OGE Energy Earnings: Putting Cash To Work With Utility Growth Investments

We are reaffirming our $37 fair value estimate for OGE Energy OGE after the company reported earning $0.19 per share during the first quarter of 2023, mostly flat after adjusting for gains related to OGE’s ownership in Energy Transfer during 2022 and other parent-level benefits during the first quarter of 2022. We are reaffirming our no-moat and stable moat trend ratings.

Earnings at OGE’s rate-regulated utility, OG&E, were $0.20 per share during the first quarter, up from $0.19 per share in the first quarter last year. OG&E now is OGE’s primary earnings driver and we think investors this year should track year-over-year results at OG&E rather than consolidated earnings.

On a weather-normalized basis, we continue to expect 6% average annual earnings growth during the next four years, in line with management’s 5%-7% target. This depends on OGE investing an average $1 billion annually and receiving constructive regulatory outcomes.

Electricity demand growth in OG&E’s service territories should lessen the need for large rate increases. Weather-normalized retail electricity demand was up 3.9% in the first quarter, primarily due to a 16% increase in commercial sector demand.

OGE completed its Energy Transfer unit sales in September 2022, providing enough cash to fund OG&E’s investment plan during the next five years without issuing equity.

OG&E will have difficulty topping last year’s full-year earnings given the exceptional summer weather benefit and exceptionally warm winter this year. Heating degree days in the first quarter were 10% lower than normal and 16% below last year’s first quarter, resulting in a $0.01-$0.02 negative EPS impact. Assuming normal weather during the critical summer months, we still believe OG&E can finish the year in line with management’s $1.99 to $2.09 EPS guidance range.