OGE Energy Corp

Good day and thank you for standing by. Welcome to the OGE Energy Corp 2025 First Quarter Earnings and Business Update Call. At this time, all participants are in 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 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Jason Bailey, Director of Investment Relations. Please go ahead.

Thank you, Marvin, and good morning, everyone, and welcome to our call. With me today, I have Sean Trotsky, our Chairman, President, and CEO, and Chuck Walworth, our CFO and Treasurer. In terms of the call today, we will first hear from Sean, followed by an explanation from Chuck of financial results, and finally, as always, we will answer your questions. 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 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 will now turn the call over to Sean for his opening remarks. Sean? Thank you, Jason.

Good morning, everyone. Thank you for joining us today. It's certainly great to be with you. The first quarter of the year continued our momentum from the last few years, and we are firmly on plan. This morning, we reported consolidated earnings of 31 cents per diluted share, including 35 cents for OG&E, and a holding company loss of 4 cents. The fundamentals of our business are strong, and the team is committed to our North Star, delivering safe, reliable, and affordable electric service to our 900,000-plus customers 24 hours a day, 7 days a week, and 365 days a year. Today, I want to touch on a few topics that build on this momentum for the future. First, the customer growth and increasing demand for electricity we are seeing, operational excellence, and a look ahead for the rest of the year and how we view factors in the macro environment. Demand for the quarter grew 8% year over year, led by residential and commercial sectors. Customer growth is right on target at 1%, and we are excited about the pipeline for baseload growth which represents diverse industries bringing job and economic growth to both Oklahoma and Arkansas, and the new residents needed for those industries to thrive. From defense to tribal development and hospitality, this sustainable growth is how we build an even brighter future for our company. You may have seen the announcement earlier this month that Oklahoma City will host seven events for the 2028 Olympics for softball and canoe softball. We've long supported these facilities and look forward to partnering with them, the city, and the state to ensure our hometown delivers a wonderful experience for teams and visitors from around the world. We have lines of sight into new and expanding business that drive our baseload growth assumptions for the future, from an industrial customer moving their on-site generation to us, to our expanding military bases, to a midstream customer building a new processing facility in our service area. While I can't tell you the exact month or quarter today within a given year, these expansions are all built into our long-term growth projections. Looking at operations, our grid and weather strengthening investments continue to deliver great reliability results. Here we sit at the end of April after experiencing tornadoes and fires, windstorms, freezes, and thunderstorms in the last eight weeks. We're averaging 99.975% reliability. Then again last night and early this morning, another wave of tornadoes, high winds, rain, hail, and flooding came through, and the system held up very well. And the small number of outages we did have will all be back this morning. Between our teams, physical infrastructure, and technology, OG&E customers experienced fewer outages and better reliability. We'll continue to strengthen the grid for today and tomorrow and at some of the lowest rates in the nation. Today, our rates are top decile for overall retail, as noted in the most recent S&P report, and our rates are the lowest in both Oklahoma and Arkansas. We understand the importance of keeping rates low for our customers and also serving as the foundation for the economic development engine we've built over the years. Turning to generation, our power plants supply the grid with electricity that fuels economic growth. As a reminder, we have about 550 megawatts under construction today. at Horseshoe Lake and Tinker. And in the coming weeks, we expect to make regulatory filings on our most recent RFP. These filings will include a range of technology and contract types. And we're currently in discussions with a number of companies regarding data center projects, including the Google project in Stillwater. And we will file separately for those needs as those contracts are finalized. In addition to generation, we will also continue to invest in the reliability and resilience of the grid including future transmission opportunities. Continuing on the regulatory front, as we previously shared, we plan to request a rate review mid-year in Oklahoma, and Arkansas will file a general rate review and formula rate plan request toward the end of this year. Constructive regulatory outcomes enable us to drive the economy, serve customers and grow communities, and achieve results for all of our stakeholders. We recognize the uncertainty and macroeconomic factors that may create questions about our operating environment, and I'd like to share with you how we approach changes in tariff policy. We've limited our exposure through a diversified supply base, and one specific example is transformers. And since COVID, we've expanded our transformer sourcing strategies to include domestic and international suppliers. And for 2025, proactive planning and disciplined approach to inventory allows us to meet our planned projects for this year with little to no disruptions. In fact, Key components like transformers as well as wire and cable are all secured through 2026. While we don't have a crystal ball and the situation is dynamic, we will continue to do what we say we will do and deliver on our stakeholders' needs and expectations. As we plan for future investment, we'll keep all options in front of us, ensuring our business isn't predicated on a single rate filing, key supplier, or particular path forward. As I close my remarks and hand off to Chuck, I hope you hear how bullish I am on our company and our future. The case for investment in OG Energy is persuasive thanks to our growing, sustainable business model. Our financial position is strong with a high-quality balance sheet that we leverage appropriately. Our plan is designed to meet the needs of our growing customer base, keeping the macro environment in mind, and continued success in running an economic development engine that drives jobs and local economies and all of that. It's supported by operational excellence, delivered by an incredible team dedicated to reaching our North Star. So thank you. I'll turn the call over to Chuck.

