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spk04: Good day, and thank you for standing by. Welcome to the OGE Energy Corp 2023 Fourth Quarter Earnings and Business Update 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 the session, you will need to press star 11 on your 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 speaker today, Jason Bailey, Director of Investor Relations. Please go ahead.
spk31: Thank you, DeeDee, and good morning, everyone, and welcome to OGE Energy Corp's fourth quarter 2023 earning and business call update. With me today, I have Shawn Trotsky, our Chairman, President, and CEO, and Brian Buckler, our CFO. In terms of the call today, we will first hear from Shawn, 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 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'd like to direct your attention to the Safe Harbor Statement regarding forward-looking statements. This is an SEC requirement for financial statements. It simply states that we cannot guarantee forward-looking financial results, but this is our best estimate today. I will now turn the call over to Shawn for his opening remarks. Shawn? Thank you, Jason.
spk19: Good morning, everyone. Thank you for joining us today. It's certainly great to be with you. I'm excited about our message to you this morning as our results for 2023 were top of guidance and we are updating our five-year plan, including a consolidated earnings growth rate based on the strong fundamentals of our business. It's truly a great time to be here at the company. Before we get into the plan, I do want to take a moment to talk about our people here at Big Orange. In 2023, the team delivered results for our customers, for our communities, and shareholders by providing reliable energy at some of the lowest rates in the nation every day. Once again, our safety results were very strong, with the last eight years being the safest in our 121-year history, even as we continue to face some of the most extreme weather in the country, like winter storms Jerry and Heather in January, where our plants ran, generating electricity to the grid to ensure our customers could continue to live their lives and run their businesses. Our team achieved recognition for our culture in 2023. I mentioned last quarter that we'd been named the number one state employer in Oklahoma by Forbes magazine. And later in the year, we were also named a top workplace in Oklahoma, following the feedback our employees gave in our annual workplace survey. And just last week, Forbes named OGE Energy the 16th best mid-sized employer in the country, achieving the highest rank in our sector and the highest ranking of any company in Oklahoma. These results are not happenstance. They come from a dedicated commitment to fostering a culture grounded in our values and our beliefs and operationalized with a focus to deliver safe, reliable, and resilient electricity combined with outstanding customer experiences every single day. I'm so proud of everyone here at the company, and it's because of them that we're discussing great financial results. This morning, we reported consolidated earnings at the top end of our guidance of $2.07 per share for the year, including $2.12 per share for OG&E and a holding company loss of 5 cents per share. Our sustainable business model provides opportunities to drive low growth while simultaneously investing in the grid and generation for many years to come in a way that is mindful of ensuring a smooth customer impact and delivering consistent financial returns. Last year, my message to you was, we've got this. The plan we introduced to you this morning is an extension of that message and is consistent with the growth we've delivered in the past. Over the next five years, we expect to grow consolidated earnings per share at 5% to 7%. Looking back at the 10-year period before we exited our midstream natural gas segment, we delivered over 6% of consolidated earnings per share growth. The difference now is that we've simplified our business mix and remove the volatility that was associated with that business segment. Our plan going forward, which Brian will detail, is based on a pure play electric model with premium fundamentals, including a strong financial base and credit metrics, excellent load and customer growth, and a lower risk investment plan focused on delivering the safe, reliable, resilient electric service that our customers expect. Today, I want to talk to you a bit more about three key aspects of our work that drive our results. reliability, growth, and affordability. Our grid and weather hardening investments continue to deliver great results for our customers. Our grid reliability investments benefited customers in 2023, saving over 320 minutes of interruption for the average impacted customer. And from a SADIE perspective, automated restorations saved our customers more than seven and a half minutes of SADIE, or 6.2 million customer minutes of interruptions. We also built or upgraded 21 substations to serve our growing service area, and we will continue making these types of investments in the grid that directly benefit our customers. This foundation powers our growing communities and economic development engine that has delivered 11 new projects in our service area that are projected to create thousands of jobs and garner billions of dollars in additional investment. This type of growth is not by accident. We set the stage for these results more than five years ago when we began investment and growing the local economy in cities and towns all across our service area. Our communities maintain strong unemployment rates and continue to attract expanding and new businesses that our low rates help secure. For example, just last month, Stardust Power announced its plans to build a new battery-grade lithium refinery in Oklahoma, bringing hundreds of jobs to the community as well as community infrastructure development. Oklahoma's central location, access to multiple transportation routes, highly skilled workforce, and low-cost energy were all reasons noted for the site selection, and we look forward to serving Stardust as they get up and running. Our load forecast for 2024 continues to keep pace with the outstanding growth we've experienced over the last three years, and our long-term load forecast remains as strong as our service area continues to grow. Turning to the regulatory front, constructive regulatory outcomes enable us to support growth, serve customers, and achieve results for our shareholders. We've released the draft IRP that will lead to RFPs later in the year for additional generation to meet the needs of our growing service area. We'll be disciplined with regard to customer impact and expect a combination of gas, solar, along with energy efficiency and DSM programs to meet the identified needs. In Oklahoma, we have filed a rate review and expect new rates to be in place by July 1st. In Arkansas, we've achieved a settlement under the formula rate plan for a 1.4% increase in rates effective April 1st. Today's macroeconomic environment continues to create pressure on our customers, and we remain committed to affordability and keeping bills low. As I mentioned in our last call, we reduced the average fuel charge by $21 per month in November, which had an immediate impact on customer bills. We've doubled down on connecting customers to programs and services to help them manage their energy use and monthly bill. Enrolling nearly 20% of our customers in new to them programs in 2023, including energy efficiency and home weatherization, as well as connecting our customers to billing assistance when they need it. Additionally, our team continues to innovate energy efficiency programs that will help customers reduce their bill and increase reliability, including making low-cost repairs to qualified customer homes for weatherizations, piloting solar and battery storage technology at schools, and piloting managed flexible load technology. As we celebrate the impact of those programs, I want to close with a few important thoughts. We are committed to growth for our communities, for our customers, and to financial growth for our shareholders and our employees. The case for Ogenie is strong, and I'm bullish on our future. We're leveraging the economic development engine we built that drives load growth. Our excellent execution is driven by fully engaged employees who are determined to reach our North Star of delivering safe, reliable, and affordable electricity to our customers. We operate in constructive regulatory jurisdictions, and we've created a competitive, credible, lower risk financial plan backed by a strong balance sheet, all of which leads to a long-term plan where we address system growth and customer needs, which are at the center of our decisions. Next week, OG&E turns 122 years old. And as we celebrate that milestone, we look ahead to the future where our deep Diverse set of investment opportunities allows us to meet customer expectations and achieve investor commitments. Keeping the customer bill impact in mind, we will invest alongside growth in our communities to keep the momentum going for many, many years to come. Thank you.
