OGE Energy Corp. (OGE) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the OGE Energy Corp. 2026 Third Quarter Earnings and Business Update Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Casey Strange, Investor Relations senior management. Please go ahead.

Thank you, Lisa, and good morning, everyone, and welcome to our call. With me today, I have Sean Trauschke, our Chairman, President and CEO; and Chuck Walworth, our CFO. In terms of the call today, we will first hear from Sean, followed by an explanation from Chuck for 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 oge.com. In addition, the conference call and accompanying slides will be archived following the call on that same website. Before we begin the presentation, I 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 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, Casey. Good morning, everyone. Thank you for joining us today. This morning, we reported consolidated earnings of $1.52 per share. And before Chuck provides more detail on our third quarter results, I'll highlight the team's outstanding performance during an unusually hot summer and outline the key milestones we anticipate over the coming quarters. This summer underscored the importance of a reliable, resilient electric grid. Our service area experienced more than 45 days of triple-digit temperatures compared with just one last year. Through the prolonged heat, our system performed exceptionally well, and our team safely delivered our customers depend on. For context, we hit a new peak load 4 times this summer, with 15 days exceeding our 2024 peak record, but at no time where their calls for the public to conserve energy, our systems just built to withstand these extremes. A note that's important. While our residential price per kilowatt hour was actually 7% lower in August and September than a year ago, extended air conditioning use drove higher electricity consumption. Weather impacts tend to balance out over time. And this summer's elevated cooling demand followed several quarters of milder temperatures and lower weather-driven usage. Our reliability focus shapes the Oklahoma rate review, this is our first since December of 2023. The filing reflects investments to strengthen our system, support growth and meet evolving requirements while expanding assistance and payment flexibility for our customers. The review includes following expanded assistance and payment options to help customers manage their bills. We are expanding both the senior discount and low-income assistance program, we are launching an innovative pilot program to help customers with past due balances, get back on track with payments, and we're offering new [ choose-by ] due date prepayment options that give customers more flexibility to manage their household budgets. As the regulatory process moves forward, we remain focused on balancing reliability and affordability and considering the impacts of inflation and interest rates and creating long-term value for customers and shareholders. Looking ahead, we are advancing additional generation resources to serve growing demand and maintain reliability. We filed yesterday with the Oklahoma Corporation Commission seeking preapproval to construct a new 755-megawatt combined cycle plant at our Horseshoe Lake site, and we'll file in the coming weeks with the Arkansas Public Service Commission. We're finalizing valuations and negotiations from our competitive request for proposals and expect to submit projects to both commissions as agreements are completed. We remain committed to delivering capacity customers' need responsibly and cost effectively and we anticipate submitting additional preapproval filings before year-end. Meanwhile, that broader generation strategy is taking shape. Horseshoe Lake units 11 to 12 were completed ahead of schedule and $12 million under budget, bringing the units online early allowed us to avoid up to $16 million in capacity purchase this winter. These units add approximately 448 megawatts of flexible generation capacity, bringing the total additions this year to 544 megawatts. Units 13 and 14 are under construction and will add another 440 megawatts and the Horseshoe Lake projects build on more than 100-year legacy at that site while supporting reliable, efficient generation for the future. As we build and invest in our system, we are also strengthening support for our communities. We refreshed our lend to hand bill assistance program with a broader network of trusted nonprofit partners and a financial commitment from the OGE Energy Corporation Foundation to match customer donations and we'll continue to support our vulnerable customers and assist communities as we deliver reliable electricity and low cost for everyone. As we move forward, we'll continue our disciplined approach to securing generation resources needed to serve growing demand, advancing projects through the regulatory process and delivering investments that maintain our competitive low-rate advantage. Our progress to date positions us for several milestones over the coming quarters. So on our fourth quarter earnings call, we will provide an update on the [ SPP ] notices to construct that we accept. On the first quarter call, we will provide an update on the Oklahoma rate review and the Horseshoe Lake 15 pre-approval case. And then on our second quarter call, we'll provide an update on the regulatory approval for the additional generation filings we're making in this year. Together, these regulatory generation and community initiatives position the company for long-term success while preserving the reliable low-cost service our customers enjoy. In doing so, they established the foundation for the investments needed to meet growing demand across our service area. So with that, thank you, and I'll turn the call over to Chuck. Chuck?

