Good day and thank you for standing by. Welcome to the Q4 2021 OGE Energy Corp. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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, Jason Bailey, Director of Investor Relations. Please go ahead.

Thank you, Dennis, and good morning, everyone. And welcome to OGE Energy Corp.’s fourth quarter 2021 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 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. Yeah. Before we begin, I do want to acknowledge the sad and disturbing news out of Ukraine this morning and share our thoughts for a peaceful resolution. With that mind, thank you for joining us today. It’s certainly great to be with you. Before I get into the specifics of 2021, I do want to mention a few items at the outset. Some of you may recall that over the last five years I’ve shared with you how we were changing our operational paradigm, with an intentional focus on reliability, resiliency and affordability to really drive load and customer growth, and we push to change how we engage our customers, concentrate economic development efforts to grow our communities, operate the business with excellence and creating the sustainable business model we have today. And this effort was very intentional and this focus led to the tremendous load growth we’re experiencing today and we’re not done. I’m incredibly proud of every single employee for their exceptional performance and how they’ve adapted to create a brighter future for OGE Energy. We are well positioned for future growth and I have confidence in our team and I have confidence in our business and I am confidence in our company. With that, let’s take a look at 2021 results. This morning, we reported earnings of $1.80 per share for the utility and a holding company loss of $0.04 per share and also included is $1.92 per share from natural gas midstream, including a gain associated with the Enable merger transaction. In total, consolidated earnings totaled $3.68 for the year, and Bryan, will provide more detail shortly. Turning to operations, every employee in this company took the opportunities in front of them to deliver outstanding results and they did so across all metrics.…

All right. Thank you, Sean, and good morning, everyone. Let’s start on slide eight and discuss 2021. Fourth quarter results were as expected and the details can be found in the appendix of the slides. For the full year 2021, the utility achieved net income of $360 million or $1.80 per share, compared to $339 million or $1.70 per share in 2020. The $1.80 of earnings per share at OG&E is right at our original guidance midpoint of $1.81, representing an increase of 5.8% and earnings per share at the utility. After Winter Storm Uri, we committed to get back within our original guidance range and we met that commitment with strong execution across our operations, including cost mitigation efforts. As Sean mentioned, we could not be more proud of the employees of OG&E and their dedication to excellent customer service in 2021, while meeting our financial objectives for our shareholders. On a year-over-year basis, the increase in net income was primarily driven by strong weather normal load growth of 2.4%, increase revenues from the recovery of our capital investments and customer programs, as well as strong cost mitigation efforts. These favorable results were partially offset by the impacts of Winter Storm Uri, including the fourth quarter regulatory settlement we reached in Oklahoma and higher depreciation on our growing asset base. With respect to our natural gas midstream operations, we report a net income of $385 million or $1.92 per share, compared to a net loss of $515 million or $2.58 per share in 2020. The impact of the closing of the Enable merger with Energy Transfer in December 2021 was a net gain to the company of $265 million after-tax. As a reminder, 2020’s results were impacted by loss due to an Enable investment impairment charge of $590 million…

[Operator Instructions] And your first question from line of Shar Pourreza with Guggenheim Partners. Please go ahead.

Hi. Good morning, Sean and team. It’s actually Constantine here for Shar. Congrats on a great quarter.

Hey. Good morning, Constantine.

Good morning, Constantine.

It looks like a healthy CapEx rolled forward. I am thinking you’re now hitting that $950 million run rate of CapEx per year. Can you talk a little bit about the drivers for the step up? There seems to be more generation more transmission spending and you’re not including upsides from the IRP at this juncture, so just any color that you can provide on a step up and maybe the regulatory mechanisms for recovery there?

Yeah. Well, I think, the two parts there. The driver there is really around the growth we’re seeing in our service territory. And as I mentioned in my comments, we’ve been intentional. We built this the right way, trying to attract businesses and customers to our service territory and we’re seeing the results of that. So those investments are really targeted to that growing service territory. You’re exactly right. There’s nothing in there for the results coming out of our integrated resource planning process. As we get feedback from those we will certainly layer those in. As far as the recovery of that, we have a case on underway right now and we’ve proposed the two alternatives, one with this grid enhancement mechanism and Oklahoma to kind of recover that. Alternatively, we’ve also proposed a performance based rate making program. Both of those would serve as the recovery mechanism for a lot of these investments? And then as you know, in Arkansas, we have a formula rate and we’re in the process of seeking a five-year extension for Arkansas. Does that helpful, Constantine?

Yeah. That’s very helpful. And the second question is on just longer term assumptions for growth, as you’re presenting today. What level of load growth and the inflation do you embed over the five years and maybe a little bit more broadly kind of what takes you to the top of the 5% to 7% growth that you’re projecting today, any assumptions on rate case outcome or the performance base rates, as you mentioned?