spk08: I'll turn it over to Brian. Brian? Thank you, Sean. Thank you, Jason. And good morning, everyone. I am pleased to review our 2023 results with you and provide our 2024 outlook, as well as details on our long-term consolidated EPS guidance. Let's start on slide six and discuss full-year 2023 results. On a consolidated basis, 2023 net income was $417 million, or $2.07 per diluted share, compared to $666 million, or $3.32 per share in 2022. Earnings for last year included $1.16 per share from natural gas midstream operations, which we fully exited in 2022 through the sale of our energy transfer units. We had a great year of execution. OG&E Energy's 2023 consolidated earnings reflect results at the high end of our original and revised guidance. In our core business, the electric company exceeded expectations, achieving net income of $426 million or $2.12 per diluted year compared to $440 million or $2.19 per share in 2022. The year-over-year decrease in electric company net income was primarily due to milder weather compared to the prior year. As you may recall, Oklahoma and Arkansas experienced an exceptionally hot summer in 2022. Milder weather in 2023 was partially offset by the benefits of strong load growth of 2.7% during the year. Other drivers of current year results compared to the prior year were depreciation and interest expense related to our capital investments, increased operation and maintenance expense, higher revenues from recovery of capital investments, and allowance for equity funds used during construction related to our 2023 capital investments. Other operations, including our honing company, reported a loss of $10 million or $0.05 per diluted share in 2023 compared to a loss of $5 million or $0.03 per share in 2022. The increase in net loss was primarily due to higher interest expense related to increased short-term debt, and Q4 results included an approximate $0.02 tax benefit related to our former natural gas midstream business. As I mentioned, 2023 weather normalized load growth came in at 2.7%, led by the commercial sector, which grew electricity usage by a remarkable 11%. We have now experienced back-to-back-to-back annual total retail load growth of 2.4% or greater. As you will see in a moment, we expect 2024 load to continue this enviable trend, which highlights the economic vibrancy of Oklahoma and Arkansas enhanced by our low rates. Please see the appendix for more information regarding fourth quarter 2023 results. Turn into slide 7. For 2024 on a consolidated basis, we are forecasting earnings of $2.12 per share with a range of $2.06 to $2.18 per share. This represents a consolidated growth rate of 6% from our original 2023 guidance of $2 per share. And as I'll discuss in a moment, we expect consolidated EPS to continue to grow 5% to 7% throughout our five-year forecast period. 2024 consolidated EPS expectations incorporate electric company earnings of $2.22 per share. The electric company has consistently delivered results in line with our commitments. Its earnings growth profile has the foundation of strong load growth in 2024 that looks similar to the past three years, as well as an investment plan that is focused on our ability to serve our growing customer base with a reliable, resilient, and safe power system. At the holding company in 2024, we are forecasting a loss of $0.10 per share, consistent with the expectations I shared with you on prior calls. Let's now move to slide eight. As Sean mentioned, today we are introducing a long-term and annual consolidated EPS growth rate guidance of 5% to 7% based off of our 2024 consolidated earnings midpoint estimate of $2.12 per share. We believe OG&E Energy has one of the most credible five-year financial plans in the entire industry. It starts with a service area with favorable business prospects. In fact, we project load growth of 3% to 5% in 2024 and expect 2025 to be well above our historic 1% load growth with emerging trends that indicate continued strength in years beyond 2025. Our balance sheet is one of the strongest in the industry, supporting the $6 billion five-year capital investments you see in today's materials. Consolidated FFO to debt is forecasted to remain strong throughout the five-year forecast period with no big dips and instead a consistent performance of approximately 17% each year. We continue to target a dividend payout ratio of 65 to 70% and expect earnings per share growth to exceed dividend growth over the five-year period. In short, we believe our five-year plan is tremendous and it will be implemented by a proven team with a track record of operational excellence. Now, let me take a moment to discuss our future investment plans. Our growing operations will require a substantial level of infrastructure to support the reliability of our transmission and distribution system. Our future plans will be flexible. An annual level of capital spending in our T&D system could vary depending on the amount and timing of potential new generation capacity investments. Our deployed capital will address our customers' requirements for a safe and reliable power system while maintaining our competitive advantage of low rates and delivering on our commitments to shareholders in a lower risk fashion. In essence, this is all a continuation of the execution of our sustainable business model. Before I hand the call back to Sean, let me summarize today's message. Our team has once again delivered exceptional results in 2023 at the high end of our original and increased EPS guidance range. Looking ahead, we have developed an operational and financial plan spanning five years aiming to bring substantial value to customers and OG&E's power system, supporting economic development in our communities, and providing a compelling investment thesis for our shareholders. Our future outlook is based on this lower-risk investment strategy, backed by exceptional load growth, a solid financial position, constructive regulatory jurisdictions, and consistent executions from our employees. With that, we will open the line for your questions.
spk04: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from Char Perez of Guggenheim Partners.
spk22: Hey, guys. Good morning. Hey, good morning, Char. Good morning. Good morning. Congrats, Sean, on the results.
spk19: Thank you. And congrats on the pronunciation of your name. They did.
spk24: It's taken years, but it's getting there. I'm still working on mine.
spk23: There you go.
spk22: Sean, maybe just starting off on the recently filed IRP update, there's obviously over a gigawatt capacity that's within the five-year time frame. It's not in plan. I guess... How quickly would you look to update that portion of the CapEx needs after the IRP? So what's the cadence of updates? And could that incremental spending kind of crowd out some of the base spending as you manage customer rates? Thanks.
spk19: Yeah, I think that's a great question. And so we'll handle this process just like we did with the last one. And so what we'll do is we'll finalize that IRP. We'll go through the RFP process where we go through an extensive review. There's a lot of stakeholder discussions. We follow all of the commission rules. And then we'll negotiate some agreements. And we'll file that at the commissions. And once we get approval, then we'll layer that into our forecast. A couple points about that. I think your point there with that crowd out. I'd probably use a different word than crowd, but what I would say to that, Char, is that we have a lot of flexibility around our investments and we can move some things around. So yes, we will be very flexible and move some things around and really smooth that, impact out the customers as much as we can. And then I've said repeatedly, our preference, our very strong preference is to really smooth these generation additions out over a number of years. And so not to create a situation where we have a very large asset going into service over a couple years.
spk22: Does that help? Yeah, totally. And then just lastly, just a balance sheet question. I mean, obviously, there's incremental spending. It's one of the key things on the call today, right? As you're getting to that 17% FFO to debt metric, would you look at further equity support in line with the OPCO authorized cap structure of roughly 50-50 or something different or not at all, actually.
spk19: Yeah, thanks for that. And what I would say, Char, is I think Brian was very clear. You know, there's really no equity needs in our plan. I think what I would offer for you, though, is that, you know, we're managing this business for the long term. And when we... have the opportunity with our investments and our growth down the road, and we need to issue the equity, we'll issue it. Got it. Got it.
spk22: Perfect.
spk19: Okay. Thanks, Char.
spk22: Yeah, appreciate it, guys. Thank you. And it's good to see Brian working very hard for you. Thanks, guys.
spk16: Yeah, he's working hard. Thanks, Char. Have a good day, buddy.
spk04: Thank you. One moment for the next question. And our next question comes from Nicholas Campanella of Barclays.
spk33: Hey, good morning, everyone. Thanks for taking the question. Good morning, Nick.
spk02: Morning. So, yeah, thanks for the increase in the CapEx plan and all the details there. I guess just simplistically, what is rate-based growth on this new plan as you see it?
spk08: Brian, you want to cover that one? Sure, sure. Good morning, Nick. And, yeah, you know, in the appendix, we've given our best current estimate of our five-year capital expenditures, and we've also provided our starting rate-based number as filed in our recent rate case filing, as well as an annual depreciation expense trend line here in the five years. So, you know, maybe I'll punt to Jason maybe after the call to help with kind of the annual rate-based number across the five-year plan, but from a five-year CAGR perspective, it's roughly 7.5%.
spk02: Seven and a half percent. That's helpful. Okay. And then I guess just holdco was five cents in 23. You have another five cents to drag in 24 from, you know, probably just new debt issuances. Just how do you kind of see your holdco drag progressing through the plan here?
spk03: Does it remain consistent at that 10 cents or does it grow through 25 and beyond?
