OGE Energy's CEO Discusses Q2 2012 Results - Earnings Call Transcript

OGE Energy Corp. (OGE)

Q2 2012 Earnings Call

August 2, 2012 9:00 a.m. ET


Peter Delaney - Chairman and Chief Executive Officer

Sean Trauschke - Vice President and Chief Financial Officer

Keith Mitchell - President, Enogex

Todd Tidwell - Director of Investor Relations


James Dobson - Wunderlich Securities

Chris Shelton - Millennium Partners

Brian Russo - Ladenburg Thalmann



Good day, ladies and gentlemen, and welcome to Q2 2012 OGE Energy Earnings Conference Call. My name is Sandra and I am your operator. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder this call is being recorded for replay purposes.

I’ll now hand the call over to Mr. Todd Tidwell. Please go ahead, sir.

Todd Tidwell

Thank you, Sandra. Good morning, everyone, and welcome to OGE Energy Corp’s second quarter 2012 earnings call. I’m Todd Tidwell, Director of Investor Relations. And with me today, I have Pete Delaney, Chairman, President and CEO of OGE Energy Corp.; Sean Trauschke, Vice President and CFO of OGE Energy Corp.; and Keith Mitchell, President of Enogex.

In terms of the call today, we will first hear from Pete followed by an explanation from Sean of second quarter results, Keith will review the Chesapeake announcement, and finally, as always, we will answer your questions. I would like to remind you that this conference is being webcast and you may follow along on our website 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 would 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. In addition, there is a Regulation G reconciliation for EBITDA in the appendix along with our projected capital expenditure.

I will now turn the call over to Pete Delaney for his opening remarks. Pete?

Peter Delaney

Thank you, Todd. Good morning everyone and welcome to our call, second quarter 2012. As you know we reported earnings of $0.95 per share compared to a $1.04 in 2011. Year-to-date earnings of a $1.33 per share, slightly ahead of last year’s earnings per share of $1.29 for the same period. Our consolidated earnings guidance is unchanged for 2012, we are comfortable with our $3.40 to $3.60 per average diluted share estimate. Sean will discuss our guidance in more detail later in the call.

Regarding the second quarter, both businesses delivered solid results compared to last year, considering weather benefitted the utility about $0.15 last year, and considering that 33% drop in natural gas liquids prices and the 50% decline in natural gas prices quarter-over-quarter. And despite these headwinds, gross margins improved at both OG&E and Enogex.

On the utility side, primary earnings drivers were sales growth, recovery of transmission investment and various other utility investments including the Crossroads Wind Farm. Enogex gathering and processing volumes were up 3% and 29% respectively. These higher volumes more than offset the decline in margins resulting from lower commodity prices. For the second quarter Enogex processed a record amount of natural gas, nearly 1 trillion BTUs per day.

However, higher expenses, primary depreciation caused overall earnings to decline. While posting solid second quarter results we continued to move key initiatives forward, growing both businesses and keeping our utility and midstream assets earnings mix at approximately 70% for utility and 30% for our midstream businesses, and we continue to expect to grow earnings at 5% to 7% annually and grow our dividend along the way as well.

We are on plan to complete our smart meter deployment this year and our primary focus in that regard will shift to extracting value for our customers. A large part of that value proposition is demand and response, providing customers their hourly energy usage information and products with which to control their usage. We have about 30,000 customers signed up in that program on track with our expectations and we expect several hundred megawatts demand response for the next several years, again, which should set us up to be able to defer the need for increase in generation capacity past 2020.

Meanwhile, a billion plus transmission build is well under way with two of the lines completed in May and we filed an application this week for recovery under the rider approved as part of the Oklahoma rate case settlement. On the subject of the rate settlement, we remain on plan overall but our initial expectation for ’12 was for a larger rate increase. However, the first quarter ground on, with our decision we began to plan for a potential modest increase. We lowered our base capital spending and operating plans that quarter to mitigate future regulatory lag. While we were reluctant to accept the settlement, we believe that accepting the 10.2 ROE and getting a rider for SPP transmission project, positions us for the future. The future including escalating environmental spend and continued transmission expansion.

And given the circumstances we believe the settlement was in the best interest for the company. We are committed to achieving the same high levels of customer satisfaction reliability despite the modest increase as we continue to drive for efficiencies. And we will work with the commission staff as always to build the framework for timely recovery of our future environmental expenditures. On the last call we indicated that our current estimate of environmental compliance cost could be well over a billion depending on the outcome of various legal proceedings.

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