP.
Speaker Change: Okay, great. And then just to follow up on the ESPP, ITP projects, just preliminary, it looks as if OGE, on its own,
Jason Bailey: Being incremental capex while also managing your retail customer rates because these are SPP transmission projects, right? So it's kind of, you know, spread out over the entire region in terms of
Jason Bailey: Cost and rate allocation, is that accurate?
Speaker Change: Yeah, that is accurate. So a large portion of that is allocated to others that would pay for that so that you're exactly right. You know, that the project you're referring to, I think, is.
Speaker Change: And so we'll wait, receive the NTC probably next month, and we'll work through refining our estimates and committing to that NTC, and then we'll update our numbers accordingly.
Speaker Change: Okay, great. Thank you very much. Thanks Brian. Have a great day.
Speaker Change: Thank you.
Speaker Change: One moment for your next question.
Speaker Change: Your next question comes from Travis Miller of Morningstar, Inc. Your line is now open.
Travis Miller: Good morning. Thank you.
Travis Miller: Just wondering on the data center's large load, do you have a lot of experience with that? There's been a lot of debate across the industry about...
Travis Miller: how to spread those costs, how to make contracts. What are you seeing right now? What are you thinking in terms of contract structure as you get more interest from large load, whether it's the data centers or other large loads in your area?
Speaker Change: You know, I think the way we're thinking about it is we want to make sure that this is
Travis Miller: Low debt is accretive to our existing asset base, to our customers.
Travis Miller: And by some of these large loads and so you were working with a lot of people to make sure you
Travis Miller: I think it really comes down to cost allocation. Make sure you get the allocation of the cost right. That's how we're thinking about it. Whether that ends up being a special contract or a specific rate tariff, we'll work that through with our commission.
Speaker Change: Okay, so that's something that has to go through the commission. It's not something you can do bilateral.
Speaker Change: Well, we could do that with a special contract. Yeah. Yeah. Okay. Okay. Okay. And then just real quick, the commercial side, is there any more detail?
Speaker Change: you can give around what type of customers or what sector the most growth is you're seeing on that commercial customer class?
Speaker Change: Yes, so it is pretty broad based across the sector, but clearly the driver within that has been the crypto mining load that we've had now for quite some time.
Speaker Change: But, you know, again, we're seeing growth across all sectors.
Speaker Change: including, you know, residential, industrial, and that really spurs a lot of the smaller commercial type load as well. So we're seeing really quite a nice mix.
Speaker Change: Okay, so you're still seeing growth in that crypto area then? Yes, we are. Okay, okay.
Speaker Change: That's all I have. Thanks so much.
Speaker Change: Thanks, Travis.
Speaker Change: As a reminder, to ask a question, you will need to press
Speaker Change: star 1 1 on your telephone
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Paul Fairmont of Bladingburg, Salmon & Co, Inc. Your line is now open.
Paul Fairmont: Great. Congratulations on a great quarter. Hey, good morning, Paul. Hey, good morning. I was wondering if you could size the amount of generation that would be required if the Stillwater Data Center were to move forward.
Speaker Change: Paul, I wish I could, but we're not at liberty to disclose that right now. I'm sorry.
Paul Fairmont: Okay, and can you give an indication of how many square feet is involved in the project?
Speaker Change: Give us a little bit of time here, Paul, we're really
Paul Fairmont: Kind of locked down on this one. Okay. Okay. And then I'm sorry, Paul. I'm sorry. I just, we're, we're, we're.
Speaker Change: We're not, we're not allowed to talk much about it. Okay. Got it.
Speaker Change: When do you expect the OCC to take up your settlement?
Speaker Change: Yeah, I as I mentioned in my prepared remarks, I think, you know, we still expect it this year, you know, the issue that is out there has nothing to do with the settlement of the recovery and the rate
Speaker Change: or anything like that. The issue is around
Speaker Change: cost allocation of some larger loads that, you know, we serve, that customers have come to us and want us to serve. And so I still expect that to be done this year and we'll move on down the road.
Speaker Change: And, you know, as Chuck mentioned, we implemented the rates July 1st, and so we've reserved all that.
Speaker Change: We'll be ready to go.
Speaker Change: And then last question for me. If we think about the potential for additional CapEx, what percent of that CapEx should we think of as being financed with equity?
Speaker Change: Yeah, I think.
Speaker Change: Good question. We haven't got there yet, right, Paul? And so I don't want to get ahead of ourselves here in terms of start thinking about financing. We're pretty intentional about making sure we have the regulatory compact down first.
Speaker Change: before we put it in our plans.
Speaker Change: And then we'll explain the financing, but.
Speaker Change: Longer term, as we go forward.
Speaker Change: We recognize that our braidings are important to us. And so, you know, something that, you know, supports.
Speaker Change: A 17% FFO to debt is probably the way you ought to think about it.
Speaker Change: Great. Thank you so much.
Speaker Change: Thanks, Paul. Have a great day.
Paul Fairmont: Thank you.
Speaker Change: for closing remarks.
Speaker Change: Thank you, Corinne, and thank you all for your time today and your interest in OG Energy Corp. I hope you all have a wonderful day. Thank you.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.