Good day and welcome to the Q2 2023 OGE Energy Corp Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Jason Bailey, Director of Investor Relations. Please go ahead, sir.

Thank you, Sherry and good morning, everyone. And welcome to OGE Energy Corp. Second Quarter 2023 Earnings Call. With me today, I have Sean Trauschke, our Chairman, President and CEO; and Bryan Buckler, our CFO. In terms of the call today, we will first hear from Sean, followed by an explanation from Bryan 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 to date. I will now turn the call over to Sean for his opening remarks. Sean?

Thank you, Jason. Good morning, everyone, and thank you for joining us on today's call. It's great to be with all of you. Earlier this morning, we reported second quarter consolidated earnings of $0.44 per share, including $0.46 from the electric company and a $0.02 loss from the holding company. To begin, we've never been in a better position to meet our customers' needs and grow our company into the future. We're on target for 2023, and I'm very bullish on what the future holds for OG&E. Since 2015, we've delivered on our commitments to grow the utility. We've increased the utility EPS by 51%, and we've more than replaced the earnings contribution from the midstream segment over that period. We continue to grow earnings as we execute on our long-term plan that offers a long runway of diverse investment opportunities to help us reach our North Star, delivering reliable, affordable, and safe electricity to nearly 900,000 customers each and every day. Overall, the second quarter was productive and included the following: Filing for our new generation approval with the Oklahoma Corporation Commission; we requested approval of two new combustion turbine units at our Horseshoe Lake power plant. These units would replace two of the oldest units in our fleet, having served our customers for more than 60 years. We've also filed in Arkansas for approval to begin constructions on these two units. These units are a great first step in meeting the future generation capacity needs of our company. We have submitted four IIJA applications to the Department of Energy and believe our proposed projects are very strong, benefiting our customers and communities alike. We should receive word on these applications later this year, and we will continue to pursue additional opportunities through the IIJA and IRA. This quarter, we experienced a number of significant weather events, from the April 20th tornadoes that devastated Shawnee, Oklahoma, to the string of weekly damaging wind and thunderstorms that began on Father's Day. Throughout it all, our team responded quickly and safely to restore service. As you know, we encounter severe weather frequently. Let me share an example that illustrates what that really looks like. The National Weather Service categorized winds during one-third of the month of July in our service territory as meeting or exceeding severe storm levels. Yet 98% of our customers never experienced an outage, and those who did quickly had service restored. Our reliability investments are providing significant benefits to our customers, and I'm proud of our team's response. On a different note, most recently, as high temperatures arrived across the nation and in our service area, with many days above 100 degrees; our Generation fleet has performed well, supplying OG&E customers with electricity. Beyond Generation, the grid is delivering electricity to our customers and is not strained, as you may hear occurring in other parts of the country. We prioritize reliability for our customers, always grounded in affordability, recognizing that our grid and generation investments must make financial sense for our customers. Nothing illustrates the strength of our company better than our safety journey. Eight years ago, from a safety perspective, we were just average. But since that time, OG&E's OSHA injury rate has improved by 38%, significantly outpacing the SCE, and we have experienced an even more dramatic improvement when you look at DAR with an overall 49% improvement. We will continue to ensure safety is at the center of every job, every storm, day in and day out. Moving to future growth, our load forecast for 2023 continues to outpace 2022, and we expect growth above 4% for the year. Our long-term load forecast remains strong as our service area continues to grow. From increased electrification to wide-ranging business expansion, our business and economic development efforts continue to pay dividends for our communities. Through the first half of 2023, our economic development and business partnerships continue to secure new projects in our service area that will add thousands of new jobs in Oklahoma and Arkansas in the coming years. The growth we are experiencing is driven by a diverse group of industries: from tribal development, non-crypto data centers, manufacturing, healthcare, and defense. Within our existing customer base, we see increased electrification of tribal enterprises, oil, field, manufacturing, and service sectors, all contributing to our positive load forecast. The affordability of our rates is central to our sustainable business model, as the cost of electricity is a significant factor that companies consider when deciding on expansion or relocation. We remain focused on affordability for our customers. On that topic, our unrecovered fuel balance was a headwind going into this year, and I'm pleased to share that we've made significant progress on that front, which will be a great benefit to our customers in the future. Another catalyst for affordability has been the continued expansion of technology and use of AI in our business to drive efficiency in operations and customer engagement. We successfully deployed several AI and machine learning technologies in both the corporate and operational environments and are building the proper governance mechanisms to mitigate any risk associated with emerging and new technologies. As you can see, we have a lot of great things happening in the company, and as I look forward to the remainder of the year, you can expect us to update you on our IIJA applications, file our Arkansas formula rate plan, file a rate review in Oklahoma at the end of the year, and certainly provide you an update on our Horseshoe Lake generation approval process. Early next year, we'll submit an IRP in both Oklahoma and Arkansas, and then we'll consolidate all of this on our February call. So, with all these opportunities, our primary opportunity is allocating capital in a manner that continues to fuel this economic engine and low growth. As we continue our strong operational performance, we reaffirm our earnings guidance for the year. We are accomplishing what we set out to do, and importantly, we are accomplishing what we said we would do. We have great momentum for the remainder of the year, but more importantly, we have great momentum for the years to come. Thank you, and I'm turning the call over to Bryan.

