Ladies and gentlemen, thank you for standing by and welcome to the OGE Energy Corp. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Jason Bailey, Director of Investor Relations. Thank you. Please go ahead, sir.

Thank you, Natalia and good morning, everyone and welcome to OGE Energy Corp. Third Quarter 2021 Earnings Call. I'm Jay Bailey, Director of Investor Relations. With me today, I have Sean Trauschke, Chairman, President and CEO of OGE Energy Corp; and Bryan Buckler, CFO of OGE Energy Corp. In terms of the call today, we will first hear from Sean, followed by an explanation from Bryan of third quarter 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 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'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'll now turn the call over to Sean for his opening remarks. Sean?

Thank you, Jason. Good morning, everyone. It's great to be with you again this morning and thank you for joining us on the call today. Earlier this morning, we reported third quarter consolidated earnings of $1.26 per share which includes utility earnings of $1.12 per share and earnings associated with our investment in Enable of $0.15 per share and a holding company loss of $0.01. The teams worked hard on behalf of our customers and shareholders. And on our February call after winter storm Uri, I told you we were going to work to get back to our original guidance. And I'm pleased to announce we have done just that and narrowed our guidance range to $1.79 to $1.83. We remain encouraged by our external utility operations and all of our employees as they focus on energizing life for our customers and our communities. This morning, I want to provide a few updates and then Bryan will discuss our financial results in more detail. First, our grid enhancement programs in Oklahoma and Arkansas continue on pace. The work we're undertaking on our substations, distribution circuits and other portions of our grid have already had a significant positive impact on the reliability and resilience of the grid for the benefit of our customers. Our solar subscription program continues to grow. Construction on the 5-megawatt solar farm in Branch, Arkansas is now complete. The 5-megawatt expansion of the Choctaw Nation solar farm will be completed in the coming weeks and customers will soon have an opportunity to purchase electricity from this facility. These two projects increase our total solar capacity to 32 megawatts. In 2022, we have plans for an additional 5-megawatt solar farm in Billings, Oklahoma with two additional solar farms in the planning stages. Our securitization filing in Oklahoma is…

All right. Thank you, Sean and good morning, everyone. Let me start with a focus on our utility operations. OG&E's third quarter results were $0.12 higher than 2020, driven by favorable weather compared to the prior year quarter, strong load results and increased revenues from the recovery of our capital investments, partially offset by higher depreciation from our growing asset base. In summary, our core utility operations performed very well during the third quarter. On a consolidated basis for the third quarter of 2021 and inclusive of our natural gas midstream segment, we achieved net income of $252 million or $1.26 per share as compared to $177 million or $0.89 per share in 2020. Midstream results were $0.15 per share in the third quarter compared to $0.05 in 2020. The increase in income was primarily a result of improved margins and higher natural gas gathering and processing volumes at Enable. Let's turn to our economic update on Slide 9. We experienced strong load growth again in the third quarter with total retail load up 2.3%. Our commercial customer class is especially healthy, with year-over-year load growth of 4.7% in the third quarter and 6% year-to-date. For the full year 2021, we continue to expect total weather normal load results to be approximately 2.2% above 2020 levels. Importantly, as Sean mentioned, a strategic advantage for our company is the affordability of our rates. This year, our team has signed contracts with new and expanding C&I customers that total approximately 200 megawatts of load that has or is expected to come online by the end of this year. As we look to the future, we believe the recent trends in total retail load growth will continue in 2022. Let's move now to Slide 10, where I'd like to update you on our…

[Operator Instructions].Your first question is from the line of Shar Pourreza with Guggenheim Partners.

Hi, good morning, guys. It's actually Constantine here. Congrats on good quarter.

Hey, good morning, Constantine. Thank you.

As we kind of get closer to the end of '21 and you've narrowed the guidance and kind of we're moving towards the tail end, how are you thinking about inputs into '21 planning just in terms of load and customer connections trend from '21 kind of being repeatable in '22? Is it kind of the 2% level? And any implied targets for cost reductions and kind of maintaining the trajectory there?

Yes. I think - great question. In my remarks and Bryan's as well, we talked about we don't see the load growth declining. We actually continue - we expect it to continue to grow. You saw what's transpired just in this past quarter where our original estimate for the year was to add 75 megawatts of new load and we moved it to 200. And so it's growing by the quarter. We'll certainly update that in February but we are very positive about the load growth that has returned and is on the cusp of connecting in the future. So I think that's just more to come. And anything we said today will be updated in February because our expectations are that it's going to continue to grow. As far as the O&M reductions, that's going to continue. I mean, our view of the work we do benefits our customers and helps us redeploy more investments in our business and mitigate that impact to customers. So I don't have any specifics for you, Constantine but you should expect us to continue on both those fronts going into the future. I don't know, Bryan, do you have anything to add to that?