spk08: Yeah. Hey, Nick. It's Brian again. You know, as I've spoken to the last few quarters, The utility and holding company are lining up very well for 2024 and beyond. You've heard us speak to the many tailwinds at utility, and we spoke about a lot of them today, namely the very strong load growth and a host of incremental infrastructure investment needs. And so we're expecting utility to grow very meaningfully during the five-year period, and the holding company really is there to help to finance the business as we go along the way. So you have the capital plan numbers, and Today, we're providing this consolidated view of OG&E Energy Corp., and we have a lot of confidence in achieving that 5% to 7% consolidated EPS growth rate throughout the five-year period next. So we're looking at it as a consolidated view, and certainly you'll see the holding company tick up a little bit each year. But in total, when you look at the whole package, we feel very confident and strongly about our ability to deliver that 5% to 7% consolidated CAGR. and annual growth rate.
spk02: All right. Hey, I appreciate the time. Thanks.
spk08: Thanks, Nick. Thank you, Nick.
spk04: Thank you. One moment for our next question. And our next question comes from Durgas Chopra of Evercore ISI.
spk05: Hey, good morning, Tim, and happy... Hey, Sean.
spk13: Hey, good morning.
spk05: Good morning. Happy 122nd birthday in advance. Thank you.
spk13: Thank you. That'll be a big day.
spk05: It sure is. Hey, just maybe can you help us bridge, obviously, a very steep increase in capital plan. And it's nice to see low growth is supporting a lot of that. But just, you know, can you help us bridge what big projects, big generation projects, are in the plan now? Obviously, I think Horseshoe Lake is in the plan now. Just any big projects that you can call out which helps us bridge going from 4.75 to 6 billion, please?
spk19: Yeah, really, Horseshoe Lake is the single big project in the five-year capital plan. Really, what is driving a lot of that is load growth. We are investing a lot in connecting new customers and building infrastructure to support them all the while improving the reliability and resiliency of our assets. But other than Horseshoe Lake, there's not a big project in there that's really driving that.
spk05: Got it. Excellent. Okay. That's what I was expecting. I just wanted to check. Okay. That's perfect. And then maybe just any updates on the Oklahoma rate case here? Any feedback or initial feedback from stakeholders or discussions with regulators? and others that you can share with us?
spk19: Not at this time. I mean, it's still early in the process, and testimony hasn't been filed for all the parties yet, and so we'll go through that, and we'll get this resolved and continue executing on our business.
spk05: Okay, perfect. I appreciate the time. Good luck, guys. Thanks. Thanks. Thanks, Durgess. Take care, Durgess.
spk04: Thank you. One moment for our next question. And our next question comes from Julie DeMolin-Smith of Bank of America. Hey, good morning, team.
spk25: Very nicely done on holding the line on that five to seven. So kudos to the whole team there on that front. Appreciate it.
spk18: Thanks, Julie. Good morning. Good to hear from you.
spk25: Yeah, absolutely, guys. All right, well, let me kick it off on this front. You talked about, look, being open to issuing equity. You obviously have a variety of further incremental generation projects potentially coming into the picture. maybe over the next year or so you can define that. How do you think about like what the moderator or governor is when it comes to raising that capex? You kind of talked about, you know, maybe not call it crowding out, but then the element of like sort of, you know, trying to tailor a program that's palatable to customers and palatable to your balance sheet. Is there some, you know, more specific metric you'd like to offer? I mean, is there some kind of FFO metric or inflationary metric? How do you think about boxing that in, if you will, a little bit more? Start to re-ask a little differently.
spk19: Yeah, great question. You know, and I think all of those points you raised are important points for us to consider. I think the credit metrics and the FFO to debt, that's very important to us. And we're going to manage our balance sheet that way. You know, as we think about the customer impact You know, inflation, you know, that is a key indicator that we would look at. But I think more importantly to that is we really forecast this low growth to continue for many, many years. And we play a big role in facilitating that continuation, that growth. And so what we want to do is make sure that our service area does not see any large increases in rates. thereby mitigating or slowing down that growth. Does that help?
spk25: No, fair enough, indeed. And then if I can follow up a little bit on some of the specifics there, just from an authorized equity ratio perspective, though, to the extent to which that would deviate here in the Ray case, could that drive equity needs here? Again, I know that there's kind of a tilde 17% here.
spk19: Yeah, Julian, just to be perfectly clear, we have no needs, and no plans to issue equity over this five-year horizon.
spk11: Excellent. All right.
spk25: It's not in the, you know, different parameters of equity ratio. All right. Wonderful. And then just moving on, if I can, just to pivot back to Jurgesh's point from earlier. I mean, given the protracted nature of process last year, I mean, wouldn't it be appropriate to think about pursuing settlement in the right time and place in as much as that could help expedite what is otherwise a busy schedule here this year? Sure, sure.
spk19: And, you know, we've pursued those and executed those settlements in the past, and, you know, we did that during our Horseshoe Lake proceedings, and we'd hope to do that again this time.
spk25: All right, wonderful, excellent. And sorry to clarify this one more time, 17% through the period here. In terms of seeing the cadence through that, that's 17 through the whole period. It's not necessarily fading at the end of that period or what have you, right?
spk19: Yeah, I think Brian was very clear to say there were no dips. Exactly. Bingo. Excellent, guys.
spk07: Thank you so much. See you. Take care, Joanne.
spk04: Thank you. One moment for our next question. And our next question comes from Anthony Croudel of Mizuho.
spk20: Hey, good morning, Sean. Good morning, Brian. Hey, good morning. Good morning, Anthony.
spk21: Hey, if I could follow up on Julian's questionnaire on the 17% FFO to debt target, I believe, and I may have it wrong, I thought your Moody's downgrade threshold was 18%. It seems that if that is accurate, are you guys comfortable operating below the threshold?
spk08: Yeah, Brian, you want to tackle that? Sure, sure. And Anthony, you know, previously we were projecting more in the neighborhood of 18%, and now that we've updated the capital investment plan and and made other updates to the plan, including this load growth, which just continues to shine and grow. You know, we now see our FFO numbers coming in around 17% each year 2024 through 2028. You know, with respect to Moody's, we have discussed these plans with them. We did that back in December. And I believe they really appreciate our track record. You know, the lower risk way we deploy capital the constructive nature of regulation in Oklahoma and Arkansas. And so my hope and belief is that our financial plans to continue to support our current credit ratings.
spk21: Great. And then if I could just, a high-level question on the 5% to 7% EPS growth rate. Does the company have a bias either way? Are you guys targeting the midpoint? And then also attached to that, just, you know, is it going to be linear the whole forecast period?
spk19: Thanks, Anthony. I think you should expect it to be linear. We have every expectation to do what we say we're going to do. And there's not a particular bias to the upside or the low side, but the bias is to do what we say we're going to do and achieve the five to seven on an annual basis.
spk21: Great. Congrats on a great quarter. Thanks for taking my questions.
spk11: Thanks, Anthony. Take care. Thank you, Anthony.
spk04: Thank you. One moment for our next question. And our next question comes from Paul Fremont of Leidenberg Thalmann and Company.
spk30: Thanks and congratulations on a great quarter.
spk11: Hey, good morning, Paul.
spk30: Good morning. I'm just trying to reconcile some of your comments. So I'm assuming that, well, the current CapEx plan equity sort of get you to that 17% FFO to debt level? Or can you do more CapEx and still get 17%?
spk11: Brian, you want to tackle that one? Sure.
