OGE Energy Earnings: Electricity Demand Growth Supports Capital Investments

We are reaffirming our $37 fair value estimate for OGE Energy OGE after the company reported earning $0.44 per share during the second quarter of 2023, mostly flat from the second quarter last year after adding back a loss from the since-divested midstream operations in the second quarter of 2022. We are reaffirming our no-moat rating.

Earnings at OGE’s rate-regulated utility, OG&E, were $0.46 per share during the second quarter, down from $0.50 in the second quarter last year primarily due to less-favorable weather year over 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, OG&E earnings were up 6% in the second quarter.

Most of OG&E’s earnings come in the second half of the year, and this year’s warmer-than-normal summer weather through July and early August should help third-quarter results. Our full-year earnings estimate remains in line with management’s $1.93-$2.07 EPS guidance range on a consolidated basis.

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 to support its capital investment plan. Weather-normalized retail electricity demand was up 3.5% in the second quarter with particularly strong growth in the commercial business due to growing data center demand and small manufacturing growth.

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.