Thank you, Sean, and thank you, Casey. Good morning, everyone. I'm pleased to review 2026 3rd quarter results with you today. Let's start on Slide 5. Consolidated net income was approximately $316 million or $1.52 per diluted share compared to $231 million or $1.14 per share in the same period of 2025. In our core business, the electric company achieved net income of approximately $321 million or $1.54 per diluted share compared to $243 million or $1.20 per share in the same period of 2025. The increase in net income was primarily driven by significantly warmer third quarter weather partially offset by increased income tax expense. The holding company reported a loss of approximately $5 million or $0.02 per diluted share compared to a loss of $12 million or $0.06 per share in the same period of 2025. These results were driven by higher income from energy-related investments and lower interest expense. Turning to our 2026 outlook. Weather through the third quarter was significantly warmer than normal, with summer temperatures reaching levels we haven't experienced in 15 years. As a result, we are raising our 2026 consolidated earnings guidance range to $2.62 to $2.68 per share. This updated range assumes normal weather for the remainder of the year and reflects opportunities to execute work planned for future years. Demand across our service area remains healthy, with both customer growth and weather-normalized load growth at approximately 1%. The variance on load is largely timing related, reflecting customer ramps as well as maintenance outages that have reduced usage among some of our larger customers. customer commitments remain firmly in place, giving us continued confidence in the stronger longer-term growth ahead. That growth is translating into important investment opportunities across our system and Horseshoe Lake Unit 15 is a great example. As Sean discussed, the project was selected through our 2026 all-source RFP and was the highest rank project in that process. Unit 15 will add efficient, dispatchable generation while leveraging the existing infrastructure at Horseshoe Lake. The project represents approximately $1.75 billion of investment with an expected in-service date in 2031. Recent legislation in Oklahoma provides significant benefits for customers as we make these investments. It provides SWIP recovery, which we estimate will save customers more than $900 million over the life of the asset, while smoothing the impact on customer bills during construction. The legislation also established a timely 180-day regulatory review process for preapproval filings providing greater certainty as we work to bring needed resources online. With the addition of Unit 15, we have approximately 1.1 gigawatts of remaining capacity need as we continue to finalize solutions to meet that remaining need you should expect to see additional preapproval filings. The bottom line is that our growing service area is creating a clear need for additional infrastructure, and we are moving quickly to advance investments that support reliability, serve that growth and deliver long-term value for customers. With that growth and investment need in mind, let me turn to a financing update. We are establishing an inaugural at-the-market equity program, which authorizes up to $750 million of common equity issuances. The ATM gives us a flexible and efficient way to access equity as our capital needs grow. While its forward sale feature allows us to align issuance with the timing of our investments. That flexibility supports our growing capital plan while maintaining a strong balance sheet. With the approval of Frontier and the recent NTCs, our 5-year capital plan now includes an incremental $555 million of investment. This includes million related to the Frontier Energy storage project, which received regulatory approval during the third quarter and $160 million of transmission investments playing between 2027 and 2030. As we've consistently communicated, projects are incorporated into our capital plan once we have received the appropriate approvals, at which point we will also provide our associated financing assumptions. With these investments now reflected in the plan, we expect approximately $200 million of incremental equity over the planning horizon, which we expect to raise through the ATM program. This balanced financing approach allows us to fund these investments while supporting strong credit metrics. In closing, our momentum continues to build. We remain focused on executing with discipline, maintaining affordability and a strong balance sheet and making investments needed to serve growing demand. That focus positions us to deliver long-term value for both customers and shareholders. With that, I'll turn it back to Sean, and we'll be happy to take your questions.

[Operator Instructions] Our first question will be coming from the line of Aidan Kelly of JPMorgan.

Just maybe I want to follow up on the Horseshoe Lake 15 filing, if I could. Maybe how are you thinking about the likelihood of utility ownership versus third-party procurement for the remaining 1.1 gigawatt of capacity needs as you kind of think through that?

Yes. Yes. Thanks for the question, Aidan. I think it is our intent to own and operate the majority of that. It's we think we've proven that. And when we have weather extremes, we want the ball, so to speak, to kind of operate those plants and make sure we keep the lights on. So it's our intent to own and operate this, we will utilize obviously some short-term bridge capacity and things like that as things are going under construction, but it's our expectation to own it.

Great. Appreciate that. And then just going to the financing side. I know you mentioned the ATM program there. So kind of with up to $200 million of equity supporting that expanded capital plan, I guess how should we interpret the decision to establish a larger $750 million facility. Is that kind of a read-through to the incremental financing into the next plan update? Or kind of how do you address the sizing of that?

Yes. Aidan, great question. This is Chuck. Really, I would say it's not tied to future opportunities. It's really frankly, we're one of the few utilities that didn't have an ATM. And given the vast opportunities in front of us, we thought it was time to establish one. So we did the usual routine of benchmarking the size and just did something that we thought was appropriate for our company. So again, it's not the only way to finance projects. We'll continue to evaluate all avenues of financing in the future, but it's definitely something we wanted to have at our disposal. So I wouldn't read into the numbers any. It's just us making sure we've got all the tools available.

One moment for the next question. And our next question will be coming from the line of Shar Pourreza of Wells Fargo.

This is Whitney Mutalemwa on for Shar. Congrats on the quarter. So with rate base growing at 9.6% CAGR against the long-term earnings growth rate, could you help us bridge that gap, specifically what I'm looking for is how many basis points of regulatory lag you're running today versus your authorized return. And then how much of that you'd expect the rate review in Oklahoma as well as the Quip rider to close over the plan?

Whitney, great to hear from you. I think a couple of things on that. One, historically, we've done a fairly good job through cost control and capital allocation to really earn close to our allowed ROE. So I guess that's point number one. And then in terms of the rate case impact, I mean, obviously, that's a key impact there. But also remember that with plant and service accounting and load growth, that's a pretty good bridge as well. between that. So I guess what I'm trying to get to is that I would expect our earned ROE to continue to be smooth into the future rather than taking step function changes and resetting with rate cases. So hopefully, that helps paint a picture for you.

Yes, yes, I totally understand. And then just as a follow-up to Aidan's question on the new ATM. I saw that there's a lower 55% to 60% payout target, is the 35 to 40 equity share on today's additions or reasonable framework for Horseshoe like 15 and the 765 as they come in.

Whitney, we look at every project individually and not only on the project, but where other conditions are at the time that we finance and the length of it and the attributes and everything. So you've kind of seen 2 announcements from us now on equity raises, so you can kind of use that as a gauge. But at the end of the day, we're solving for our credit metrics over the long term. And that's going to dictate how we finance it.

One on me for the next question. Our next question is coming from the line of Nicholas Campanella of Barclays.

First question is, of the one point of the 14 winning bids, how many will be owned and how many are PPAs?

Are you talking about the remaining generation needs we have?

Yes.

I think it's our our intent with what we've demonstrated today to own this, we will utilize some rich capacity is obviously during construction and periods like that. But we've not finalized all those negotiations yet, but I want to reiterate one more time that it's our intent to own these. We think that's the better outcome for our service territory.

One moment for the next question, please. Our next question will be coming from the line of Julien Dumoulin-Smith of Jefferies.