spk08: And Paul, you know, our FFO estimates of 17% throughout the forecast period are are predicated really on all the assumptions we've put into materials today. So that $6 billion capital investment plan, the load growth we're projecting in 2024. I mentioned that we expect 2025 and beyond to be well north of 1%. So, you know, strong load results throughout the five-year period. You know, staying on top of our regulatory recovery for investments. So think of that as kind of an annual type of rate case cadence. And so all those assumptions you see in the materials today are what's embedded in that estimate.
spk30: Great. So then when Sean says that he doesn't expect equity in the five-year plan, does that imply that the plan capital spending is likely to remain roughly than where it is today, as opposed to... some of these new projects being additive.
spk19: Yeah, Paul, this is Sean. I think that's accurate where we sit today, right? And I think as Brian mentioned, as we see other projects come in, we have a lot of latitude, a lot of flexibility to move things around in our investment profile. And, you know, we're going to be very cognizant of The previous question in terms of managing our balance sheet and our credit metrics and the impact to customers so as not to slow down this tremendous load growth that we see continuing for many years.
spk30: Great. And then last question for me, can you guys be a little more specific in terms of your 5% to 7% EPS growth plan in telling us what load growth is embedded in that 5% to 7%? Because you've said above 1%, but that's a pretty wide potential range.
spk08: Yeah, that's right, Paul. You know, to give you some guardrails maybe, our draft IRP, which is out there in public, you can see some of the energy usage numbers that are that are based on our conversations with customers and their plans. Obviously we stay very close with our large customers, understand their needs and expected usage. So I might point you to that and just know we're more conservative in our financial planning than what you'll see in that draft IRP. We've given you the load growth expectations for 2024, 2025 and beyond. and IRP have some really large growth numbers. We're not going all the way that far, but it's in that 2% plus area.
spk30: The 2% plus being what's embedded in your current forecast?
spk09: Correct. That's right.
spk30: Great. Thank you so much.
spk09: Thanks, Paul. Take care.
spk10: Thank you. One moment for our next question.
spk04: And our next question comes from Travis Miller of Morningstar.
spk27: Good morning, everyone. Thank you.
spk04: Good morning, Travis.
spk32: Good morning.
spk27: You answered most of my questions, but one clarification around how you're bucketing the load growth. Obviously, commercial, the big one up in the data. How does that relate to some of these larger projects you've talked about, the manufacturing projects, some of the commodity production, XLA on gas? Would those go into, or are they in that commercial bucket, or would they then switch over to the industrial? Would you expect more industrial growth?
spk08: Hey, Travis. It's Brian. Good morning. We're seeing nice load growth prospects across a lot of different industries. Western Arkansas is very manufacturing heavy, so that's going to show up in the industrial sector over the next five years. In Oklahoma, you see a lot of different, the defense industry, food and beverage distribution, data centers is a big driver. And as I mentioned in the past, that data center load is fast to come on. It's kind of a lower margin type of sector, but it's turned out to be pretty, at least so far, very sustainable and It's more turning to generative AI data centers as opposed to the old Bitcoin mining. So does that give you a feel for what we're looking at?
spk27: Yeah. Are those flowing through those commercial numbers? I'm sorry.
spk08: Yes. And that's going through the commercial sector. That's right.
spk27: Okay. So we shouldn't see a huge shift from commercial to industrials, just continued pretty much commercial growth and also some industrial growth.
spk08: Yeah, you're going to see our biggest increases in the commercial sector in the next five years. We do believe there's going to be a nice pickup in the industrial sector compared to what we've seen the last couple of years, but it'll be modest compared to what you'll see in the commercial sector.
spk27: Okay, perfect. Sorry to drill down so much on that. And then kind of along those lines, when these big customers come on, either manufacturing or, like you mentioned, the data centers, what concerns you the most or what investment is needed the most to serve those customers in particular? Is it generation, or is it more of the wires parts, the substations, the transmission?
spk08: Well, on the transmission side, the data centers work with us. And they do look to the place, their infrastructure, where we have the load capacity on our transmission lines. So the need to invest on that front is pretty minimal. And as I mentioned earlier, our IRP has some pretty substantial growth numbers already included in it. The draft one I'm speaking to has assumed some of these large loads that we were speaking to today coming to fruition in the next five years, and they're very likely to come to fruition. So, yeah, that gets embedded into the generation capacity planning, including our DSM, energy efficiency programs, load reduction type services. So it may or may not have an impact on our generation, depending on how successful we are with energy efficiency, load reduction, and DSM.
spk27: Okay. Okay, great. That's very helpful. Thanks so much.
spk06: Thank you. Have a great day.
spk04: Thank you. One moment for our next question. And our next question comes from Aditi Gandhi of Wolf Research.
spk12: Good morning, Shawn, Brian, and Jason. Can you hear me?
spk15: Yes, we can. Good morning. Good morning.
spk12: Good morning. Brian, I just want to go back to Nick's question on holdco leverage. Could you give a little bit more color on holdco debt issuance needs beyond 2024? And you've mentioned the five to seven consolidated annual and your You've reiterated confidence in achieving it. Just how should we kind of think about where you're tracking within that range beyond 24?
spk08: You know, Aditya, I'll maybe go back to some of my messaging in previous quarters. You know, I think the one thing that's changed from a year ago is our capital investment plan has been updated. You know, our messaging has been very consistent. We've been speaking to all the investments that Sean alluded to earlier. And so when you think about our consolidated entity and maintaining the appropriate cap structure at utility and the dividend payout ratio we've spoken to, I believe what I've referenced in the past is the holding company debt increasing somewhere in the neighborhood of $200 million to $300 million per year. That number gets smaller as the five-year period goes on. So I wouldn't necessarily think the A $0.05 increase you're seeing this year is necessarily going to be $0.05 each year. That should decline a little bit as time goes by. But again, this is all part of the consolidated EPS package. And don't forget about the great tailwinds that we're seeing at the utility and overall growth we're seeing in our core operations.
spk12: Okay. Okay. That makes sense. Thank you for that. And then just on the Oklahoma rate case, I know it's still early. testimonies yet to be filed, but can you speak to how you feel about the case, given that the lower fuel factors were sort of passed through to customers late last year? What would the time for a potential settlement be?
spk19: It'll be an ongoing discussion. I think the first step in all of that is you need testimony to be filed. And then we'll begin those discussions, but I think that would be in the second quarter.
spk01: Okay, that's helpful. Thanks for taking my questions.
spk14: Have a great day. See you.
spk04: Thank you. As a reminder, to ask a question, please press star 1-1 on your touchtone telephone. One moment for our next question. And our next question comes from Greg Orwell of UBS.
spk26: Yeah, thank you. Congratulations. Hey, good morning, Greg. Good morning. Good morning, Sean. It's Brian. The only thing I have left is just guidance on the tax rate for 24 through the plan.
spk08: Brian? All right. Well, hey, Greg. Good morning. The effective tax rate we're estimating for 2024 is 16%. And when you think about our effective tax rate reconciliation, one of the larger items is the flowback of excess deferred income taxes, which lowers that effective tax rate compared to the statutory rate. So while you may see the ETR tick up a bit as time goes on, that's just because we've returned state ITCs, and then the federal excess deferred income taxes. So the net income impact should be negligible from an ETR changing over time point of view. Great. Thanks. Thank you. Have a good one, Greg.
spk04: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Sean Trosky for closing remarks.
spk19: Thank you, DeeDee, and thank you, everyone, for joining us today. Thank you for your interest in OG Energy and for being on the call, and have a great day.