Chuck? Thank you, Sean, and thank you, Jason, and good morning, everyone. I'm pleased to review 2025's first quarter results with you and provide an update on our 2025 financial plan. Let's start on slide six and discuss first quarter results. Consolidated net income was $63 million or $0.31 per diluted share compared to $19 million or $0.09 per share in the same period of 24. In our core business, the electric company achieved net income of $71 million or $0.35 per diluted share compared to $25 million or $0.12 per share in the same period of 24. The main drivers of the year-over-year increase in net income were higher operating revenues driven by the recovery of capital investments and continued strong load growth as well as lower operation and maintenance expense, partially offset by higher income tax expense and higher depreciation and interest expense on a growing asset base. As expected, the holding company reported a loss of $8 million or $0.04 per diluted share compared to a loss of $7 million or $0.03 per share in the same period of 24. Given our strong start to the year, we are affirming our 25 earnings per share guidance. We are firmly on a plan to deliver on our consolidated earnings commitment of 227 within a range of 221 to 233 per share. Let's review our load results by turning to slide seven. Customer growth and load growth continued its multi-year momentum into the first quarter. The number of customers on our system expanded at a very healthy pace of 1% compared to the first quarter of 24. Our weather normalized load growth turned in exceptional results, growing 8% compared to the first quarter of 2024. Our two largest customer classes, residential and commercial, grew at 3% and 28% respectively. I continue to be excited about our residential growth, which is the cornerstone of the prosperous communities we serve. Residential results follow a strong 2024 when it grew greater than 2%. The combination of strong multi-year customer growth led by our residential class and residential load growth underlies the robust nature of the economies in Oklahoma and Western Arkansas. We did see some softness in our industrial and oil field classes, which can be partially explained by both planned and unplanned outages in the first quarter. We are on track to meet our full year total load growth expectations. Sean discussed areas of future load growth, led by our economic and business development efforts, which illustrate our excitement about the communities we serve and underlie the strength of our five-year plan, Our sustainable business model is working by attracting new customers to our service area with our low rates and spreading costs across a larger customer and load base. And as I've discussed, our intentional efforts to grow our communities benefit each one of our customers by keeping our rates low. In our last rate case in Oklahoma, we were able to pass on the benefits of load growth to our customers to the tune of more than $60 million. Let's turn our attention to our 2025 financing plan on slide eight. Our financial plan objectives include maintaining our competitive low rate advantage by focusing on our cost structure, minimizing the time between investments and the return and recovery of the investments, and growing OGE by maintaining a highly credible total return proposition for our shareholders. On April 1st, we successfully completed our planned external financing by issuing $350 million of 30-year debt at the electric company, which contributes to our low refinancing risk. Our next refi isn't until 2027 and is a modest $125 million. And it's also our highest coupon debt. Our financial position is strong. based on growing communities and load and a track record of constructive regulatory outcomes. We're also seeing credit constructive legislation being considered and a recent example of this is in Arkansas where the governor signed legislation into law which allows CWIP recovery during the construction phase of certain generation capacity projects. Oklahoma legislators are currently contemplating similar and additional credit accretive actions. Our balance sheet, one of the strongest in the industry, is a competitive advantage and we are committed to keeping it that way. We continue to forecast FFO to debt of approximately 17% throughout the forecast period with no need for external equity issuances other than a modest annual drip under our current investment plan. Sean updated you on our progress towards a pre-approval filing in Oklahoma for generation capacity required to meet the SPP's planning margin requirements. Sean also discussed the potential for incremental transmission investment associated with SPP's integrated transmission plan. If those actions result in incremental investment opportunities, we will communicate our plans, including prospective financing, with you after we receive the appropriate approvals. As we've consistently said, we expect to include equity in our financing plan to support any incremental investments while producing accretive results and supporting our strong financial position. I'll close by summarizing our progress this quarter and expressing my confidence in our plan. Our system and our employees perform very well during extreme weather events. We plan to make generation capacity pre-approval filing in Oklahoma in the coming weeks. We are on track for a mid-year rate review filing in Oklahoma. Our load growth momentum carried forward into the first quarter and is on track to meet our expectations for the year. We've completed our planned external financing, and we're on plan to meet our earnings per share guidance. Our strong first quarter performance positions us well to meet our commitments for 2025. We're confident in our ability to achieve our consolidated earnings growth rate of five to seven based on the midpoint of our 2025 guidance. The strength of our plan allows us to focus on the future and address our customers' expectations of a safe and reliable system and to deliver power at some of the lowest rates in the nation. As always, our confidence remains based on the dedication of our employees and their ability to get the job done. That concludes our prepared remarks, and we'll now open the line for your questions.

Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you'll need to 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 the line of Shar Parisa of Guggenheim Partners. Your line is now open.

Hi, good morning, team. It's actually Constantine here for Shar. Congrats on a strong quarter.

Hey, good morning, Constantine.

Maybe starting off on the tariff side, kind of all the news since last quarter, especially as it relates to the new generation and the RFP. Are you seeing any disruptive or inflationary impact and More broadly, do you have regulatory mechanisms to address any tariff headwinds across the current CapEx plan?

Yeah. So I think for the current CapEx plan, Constantine, we feel pretty good. As I mentioned in my comments there, we have a line of sight to those materials and assets, and we feel pretty good that we'll see little to no disruption over the coming years for that. As it relates to generation, I think... Obviously, that created a bit of a pause in the marketplace when those were announced, and we were in the middle of negotiating and evaluating all those bids that came in, so we certainly took our time to go through that. We've not filed anything yet, so we're not too concerned about regulatory actions.

Excellent. That's helpful. And then maybe a quick follow-up on the load backdrop. the industrial backdrop posted some lower growth in that segment versus the overall strong resident commercial. Are there any key changes on the industrial side that you would want to highlight?

Yeah, Constantine, you know, I think, you know, in our remarks, we really covered it. It's, you know, within that class, you've got, you know, a variety of customers, but largely what we've seen are transitory events, in terms of, you know, outages, maintenance outages, things of that nature. So that's kind of what we see that noise being. Nothing, you know, we don't have any indications that there's anything, you know, external, like from a tariff or anything perspective that's impacting that class. Okay.

And so I guess no change on the annual expectation that reiterated.

No, no, no, no. We're clear that we're confident in our annual number.

And just a last quick one, kind of high level. We've seen some jurisdictions take on utility regulatory construct improvements amidst all of the low growth and support for economic development. Are there any conversations in Oklahoma, whether it's legislature or OCC, around the need for any improvements? Do you see any increasing likelihood of something like a formula rate in the current regulatory cycle or that more long dated at this point?

