OGE Energy Corp

Ladies and gentlemen, take a stand by and welcome to the fourth quarter 2020 earnings and business update conference call. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jason Bailey, Director of Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone, and welcome to OGE Energy Corp's fourth quarter 2020 earnings call. I'm Jason Bailey, Director of Investor Relations, and with me today, I have Sean Trauschke, Chairman, President, and CEO of OGE Energy Corp, and Brian Buckler, CFO of OGE Energy Corp. 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 on our website at ogeenergy.com. In addition, the conference call and accompanying slides will be archived following the call on that same website. Before we begin the presentation, I'd like to direct your attention to the State 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'd also like to remind you that there's a Reg G reconciliation for gross margin and a reconciliation of ongoing earnings to gap earnings in the appendix. I will now turn the call over to Sean for his opening comments. Sean?

Thank you, Jason. Good morning, everyone. I hope all of you are well, and thank you for joining us on today's call. It's certainly great to be with you this morning, and I'd like to start off today by welcoming Brian to the call this morning. Brian started with us on January 1st, and we couldn't be happier to have him with us. So turning to the business, over the course of a couple weeks, the region, including in our service territory, experienced an unprecedented prolonged cold spell that disrupted natural gas supplies, resulting in extreme natural gas prices. The cold spell also resulted in a record winter peak demand for electricity. While our service territory experienced record snowfall and record temperatures, our customers experienced minimal disruptions. Through the efforts of our employees, our generation fleet performed admirably over the course of the week. And so did our customers, heeding the call to conserve natural gas and electricity so that more serious shortages could be avoided. Every day, we had generation online at each of our power plants. Our fuel and purchase power costs for this event alone were more than all of our fuel and purchase power costs in 2020. We anticipate the regulatory asset that will be created as a result of this storm to be in the range of approximately $800 million to $1 billion. We have secured a billion dollars of additional bank financing or liquidity to cover these costs. We certainly understand the pressure that this event will have on our customers, and we will work with our commissions to help mitigate the impact our customers' bills. To that end, yesterday we filed an application at the Oklahoma Corporation Commission requesting an entry-year fuel adjustment for a portion of the weather event's cost. To help mitigate the impact on OG&E customers, we are requesting alternative regulatory treatment to avoid our customers having to bear the entire cost of the 2021 weather event over the balance of the calendar year. We've proposed to continue to carry the remaining balance on our books and defer the cost to a regulatory asset to be amortized over a 10-year period and collected through our fuel adjustment clause beginning in January 2022. We requested that the regulatory asset include a carrying charge at a weighted average cost of capital, and we believe this approach will significantly lessen the monthly impact of the weather events cost to our customers. We expect to quickly make a similar filing in Arkansas as well. Brian will discuss the financial effects of the February 2021 weather event in a moment. Turning to Enable, we made an announcement last week with our support of the proposed merger between Enable and Energy Transfer, which is an important step in our repositioning as a pure play utility. From an investment return perspective, Enable has been very successful for our shareholders. Since Enable was formed in 2013, we've turned a modest investment into over a billion after-tax benefit to shareholders, which is equivalent to a 2.5 times after-tax return. When the merger closes, we will own approximately 3% of the much more liquid limited partnership units of Energy Transfer. Energy Transfer will acquire the general partner interest from us and CenterPoint for $10 million in aggregate cash consideration, and also CenterPoint will pay us $30 million. We expect the transaction to close later this year. The strength of our balance sheet allows us to be thoughtful on how and when we exit, taking into consideration taxes, distributions, and market considerations. But let me be clear. We will exit our midstream investment, and we will do so in a responsible way that does not create overhang to the energy transfer units and allows us to achieve our goal of lower credit downgrade thresholds from the rating agency. Turning to our financial results, earlier this morning we reported 2020 ongoing earnings of $2.08 per share. We also reported earnings of $1.70 at the high end of our revised guidance and ongoing earnings from OGE holdings of $0.37 per share. Our 2021 utility guidance range is $1.76 to $1.86 per share. The midpoint of this guidance is $1.81 per share and is based off 2.4% normalized low growth from 2020. and is equivalent to a 5% EPS growth rate. Additionally, we are announcing this morning that our long-term earnings growth rate is 5% based off the midpoint 2021 guidance of $1.81. So let me take a moment to discuss an item from the February weather event that does impact 2021. Obviously, due to the extreme temperatures, kilowatt-hour sales were higher. However, offsetting this is one of our customer programs, the Guaranteed Flat Belt Program, which is a voluntary annual program and is largely subscribed by senior citizens and lower income households and provides