Good morning and thank you for standing by. Welcome to the OGE Energy Corp's Third Quarter 2022 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. And I will now hand the conference over to your first speaker, Jason Bailey, Director of Investor Relations at OGE. Go ahead, Jason.

Thank you, Eric, and good morning, everyone, and welcome to OGE Energy Corp's third quarter 2022 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'll now turn the call over to Sean for his opening remarks. Sean?

Thank you, Jason. Good morning, everyone. Thank you for joining us today. Before we get started, I do want to reflect on the economic and inflationary pressures our customers and all of us are experiencing today. We understand our customers concerns about household costs increasing across the board and understand that the rising cost of fuel to produce electricity contributes to the concerns our customers have about increasing energy bills. I'll talk about the specific actions we are taking after we discuss the quarter's results. Turning to our financial results. Earlier this morning, we reported third quarter consolidated earnings of $1.31 per share. This includes utility earnings of $1.26 per share, a holding company loss of $0.03 and earnings from natural gas operations of $0.08. Our solid performance in this quarter is due to exceptional execution by our team who work to keep energy flowing to the grid during a very hot summer with upwards of 20 100-degree days across our service area. Unlike other areas of the country, there were no calls for public conservation to protective grid. Our system is designed, our system is built, and it's operated for these conditions, and I'm incredibly proud of our team for their work 24 hours a day to keep the lights on for our customers. The third quarter was highly productive and was really a reflection of the investments in planning we undertake to be prepared. In the third quarter, we also completed the exit of our midstream investments with the final sale of our Energy Transfer units. While this will be the last time I discuss midstream financial results, I want to take a moment to reflect on the end what has been a decade long effort to close this part of our business and move forward. We've doubled…

Thank you, Sean. Thank you, Jason, and good morning, everyone. Starting with third quarter results on Slide 5, we reported consolidated earnings of $1.31 per diluted share, compared to $1.26 in the same period in 2021. OG&E, the electric utility, contributed earnings of $1.26 per share in the third quarter compared to $1.12 in the same period in 2021. The increase was primarily driven by higher sales volumes from strong load growth and warmer weather, as well as increased recoveries of capital investments. These favorable drivers were partially offset by expected higher depreciation on a growing asset base, as well as revised depreciation rates that became effective in July consistent with the Oklahoma general rate review order from the commission. Our Natural Gas Midstream segment contributed earnings of $0.08 per share in the third quarter, compared to earnings of $0.15 in the same period in 2021. The decrease in net income was primarily due to the elimination of equity and earnings of Enable, partially offset by a gain on our energy transfer units. I will discuss the completion of our exit from Energy Transfer in a moment. Other operations, including our holding company, experienced the loss of $0.03 per share compared to a loss of $0.01 in the same period in 2021. The increase in net loss was primarily due to the partial reversal of an interim period consolidating tax benefit that was recorded in the first quarter of 2022. For full-year 2022, we now expect earnings at the electric utility to be in the range of $2.08 to $2.12 per diluted share and holding company earnings to be a loss of approximately $0.02 per share. Turning to economic indicators and load results on Slide 6. Our customer count grew 1.2% over the past 12 months, in-line with our expectations…

Operator, we are ready for questions.

Darryl Ventura at Bank of America. Your line is open. Please go ahead.

Hey, good morning team. It's Julien here. Thanks for taking the time and the questions and appreciate the update. [Multiple Speakers] Hey, good morning to you both.

Good morning.

So, if I may, just pivoting here to the fuel conversation, I appreciate the remarks, can we just talk at the outset here about how you think about fuel procurement hedging strategies [for at large] [ph]? I know there's some conversation in the state. How do you think about maybe looking and reevaluating longer-term opportunities there to avoid this? You talk about longer-term amortization, can you be a little bit more specific on that? And then related, earlier in the comments, you talked about the solar RFP that was reissued in-light of IRA, how does the renewable opportunity here coincide with hedging and fuel practices in-light of this rapid uptick in the fuel balance?

Yes. Julien, thanks for the question. This is – it's good to hear from you again. Couple of things. On the hedging discussion, we've certainly had that discussion and we have that discussion a lot with commission about the hedging. What we have done is, we've taken on a much larger storage position, so we've got the physical supply. That was really one of the key factors coming out of Winter Storm Uri. It was the physical supply natural gas in that case. So, we're continually looking at. We've changed some. We've already changed some of our procurement practices already to see if we can better mitigate the impact there. So, the hedging discussion will be continuing discussion. We'll see where that plays out. As I think about the RFPs we have out there, and you're correct, appreciate you mentioning that about the solar RFP. So, we're going to get all those back and we're going to look at all those and see how they fit our need. As you recall, we don't have a need all at once. It's spread out over a number of years, but certainly to the extent that we have an opportunity to reduce some of that fuel volatility, that would be helpful. That would be helpful to us. I think the IRA provides some opportunity there in terms of credits that could be beneficial to our customers, but then again, we've also got to make sure that we have that reliability that we rely on. And my intent to own these assets has not changed. I think if anything has probably been more resolute in terms of that we must own these because one of the points we've recognized coming out of Uri and coming out of this summer as hot as it was is, we are good operators and we know how to run our plants and at the end of the day we're accountable to making sure that energy is flowing to all of our customers. And we want to control that. We want to make sure that we're in charge of that. We don't want to rely on others to support us. So, I hope that was helpful there. Did I get your points Julien? Or you have questions?