Yeah, I think in terms of the formula rate discussions, um, you know, we're going to be, uh, we're going to continue to, uh, pursue that. Um, but, but I think that's going to, as we've said before, that's going to, that's going to take a while, but again, that's more for the future. Um, we don't necessarily, um, I think it's going to occur this year, but we're going to continue to push that.

Okay. Understood. Really appreciate it. Appreciate taking the questions.

Thanks. Thanks, Costin. Have a great day.

You too.

Thank you. One moment for our next question. Our next question comes from the line of Nicholas Campanella of Barclays. Your line is now open.

Hey, good morning, everyone. Thanks for the updates. Hey, good morning, Nick. Morning. Morning. Maybe you can kind of talk through. I think you brought up SB 998. This is the generation rider in PISA recovery in your prepared remarks. You talked about it being kind of credit enhancing if you were to get it through. So can you just kind of confirm how that would impact the current plan and then how it would impact how you'd finance incremental CapEx, especially if you start winning some of these RFPs here?

Yeah, I think it's pretty straightforward, Nick. Currently, we've got a couple of units under construction right now. And then, as you alluded to, there may be additional following whatever comes out of the RFP. So like we've done on the transmission side in the past, this would provide cash flow during the construction phase. basically getting what would normally be AFUDC in the form of a cash return on the CWIP balance as it grows. Again, it's going to be dependent upon the mix of projects and the project length and all that kind of stuff in terms of how much their credit accretiveness turns out to be, but it's definitely marginally improvement and would help facilitate financing for it.

Okay, that's great. And then I also just noticed that when you kind of talked about these various data center projects, you talked about you're going to file separately for these opportunities. What would the timeline for those filings be? What should we be watching for? And then can you also just address In the queue, there was a Supreme Court decision about not being able to extend service from third-party transmission facilities. Does that impact in any way your ability to serve large-load customers like a Stillwater? Just wanted to clarify that. Thanks.

Yeah, no, thanks for the questions, Nick. Let me kind of run through those really quickly here. You know, as we mentioned in our remarks, we're going to file for the generation coming out of the RFP here in a few weeks. I mean, that's coming. And we need to kind of get that ball rolling. So that's why we're doing that. What we're trying to convey is these discussions we're having are ongoing and they're current. To the extent that we have finalized something with one of these data center companies, we will include the generation needs into that filing. If we don't, we'll do it later. And that's all we were trying to convey there. We don't really have a timeline for any of the data center announcements or anything like that. When we get them done and we come to an agreement and there's a commitment, we'll certainly make you aware of that. And then your question about the Oklahoma Supreme Court ruling, no, that doesn't have any effect on Stillwater or any of those data centers. Thank you. All right. Thanks. Have a great day.

Thank you. One moment for our next question. Our next question comes from the line of Dergish Chopra of Evercore AISI.

Your line is now open.

Hey, team. Good morning. Thank you for giving me time.

Good morning, Dergish. Sean, good morning. I wanted to sort of build on the discussion or just the commentary, Sean. With the Microsoft, Amazon pullback and sort of several data center leases we're hearing across the country, you know, how has the tone been, you know, in your customer exchanges? Are you seeing any pullback in the data center electricity demand narrative, or is it still guns blazing?

Yeah, well, I want to be careful how I describe that, but, you know, I think we've said we've got roughly a half a dozen or so discussions in various stages of development, and they're not slowing down.

Got it. Okay. Seems like it's pretty strong.

Still remains pretty strong. Okay. And then just on the balance sheet topic, Chuck, so Moody's put you on negative recently. I believe their downgrade threshold is 18%. You're targeting 17%. Sounds like there's going to be a healthy capital upside here. as you roll forward the capital plan that will have some equity, but you're still targeting 17%. So is it okay to assume that you'll take the downgrade from BAA1 to BAA2, or are you trying to address that and perhaps keep the BAA1 rating? Maybe just any thoughts there. Thank you.