Hey, Constantine, good morning. Just to add to what Sean said, the broad economy here in Oklahoma and Western Arkansas is really doing well. We were just at a chamber of commerce event this week where the Mayor spoke and it's pretty amazing all the great economic factors you're able to point to in this region and there's a lot of pride in the state and it's things are going very well for the state and it's playing out in our load growth. And that all kind of intertwines with this sustainable business model Sean speaks to. Load growth helps us to invest for our customers. That plays out in rate cases to help not only on spreading our revenue requirement across higher load but also these O&M reductions keep rates very affordable which just brings more investment into the state. So it's a really good place we are right now in the state of Oklahoma.

That actually takes me to my second question on customer bill headroom and that's obviously a factor that kind of helps just kind of seeing the commodity cost increases and potentially that running through the customer bill. Just how you balance the affordability aspect? Do you - where else do you see potential offsets to build pressure? And does that put any kind of pressure on the other side of like CapEx? And is that a governing factor for you?

Well, I think affordability is always something you ought to be aware of and it ought to be part of your thinking. But as we've said repeatedly, we are fortunate to be in a growing economy. And we've worked really hard to attract businesses to our service area and the ability for us to spread those costs over more people, actually creates headroom for that bill. And that, in combination with a lot of the work we've done in our company to continue to just drive out - drive efficiencies in our business and reduce our costs, just creates more headroom. So I think the combination of just the operating excellence that we've demonstrated here over the last number of years and a growing service territory that we are actively engaged in. I mean we are at the front, recruiting these businesses, bringing them here. They are wanting to be in our service territory. That's creating a lot of headroom. So I think those are very - two very big catalysts for us.

So no pressure on CapEx, I assume?

Yes. No. That's correct.

Thanks, I'll move back in the queue. Congrats on great quarter guys.

Thanks, Constantine.

Thank you.

Your next question is from the line of Julien Dumoulin-Smith with Bank of America.

Hey, it's actually Cody Clark on for Julien. Thanks for taking my questions and congrats on the update.

Hey, good morning, Cody

So first, if I can, on Energy Transfer. I'm wondering if CenterPoint's announcement to fully exit the state by the end of '22 has changed? How you're thinking about your cadence of exit? Does it kind of clear the way for faster exit than perhaps you were previously contemplating? And I understand that we'll get some more clarity here soon but wondering if you have any thoughts.

Yes. I don't have anything to comment on necessarily the cadence but I think the transaction that they announced, certainly removes the headwind that would have been in our way and so glad to see that happen.

Got it. Okay. And then just a second question on how you're thinking about the long-term 5% EPS growth target as we think about some of the upside to CapEx? Obviously, the IRP that's been filed and you mentioned in your prepared remarks around grid mod and the grid enhancement program there. Just thinking about that and pairing it with some of the strong load growth that you're seeing as well as no equity needs, if there's any color that you can provide?

Yes. I think - good question and we're certainly going to update our forecast and our guidance in terms of investment opportunities [ph]. But I hope you're taking from our prepared remarks, we're very bullish on the company and the prospects we have. And we're watching very closely this growing load. And that's a good indicator for us because it really drives a lot of that capital investment. So, we've - we're continuing to lever and we feel pretty good, Cody. I think I'll just leave it at that and we'll update all this as we get closer.

Got it. Thanks so much for taking my questions.

Thanks Cody, reports seeing you guys down in Florida.

You guys in Converts.

Your next question is from the line of in Insoo Kim with Goldman Sachs.

Yes, thank you. My first question, Sean, when you - when we look at the proposed items in the Biden infrastructure bond and the reconciliation package, who knows if and when some version of that will go through. But as it relates to clean energy and renewables there, has that potentially changed the long-term generation plan or the cadence or timing of anything that you've laid out in the recent RFP?

Well, I think you - I love your assessment there of if and when. We've been all waiting for this for a while now. But the way I would say, we're certainly cognizant of the PTCs, particularly around the solar investments. Obviously, you've got some potential there around transmission and storage. We're pleased about the potential extension of those. Obviously, as you get to the end of that term, if they were going to expire, you would accelerate some things towards the back end if they were going only be good for 8 years or 10 years or something, you would want to make sure that you maximize all of those opportunities. But I don't think it necessarily changes anything in the near term.

Got it. That makes sense. And then could you just give us a little bit of a preview of the some of the items that we should expect in the Oklahoma rate case? Is it just more blocking and tackling of items that you've been spending money on? Or is there anything, I guess, that we may not be thinking of that, that we should?

Yes. So Bryan will be quick to say we've got to go in there and recover all of our investments that we've already made, certainly offset by load growth and some of the O&M savings that we've created. But the two primary issues in this case are to really set up the - to continue the mechanism we have around these grid enhancement investments we're making. They are delivering huge results. We done this in Arkansas. We started this in Oklahoma. We had this program already and that's going to be the key component there will be the recovery of those investments and continuing the mechanism we have going forward.

Got it. And lastly for me, just any - as we look to see you down in Florida, any updates in terms of capital or other items that we should expect at EEI. It seems like the language is more in the February time frame for any major items.

Yes, that's correct. February will be the time we do that. And we're watching this. Again, we're watching this load growth by the day.