Yeah. Well, I think, I’ll turn this over to Bryan here to get into the details. But I think very succinctly, what’s going to drive this is load growth and that’s what’s going to be the driver of this. And so the more load we have, you should expect higher earnings coming out of our company. But Bryan, you want to fill in the details?

Sure. Absolutely. And I think incremental load growth is the factor that can take you to the top end of that 5% to 7% load growth, I mean, earnings per share growth expectation. Constantine, just so -- as we modeled out our five-year plan, we’ve modeled out different scenarios of how load growth could play out, capital investment plans, various outcomes on the regulatory front and we have great confidence in being able to deliver that 5% to 7% over the five-year period under various scenarios. For load growth, we’re obviously showing some very strong load growth in 2022. But as we build our core financial plan in 2023 and beyond, we’ve assumed that we revert back to a more historical 1% load growth level in 2023 and beyond. So, certainly, there’s some upside there. But we’re really proud of the capital investment plan that we’ve targeted for our customers over the next five years. It’s a great balance of doing the infrastructure investments that community needs, while also always keeping in mind affordability. So we believe over the five-year period, this capital investment plan with the load growth we’re seeing will allow us to stay at the top tier of affordability in the nation and keep rate increases very modest.

Okay. I think that’s a great message. And maybe just one part that you didn’t touch on is the performance base rates. Are there any timing embedded in plan for an outcome there or is it too soon?

Yeah. Our financial plan does not assume the PBR in Oklahoma occurs. We obviously believe the grid recovery mechanisms working very well in Oklahoma. So we fall for an extension of that. But if the PBR is really another option for the commission to consider.

Okay. Thank you and congrats on closing out a good year.

Okay. Thanks, Constantine. Take care.

Thank you.

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

Hey. This is actually Cody Clark on for Julien. Thanks for taking my questions.

Good morning, Cody.

Hey. Good morning.

So just piggybacking off of Constantine question and I’m wondering how you’re thinking about investments driven specifically from the 2021, RFP, and how that plays with the 5% to 7% growth rate, if we can kind of hone in on the solar investments there. I mean, depending on the ownership percentage, 150 megawatts of solar annually that you previously outlined can be fairly significant. So wondering you’ve talked a lot about load growth, but how does investments there kind of drive the range?

Yes. Certainly, that’s not included in the investment forecast over the five years that Bryan laid out there. We’re going to go through this RFP process, recognizing that, there are inflationary pressures out there. We do have some flexibility about the timing of when we do some of this. But we’ll layer those investment dollars in when we come to conclusion and evaluate all those bids that we received back. But just -- and one point there, Cody, it is my expectation that we’re going to own all of these assets. These would not be contractual arrangements. So I think that’s an important distinction there.

Okay. Understood. That’s very helpful.

Yeah.

And then curious if it’s a significant ownership, if it were to come to fruition, you just stated there expectation to own all of the assets. I’m just wondering, it’s not embedded in plan now, would you need to issue equity as you layer these investments in or are you thinking about using incremental leverage to kind of satisfy the funding needs and…

Yeah. I think…

…just on that topic?

Yeah. I think we’ll cross that bridge when we get there and we’ll certainly lay all that out for you. I don’t think it’s good to speculate right now about what that would look like. But, again, we’ve got a lot of flexibility around our plan and I’m really proud of what we’ve done here, because we built it the right way over the years, focused on affordability to drive this low growth. This wasn’t by chance. This was intentional. And so, we’re going to be cognizant of continuing to do everything we can to have load growth, too.

Okay. And just the follow up to that leverage question, just wondering if you could share any updated thoughts on how the rating agencies are thinking about the downgrade threshold as you’re exiting Energy Transfer?

Okay. Yeah. Bryan, you want to take that one?

Yeah. Absolutely. Hey, Cody. It’s Bryan. With respect to Moody’s, they recently issued the report on the company, the holding company and the utility. And as I mentioned in my remarks, they put us back on stable outlook. In that report, they’ve taken our downgrade threshold from 20% down to 18%. And many of our peers are more at that 17% or 16% downgrade threshold? You know what, one thing I will say is that, we -- part of the reason they lowered to downgrade threshold is because we’re exiting the midstream business. So we’re lowering the risk profile of the company. And as we exit and fully exit the midstream business, and as we continue to execute well on our operational plans, I think, you’ll see Moody’s revisit that downgrade threshold. But, all in all, we feel like we’re in great shape with all the agencies over the next several years. And as you know, an 18% FFO to debt is one of the strongest in the industry and gives us a lot of flexibility on deploying our investment plan as needed for our customers.

Okay. Got it. I’ll pass it off there. Thanks again for the time.

