OGE Energy (US:OGE)2021-08-04 22:07Part I - Financial Information Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for OGE Energy Corp. and Oklahoma Gas and Electric Company, detailing financial position, performance, and significant events like Winter Storm Uri and the Enable merger OGE Energy Corp. Consolidated Condensed Financial Statements OGE Energy Corp. - Condensed Consolidated Statements of Income (Unaudited) | (In millions, except per share data) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $577.4 | $503.5 | $2,208.0 | $934.8 | | Operating Income | $129.5 | $125.4 | $178.1 | $181.7 | | Net Income (Loss) | $112.9 | $85.9 | $165.6 | $(405.9) | | Diluted Earnings (Loss) Per Share | $0.56 | $0.43 | $0.83 | $(2.03) | OGE Energy Corp. - Condensed Consolidated Balance Sheets (Unaudited) | (In millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $484.6 | $428.5 | | Net Property, Plant and Equipment | $9,575.2 | $9,374.6 | | Total Assets | $11,899.5 | $10,718.8 | | Total Current Liabilities | $911.3 | $697.4 | | Long-Term Debt | $4,495.2 | $3,494.4 | | Total Stockholders' Equity | $3,640.8 | $3,631.8 | | Total Liabilities and Stockholders' Equity | $11,899.5 | $10,718.8 | - Net cash used in operating activities was $767.8 million for the first six months of 2021, a significant decrease from the $263.3 million provided in the same period of 2020, primarily due to a large increase in regulatory assets related to Winter Storm Uri costs26 - Net cash from financing activities increased to $1,123.5 million in the first half of 2021 from $86.5 million in H1 2020, largely due to proceeds from new long-term and short-term debt issued to manage Winter Storm Uri costs26 Oklahoma Gas and Electric Company Condensed Financial Statements OG&E - Condensed Statements of Income (Unaudited) | (In millions) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $577.4 | $503.5 | $2,208.0 | $934.8 | | Operating Income | $131.2 | $126.1 | $180.3 | $183.1 | | Net Income | $85.1 | $78.9 | $96.3 | $98.8 | OG&E - Condensed Balance Sheets (Unaudited) | (In millions) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $11,459.3 | $10,489.0 | | Long-Term Debt | $3,995.4 | $3,494.4 | | Total Stockholder's Equity | $4,558.0 | $3,975.6 | - OG&E's regulatory assets increased dramatically to $1,278.3 million at June 30, 2021, from $415.6 million at December 31, 2020, primarily due to deferred costs from Winter Storm Uri42 Combined Notes to Condensed Financial Statements - OGE Energy operates through two segments: electric utility (OG&E) and natural gas midstream operations (investment in Enable), with the Enable investment accounted for using the equity method5456 - In February 2021, Enable entered a merger agreement with Energy Transfer, after which OGE Energy will own approximately 3% of Energy Transfer's limited partner units and plans to exit the midstream segment9495 - Due to Winter Storm Uri, OG&E incurred extremely high natural gas and purchased power costs, leading regulators to allow creation of regulatory assets totaling $754.8 million for Oklahoma and $92.3 million for Arkansas as of June 30, 20216567 - In May 2021, OGE Energy and OG&E each issued $500.0 million of senior notes, primarily to repay $900.0 million of a $1.0 billion term loan taken in March 2021 for Winter Storm Uri costs119120 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, including consolidated net income, segment performance, the impact of Winter Storm Uri, the Enable merger, capital expenditure plans, and 2021 earnings guidance for OG&E Overview and Recent Developments - OGE Energy's strategy targets 5% earnings per share growth at the electric utility through low-risk infrastructure investments and midstream cash distributions to create long-term shareholder value179 - In February 2021, Enable entered a merger agreement with Energy Transfer, an all-equity transaction expected to close in 2021, after which OGE Energy will own ~3% of Energy Transfer's units and plans to exit the midstream segment181182 - Winter Storm Uri in February 2021 caused record electricity demand and high fuel costs, leading OG&E to record regulatory assets of $754.8 million (Oklahoma) and $92.3 million (Arkansas) and pursue securitization for recovery183184 Results of Operations OGE Energy Consolidated Net Income | (In millions) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) | $112.9 | $85.9 | $165.6 | $(405.9) | - OG&E's (Electric Utility) net