Definitely. Yes, I'm just very curious how that - how much of that is more transitory in terms of what's been going on in the past 18 months but it seems like definitely a portion of it is not, so that will be interesting to monitor. All right, thank you so much.

Thank you, Insoo. Take care, Insoo.

Your next question is from the line of Travis Miller with Morningstar.

Good morning, thanks for taking my questions.

Good morning.

You just answered my one question, the high-level thoughts on the Oklahoma rate case elements but I'll continue on that. The grid enhancement program. Obviously, you have a history here of settling cases. Is that program something that you've gotten buy-in from enough parties that, that could be a part of a settlement package come next year? Or do you think it's going to be more contentious, I guess, being the opposite?

You would hope that we could reach an agreement with interested parties. I mean, the results are pretty obvious and people can really see the benefits of what you're doing in terms of reliability and resiliency. And so I think this is a lot different than take for comparison purposes, if you were building a new generation facility that was 1,000 megawatts. It's hard for customers and constituents to really see the benefit of that. But here, this is really touching each and every one of them. So I think this should be something everybody could get their arms around.

Okay. Great. And then on your CapEx plan, just thinking about the last two bullet points there in terms of upside for the IRP and upside for additional grid investments. What's the sense of the magnitude of that upside? We're talking something like 5% off of your base budget here that you put out or 10% or 15% would. What's kind of involved in that upside potential?

Hey, Travis, it's Bryan. We're still working through our 5-year capital plan which we'll update in February. A couple of data points we've pointed to on this call and in the second quarter call, were the IRP that was finalized here in October. Sean mentioned that we're looking to deploy 100 to 150 megawatts of solar per year in the future which is really addressing some retirements of legacy gas plants that were built into 50s - 1950s and 1960s. And this, of course, are needed investments to keep our generation system reliable. And you've also seen us look at the grid investments here in 2021. You can kind of look at where we started the year and where we're ending the year on our grid investments, really being driven by large customers coming into the state and expansion of customers but also additional grid reliability work to address some of the major ice storms that have hit the state in the past several years and has seen becoming more intense. So there's additional grid reliability work we'd like to do on that front going forward. So directionally up but too early to give you an exact number but it's something we're continuing planning with the eye always to customer service, of course.

Okay, sure. I understand. Thanks so much, that's all I had.

Thank you.

Your next question is from the line of Brandon Lee with Mizuho.

Hey, Sean and Bryan, congrats on the great quarter.

Good morning.

Good morning. Just have a quick question on Enable and Energy Transfer. Is there a way for you to hedge or monetize the run-up in price before the transaction closes?

Well, you certainly could. I think our view of all of this is we want to make sure that we optimize the exit in a very prudent way. And as I mentioned, we expect this to close this year. So we - there's two months left in the year.

Okay. Yes. And then, I guess another quick question. Can you compare your load growth today to, I guess, pre-pandemic or 2019, how does it fare in relation to that year?

Bryan, do you want to take that one?

Yes, absolutely. Brandon, thanks for the question. And this is my coming out towards the end of my first year with the company. But Jason Bailey did run the load growth numbers back 10 years ago through 2019. And therefore, while we were bumping around 0.5% to 1%. But then as you got to 2018, 2019, you start seeing load growth more around 1.5%. So over a 10-year period, it was a little over 1% kind of load growth CAGR. And you're right, I think the gentleman before mentioning the last 18 months has made load - following the load line, it's almost like a roller coaster but it's back to being a steady growth pace. So you're seeing us - we fully recovered to the 2019 levels now. So on a year-to-date basis here in 2021, our total load is right on where it was in 2019, cumulatively. So we're passing back that 2019 line two years later. But the growth we're seeing here in 2021, we do expect to continue into 2022 and beyond that for a while. And it's really driven by the affordability of customer rates. A lot of these large commercial customers that are in - across a lot of different industries, they're pulling out a map of the United States and they're looking at where it's a good place to live and raise families and where is - where are utility rates really low. And their finger often lands on Oklahoma or Arkansas. And so we're getting a lot of interest from these large commercial customers that come into the state. And you're starting to see that play out in our load numbers and it's exciting for the state and for us as a company.

Brandon, one piece I'd add to that is - we do have a lot of interest of new entrants but there's also a lot of pent-up demand from our existing customers who were looking at expansions and things like that, pre-pandemic. And we're beginning to see that come back as well. So as Bryan mentioned, we've crossed over from 2019. And we're - again, we're pretty excited about the future growth opportunities we've got in the community.

Great, I'll leave it there. And look forward to see you next week at EES.

Take care, Bryan. Thank you, Bryan.

There are no further questions. I will turn the call over to Sean for closing remarks.

Thank you, Natalia. Thanks to the thriving economies in our service area and the operating excellence of our team. Our growth trajectory is on track with a very bright future ahead of us. I do want to thank all of you for your interest in OGE Energy Corp and for being on the call today. Please take care of yourselves and I look forward to seeing many of you next week. All the best.

This concludes the OGE Energy Corp. third quarter 2021 earnings conference call. Thank you for your participation. You may now disconnect.