Welcome to the OGE Energy Corp. Q3 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jason Bailey, Director of Investor Relations. Please go ahead..

Thank you, Corinne, and good morning, everyone, and welcome to our call. With me today I have Sean Trauschke, our Chairman, President and CEO; and Chuck Walworth, Interim CFO. 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 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 Sean for his opening remarks.

Sean?.

centennials for two of our power generation sites, Muskogee and Horseshoe Lake. A century ago, these plants began generating power for communities that were just beginning to electrify.

While the original units are long since retired, today, we serve an increased demand for the electricity to power homes, businesses, transportation, workplaces and lives that could not be imagined back then. And that demand has not subsided, it's only growing.

And we've continued to invest in generation at these sites over the years and just broke ground on Horseshoe Lake for Units 11 to 12, another 450 megawatts of hydrogen-capable natural gas units. Investing in existing sites helps keep costs low for our customers as we serve growing demand and a growing customer base.

These investments also drive the local economy with the expected economic impact of $536 million through the Horseshoe Lake investment. Recently, 110 of our employees returned from Florida.

And before that, another similar-sized group returned from Georgia, where they helped rebuild after Hurricanes Milton and Helene knocked out power to millions of folks across the Southeast.

Mutual assistance is one of the most incredible aspects of our industry, and I'm so proud of our purpose-driven team who readily volunteer to spend weeks away from family to help others. We're also happy to go because we have our share of extreme weather, as I just mentioned a few minutes ago.

As I close my remarks, I want to leave you with a couple of thoughts on this election day. As Americans, we hold the incredible right and responsibility to elect leaders at the local, state and national level.

I hope your voting plans are set for today if you haven't already voted, and we encourage our employees to vote and know they've made their voices heard. And with that sense of duty in mind, it's good reminder -- to remind us that we serve all.

Our obligation to equally serve customer without favor drives every person, every project and every decision in our company. Second, stability. We do what we say we'll do, and we are driving economic prosperity for the future in Oklahoma and Western Arkansas.

And as we celebrate Centennials at Muskogee and Horseshoe Lake, we're building business for the next century. And finally, our investment opportunities for reliability and system growth are numerous.

Whether distribution, whether transmission or generation capacity, we will remain nimble and flexible to manage for the long-term success of the company and our communities. Delivering safe, reliable, affordable and resilient electricity to our customers is our North Star.

And with these priorities in mind, I'm very pleased with how the company is positioned for the future. Our consistently solid execution lays a foundation, a foundation for not only this year, a foundation for not only '25, not only '26 but many years thereafter. So thank you very much, and now I'll turn the call over to Chuck.

Chuck?.

Thank you, Sean, and thank you, Jason, and good morning, everyone. Let's start on Slide 7 and discuss third quarter 2024 results. On a consolidated basis, third quarter net income was approximately $219 million or $1.09 per diluted share compared to approximately $242 million or $1.20 per share in the same period 2023.

In our core business, the electric company achieved net income of $225 million or $1.12 per diluted share compared to approximately $246 million or $1.22 per share in the same period 2023.

The decrease was primarily driven by higher depreciation and interest expense related to our capital investments, higher operation and maintenance expense and income tax expense. These drivers were partially offset by continued exceptional load growth, which offset the impact of milder weather compared to last year.

We have reserved the earnings impact of the interim rates in Oklahoma that began on July 1, and we will recognize the earnings consistent with the final order we received from the commission.

Other operations, including our holding company, reported a loss of approximately $6 million or $0.03 per diluted share in the third quarter compared to a loss of approximately $4 million or $0.02 per diluted share in the same period 2023.

The increase in net loss was primarily due to higher interest expense, partially offset by higher income tax benefit. I will discuss our expectations for full year 2024 consolidated earnings in a moment. Let's review our load results by turning to Slide 8.

Our weather-normalized load growth was exceptional at 8.4%, which I believe is the largest quarter-over-quarter growth that I've ever seen during my 24 years with the company. Additionally, our customer count continued its strong year-over-year growth at 1.2%.

We continue to attract new business and business expansions in our service area and deliver results for our communities, customers and shareholders. As we've said in the past, we've got a great pipeline of development activities, and Sean highlighted some of those with you a moment ago.