Yes, I think so. I'll leave it there. And then if I can squeeze in one more question here, I mean, the commentary on loan growth, if I may, at 3% here for the year still and sticking with the exceeding 1% in the 2023, again, I get the economy dynamic here, but maybe you could add a little bit granularity here on exceeding 1%. I mean, that's just an exceptional trend here year to date. You must be having conversations with some of your larger loads to be zeroing in on some of that conversation? I know you said you could provide more formal guidance here next quarter, but just perhaps add a little bit of the clarity that you have on where that may land here in the year ahead?

Yes. I don't know that we've got the crystal ball to see where exactly it's going to land sitting here in November when we announced this in February. But I think Bryan's remarks and what we've seen, there's a lot of activity and it's new development, it's expansion in the existing facilities. We see it. We see the population growth coming. We see it certainly on the commercial side of new businesses. I think that probably the hesitancy we have of anything is just, kind of really pinpointing when that win next year that's going to hit, right? We're very confident in the development pipeline. I was just in some discussions here in the city last week, some very exciting opportunities. And so, there's a lot of things going on there. And so, it's difficult to, kind of pinpoint that sitting here today of whether something's going to come online in May versus November of next year, but I think your thesis is absolutely correct, Julien. It's growing. And it's a validation of what we've been really focused on for a number of years here in terms of really creating this economic engine in our service territory.

Yes, pretty remarkable here versus many of your peers. So, I just wanted to follow-up there. Thank you guys. Appreciate it.

Thanks Julien. Take care.

[Operator Instructions] And our next caller is Brandon Lee from Mizuho. Brandon, your line is open. Please go ahead.

Hey, good morning Sean and Bryan. Just a quick question.

Good morning, Brandon.

Good morning. I know you briefly mentioned data mining load. How do you view that load in your service territory? Is it transient load? And is it dependent on sort of bitcoin prices or kind of crypto prices? Thanks.

Yes. Thanks Brandon for the question. I'm going to let Bryan tackle that one. He's knee deep into this. So, Bryan go ahead.

Hey Brandon, good morning. Yes. And just to add a little bit on Julien's question as well, you look at residential, we're seeing that strong population growth that Sean mentioned. I'll come back to commercial, industrial, and an oil field have been reasonably good this year, but we've seen several outages on those sectors that give us great confidence that that growth will bounce back some next year. and in public authority growth has been really strong. That includes the school systems and casinos and things like that in the state. On the commercial front, it's a lot of different business types, but on the data mining topic in particular, that's been a nice balance in oil growth here in the third quarter, less so in the first half of the year, but the biggest customer we have there is an Oklahoma-owned and managed company. Their warehouses are, kind of your traditional brick and mortar, the data mining equipment is housed in there with state of the art cooling systems. So, it's an Oklahoma company. We will have some other potential data mining companies that come in that may not be as rooted into the state as they are, but the growth we've seen so far to date is more anchored in what perhaps you've seen in some other states. Does that – but it’s right, just to finish off your question, Bitcoin pricing does matter to their economics. We've been told it's anywhere from $8,000 to $10,000 of Bitcoin or above. They're running and they're profitable. So, that's just an indicator for you to watch, but that is not what's given us our enthusiasm for 2023, we're looking at a 1% or higher growth rate next year, completely excluding incremental growth from data mining. So, I just want to be clear on that point too.

Great. That's perfect. That's all I had. Thanks a lot.

Thank you.

Okay standby for our next caller. And next up is Gregg Orrill at UBS. Greg, your line is open. Please go ahead.

Yes. Thanks for the question. I was wondering if you have an after tax number on the proceeds from Energy Transfer and any [additional uses] [ph]? Thanks.

Yes. Bryan, you want to…

Yes, absolutely. Hey, Gregg, good morning. As you're modeling that, we've given you the per unit price that we settled our transactions and exiting in ET and the slide deck, kind of just as a reminder, we had a negative tax basis on the ET shares. So, when you consider the negative tax basis plus just kind of your normal tax rate on the gross proceeds, the effective tax rate played out to be, kind of net 40% to 45% area from a cash perspective. So, hopefully that helps you with your modeling. And so, on proceeds, we've of course used that to pay down some short-term holding company debt. And so, we're in a good position on the balance sheet.

Okay. Sounds good. Thank you.

Standby for our next caller. Okay. Mr. Adithya Gandhi is calling in from Wolfe Research. Mr. Gandhi, please go ahead.

Thank you. Good morning, Sean. Good morning, Bryan.

Hey, good morning.

Good morning. Just first, on the 5% to 7% growth rate, I noticed that you'll sort of change the way you'll expressed this from an annual utility earnings growth rate to a CAGR. Does that – is your utility earnings growth still relatively linear or should we now think of the shape as not being linear? Just want to make sure I'm not, sort of overeating into that.