them certainty around their monthly bill. We will incur the incremental fuel expense under this program. We are certainly thankful that these customers had the benefit of the program during this unprecedented event. We've been proactive and are working with the commissions in Oklahoma and Arkansas to mitigate the impact of increased fuel costs to customer bills. Brian will go into more details when he discusses our 2020 results and 2021 guidance. Turning to our economy, we continued our impressive customer growth rate, and our customer base grew by 1.1%. The Oklahoma and Arkansas economic recoveries remained strong. In December, the U.S. Bureau of Labor and Statistics reported that Fort Smith, Arkansas had an unemployment rate of 4.4%. Oklahoma City had the seventh lowest unemployment rate for large metropolitan areas at 4.8%, while the state of Oklahoma's unemployment rate came in at 5.3%, showing the strength and resilience of the economies across our service territory. Our economic development efforts are certainly paying off. In 2020, we had 25 projects, 8,000 additional jobs in our service territory, and $725 million of capital investment by businesses in our service territories. Turning to our accomplishments in 2020, COVID was certainly not anything the world was expecting, but we adjusted our way of life and quickly set up processes to support our customers and communities and protect our employees. The weather played a crucial role last year in how we energized life for customers. From an unusually mild summer weather to the most destructive ice storm in the company history in late October, to New Year's Eve snowstorm to close out the year, the effects of weather this year were unmistakable. We did not miss a beat, however, as our teams continued to excel through the challenges, recording a number of significant accomplishments. The company recorded its second safest year in history in 2020, making each of the last five years our safest ever. We kicked off our grid enhancement projects in Oklahoma, including securing a mechanism for recovery of our investments, which will provide a more resilient and reliable system for our customers. With these grid enhancements, we expect to provide our Oklahoma customers the same positive results that we've seen in Arkansas, including fewer outages and much faster restoration times. In Arkansas, we filed our third formula rate plan last year. We successfully negotiated a constructive settlement in that case that allowed for the maximum increase permitted, and are awaiting a final order by the Commission. These new rates are expected in April. Looking ahead to 21, We have several exciting items in the work, including the continuation of our Oklahoma and Arkansas grid enhancement projects. We'll file an integrated resource plan in both Oklahoma and Arkansas later this year. We will file our fourth formula rate plan in Arkansas, and we'll plan our filing for our next Oklahoma general rate review, which has to be filed no later than the first quarter of 22. We're constructing our first solar farm in Arkansas and expect it to be operational later this summer. We have a lot, and I want to make sure you understand that we have a lot of really exciting projects that we've been working on for some time, working in and around our communities, and we'll certainly announce these as they are finalized over the next couple months. I'm proud of what we've accomplished in the last five years and what lies ahead for our company. We've invested $3.3 billion in our system. Our O&M cost per customer is lower now than it was at the end of 2015. If you look at our 21 guidance for O&M, it's approximately $29 million below our original guidance in 2020. That's real, long-term, structural savings that will benefit our customers. We returned $1.4 billion of cash to our shareholders in the form of dividends and delivered a 5% compound annual growth rate at the utility. And on top of that, we have some of, if not the lowest rates in the nation, and they're lower now than they were in 2011. cut our CO2 emissions by greater than 40%. And those are real, consistent results, delivering to our shareholders what we said we would deliver year over year. We're more active in advancing our ESG objectives and initiatives. We're deeply embedded in our communities and our key driver of growth and economic development for the communities we serve. We've always been committed to be responsible stewards. We'll be sharing these stories more regularly going forward. We have a solid and compelling investment thesis backed by a track record of performance. Whether you look over the last five or ten years, we've delivered compound annual growth rates between 5% and 6%. And we expect to keep true to our commitment to deliver on our earnings growth target of 5% by investing in lower risk investments that improve our customers' experience. We have one of the strongest balance sheets in the industry, which protects our dividend, and we operate in jurisdictions that are experiencing real load in customer growth. and have delivered increasingly supportive regulatory outcomes. You, our shareholders, should be confident in your decision to own and invest in OGE. Before I close, OGE is celebrating its 119th anniversary this month by honoring our frontline healthcare heroes, our healthcare workers who have earned the title hero, especially throughout the last year. We're proud to make a $100,000 donation this month to support their critical efforts. I can think of no better way to mark this occasion. We are proud of our accomplishments in 2020 and poised to continue to deliver those results in 2021. While COVID has impacted all of us, I want all of you to be confident that we're not focused on winning the downturn, but winning the recovery. Thank you, and now I'll turn the call over to Brian. Brian?