income increased by $6.2 million in Q2 2021 compared to Q2 2020, primarily due to higher utility margin, partially offset by increased depreciation from new assets189204 - OGE Holdings' (Natural Gas Midstream) net income increased by $13.2 million in Q2 2021, driven by higher equity in earnings from Enable due to improved NGL prices and crude oil volumes189221 - For the six months ended June 30, 2021, OGE Energy's net income was $165.6 million, a significant turnaround from a net loss of $405.9 million in the prior year, primarily due to a $780 million impairment charge on the Enable investment in 2020188142 - OG&E's utility margin for the six months ended June 30, 2021, decreased by $1.2 million, mainly due to a $27.7 million loss from the guaranteed flat bill program during Winter Storm Uri206207 Liquidity and Capital Resources - Net cash used in operating activities was $(767.8) million for the first six months of 2021, a decrease of $1,031.1 million from the prior year, primarily due to payments for Winter Storm Uri fuel and purchased power costs232233 - To manage Winter Storm Uri liquidity, OGE Energy entered a $1.0 billion term loan in March 2021, repaying $900.0 million in May 2021 with proceeds from new senior notes issued by OGE Energy and OG&E249250 Projected Capital Expenditures (2021-2025) | (In millions) | 2021 | 2022 | 2023 | 2024 | 2025 | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total | $850 | $785 | $810 | $835 | $860 | $4,140 | - In March 2021, Moody's and S&P's Global Ratings revised their outlook on OGE Energy and OG&E from stable to negative, citing regulatory uncertainty and weaker financial measures post-Winter Storm Uri253254 Environmental Laws and Regulations - OG&E monitors Biden administration actions on greenhouse gas emissions, including targets of 50-52% reduction from 2005 levels by 2030 and a fully decarbonized power industry by 2035, with unknown current impact on OG&E260267 - OG&E has reduced carbon dioxide emissions by over 40% compared to 2005 levels and expects to reach a 50% reduction by 2030 through coal-to-natural gas conversions and renewable energy deployment269 - The US Fish and Wildlife Service's proposed listing of the lesser prairie chicken as threatened in OG&E's service area could restrict or delay future development projects, especially for transmission lines273 Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes in its market risks compared to those disclosed in its 2020 Annual Report on Form 10-K - There have been no significant changes in the market risks affecting the Registrants from those discussed in the Registrants' 2020 Form 10-K287 Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the Registrants' disclosure controls and procedures are effective as of the end of the reporting period288 - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls289 Part II - Other Information Legal Proceedings The company reports no new significant legal cases and no material changes in previously reported proceedings, referencing its 2020 Form 10-K - There are no new significant legal cases to report, and no material changes in previously reported proceedings since the 2020 Form 10-K291 Risk Factors The company states there have been no significant changes to its risk factors from those disclosed in its 2020 Annual Report on Form 10-K - There have been no significant changes in the Registrants' risk factors from those discussed in the 2020 Form 10-K292 Other Information This section discloses compensation adjustments for CFO and VP of Utility Operations, and an amendment to the Supplemental Executive Retirement Plan (SERP) affecting the CEO's retirement benefit calculation - On August 2, 2021, the Compensation Committee approved 10% annual base salary increases for CFO W. Bryan Buckler (to $440,000) and VP of Utility Operations Donnie O. Jones (to $355,000)294 - On August 3, 2021, the Board amended the Supplemental Executive Retirement Plan (SERP), increasing the retirement benefit formula from 1.32% to 2.90% of the participant's average final 36 months' compensation, multiplied by years of service295297 - The Chairman, President, and CEO, Sean Trauschke, is currently the only employee designated as a participant in the amended SERP295 Exhibits This section lists exhibits filed with the Form 10-Q, including supplemental indentures, an amendment to the Supplemental Executive Retirement Plan, and various Sarbanes-Oxley Act certifications