In addition to that, we are also seeing expansions in tribal enterprises, healthcare and energy.

Looking closer at weather-normalized load for this quarter, the strength was across all customer classes with residential growing at an impressive 1.8%, commercial had an extraordinary 24.7% and very strong showings for industrials at 3.7% and oilfield at 1.7%.

Year-to-date, we've experienced weather-normalized load growth of 6.8% and expect to finish at the top of our 2024 load growth guidance of 4% to 6%. Now let's address our full year earnings expectations on Slide 9.

Due to excellent load growth year-to-date as well as a warmer-than-normal summer, we expect to be at the top of 2024's consolidated earnings per share guidance range of $2.06 to $2.18 per average diluted share, assuming approval of the uncontested Oklahoma rate review settlement in 2024. Turning to Slide 10.

We have completed our planned financings for the year. Our fundamentals are excellent with one of the strongest balance sheets in the industry, a forecasted FFO-to-debt of approximately 17% each year through '28, strong credit ratings, no fixed rate maturities until 2027 and no need for external equity issuances in the current plan.

In closing, our third quarter results reflect continued operational excellence. Based on the strong load I described earlier and a warmer-than-normal summer, we believe we will achieve consolidated EPS at the top of the current guidance range. Our strong execution this year allows us to turn our focus on 2025 and beyond.

We believe our bright future is based on what we call our sustainable business model, defined by low rates, excellent loan growth, a constructive regulatory environment and a customer-centric investment plan.

Our plan provides flexibility to address investments that are required to meet the electric demand of our growing communities and our customers' expectation of a safe, reliable and affordable system while at the same time keeping a keen eye on maintaining our low rates.

This competitive advantage is the bedrock of our success in attracting new and expanding loads in our communities.

We believe we will continue to deliver consistent yearly consolidated EPS growth of 5% to 7% based off of 2024's original guidance and combined with an expected stable and growing dividend that offers a compelling total shareholder return proposition.

Our confidence to deliver on the commitments we've made to our customers and our shareholders is based on our strong fundamentals and backed up by the dedication of our employees. That concludes our prepared remarks, and we'll now open the line for your questions..

[Operator Instructions] Our first question comes from Nick Campanella from Barclays. Your line is now open..

Hi, everybody. It's Nathan Richardson on for Nick..

Hi, good morning, Nathan.

How are you?.

I'm doing all right.

How are you?.

Very well, very well..

Great. Just a couple of questions for you.

So first, what is your opportunity set for SPP? And would that be incremental to the plan?.

Yes. So they've made some announcements here, and we're awaiting some notices to construct that we expect to see in December. And there's a process by which you go through and finalize your estimates. We will do that. And just like we do with all of our -- like the generation stuff, once we nail that down, we'll layer that into our plants.

And as Chuck mentioned many times, we've got a lot of flexibility to kind of move things around and -- but that's just another lever we have to invest, and we'll pursue that. But yes, there's some opportunities there..

Got it. Thank you. And then we've seen recently some other utilities raise rate base growth CapEx, earnings guidance materially, things like that, based off of load revisions.

How are you thinking about the potential to increase these things in the future given the current 5% to 7% EPS CAGR, taking into account bill headroom and the growing load environment in Oklahoma?.

Yes. I think you kind of help me answer the question there. Good question, Nathan. But I think what's really going to drive that for us is load growth. And we've been really blessed with what we've already experienced. And what we see in the pipeline for many years out, it's not waning.

And so it's very difficult to kind of forecast with any specificity more than a year out of what we're going to see when it comes online. But as the growth materialize, we're going to deploy more capital.

And it's -- I think it's intuitive to think about it in terms of as the system grows and we add more customers, just the number is going to continue to rise in terms of our investment capital. But as we think about it, our ability to deploy that capital and spread it over more customers, and that's what we refer to as that sustainable business model.

And my drive here -- our intention is really to focus on to keep this going for many, many years. We're not focused on kind of a 2-year blip. We're focused on a very, very long runway as this continue to materialize..

Got it. That makes a lot of sense. Thank you very much..

Thank you. One moment for your next question. Our next question comes from Shar Pourreza of Guggenheim Partners. Your line is now open..