Yeah, yeah. So, you know, I think the main thing to take away is that, you know, this is a you know, they put us on negative outlook. And so it's not, you know, it's not an imminent change, right? And, you know, I see several potential items, you know, occurring, you know, before the end of that timeframe. You know, we talked about the credit accretive legislation. You know, that's a new data point that I think would go into their calculus if that's approved. You know, we'll have several other regulatory changes events to get through and to continue to prove the, you know, the track record that we've had over many years now. And so I think, you know, as they do, you know, I can't obviously speak for Moody's, but, you know, I believe, you know, they'll take a measured approach and take all that new, you know, information into account whenever they, you know, resolve that, you know, in whichever direction they do. But from our perspective, we think that 17% still gives us one of the strongest balance sheets in the industry, and we're very comfortable where we are there.

That's helpful, Chuck. Thank you again.

Thank you. One moment for our next question.

Our next question comes from the line of Julian Dumoulin-Smith of Jefferies. Your line is now open.

Hey, good morning, team. Thank you guys very much for the time. I sincerely appreciate it and nicely done here. Hey, good morning. Good morning. So, Sean, team, maybe just to follow up on the timeline here, right, with Google, right? I mean, as you suggest earlier, you could join that up with the existing, you know, RFP effort or it could take a separate route. Just given what seems like a fairly expedited timeline here for conceivably ramping up that site, would you expect that there to be some sort of like a short-term PTA solution for them, something that would be like maybe a non-self-built, an acquisition or something to try to ramp up and meet that capacity need on a shorter-term basis? How do you think about kind of the timeline issues if it isn't married into the current RFP and how that would fit into your planning process? And then I've got to follow up on Undergesh's one on credit.

Okay. All right. Well, let me try to unpack that. So, obviously, there's a lot of moving pieces there, and this is a high-class problem we have with all of this opportunity coming before us. We've got a very robust response of bids that we're evaluating. So, you know, think of it in terms of if we secure an agreement with anybody, you know, we could just go to the next one down on the list, so to speak. That being said, as you think about constructing things, we've said previously, it makes a lot of sense. Maybe we have some short-term bridge things and just bridges until we can get some things constructed. The second point I would make on that, Julian, is the data centers themselves have a ramp curve. they don't drop in just hundreds of megawatts overnight. And so there is a build-out, a supply chain, a ramp curve for them too. So there is time to kind of grow into some of these loads. So I think that's the other point that I want to make sure we cover there. So I think I covered your questions. I'm looking at Jason and Chuck. All right, and then you've got a question for Chuck.

Yeah, Chuck, coming back to the Moody's conversation, you know, obviously credit accretive legislation, as you acknowledged a moment ago, but, you know, I didn't hear you necessarily saying you're targeting anything higher than 17% despite, right, some of the benefits you might be getting there per se, right? Again, obviously a big CapEx program ahead of you. Your point was simply to say, look, relative to peers, your perception of what that downgrade threshold should be should be reduced, and obviously given the enhanced credit accretive nature of what you're seeing in Oklahoma and Arkansas, for that matter, you're advocating for a lower downgrade threshold consistent with your own internal targets. That's what you meant to say, right?

Yeah. I mean, obviously, I can't, you know, I got to be careful about, you know, I can't speak for Moody's, but yes, my position is that, you know, some of these items that I discussed, they have both qualitative and quantitative benefits too, right? And so a lot of that, you know, on that qualitative side goes into the calculus on where those thresholds are. So, yeah, I would definitely argue relative to our peers that that would, you know, point in that favorable direction. But, again, that's Moody's process, and, you know, we'll just have to see how they determine that.

Excellent. And sorry, quick clarification. It seems like you did fairly well for the start of the year. Is that tracking ahead of expectations or was that contemplated here in the guide?