spk04: This concludes today's conference call. Thank you for participating, and you may now disconnect. Thank you. you Thank you. Thank you. Thank you. Thank you. you Good day, and thank you for standing by. Welcome to the OGE Energy Corp 2023 Fourth Quarter Earnings and Business Update 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 the session, you will need to press star 11 on your 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 speaker today, Jason Bailey, Director of Investor Relations. Please go ahead.
spk31: Thank you, DeeDee, and good morning, everyone, and welcome to OGE Energy Corp's fourth quarter 2023 earning and business call update. With me today, I have Shawn Trotsky, our Chairman, President, and CEO, and Brian Buckler, our CFO. In terms of the call today, we will first hear from Shawn, 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 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'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 today. I will now turn the call over to Shawn for his opening remarks. Shawn? Thank you, Jason.
spk19: Good morning, everyone. Thank you for joining us today. It's certainly great to be with you. I'm excited about our message to you this morning as our results for 2023 were top of guidance and we are updating our five-year plan, including a consolidated earnings growth rate based on the strong fundamentals of our business. It's truly a great time to be here at the company. Before we get into the plan, I do want to take a moment to talk about our people here at Big Orange. In 2023, the team delivered results for our customers, for our communities, and shareholders by providing reliable energy at some of the lowest rates in the nation every day. Once again, our safety results were very strong, with the last eight years being the safest in our 121-year history, even as we continue to face some of the most extreme weather in the country, like winter storms Jerry and Heather in January, where our plants ran, generating electricity to the grid to ensure our customers could continue to live their lives and run their businesses. Our team achieved recognition for our culture in 2023. I mentioned last quarter that we'd been named the number one in state employer in Oklahoma by Forbes magazine. And later in the year, we were also named a top workplace in Oklahoma, following the feedback our employees gave in our annual workplace survey. And just last week, Forbes named OGE Energy the 16th best mid-sized employer in the country, achieving the highest rank in our sector and the highest ranking of any company in Oklahoma. These results are not happenstance. They come from a dedicated commitment to fostering a culture grounded in our values and our beliefs and operationalized with a focus to deliver safe, reliable, and resilient electricity combined with outstanding customer experiences every single day. I'm so proud of everyone here at the company, and it's because of them that we're discussing great financial results. This morning, we reported consolidated earnings at the top end of our guidance of $2.07 per share for the year, including $2.12 per share for OG&E and a holding company loss of 5 cents per share. Our sustainable business model provides opportunities to drive low growth while simultaneously investing in the grid and generation for many years to come in a way that is mindful of ensuring a smooth customer impact and delivering consistent financial returns. Last year, my message to you was, we've got this. The plan we introduced to you this morning is an extension of that message and is consistent with the growth we've delivered in the past. Over the next five years, we expect to grow consolidated earnings per share at 5% to 7%. Looking back at the 10-year period before we exited our midstream natural gas segment, we delivered over 6% of consolidated earnings per share growth. The difference now is that we've simplified our business mix and remove the volatility that was associated with that business segment. Our plan going forward, which Brian will detail, is based on a pure play electric model with premium fundamentals, including a strong financial base and credit metrics, excellent load and customer growth, and a lower risk investment plan focused on delivering the safe, reliable, resilient electric service that our customers expect. Today I want to talk to you a bit more about three key aspects of our work that drive our results. reliability, growth, and affordability. Our grid and weather hardening investments continue to deliver great results for our customers. Our grid reliability investments benefited customers in 2023, saving over 320 minutes of interruption for the average impacted customer. And from a SADIE perspective, automated restorations saved our customers more than seven and a half minutes of SADIE, or 6.2 million customer minutes of interruptions. We also built or upgraded 21 substations to serve our growing service area, and we will continue making these types of investments in the grid that directly benefit our customers. This foundation powers our growing communities and economic development engine that has delivered 11 new projects in our service area that are projected to create thousands of jobs and garner billions of dollars in additional investment. This type of growth is not by accident. We set the stage for these results more than five years ago when we began investment and growing the local economy in cities and towns all across our service area. Our communities maintain strong unemployment rates and continue to attract expanding and new businesses that our low rates help secure. For example, just last month, Stardust Power announced its plans to build a new battery-grade lithium refinery in Oklahoma, bringing hundreds of jobs to the community as well as community infrastructure development. Oklahoma's central location, access to multiple transportation routes, highly skilled workforce, and low-cost energy were all reasons noted for the site selection, and we look forward to serving Stardust as they get up and running. Our load forecast for 2024 continues to keep pace with the outstanding growth we've experienced over the last three years, and our long-term load forecast remains a strong as our service area continues to grow. Turning to the regulatory front, constructive regulatory outcomes enable us to support growth, serve customers, and achieve results for our shareholders. We released the draft IRP that will lead to RFPs later in the year for additional generation to meet the needs of our growing service area. We will be disciplined with regard to customer impact and expect a combination of gas, solar, along with energy efficiency and DSM programs to meet the identified needs. In Oklahoma, we have filed a rate review and expect new rates to be in place by July 1st. In Arkansas, we've achieved a settlement under the formula rate plan for a 1.4% increase in rates effective April 1st. Today's macroeconomic environment continues to create pressure on our customers, and we remain committed to affordability and keeping bills low. As I mentioned in our last call, we reduced the average fuel charge by $21 per month in November, which had an immediate impact on customer bills. We've doubled down on connecting customers to programs and services to help them manage their energy use and monthly bill, enrolling nearly 20% of our customers in new-to-them programs in 2023, including energy efficiency and home weatherization as well as connecting our customers to billing assistance when they need it. Additionally, our team continues to innovate energy efficiency programs that will help customers reduce their bill and increase reliability, including making low-cost repairs to qualified customer homes for weatherizations, piloting solar and battery storage technology at schools, and piloting managed flexible load technology. As we celebrate the impact of those programs, I want to close with a few important thoughts. We are committed to growth for our communities, for our customers, and to financial growth for our shareholders and our employees. The case for Ogenie is strong, and I'm bullish on our future. We're leveraging the economic development engine we built that drives load growth. Our excellent execution is driven by fully engaged employees who are determined to reach our North Star of delivering safe, reliable, and affordable electricity to our customers. We operate and construct the regulatory jurisdictions. And we've created a competitive, credible, lower risk financial plan backed by a strong balance sheet, all of which leads to a long-term plan where we address system growth and customer needs, which are at the center of our decisions. Next week, OG&E turns 122 years old. And as we celebrate that milestone, we look ahead to the future where our deep diverse set of investment opportunities allows us to meet customer expectations and achieve investor commitments. Keeping the customer bill impact in mind, we will invest alongside growth in our communities to keep the momentum going for many, many years to come. Thank you. I'll turn it over to Brian.
