OGE Energy Corp

Good morning, ladies and gentlemen, and welcome to the QT 2021 OGE Energy Corp Earnings Conference Call. At this time, all participants are in a 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 call, 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 conference over to your host, Mr. Jason Bailey, Director of Investor Relations. Please go ahead.

Thank you, Andrea, and good morning, everyone, and welcome to OGE Energy Corp's second quarter 2021 earnings call. I'm Jason Bailey, Director of Investor Relations. With me today, I have Sean Trosky, Chairman, President, and CEO of OGE Energy Corp. Brian Buckler, our CFO, has a cold. His voice doesn't sound great, so Chuck Walworth, our treasurer and head of financial planning, will cover our second quarter financial results. Brian will be available for Q&A at the end of our prepared remarks. 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 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'll now turn the call over to Shawn for his opening remarks.

Shawn? Thank you, Jason. Good morning, everyone. Thank you for joining us on today's call. It's certainly great to be with you again. Earlier this morning, we reported second quarter consolidated earnings of $0.56 per share, which includes utility earnings of $0.42 per share and earnings associated with our investment in Enable of $0.16 per share and a holding company loss of $0.02 per share. While weather was $0.03 below normal for the quarter, we remain within our previously reported guidance range and proud to say we keep moving forward. I'm so proud of everyone here, and we are encouraged by our exceptional utility operations and all of our employees as they focus on energizing life for our customers and our communities. Chuck will provide additional details when he discusses our financial results in just a moment. As we move ahead, I'm pleased to note that in June, OG&E received its 19th EEI Emergency Response Award since 1999. for our power restoration efforts during the 2020 New Year's Eve snowstorm. We've been recognized with this highest national distinction for emergency recovery 11 times for major storms affecting our system and eight times for assisting others. Additionally, for the third consecutive year, OG&E has been recognized by S&P Global as having the lowest rates in the nation, demonstrating the affordability of our service. System-wide, Growth in customer load is driving $75 million of increased capital investments. Investments include substation enhancements, projects at Tinker Air Force Base, and upgrades of our 69KV line to support the load of larger and growing customers. Construction on the 5-megawatt solar farm in Branch, Arkansas, and the 5-megawatt expansion of the Choctaw Nation OGE solar farm remain on track for completion by the end of the year. As we seek innovative ways to increase efficiency across the organization, yesterday we announced that OG&E will pilot utilizing artificial intelligence to inspect distribution poles for damage. This technology will allow our teams to respond more efficiently and utilize a consistent approach for repair and replacement. We will continue to leverage these results and this technology to improve the customer experience. Our grid enhancement programs in Oklahoma and Arkansas continue to deliver. The work we're undertaking on our substations and distribution circuits and other portions of our grid will have a significant positive impact on the reliability and resiliency of the grid for the benefit of our customers. On Monday, we submitted our draft integrated resource plan with both the Oklahoma and Arkansas commissions, detailing our resource needs over the next several years. As you can see on slide five, our resource needs are driven by expected load growth, as well as the retirement of aging, less efficient, less reliable gas plants that were built more than 50 years ago. We expect to retire approximately 850 megawatts over the next five to six years. Key components of our IRP include a successful energy efficiency and demand side management program, combined with replacing retired generation with a combination of solar and hydrogen-capable combustion turbines. We plan to execute this in 100 to 150 megawatt annual increments, beginning with solar, over the next five to six years to really smooth out the customer impacts. When complete, our overall carbon intensity will drop by more than 6%, and the overall fleet efficiency will improve even more. This plan is a significant step forward to meet our objectives of fuel diversity and provide our customers with cleaner energy solutions while maintaining our affordable rates. We begin the stakeholder engagement process now and will submit the final IRP on October 1st, after which we will lay out the timeline for the next steps, including an RFP process. Our securitization filing in Oklahoma is on track for recovery, approximately 85% of the total costs, associated with February's winter storm URI. A hearing is scheduled for October and an order is expected by the end of the year. The Arkansas securitization statute is somewhat different from Oklahoma's and we continue to work through that process and plan to file later this year with every expectation of a positive regulatory outcome there. Speaking of Arkansas, we will file a formula rate update in October. With rates going into effect in April of 2022, we will also file for a five-year extension of our formula rate at the same time. We will file a rate review in Oklahoma towards the end of the year. A significant portion of this case will involve a continuation of our grid enhancement work and a recovery mechanism that has already been established. The process is working quite well, and we want to continue the work to enhance the resiliency and the reliability of the grid for the benefit of our customers. And finally, we're working with the Oklahoma Corporation Commission on our three-year energy efficiency filing for the years 2022 to 2024. These efficiency programs provide energy savings and peak demand reduction for OG&E customers to better manage their energy use. We expect to achieve savings of more than 100 megawatts in demand and nearly 500,000 megawatt hours of energy savings. helping us to efficiently operate our generation fleet as we grow our customer base and maintain affordability. So clearly, these are programs worthy of continuing into the future. Turn to slide seven. Recovery of our load continues. With the first half of the year now behind us, we expect 2021 weather normalized load to be more than 2% above 2020 levels. Chuck will give more details around the load in just a moment. In addition, our strong customer growth of 1.3% reflects the combination of highly affordable rates and our ability to service commercial expansion in our markets, which leads me to our business and economic development activities. Last quarter, we discussed the additional 50 megawatts of load we will add by the end of the year due to our slate of business and economic development activities at that time. I'm pleased to say that the pace of these activities has ramped up even further enabling us to increase that estimate up to 75 megawatts, of which 36 megawatts is already connected, and we're far from done. Again, these are larger loads and do not reflect residential or commercial impacts, and we believe we will add to this number in the months ahead. In addition to low growth, these projects also bring new jobs to our communities. Through the first half of 2021, The new projects secured by our teams have helped add more than 4,100 new jobs all across our service territory. One such project, Pure Foods, is completing a 200,000 square foot regional fulfillment center in Oklahoma City, adding 10 megawatts of load and 550 jobs. The affordability of our rates is central to our sustainable business model, as the cost of electricity is a significant factor that companies consider when deciding where to relocate. And affordability remains a key competitive advantage that is evident in our business and economic development activity, as well as customer growth, which combined have us on track for sustained load growth of approximately 1% going forward, with still many opportunities ahead. Turning to Enable, we expect the transaction to close later this year, subject to the satisfaction of customary closing conditions, including the HSR clearance. Our intention to prudently exit our midstream investment remains the same and will certainly provide information upon closing. Before I hand the call over to Chuck, I do want to take a moment to touch on three key points. First is that we continue to execute on our plan. While the weather was below normal, we remain within our previously reported guidance range and we're going to keep moving forward. Secondly, the strength of our economies across our service territory is strong. Oklahoma's unemployment rate in June was 3.7% compared to the national average of 5.9%. And Oklahoma City, the largest metro area in our service territory, had a rate of just 3.7% in June, the third lowest among large metropolitan cities. Similarly, Fort Smith, Arkansas had a rate of 4.4% in June. These economies are strong and continue to grow stronger. And all this leads to the third and final point of our sustainable business model, of growing revenues by attracting new customers, managing our expenses by utilizing technology, this all helps us maintain some of the most affordable rates in the nation, which in turn attracts more customers and grows our business. So with that, thank you very much.