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

Sean Trauschke:.

. :.

Great to hear from you as well. Thanks for the update.

Maybe can you talk about the expectations for a CapEx update? Will you be in a position to update CapEx fully at year-end given the expectation for the generation RFP kind of time frame? Or does that remain an upside opportunity with kind of financing needs pushed out further kind of all those updates?.

Yes. I think that's exactly right. I think by the time we get to February, we will not have filed with the commission yet for approval of our decision around the generation RFP. Just like we did with Horseshoe Lake, Constantine, what we will do is we'll file that and get that approval with the regulatory compact in order.

We'll show you that on our CapEx table. And if there's any adjustments to financing, we'll tell you that as well..

Okay. Perfect. And then maybe a quick follow-up.

As we're seeing some of the constraints around turbine availability and kind of more conventional generation in the near term, does that change your view on resource mix going forward? And maybe is there an opportunity for some near-term upgrade projects kind of in lieu of some of the constraints?.

Yes. You're breaking up a little bit, but I think what I heard you say does some of the constraints around turbine availability create an opportunity for certain upgrades at our plants? I would share....

Yes.

Any thoughts on resource mix?.

Yes. I think certainly, availability is important, when these assets are available and can get into service. Your point about upgrades to our plants, that is a continuous effort we're always looking at. We've got a number of studies underway. We've done some upgrades already, where you pick up 20, 30, 40 megawatts per unit. We continually look at that.

So that's not a new development. That's kind of just in our bucket of things that we're always looking at. In terms of resource mix, we're going to look at the best value for our customers. And as I've said many times, it's still our intention to own these assets for the long term.

Depending on availability and construction time lines, there may be a scenario where we have to kind of bridge something with some short-term capacity, but we're going to do what's right and serves our customers. So I don't think the -- I'm ready to commit to kind of a change in asset mix yet..

Okay. And then maybe a last one on load growth.

You're kind of trending to exceeding your guidance -- or assumption range for 2024 just on a year-to-date basis? Do you envision any kind of incremental CapEx or pull-forwards in support of this higher near-term loan growth? Or is there more focus on executing the RFPs that we talked about?.

Chuck, do you want to do that one?.

Yes. Sure. Good morning, Constantine, so I think that the two are really related in that. And you take a step back, we've been experiencing this load growth now for -- this is not a new phenomenon for us for multiple years, really since coming out of 2020.

So we've been planning for it all along, and there's definitely a component of that in the RFP that we're working through. But as Sean mentioned in his remarks, we remain in conversations with multiple large-load customers. And clearly, we'll address that as needed as the time comes..

Okay, perfect. Thanks so much for the time..

Have a great day..

Thank you. One moment for your next question. Our next question comes from Julien Dumoulin-Smith of Jefferies. Your line is now open..

Hi. Good morning. It's Brian Russo on for Julien..

Hi. Good morning, Brian..

Good morning. Just on the load growth seems to be accelerating with each quarter.

At what point are you going to put pressure on the projections in the IRP that the RFP is based on, meaning is there any scenario where you might need more -- you might have a greater capacity shortfall than what's identified and i.e., the more capacity and/or investment?.

Yes. Brian, great question. And so this is -- we file the IRP every three years in both states. As we look at this in the last IRP, there were a lot of assumptions in there. Some were aggressive, some were too conservative. And so as it all washes out, we have to reevaluate that.

I think it's -- and I think the big assumption chain in there is that there was an assumption for a capacity reserve margin in the SPP of 18%. It actually turned out to be 16%. So that changes some of the numbers there. Notwithstanding those assumptions, you're exactly right. Growth is developing as we expected.

And we're considering right now evaluating whether we should file a new IRP just to update some of that and look at some of that. That's something we have the ability to do, looking at availability and all sorts of other factors. But it is increasing.

I think the other point I would just share with you on the load growth is we've been bullish for a number of years about the growth, and we're still bullish for the future. And -- but the growth isn't linear either. It kind of moves around, but we know it's going to be outsized from historical levels.

And so that's the other variable we're managing here is trying to really pinpoint exactly what year, what quarter some of these really large loads are going to come into service. But your thesis is right. We're considering that right now, and we're contemplating all of that as we make our final determination around the results of the RFP..