Thank you, Sean. Thank you, Jason, and good morning, everyone. Let's start on slide 8 and discuss second quarter 2023 results. On a consolidated basis, second quarter net income was $88 million or $0.44 per diluted share, compared to $73 million or $0.36 per share in the same period 2022. Earnings for the second quarter of last year included a loss of $0.09 per share from natural gas midstream operations, which we fully exited in 2022 through the sale of our energy transfer units. OG&E's core utility operations performed well during the quarter. The electric company achieved net income of $92 million or $0.46 per diluted share in the second quarter, compared to $101 million or $0.50 per share in the same period 2022. Weather negatively impacted second quarter year-over-year results by approximately $0.07 per share, primarily due to fewer cooling degree days. As expected, current quarter results also reflect increased depreciation and interest expense related to our capital investments made over the past year, as well as higher O&M, mostly reflecting the timing of operational activities. Our results benefited from continued strong retail load growth, as well as rate adjustments related to recovery of our capital investments in Oklahoma and Arkansas. Year-to-date results through June at the electric company were $0.66 per diluted share and continue to track on plan for the full year. Other operations, including our holding company, reported a loss of $4 million or $0.02 per diluted share in the second quarter, compared to a loss of $9 million or $0.05 per share in the same period 2022. Current year results have come in within our forecasts, while the prior year results included a tax expense adjustment related to the midstream business that we exited in 2022. Turning to electricity usage factors, OG&E continues to experience exceptional growth in weather normalized total load, coming in at 3.5% compared to the second quarter 2022, setting up 2023 to be the third consecutive year of load growth, well in excess of 2%. Residential load has been solid, despite seeing the expected effects of workers returning to offices, and the commercial sector has again delivered remarkable growth, with a 16.5% year-over-year increase. These positive trends showcase the strength of our two largest customer groups and the success of our business and economic development efforts. All told, we are on pace to deliver total load growth in 2023 in excess of 4%. Robust load growth in a thriving economic landscape demonstrates the strength and resiliency of the communities we serve in Oklahoma and Arkansas. These factors provide us confidence in the future success of our sustainable business model, which is centered around our customers, and includes investing in infrastructure to ensure a strong, reliable grid for the long-term economic vibrancy of the states we serve. Now let's move to slide 10 for an update on our financing plan. As I discussed in our first quarter results call, we have completed our debt issuance activity for the year. Our balance sheet continues to be one of the strongest in the industry, with no need to issue equity for our current capital forecast, and a projected FFO to debt metric of 17.5% to 18% throughout our five-year forecast period. Given that 2023 is in great shape, we have turned our attention to 2024, 2025, and beyond, assessing a wide range of reliability investments, opportunities, and best capital allocation decisions for our customers. It is an exciting time to be at OG&E, and the load and investment growth opportunities of this company are truly remarkable, placing us on a path to support continued economic growth while delivering on our earnings commitments to shareholders for years to come. Before we move to our final slide, I would like to share an important update on the fuel under recovery balance, which, as Sean mentioned, has improved significantly since the end of last year. Our total fuel under recovery balance is $198 million as of June 30th, which is lower by $317 million since the beginning of the year. We are on pace to fully recover last year's fuel costs in the coming months, and assuming commodity prices stay near current levels, our customers should experience a meaningful reduction in their electricity bills when new fuel factors are implemented. Let's briefly move to slide 11. Given our solid start in the first half of the year, and expectations of continued sound execution for the remainder of the year, we are reaffirming our guidance issued in February. As a reminder, approximately 65% to 70% of electric company earnings are typically generated in the second half of the year, and accordingly, we are right on plan. We are proud of our track record, and our company and its great employees look forward to delivering for our customers, communities, and shareholders for years to come. With that, we will open the line for your questions.

Thank you. Our first question will come from Shahriar Pourreza with Guggenheim Partners. Your line is open.

Hi. Good morning, team. It's actually Constantine here for Shahriar. Thanks for taking the question.

Hey, good morning, Constantine. We're glad you're here. We suspected when she said Shah that we were going to have you, so glad you're here.

Thanks. Your CapEx year-to-date is tracking well relative to the original plan 580 versus 450 last year. Can you comment on some of the drivers there, and how does that impact your annual CapEx run rate going forward, and does it require any adjustments in terms of regulatory mechanisms for timely recovery or anything beyond the rate case and so forth?