You know, we're clearly on plan for the year. You know, again, reiterating our guidance where we put it out. But definitely there's a positive tone to the start of the year and we're quite pleased with that. Awesome, guys. Well, keep going, all right? Best of luck.

Curious to see what happens the next few weeks.

See you soon.

Thanks, Julie.

Be good.

Thank you. One moment for our next question. Our next question comes from the line of Stephen Dempsey of Lindenberg Thalman. Your line is now open.

Hey, guys. Thanks very much for taking my question.

Hey, good morning, Steve.

Good morning, Sean. How are you? Just quickly want to follow up on the load growth discussion. I know we talked about it a little bit already. I'd like to focus more on the residential side. I mean, clearly, the industrial sales growth being down sounds transitory, but I'd like to hear a little bit about the durability of the 3% residential growth. You were putting up something like that 3% growth last year. And I think that that's probably a lot more margin accretive. So just interested to hear some comments around sales mix.

Yeah, I mean, you're right. Residential we view is extremely important and definitely has been beneficial for us. You know, we've seen a lot of changes with, you know, residential coming out of 2020. So, you know, I do think that some of that is, you know, kind of a continued rebound for Um, so, you know, I, I, I can't say it's going to stay at, you know, 3%. That's obviously a fantastic number. Um, but, you know, I think, you know, stepping back, uh, you know, looking at it from a broader perspective, the trend is clearly positive and, and that's, you know, that's kind of underlined by the, the consistent customer growth that we have, you know, don't see that changing. And then just the overall economic situation of, um, you know, Oklahoma and Western Arkansas, you know, don't see that changing either. So I think all the fundamentals are there for a directionally strong residential growth, you know, going forward.

Thanks. That's really helpful. Have you guys given an EPS sensitivity for what 1% residential growth does to numbers?

We haven't just because kind of, you know, as you mentioned before, there's a big, you know, different types of customers have different sensitivities. You know, we did give on our slides that we put out the first call, we did show just kind of overall what our growth was. And, you know, obviously you can do the simple math there for something. But, you know, the caveat there is that's going to change from year to year depending on customer mix. All right, that's all I have.

Thanks very much. Congrats.

Thanks. Thank you. Thank you. One moment for our next question. Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone. And our next question comes from the line of Anthony Cordell of Mizzou. Your line is now open.

Hey, good morning, team. Looking forward to seeing Sean go on that, what's that, canoe slalom in the 2028 or 26 Olympic Games?

All right. Well, I'm going to need a coach. So I know you've got coaching experience, Anthony, so I'm ready.

All right. You bet. Just a quick follow-up, I think, Dergesh, that train of thought on the FFO to debt downgrade threshold at 17. Chuck, you talked about a lot of items that, you believe are credit enhancing. I just wanted to check all of the items you speak about that are credit enhancing are more external, meaning in the legislative or regulatory arena, they're not actions that OG&E is going to take. Their actions get them to, you know, your action gets you to 17%. Is that fair?

Yeah, I think that's fair. But, you know, again, I think at a higher level, though, I think it's just continuing to build on our track record of success. The agencies obviously have a very long-term view, and the longer you can prove that out, and that's obviously up to us to continue to execute on, but that can only help us. But no, I don't disagree with you.

When they issued, I think, a recent report from Moody's, I want to say it was a month ago, but I apologize on the timing, when they moved it to negative outlook. Have you spoken to the agency since then? Because typically when they put a negative outlook, they try to resolve it within 12 months or 12 to 18 months. Is that fair?

Yes. Yes, 12 to 18 months is what they communicated to me.

Great. Thank you so much for taking the questions.

Thanks, Anthony. Take care.

Thank you. I'm showing no further questions at this time. I'll now turn it back to Sean Trotsky for closing remarks.

Thank you, Marvin, and thank you, everyone, for joining us today. We appreciate your interest in OGE Energy. Please take care of yourselves and those around you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.