Thanks, Cody.

Have a good day.

Your next question is from the line that Insoo Kim with Goldman Sachs. Please go ahead.

Hey, guys. Thank you for taking my question. My first one is maybe piggybacking off of the balance sheet question and as you get rid of the midstream, when you just look across your peer set of regulated utility, I guess, in your -- with your type of balance sheet. What is that threshold by Moody’s typically and if that were to be the case, in a good case scenario, where you have the threshold even lower to where your peers are, what type of additional leverage capacity do you think that creates for you guys?

Yeah. Bryan?

Sure. Hey, Insoo. Again, when we’ve looked at our peers -- peer sets, with the BAA rating at Moody’s and BBB+ at S&P. S&P downgrade threshold is actually a good bit lower than Moody’s. So that for one gives you a lot more flexibility. As I mentioned before, we’ve looked at many of our peers in our sector and they appear to have more of a 16% or 17% downgrade threshold at Moody’s. So that certainly, as you described would indicate you’re able to deploy more capital with leverage without impacting your credit rating. So does that answer your question, so what you are looking for?

Yeah. No. It does. And I guess the other question, I think, currently, you guys are currently at the BBB+, BAA1, is that something you want to maintain or I think a stable utility. So the other peers out there are okay to be in the mid-BBB range, is that something that you’re okay with holding as well or do you want to maintain your current ratings?

Yeah. We intend to maintain our current ratings.

Okay. That makes a lot of sense. On the load growth side, I mean, obviously, it can be the -- especially the commercial load that you’re putting out there for 2022. We’ve talked about the load growth trends over the past couple of -- few quarters from you guys and this number is definitely very impressive. I know the forecast beyond 2022 is relatively conservative. So it would seem to indicate that there could be definitely upside from there if that holds. Any color on what you’re seeing on 2022 expectations and which industries or what momentum do you think I exist to at least beyond 2022 at this level? It -- maybe not the same level, but being above your conservative assumptions?

Yeah. I’ll -- I’m going to let Bryan get into the detail. But Insoo, I tell you, this is a great conversation. We’re talking about momentum. We’re talking about growth. It’s really exciting. So, Bryan, you want to kind of get into the details there.

Yeah. Absolutely. And Insoo, I’m -- it’s -- I am in my, I guess, fifth quarter here at the company and a lot of discussions Sean and Jason, I’ve had. I’ve talked about the real strong momentum the company had developed right before the pandemic hit. So we’re starting to see load growth exceed 1% before the pandemic hit and had great momentum. And then, of course, speed bump in 2020 with COVID and the pandemic, and now we’re turning the corner here. And you’re in Oklahoma and Arkansas, they’re very business friendly states, then you have us as a utility that has some of the most affordable rates in the country. So you’re seeing great interest in existing and new companies coming in and expanding operations. In 2022, I would describe, that bigger, one of the bigger drivers, there’s a lot of different industries that are helping load to grow. I did mention data mining companies in my opening remarks. And I tell you, we’ve taken a pretty conservative approach with that expected load as to what we expect it to come in at. They’ve indicated certain start dates for their operations and we have taken a conservative approach by assuming a six-month ramp up period for those operations. So a slower ramp up and what those customers are actually expecting and that should start in earnest in the second quarter. And I think your question to was, could you also see some of that upside going into 2023 and I think that’s absolutely a possibility.

Got it. And then the just thought that that the capital the $950 per year over the next few years, it’s starting to 2023 periods, that capital is assuming you’re relatively conservative load growth assumptions?

Yeah. And I wouldn’t point to this specific load. I’ve been speaking to is driving our capital investment needs. It’s the overall ocean rising in Oklahoma of great customer demand, residential, industrial, oilfield, public authority. It’s the entire economy here that we’ve been planning for years. And so you’re seeing not only new capital projects around capacity upgrades in our transmission system 69 kV Lines our substations on the distribution side. You’re seeing us make investments needed to make the entire grid more resilient to protect it against extreme weather events and things of that nature. So these investments are needed. They’re critical for the safe and reliable operation of our grid over the next five years irrespective of what you might see in 2023 load.

Okay. That’s definitely the color. And just one more if I could, that the 2022 guidance and also just obtain your 5% to 7% growth rate, as we think about the utility. I assume that’s utility as net of HoldCo and others as well and if that is the case, any -- from a modeling perspective, any expectations on the range of either drag or benefit on the HoldCo site that we should be thinking about?

