Oklahoma Gas and Electric, a subsidiary of
OGE Energy Corporation
), has reached a settlement in the Oklahoma rate case that had been
in the process for approximately a year. Per the settlement, the
company would get about a $4 million rate increase. Despite this
increase, the residential customers will experience a small
reduction in their monthly bills due to new rate designs and a
lower rate of return on equity (ROE) of 10.2%.
The settlement agreement will result in the reduction of an
average residential customer's bill by 9 cents per month. However,
it will increase the cost for highly subsidized municipal and
security lighting customers.
In July 2011, the company had made its initial filing for a $73
million increase at the Oklahoma Corporation Commission. It had
requested for an ROE of 11%. Each 0.10% change in the requested ROE
affects the requested rate increase by $3.0 million. Consumer and
industrial groups had therefore objected to the hike request. This
led to many discussions, resulting in the present settlement. If
the original request was granted, the average residential
customer's monthly bill would have increased by approximately $6.50
per month while allowing the company to recoup the costs of
approximately $500 million in new investments over the past couple
In May 2012, the company had planned to execute an interim
annual rate increase of $24 million with the new rates effective
June 1, 2012, for its residential, commercial and industrial
customers. However, in order to offset the increase, the energy
company had planned to file for a reduction in fuel costs by $50
million annually that will finally result in a net reduction of the
bill amount for all customers.
The settled agreement will help in removing uncertainty and
provide a way to move forward for the recovery of investment in
transmission assets. Meanwhile, the company also maintained its
earnings guidance in the range of $3.40 to $3.60 per share for
fiscal 2012 that takes into account normal weather for the
remainder of 2012.
On July 30, 2012, the company is expected to release its second
quarter 2012 earnings. The Zacks Consensus Estimates for second
quarter and fiscal year 2012 are currently at 90 cents per share
and $3.61 per share, respectively.
OGE Energy Corporation distributes natural gas and electricity
through its subsidiaries (Oklahoma Gas and Electric Company or
OG&E, and Enogex) primarily in the south central United States.
It is the largest electric utility in Oklahoma, with
well-positioned regulated utility and unregulated midstream gas
businesses. The company operates in a strong Oklahoma economy, has
a bias towards fixed fee in its unregulated natural gas business,
offers a high dividend yield and employs ongoing infrastructure
However, we remain concerned about the volatility in its
commodity business along with the unfavorable macro backdrop. The
positives have already been priced in the current valuation,
leaving little room for further upside in the near term. The
company presently retains a short-term Zacks #2 Rank (Buy). We have
a long-term Neutral recommendation on the stock.
Some of OGE Energy's competitors include
ENTERGY CORP (ETR): Free Stock Analysis Report
OGE ENERGY CORP (OGE): Free Stock Analysis
ONEOK INC (OKE): Free Stock Analysis Report
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