spk08: Brian? Thank you, Sean. Thank you, Jason, and good morning, everyone. I am pleased to review our 2023 results with you and provide our 2024 outlook, as well as details on our long-term consolidated EPS guidance. Let's start on slide six and discuss full-year 2023 results. On a consolidated basis, 2023 net income was $417 million, or $2.07 per diluted share, compared to $666 million, or $3.32 per share in 2022. Earnings for last year included $1.16 per share from natural gas midstream operations, which we fully exited in 2022 through the sale of our energy transfer units. We had a great year of execution. OG&E Energy's 2023 consolidated earnings reflect results at the high end of our original and revised guidance. In our core business, the electric company exceeded expectations, achieving net income of $426 million are $2.12 per diluted year compared to $440 million or $2.19 per share in 2022. The year-over-year decrease in electric company net income was primarily due to milder weather compared to the prior year. As you may recall, Oklahoma and Arkansas experienced an exceptionally hot summer in 2022. Milder weather in 2023 was partially offset by the benefits of strong load growth of 2.7% during the year. Other drivers of current year results compared to the prior year were depreciation and interest expense related to our capital investments, increased operation and maintenance expense, higher revenues from recovery of capital investments, and allowance for equity funds used during construction related to our 2023 capital investments. Other operations, including our honing company, reported a loss of $10 million or $0.05 per diluted share in 2023 compared to a loss of $5 million or $0.03 per share in 2022. The increase in net loss was primarily due to higher interest expense related to increased short-term debt, and Q4 results included an approximate $0.02 tax benefit related to our former natural gas midstream business. As I mentioned, 2023 weather normalized load growth came in at 2.7%, led by the commercial sector, which grew electricity usage by a remarkable 11%. We have now experienced back-to-back-to-back annual total retail load growth of 2.4% or greater. As you will see in a moment, we expect 2024 load to continue this enviable trend, which highlights the economic vibrancy of Oklahoma and Arkansas enhanced by our low rates. Please see the appendix for more information regarding fourth quarter 2023 results. Turning to slide 7, for 2024 on a consolidated basis, we are forecasting earnings of $2.12 per share with a range of $2.06 to $2.18 per share. This represents a consolidated growth rate of 6% from our original 2023 guidance of $2 per share. And as I'll discuss in a moment, we expect consolidated EPS to continue to grow 5% to 7% throughout our five-year forecast period. 2024 consolidated EPS expectations incorporate electric company earnings of $2.22 per share. The electric company has consistently delivered results in line with our commitments. Its earnings growth profile has the foundation of strong load growth in 2024 that looks similar to the past three years, as well as an investment plan that is focused on our ability to serve our growing customer base with a reliable, resilient, and safe power system. At the holding company in 2024, we are forecasting a loss of $0.10 per share, consistent with the expectations I shared with you on prior calls. Let's now move to slide eight. As Sean mentioned, today we are introducing a long-term and annual consolidated EPS growth rate guidance of 5% to 7% based off of our 2024 consolidated earnings midpoint estimate of $2.12 per share. We believe OG&E Energy has one of the most credible five-year financial plans in the entire industry. It starts with a service area with favorable business prospects. In fact, we project load growth of 3% to 5% in 2024 and expect 2025 to be well above our historic 1% load growth, with emerging trends that indicate continued strength in years beyond 2025. Our balance sheet is one of the strongest in the industry, supporting the $6 billion five-year capital investments you see in today's materials. Consolidated FFO to debt is forecasted to remain strong throughout the five-year forecast period with no big dips and instead a consistent performance of approximately 17% each year. We continue to target a dividend payout ratio of 65% to 70% and expect earnings per share growth to exceed dividend growth over the five-year period. In short, we believe our five-year plan is tremendous and it will be implemented by a proven team with a track record of operational excellence. Now, let me take a moment to discuss our future investment plans. Our growing operations will require a substantial level of infrastructure to support the reliability of our transmission and distribution system. Our future plans will be flexible. An annual level of capital spending in our T&D system could vary depending on the amount and timing of potential new generation capacity investments. Our deployed capital will address our customers' requirements for a safe and reliable power system, while maintaining our competitive advantage of low rates and delivering on our commitments to shareholders in a lower risk fashion. In essence, this is all a continuation of the execution of our sustainable business model. Before I hand the call back to Sean, let me summarize today's message. Our team has once again delivered exceptional results in 2023 at the high end of our original and increased EPS guidance range. Looking ahead, we have developed an operational and financial plan spanning five years aiming to bring substantial value to customers and OG&E's power system, supporting economic development in our communities, and providing a compelling investment thesis for our shareholders. Our future outlook is based on this lower-risk investment strategy, backed by exceptional load growth, a solid financial position, constructive regulatory jurisdictions, and consistent executions from our employees. With that, we will open the line for your questions.
spk04: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from Char Perez of Guggenheim Partners.
spk22: Hey, guys. Good morning. Hey, good morning, Star. Good morning. Good morning. Congrats, Sean, on the results.
spk19: Thank you. And congrats on the pronunciation of your name. They did.
spk24: It's taken years, but it's getting there. I'm still working on mine.
spk23: There you go.
spk22: Sean, maybe just starting off on the recently filed IRP update, there's obviously over a gigawatt capacity that's within the five-year time frame. It's not in plan. I guess... How quickly would you look to update that portion of the CapEx needs after the IRP? So what's the cadence of updates and could that incremental spending kind of crowd out some of the base spending as you manage customer rates? Thanks.
spk19: Yeah, I think that's a great question. And so we'll handle this process just like we did with the last one. And so what we'll do is we'll finalize that IRP. We'll go through the RFP process where we go through an extensive review. There's a lot of stakeholder discussions. We follow all of the commission rules. And then we'll negotiate some agreements. And we'll file that at the commissions. And once we get approval, then we'll layer that into our forecast. A couple points about that. I think your point there with that crowd out, I'd probably use a different word than crowd, but what I would say to that, Char, is that we have a lot of flexibility around our investments and we can move some things around. So, yes, we will be very flexible and move some things around and really smooth that impact out to customers as much as we can. And then, you know, I've said repeatedly, our preference, our very strong preference is to really smooth these generation additions out over a number of years. And so not to create a situation where we have a very large asset going into service over a couple of years.
spk22: Does that help? Yeah, totally. And then just lastly, just a balance sheet question. I mean, obviously there's incremental spending. It's one of the key things on the call today, right? As you're getting to that 17% FFO to debt metric, would you – look at further equity support in line with the OPCO-authorized cap structure of roughly 50-50 or something different or not at all, actually.
spk19: Yeah, thanks for that. And what I would say, Char, is I think Brian was very clear. You know, there's really no equity needs in our plan. I think what I would offer for you, though, is that, you know, we're managing this business for the long term. And when we... have the opportunity with our investments and our growth down the road, and we need to issue the equity, we'll issue it. Got it. Got it.
spk22: Perfect.
spk19: Okay.
spk22: Thanks, Char. Yeah, appreciate it, guys. Thank you. And it's good to see Brian working very hard for you. Thanks, guys.
spk16: Yeah, he's working hard. Thanks, Char. Have a good day, buddy.
spk04: Thank you. One moment for the next question. And our next question comes from Nicholas Campanella of Barclays.
spk33: Hey, good morning, everyone. Thanks for taking the question. Good morning, Nick.
spk02: Morning. So, yeah, thanks for the increase in the CapEx plan and all the details there. I guess just simplistically, what is rate-based growth on this new plan as you see it?
spk08: Brian, you want to cover that one? Sure, sure. Good morning, Nick. And, yeah, you know, in the appendix, we've given our best current estimate of our five-year capital expenditures, and we've also provided our starting rate-based number as filed in our recent rate case filing, as well as an annual depreciation expense trend line here in the five years. So, you know, maybe I'll punt to Jason maybe after the call to help with kind of the annual rate-based number across the five-year plan, but from a five-year CAGR perspective, it's roughly 7.5%.
spk02: Seven and a half percent. That's helpful. Okay. And then I guess just holdco was 5 cents in 23. You have another 5 cents to drag in 24 from, you know, probably just new debt issuances. Just how do you kind of see your holdco drag progressing through the plan here?
spk03: Does it remain consistent at that 10 cents or does it grow through 25 and beyond?