Yeah. So, our 5% to 7%, we mentioned that as our utility expectation of earnings per share growth. On the HoldCo, we had a $0.04 drag here in 2022. In my comments I mentioned, we expect that to go down to about a penny or $0.02 here in 2022. And really, what’s driving that Insoo is that our holding company debt levels to go back close, should really shrink here in 2022 and 2023, as we sell our Energy Transfer units, get the proceeds from those sales, as well as the harvest the distributions, if you will, from that investment. So we expect HoldCo to have a minimal impact on the company from an earnings perspective the next couple of years. And then over time, as you deploy your annual $950 million of capital, you’re going to see HoldCo debt levels start to move up and you will have a bit of a interest expense drag in the out years. But we’ve modeled utility by itself and then of course utility plus the HoldCo and believe we can deliver in that 5% to 7% range on a consolidated basis once you exit the midstream business.

Okay. So that’s all embedded. Okay. Thank you so much.

All right. Thank you.

Your next question is from the line at Travis Miller with Morningstar. Please go ahead.

Good morning, everyone. Thank you.

Good morning, Travis.

Good morning.

Yeah. You answered all of my questions around the CapEx, but just the follow up on, what you’re talking about just then the, that 1% number that you’re planning for and beyond 2023. So if that were to go to a 2% or 3%, what areas of CapEx would you expect the most affected, distribution, generation, transmission, where would you think we would see the most pieces moving around so to speak that plan?

Yeah. You’ll continue to see investments in the transmission and distribution side of the business. I mean that we’ve said for many, many years are -- really the wires is where we’re focused, as Bryan remarked, it’s really that customer focus, where there’s benefit and those will be the investment dollars we make to connect those new customers.

Okay. Understood. And then a couple of your peers around the Southeast and Midwest have talked about industrial demand driving a lot of renewable growth, ESG and greening of the energy use. Are you seeing that, and if so, what are the dynamics of trying to get users essentially to pay for that upgrade versus socializing across the system?

Yeah. We’re certainly having that conversation with some of our customers. I think the bar there is a little higher in our service territory, because our rates are so attractive. And so, those industrial customers are looking for the economics there too. And so they’ve got a really good thing where they are now and so we’re working with them. Our solar subscription program where customers are able to subscribe to some of that has been very successful. We’ve gotten another one under underway this year. But those discussions are ongoing. But just like we’re focused on the economics and the affordability as we call it for our customers, those industrial customers are looking at the same thing too.

Yeah.

Travis, the only thing I might add is that, as being an SPP, we have access to a tremendous amount of wind generation and when you look at RTOs in a country, SPP has probably done a better job than any as far as bringing renewable resources and so are getting a pretty green electron flow as it is today.

Sure. Okay. Great. I appreciate the thought.

Thank you.

[Operator Instructions] Our next question is from the line of Brandon Lee with Mizuho. Please go ahead.

Hey. Good morning, Sean and Bryan. Congrats on the quarter. Most of my questions have been asked, but just a quick question. If you guys have good weather and you guys perform well during the year, are you guys looking toggle and aim to stay within your 5% to 7% range maybe pull forward CapEx?

Yeah. You’re forecasting 10 months ahead here, Brandon. But, I think, that’s something that our planning and operations are dynamic. Bryan talked about the efforts we undertook in 2021 to get in the guidance range. And I think that’s the expectation that you -- you’re adaptable and adjust things based on how the year progresses. I mean, things will surface and we’ll adjust and adapt, and we have every expectation to meet our numbers. And again, I want to be really clear, we’ve built this company and built this plan the right way and we’re focused on the long-term, too. I mean, that we’re not narrowly focused just on the current year either. We’re making sure that we’re going to deliver this for many, many years.

Great. And then, just on your Energy Transfer sell down. I think you guys mentioned that the majority of the Energy Transfer shares will be exited by the end of the year. Is that a change in strategy? Are you expecting to hold a small minority piece into 2023?

Yeah. There’s no change in our strategy. We were just trying to communicate. We’re going to exit this position.

Okay. Great. That’s all I had. Thanks.

All right. Thanks, Brandon.

Thank you, Brandon.

And I’m showing no further questions at this time. I would like to turn the conference back to Sean Trauschke for closing remarks.

Thank you, Dennis. As we close today’s call, I do want to leave you with a final thought. We will continue our sustainable business model of growing revenues by attracting new customers and managing expenses by utilizing technology and becoming more efficient as we focus on reliability and resiliency. This virtuous cycle helps us maintain some of the most affordable rates in the nation, which in turn, attracts more customers as we’re seeing. I’m grateful for our team for every employee who has brought us to this point, realizing the growth projections we set out five years ago and as we celebrate OG&E’s 120th birthday this week. We aren’t letting up. And I look forward to sharing continued results with you in the future. So I’m excited about where we are headed and what the future has in store for the company. Thank you for your interest in OGE Energy Corp. and for being on the call today. Take care of yourselves.

This concludes today’s conference call. Thank you for joining. You may now disconnect.