Okay. Great. And then just a follow-up on the SPP ITP projects. Just preliminary, it looks as if OGE on its own has over $200 million of potential projects.

I suppose this could be layered into your CapEx while also -- being incremental CapEx while also managing your retail customer rates because these are SPP transmission projects, right? So it's kind of spread out over the entire region in terms of cost and rate allocation.

Is that accurate?.

Yes, that is accurate. So a large portion of that is allocated to others that would pay for that. So that -- you're exactly right. The project you're referring to, I think, is tentatively slated to be in service in '28. And so we'll wait, receive the NTC probably next month.

And we'll work through refining our estimates and committing to that NTC, and then we'll update our numbers accordingly..

Okay, great. Thank you very much..

Thanks Brian. Have a great day..

Thank you. One moment for your next question. Your next question comes from Travis Miller of Morningstar Inc. Your line is now open..

Good morning. Thank you..

Good morning..

Just wondering on the data centers' large load, you have a lot of experience with that. There's been a lot of debate across the industry about how to spread those costs, how to make contracts.

What are you seeing around what are you thinking in terms of contract structure as you get more interest from large load, whether it's the data centers or other large loads in your area?.

I think the way we're thinking about it is we want to make sure that this is low debt, is accretive to our existing asset base, to our customers. We want to make sure that, in particular, our residential customers aren't impacted by some of these large loads.

And so you -- we're working with a lot of people to make sure you -- I think it really comes down to cost allocation, make sure you get the allocation of the cost right. That's how we're thinking about it. Whether that ends up being a special contract or a specific rate tariff, we'll work that through with our commission..

Okay. So that's something that has to go through the commission.

It's not something you can do bilateral?.

Well, we could do that with a special contract..

Yes. Okay, okay, okay.

And then just real quick, the commercial side, is there any more detail you could give around what type of customers or what sector the most growth is you're seeing on that commercial customer class?.

Yes. So it is pretty broad-based across the sector. But clearly, the driver within that has been the crypto mining load that we've had now for quite some time. But again, we're seeing growth across all sectors, including residential, industrial. And that really spurs a lot of the smaller commercial-type load as well.

So we're seeing really quite a nice mix..

Okay.

So you're still seeing growth in that crypto area then?.

Yes, we are..

Okay. That's all I had. Thanks so much..

Thanks Travis..

[Operator Instructions] One moment for our next question. Our next question comes from Paul Fremont of Ladenburg Thalmann & Co. Inc. Your line is now open..

Congratulations on a great quarter..

Hi, good morning, Paul..

Good morning.

I was wondering if you could size the amount of generation that would be required if the Stillwater data center were to move forward?.

Paul, I wish I could, but we're not at liberty to disclose that right now. I'm sorry..

Okay.

And can you give an indication of how many square feet is involved in the project?.

Give us a little bit of time here, Paul. We're really kind of locked down on this one, okay? I'm sorry. Paul, I'm sorry.

I just -- we're not allowed to talk much about it, okay?.

Got it.

When do you expect the OCC to take up your settlement?.

Yes. As I mentioned in my prepared remarks, I think we still expect it this year. The issue that is out there has nothing to do with the settlement of the recovery and the rates or anything like that. The issue is around cost allocation of some larger loads that we serve -- that customers have come to us and want us to serve.

And so I still expect that to be done this year, and we'll move on down the road. And as Chuck mentioned, we implemented the rates July 1, and so we've reserved all that, and we'll be ready to go..

And then last question for me.

If we think about the potential for additional CapEx, what percent of that CapEx should we think of as being financed with equity?.

Yes. I think -- good question. We haven't got there yet, right, Paul. And so I don't want to get ahead of ourselves here in terms of start thinking about financing. We're pretty intentional about making sure we have the regulatory compact down first before we put it in our plans, and then we'll explain the financing.

But longer term, as we go forward, we recognize that our ratings are important to us. And so something that supports a 17% FFO-to-debt is probably the way you ought to think about it..

Great. Thank you so much..

Thanks Paul. Have a great day..

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Sean Trauschke for closing remarks..

Thank you, Corinne, and thank you all for your time today and your interest in OGE Energy Corp. Hope you all have a wonderful day. Thank you..

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