spk08: Yeah. Hey, Nick. It's Brian again. You know, as I've spoken to the last few quarters, The utility and holding company are lining up very well for 2024 and beyond. You've heard us speak to the many tailwinds at utility, and we spoke about a lot of them today, namely the very strong load growth and a host of incremental infrastructure investment needs. And so we're expecting utility to grow very meaningfully during the five-year period, and the holding company really is there to help to finance the business as we go along the way. So you have the capital plan numbers, and Today, we're providing this consolidated view of OG&E Energy Corp., and we have a lot of confidence in achieving that 5% to 7% consolidated EPS growth rate throughout the five-year period next. So we're looking at it as a consolidated view, and certainly you'll see the holding company tick up a little bit each year. But in total, when you look at the whole package, we feel very confident and strongly about our ability to deliver that 5% to 7% consolidated CAGR. and annual growth rate.
spk02: All right. Hey, I appreciate the time.
spk08: Thanks. Thanks, Nick. Thank you, Nick.
spk04: Thank you. One moment for our next question. And our next question comes from Durga Chopra of Evercore ISI.
spk05: Hey, good morning to you, and happy... Hey, Sean.
spk13: Hey, good morning.
spk05: Good morning. Happy 122nd birthday in advance. Thank you.
spk13: Thank you. It'll be a big day.
spk05: It sure is. Hey, just maybe can you help us bridge, obviously, a very steep increase in capital plan. And it's nice to see low growth is supporting a lot of that. But just, you know, can you help us bridge what big projects, big generation projects, are in the plan now? Obviously, I think Horseshoe Lake is in the plan now. Just any big projects that you can call out which helps us bridge going from 4.75 to 6 billion, please?
spk19: Yeah, really, Horseshoe Lake is the single big project in the five-year capital plan. Really, what is driving a lot of that is load growth. We are investing a lot in connecting new customers and building infrastructure to support them all the while improving the reliability and resiliency of our assets. But other than Horseshoe Lake, there's not a big project in there that's really driving that.
spk05: Got it. Excellent. Okay. That's what I was expecting. I just wanted to check. Okay. That's perfect. And then maybe just any updates on the Oklahoma rate case here? Any feedback or initial feedback from stakeholders or discussions with regulators? and others that you can share with us?
spk19: Not at this time. I mean, it's still early in the process, and testimony hasn't been filed for all the parties yet, and so we'll go through that, and we'll get this resolved and continue executing on our business.
spk05: Okay, perfect. I appreciate the time. Good luck, guys. Thanks. Thanks.
spk19: Thanks, Durgess. Take care, Durgess.
spk04: Thank you. One moment for our next question. And our next question comes from Julie DeMolin-Smith of Bank of America. Hey, good morning, team.
spk25: Very nicely done on holding the line on that five to seven. So kudos to the whole team there on that front. Appreciate it.
spk18: Thanks, Julie. Good morning. Good to hear from you.
spk25: Yeah, absolutely, guys. All right, well, let me kick it off on this front. You talked about, look, being open to issuing equity. You obviously have a variety of further incremental generation projects potentially coming into the picture. maybe over the next year or so you can define that. How do you think about like what the moderator or governor is when it comes to raising that capex? You kind of talked about, you know, maybe not call it crowding out, but then the element of like sort of, you know, trying to tailor a program that's palatable to customers and palatable to your balance sheet. Is there some, you know, more specific metric you'd like to offer? I mean, is there some kind of FFO metric or inflationary metric? How do you think about boxing that in, if you will, a little bit more? Start to re-ask a little differently.
spk19: Yeah, great question. You know, and I think all of those points you raised are important points for us to consider. I think the credit metrics and the FFO to debt, that's very important to us. And we're going to manage our balance sheet that way. You know, as we think about the customer impact You know, inflation, you know, that is a key indicator that we would look at. But I think more importantly to that is we really forecast this low growth to continue for many, many years. And we play a big role in facilitating that continuation, that growth. And so what we want to do is make sure that our service area does not see any large increases in rates. thereby mitigating or slowing down that growth. Does that help?
spk25: No, fair enough, indeed. And then if I can follow up a little bit on some of the specifics there, just from an authorized equity ratio perspective, though, to the extent to which that would deviate here in the Ray case, could that drive equity needs here? Again, I know that there's kind of a tilde 17% here.
spk19: Yeah, Julian, just to be perfectly clear, we have no needs, and no plans to issue equity over this five-year horizon.
spk11: Excellent. All right.
spk25: It's not in the, you know, different parameters of equity ratio. All right. Wonderful. And then just moving on, if I can, just to pivot back to Dragesh's point from earlier. I mean, given the protracted nature of process last year, I mean, wouldn't it be appropriate to think about pursuing settlement in the right time and place in as much as that could help expedite what is otherwise a busy schedule here this year? Sure, sure.
spk19: And, you know, we've pursued those and executed those settlements in the past, and, you know, we did that during our Horseshoe Lake proceedings, and we'd hope to do that again this time.
spk25: All right, wonderful, excellent. And sorry to clarify this one more time, 17% through the period here. In terms of seeing the cadence through that, that's 17 through the whole period. It's not necessarily fading at the end of that period or what have you, right?
spk19: Yeah, I think Brian was very clear to say there was no dip. Exactly. Bingo.
spk07: Excellent, guys. Thank you so much. See you. Take care, Joanne.
spk04: Thank you. One moment for our next question. And our next question comes from Anthony Croudel of Mizuho.
spk20: Hey, good morning, Sean. Good morning, Brian. Hey, good morning.
spk08: Good morning, Anthony.
spk21: Hey, if I could follow up on Julian's questionnaire on the 17% FFO to debt target. I believe, and I may have it wrong, I thought your Moody's downgrade threshold was 18%. It seems that if that is accurate, are you guys comfortable operating below the threshold?
spk08: Yeah, Brian, you want to tackle that? Sure, sure. And Anthony, you know, previously we were projecting more in the neighborhood of 18%, and now that we've updated the capital investment plan and and made other updates to the plan, including this load growth, which just continues to shine and grow. We now see our FFO numbers coming in around 17% each year 2024 through 2028. With respect to Moody's, we have discussed these plans with them. We did that back in December. And I believe they really appreciate our track record. The lower risk way we deploy capital, the constructive nature of regulation in Oklahoma and Arkansas. And so my hope and belief is that our financial plans to continue to support our current credit ratings.
spk21: Great. And then if I could just, a high-level question on the 5% to 7% EPS growth rate. Does the company have a bias either way? Are you guys targeting the midpoint? And then also attached to that, just, you know, is it going to be linear the whole forecast period?
spk19: Thanks, Anthony. I think you should expect it to be linear. We have every expectation to do what we say we're going to do. And there's not a particular bias to the upside or the low side, but the bias is to do what we say we're going to do and achieve the five to seven on an annual basis.
spk21: Great. Congrats on a great quarter. Thanks for taking my questions.
spk11: Thanks, Anthony. Take care. Thank you, Anthony.
spk04: Thank you. One moment for our next question. And our next question comes from Paul Fremont of Leidenberg Thalmann and Company.
spk30: Thanks and congratulations on a great quarter.
spk11: Hey, good morning, Paul.
spk30: Good morning. I'm just trying to reconcile some of your comments. So I'm assuming that, well, the current CapEx plan equity sort of get you to that 17% FFO to debt level? Or can you do more CapEx and still get 17%?
spk11: Brian, you want to tackle that one? Sure.