Yes, so great question, Constantine. I think the way to think about that is, what is fueling our growth is really this load growth and economic growth that we're seeing. As we've said before, it's challenging sometimes to really forecast exactly when some of these new projects are coming into service or when they're going to come online, and so it's not necessarily a linear investment. But, I think that speaks to the health and vibrancy of the economy, that we're seeing more load growth come through, and we're making those investments. As we said in Oklahoma, we're going to file at the end of the year. That case is not going to be large; it's going to note our investments since the end of the first quarter of 2022. So, that just speaks to our strategy of staying current with our regulatory filings and smoothing out. We hear that from our customers; we want to ensure that the impacts to customers are smooth. So, I don't foresee any changes in our regulatory timing or strategy, we're on plan.

In terms of regulatory activity, do you have any specific views on the recent PBR transmission ROFR docket that was opened in Oklahoma?

Yes, I'm very supportive of it. I think it shows great leadership by the Commission. We believe it's good policy and we're going to be very involved in that docket, and that's one of the things that we've heard from a number of our customers, that they like the consistency of what their bills will look like, and this would be one way to achieve that. So we think it's a positive move, good policy, and I'm encouraged by the action.

Great. And last quick one. The slides were showing some continued normalized load growth and but industrial sales are down a bit, and we've seen that some moderation across the U.S. more broadly. What are you seeing in terms of sales mix going forward and especially as we look at load growth and rolling into 2024, how does that roll into the prior five to seven guidance?

Yes, well Bryan you want to take that one?

Sure, sure. Good morning Constantine. We're really proud of the load results that we're seeing year-to-date. Our two largest customer groups, residential and commercial, are doing great. With respect to industrial and public authority and some of those other classes, the pipeline of customer expansions and new customer entrance into our service territory is as robust as it's ever been. So what does that mean for 2024 and beyond? I feel more and more confident in 2024. You're going to once again see us be able to exceed our historical load growth rate of 1%, and I'm really bullish on 2024 and 2025 and beyond. We continue to forecast and plan conservatively with that 1% assumption but clearly some great tailwinds for load growth.

And one moment for our next question. That will come from the line of Paul Zimbardo with Bank of America. Your line is open.

Hi, good morning team. Thank you.

Hey, good morning Paul.

Yes, good morning. I was hoping you could give a little more color and detail on the new disclosure around the EPA potential compliance costs around Good Neighbor, the 2.7 billion. I know you said 100 million to 300 million potentially in 12 to 18 months after implementation, but if you could kind of break out how much is that capital and if you could avoid some of that with running the plants differently; just any additional disclosures would be helpful.

Yes, and so first thing I would say, just last week we were granted a stay from the 10th Circuit regarding Casper. So the federal implementation plan is not in effect for us. But that being said, that is primarily all capital. I mean, obviously there will be some things that you would look at to change the operations and dispatch of certain units, but primarily that's capital.

Okay, and is there any sense on potential timing? I know we're kind of caught in the courts right now, but wouldn't you need to start making some of those investments?

Well, it's not effective for us. So, we have the stay from the 10th Circuit, so we are not proceeding down that path. That will make its way through the courts, but as part of our overall planning, that’s just prudent planning to begin with. We've experienced this round of regulations previously, and we plan accordingly. When we need to comply, we will comply. But nothing is imminent.

Okay. Understood. Thank you. And then switching gears a little bit, I know in the past you gave some details around expected holding company issuances to finance the rate-based growth, and you quantified that in EPS terms before. Just with the latest move in interest rates, is there still a good guidance assumption to be thinking of for the holding company in the future?

Hey Paul, it's Bryan. Good morning. When we look out for the remainder of this year and into 2024 and beyond, I do want to highlight the utility. We're seeing exceptional growth at the utility trending very nicely for 2023, and we'll finalize our plan for 2024 and beyond here in the coming months. But 2024 is shaping up really well, with a lot of tailwinds at the utility. The holding company is just a part of the puzzle of how we finance the company, so no change in message with respect to the holding company. If anything, we're seeing more tailwinds for our core business at the electric company. We're really bullish on that and will provide a comprehensive update on consolidated EPS growth rate in February.

Thank you. One moment for our next question. That will come from the line of Anthony Crowdell with Mizuho. Your line is open.

Hey, good morning, Sean. Good morning, Bryan. Good morning, Jason.

Hey, good morning, Anthony. It's been a while. How are the girls doing?

Everyone's healthy but getting more expensive. But I think that's what happens, right?

I understand. Good to hear from you.

I never had dreams of retiring rich and they're going to make my dreams come true. But if I could just jump on one of Paul's last questions. I think, Bryan, you had said that you're looking to give a consolidated update on the fourth quarter call. I just want to check. I know you're making the filings in Oklahoma and some other filings more towards the end of this year. Will that update come on the fourth quarter call or will we have to maybe wait for the completion of that filing to get an update?