You shouldn't over eat anything in that at all. We've been pretty consistent that the growth rate is 5% to 7% and that's what we're working to achieve each year. Yes. I would 100% agree with that. So, we had $1.81 base in 2021. You saw us hit the $1.92 mid-point in our guidance this year, which 6% growth. And you should expect us to be trying to achieve that 5% to 7% every year throughout the future.

Got it. Thank you. And I guess my second question, I know you will give formal 2023 guidance at Q4, but, if we just sort of add the last four quarters of your utility earnings, that gets us to, sort of above your current range. Should we assume your sort of pulling forward some O&M from 2023 into 2022 or taking any other steps to de-risk 2023 a little bit. If you could just add some color on that?

Yes. I think it's fair to say, we're always moving things around and we've certainly had years in the past where we haven't had the benefit of weather, but I think it's safe to say, we were intent on growing our business, but I would just caution you, don't – when we move things around, we move things around for the long-term. So, very likely we could be pulling things in from 2024 or other years to do them in 2023 as well. So, we're managing this business for long-term and we're still laser focused on identifying the efficiencies and technologies the opportunities to reduce some of those costs too. So – but I think your thesis is right. We're moving some things around.

That's helpful. Thank you. And just one last question, if I can squeeze that in. So, just intravenous testimony on sort of like the, you know the Show Cause investigation in Oklahoma regarding your fuel cost came in a few days ago with most interveners recommending longer amortization periods than 24 years, sorry 24 months. Just how are you thinking about potential implications of that on your cash flow? And just credit metrics, if you've had any conversations with the credit rating agencies. And again, I understand that your balance sheet is extremely strong and you've had great FFO to debt numbers, but just how should we be thinking about that?

Yes, I think you're – as you’re aware the hearings are scheduled for this afternoon, I think at [1:30] [ph]. And I'm sure there's probably some interested parties listening on this call. So, I don't want to say anything that may prejudice the outcome for sure, but I think it's safe to say, we expect to be treated fairly by the commission. We are all very sensitive to the impact of customers, and we expect this to get resolved pretty quickly.

Okay, great. Thank you so much.

All right. Thank you.

Okay. Our next caller is Constantine Lednev from Guggenheim. Constantine, your line is open. Please go ahead.

Hi, good morning, Sean, Bryan and team. Congrats on a great quarter.

Good morning. Thank you.

Good morning, Constantine.

I think you had some very comprehensive remarks and a lot of questions have been answered. I just wanted to maybe follow-up a little bit how you're thinking about the availability of the generation resources playing a factor in the RFP process. There were some potential delays across the supply chain, previously. but curious how you see that playing out in your view?

Well, we haven't received the bids back on the solar RFP. So, time will tell on that. Those are due in the coming weeks, but I think that is a very real parameter that we've got to deal with because we have windows or slots where we need generation to complete our portfolio and we've got to match that up with availability. And I don't know how many times in our remarks, we've talked about affordability. That matters too. And we also talked about reliability. We've got to make sure that it touches all those points, but Constantine. I think availability as we saw earlier in the year was a bit of a problem. We're hopeful that we're going to be able to spot some things in and get a better result for our company.

Excellent. And maybe at a higher level on what kind of load and interconnections in new business across the service area, just any detail that you can provide on any pullback or pull forward on any specific sector as you're kind of looking out for the future?

I didn't get – pulled back or pulled forward on particular sector …

I mean in interconnection or business, kind of you previously talked about a variety of different, kind of subsectors contributing to that growth. We obviously, talking about the crypto side of it, but any other trends that you are seeing or kind of starting to plan for in 2023?

No, not a particular sector. And I think Bryan mentioned, we are seeing it across the board and we're seeing some manufacturing facilities pop-up. And so that creates new homes and new businesses, new residential customers. And then that also has compounding benefit of new commercial establishments, whether it's a restaurant or grocery store or something like that. So, hopefully, you heard from us, we're bullish on the growth of our service territory.

Maybe – [you'll love this] [ph]. One of the new manufacturing facility Sean mentioned that is opening up here late this year is [indiscernible] and they are electronics or an electric industry supplier. So, equipment materials for our own industry and we could be more thrilled to have them just miles away from our own warehousing given the supply chain dynamics in the country. So, that was a really exciting one for us, but John’s right, it's across the board.

Yes, very familiar with that one. And maybe just a quick follow-up in terms of oil and gas activity, kind of where commodities, where they are? Are you seeing a bit more of a pickup in that sector or kind of the supporting services?

Maybe slight, you know just in conversations with people, there's certainly more volume flowing, but I'm not sure that's the driver either. We're not counting on that as the real driver.

Okay. Thanks for taking the questions and congrats again.

All right. Thank you.

Okay. At this time, I'd like to turn it back to Jason Bailey, Director of Investor Relations at OGE for closing remarks.

Hey, thank you, Eric, and thank you everyone for your interest in OGE and please have a safe day.

Very good. That concludes our session. You may disconnect.