spk08: And Paul, you know, our FFO estimates of 17% throughout the forecast period are are predicated really on all the assumptions we've put into materials today. So that $6 billion capital investment plan, the load growth we're projecting in 2024. I've mentioned that we expect 2025 and beyond to be well north of 1%. So, you know, strong load results throughout the five-year period. You know, staying on top of our regulatory recovery for investments. So think of that as kind of an annual type of rate case cadence. And so all those assumptions you see in the materials today are what's embedded in that estimate.
spk30: Great. So then when Sean says that there's no – that he doesn't expect equity in the five-year plan, does that imply that the plan likely – the plan capital spending is likely to remain roughly than where it is today as opposed to – some of these new projects being additive.
spk19: Yeah, Paul, this is Sean. I think that's accurate where we sit today, right? And I think as Brian mentioned, as we see other projects come in, we have a lot of latitude, a lot of flexibility to move things around in our investment profile. And, you know, we're going to be very cognizant of The previous question in terms of managing our balance sheet and our credit metrics and the impact to customers so as not to slow down this tremendous load growth that we see continuing for many years.
spk30: Great. And then last question for me, can you guys be a little more specific in terms of your 5% to 7% EPS growth plan in telling us what load growth is embedded in that 5% to 7%? Because you've said above 1%, but that's a pretty wide potential range.
spk08: Yeah, that's right, Paul. You know, to give you some guardrails maybe, our draft IRP, which is out there in public, you can see some of the energy usage numbers that are that are based on our conversations with customers and their plans. Obviously we stay very close with our large customers, understand their needs and expected usage. So I might point you to that and just know we're more conservative in our financial planning than what you'll see in that draft IRP. We've given you the load growth expectations for 2024, 2025 and beyond. and IRP have some really large growth numbers. We're not going all the way that far, but it's in that 2% plus area.
spk30: The 2% plus being what's embedded in your current forecast?
spk09: Correct. That's right.
spk30: Great. Thank you so much.
spk09: Thanks, Paul.
spk10: Take care. Thank you. One moment for our next question.
spk04: And our next question comes from Travis Miller of Morningstar.
spk27: Good morning, everyone. Thank you.
spk32: Good morning, Travis. Good morning.
spk27: You answered most of my questions, but one clarification around how you're bucketing the load growth. Obviously, commercial, the big one up in the data. How does that relate to some of these larger projects you've talked about, the manufacturing projects, some of the commodity production, X oil and gas? Would those go into, or are they in that commercial bucket, or would they then switch over to the industrial? Would you expect more industrial growth?
spk08: Hey, Travis. It's Brian. Good morning. We're seeing nice load growth prospects across a lot of different industries. Western Arkansas is very manufacturing heavy, so that's going to show up in the industrial sector over the next five years. In Oklahoma, you see a lot of different, the defense industry, food and beverage distribution, data centers is a big driver. And as I mentioned in the past, that data center load is fast to come on. It's kind of a lower margin type of sector, but it's turned out to be pretty, at least so far, very sustainable and it's more trending to generative AI data centers as opposed to the old Bitcoin mining. So does that give you a feel for what we're looking at?
spk27: Yeah. Are those flowing through those commercial numbers? I'm sorry.
spk08: Yes. And that's going through the commercial sector. That's right.
spk27: Okay. So we shouldn't see a huge shift from commercial to industrial. It's just continued pretty much in commercial growth and also some industrial growth.
spk08: Yeah, you're going to see our biggest increases in the commercial sector in the next five years. We do believe there's going to be a nice pickup in the industrial sector compared to what we've seen the last couple of years, but it'll be modest compared to what you'll see in the commercial sector.
spk27: Okay, perfect. Sorry to drill down so much on that. And then kind of along those lines, when these big customers come on, either manufacturing or, like you mentioned, the data centers, what concerns you the most or what investment is needed the most to serve those customers in particular? Is it generation, or is it more of the wires parts, the substations, the transmission?
spk08: Well, on the transmission side, the data centers work with us. And they do look to the place, their infrastructure, where we have the load capacity on our transmission lines. So the need to invest on that front is pretty minimal. And as I mentioned earlier, our IRP has some pretty substantial growth numbers already included in it. The draft one I'm speaking to has assumed some of these large loads that we were speaking to today coming to fruition in the next five years, and they're very likely to come to fruition. So, yeah, that gets embedded into the generation capacity planning, including our DSM, energy efficiency programs, load reduction type services. So it may or may not have an impact on our generation, depending on how successful we are with energy efficiency, load reduction, and DSM.
spk27: Okay. Okay, great. That's very helpful. Thanks so much.
spk06: Thank you. Have a great day.
spk04: Thank you. One moment for our next question. And our next question comes from Aditi Gandhi of Wolf Research.
spk12: Good morning, Sean, Brian, and Jason. Can you hear me?
spk15: Yes, we can. Good morning. Good morning.
spk12: Good morning. Brian, I just want to go back to Nick's question on Holco leverage. Could you give a little bit more color on Holco debt issuance needs beyond 2024? And you've mentioned the five to seven consolidated annual and, you know, your you've reiterated confidence in achieving it. Just how should we kind of think about where you're tracking within that range beyond 24?
spk08: You know, Aditya, I'll maybe go back to some of my messaging in previous quarters. You know, I think the one thing that's changed from a year ago is our capital investment plan has been updated. You know, our messaging's been very consistent. We've been speaking to all the investments that Sean alluded to earlier. And so when you think about our consolidated entity and maintaining the appropriate cap structure at utility and the dividend payout ratio we've spoken to, I believe what I've referenced in the past is the holding company debt increasing somewhere in the neighborhood of $200 million to $300 million per year. That number gets smaller as the five-year period goes on. So I wouldn't necessarily think the A $0.05 increase you're seeing this year is necessarily going to be $0.05 each year. That should decline a little bit as time goes by. But again, this is all part of the consolidated EPS package. And don't forget about the great tailwinds that we're seeing at the utility and overall growth we're seeing in our core operations.
spk12: Okay. Okay. That makes sense. Thank you for that. And then just on the Oklahoma rate case, I know it's still a leak. testimonies yet to be filed, but can you speak to how you feel about the case, given that the lower fuel factors were sort of passed through to customers late last year? And what would the time for a potential settlement be?
spk19: You know, it'll be an ongoing discussion. I think the first step in all of that is you need testimony to be filed. And then we'll begin those discussions. But I think that would be in the second quarter.
spk01: Okay. Okay. That's helpful. Thanks for taking my questions.
spk14: Have a great day. See you.
spk04: Thank you. As a reminder, to ask a question, please press star 1-1 on your touchtone telephone. One moment for our next question. And our next question comes from Greg Orwell of UBS.
spk26: Yeah, thank you. Congratulations. Hey, good morning, Greg. Good morning. Good morning, Sean. It's Brian. The only thing I have left is just guidance on the tax rate for 24 through the plan.
spk08: Brian? All right. Well, hey, Greg. Good morning. The effective tax rate we're estimating for 2024 is 16%. When you think about our effective tax rate reconciliation, one of the larger items is the flowback of excess deferred income taxes, which lowers that effective tax rate compared to the statutory rate. So while you may see the ETR tick up a bit as time goes on, that's just because we've returned state ITCs, and then the federal excess deferred income taxes. So the net income impact should be negligible from an ETR changing over time point of view. Great. Thanks. Thank you. Have a good one, Greg.
spk04: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Sean Trosky for closing remarks.
spk19: Thank you, DeeDee, and thank you, everyone, for joining us today. Thank you for your interest in OG Energy and for being on the call, and have a great day.
spk04: This concludes today's conference call. Thank you for participating, and you may now disconnect.
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