Anthony, this is Sean. You should expect that update on the February call.

Okay, great. If I could just move to the last question. You gave some great detail on slide 9 on the load growth. I'm curious if you could go more into what drove that 16% or 16.5% load growth in commercial. Was it one certain project, or I know you talked about a very long runway of commercial activity going on in your territory? Just what drove that? Maybe I'm just trying to think of what happened in 2024. I know year-over-year don't or maybe I should expect another 16 next year.

Yes, hey Anthony. Good morning. On the commercial load, as we've discussed before, a significant driver of the double-digit load growth in commercial is the data mining companies that came online late last year and expanded again early this year. There are Oklahoma-based corporations with Oklahoma ownership and management, making them strong data mining customers for us. But that's just part of the puzzle. We also see a lot of food and beverage manufacturers and facilities in this part of the country as we’re located in Central U.S. They need access to both coasts, and we're seeing great expansion on that front. Manufacturing is really starting to take off in Arkansas, particularly with EVs, EV manufacturers, as well as EV charging stations across automobile dealerships and delivery companies have really helped the commercial load as well. It’s wide-ranging, but the single biggest entity by far was the data mining company that I mentioned.

Great, and that’s a trend you’re expecting. I don't want to run ahead of your 2024 guidance, but as you said you're expecting a strong year-over-year going into 2024, especially in the commercial sector?

Yes, in 2024 we still feel good about continued growth across residential. We believe industrial and public authority will be positive again in 2024, and then for commercial I do expect it to be well ahead of the 1% growth rate that we would typically see in past years. It’s a little too early to say if we're talking double digits again. We need more time to see how the economy plays out and how the business projects of these customers come to fruition.

Thank you. One moment for our next question. That will come from the line of Paul Fremont with Ladenburg Salmon. Your line is open.

Thank you very much. I wanted to follow up on Paul Zimbardo's question. Any light that you can shed on potential cash flow offsetting potential need for borrowing at the holding company? Obviously, the fuel cost recovery looks like that would be beneficial to cash flow. Anything else that we should be thinking about in terms of cash generation?

Hey Paul, it's Bryan. Good morning. I don't know that there are any particular items to point out other than what you've already mentioned. Again, I would come back to the utility EPS growth rate, which is going quite well over the last several years with the load growth we're seeing in our state and overall economic expansion. So we are really bullish on the utility both in 2023 and beyond, and we certainly have the ability to earn deeply into that 5% to 7% growth rate at the utility. So that's beneficial across the board, including our corporate structure.

Should we think of incremental borrowing at the holding company as most likely being linked to investment opportunities, especially incremental to what's in your current CapEx budget?

Paul, just to say our messaging on that hasn't changed at all. We do have some other investments at the holding company that are unrelated to the electric company. But obviously, the vast majority of our business is OG&E, the electric utility, and those cash flows, when you think about our dividend at the holding company, all that messaging is unchanged.

Thank you. One moment for our next question. And that will come from the line of Travis Miller with Morningstar. Your line is open.

Thank you. Good morning, everyone.

Hey, good morning, Travis.

Going back to that storm discussion at the beginning. Apologies if I missed this, but what was the impact from storms in the quarter or year-to-date that you have?

Bryan, did we quantify the storm impacts yet…

Hey Travis, good morning. Just operationally, I’ll refer back to what Sean mentioned earlier. We had an unprecedented level of wind storms that came through our service territory in mid to late June and then again through the middle of July, with many days of sixty to eighty-mile-an-hour winds. While we did have some outages, overall, our system performed very well, and our response from our teammates across the company was extraordinary. So you didn't hear us talking about multiple days of outages. We're really proud of our operational performance. As for costs incurred from storms, you can look at a regulatory asset footnote, and that will give you the details you need.

Okay. Great. And then kind of more generally on the extreme hot weather seen a lot in that region. Are there operational issues that you have to deal with when you have that extreme hot weather that might offset some of the benefit that you would get from that extra weather-related load?

Sure, obviously, Travis, I made some remarks regarding safety. In extreme heat like that, you need to take precautions with the workforce in terms of heat stress and other considerations. Higher temperatures do put more stress on the system. However, what I want to convey is that we build and design the system for those days. We were not strained; yes, we have to take additional precautions, and we manage things a bit differently in prolonged periods of extreme heat. That's our business, and we've designed it that way, and it's performing beautifully.

Okay, great. Thanks so much.

Thanks, Travis.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Sean Trauschke for any closing remarks.

Well great. Thank you, Sherry, and I want to thank all of you for your interest in OGE and for being on the call today. Have a great, safe day.

Thank you all for participating. This concludes today's program. You may now disconnect.