OGE Energy Corporation (OGE)

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OGE Energy Corp. (OGE)

Q3 2009 Earnings Call

October 30, 2009; 9:00 am ET


Pete Delaney - Chairman, President & Chief Executive Officer

Sean Trauschke - Vice President & Chief Financial Officer

Keith Mitchell - Chief Operating Officer

Todd Tidwell - Director of Investor Relations


Reza Hatefi - Decade Capital

Jay Dobson - Wunderlich Securities

Brian Russo - Ladenburg Thalmann

David Frank - Catapult Capital

Jeffrey Coviello - Duquesne Capital Management

Brian Russo - Ladenburg Thalmann & Co.



Good morning. My name is Neithen and I will be your conference operator today. At this time, I would like to welcome everyone to the OGE Energy Corporation earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions)

Mr. Todd Tidwell, you may begin your conference.

Todd Tidwell

Thank you, Neithen. Good morning everyone and welcome to OGE Energy Corp’s third quarter 2009 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 several other members of the management team to address any questions that you may have.

In terms of the call today, we will first hear from Pete Delaney, followed by an explanation of the third quarter results from Sean, 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 www.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.

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

Pete Delaney

Thank you Todd and good morning everyone. Welcome to our third quarter earnings call. I will discuss our recent accomplishments and forward initiatives and our outlook for our businesses, and then turn over to Sean will review our financial results in more detail. The third quarter was a good quarter on several fronts. First we were able to reports solid earnings this quarter due largely to rate increases in Arkansas and Oklahoma despite unfavorable weather.

Our utility earnings benefiting from these regulatory actions were up some $17 million despite a negative weather variance of $7 million and on a consolidated basis net income for the quarter was down less than $3 million due to the growth in utility earnings, as earnings at Enogex were driven lower by a 46% drop in both commodity spreads realized and liquids prices. This commodity decline tends to match the fact that Enogex gathering processing and natural gas transportation business continued to grow and I’ll let Sean talk about that in more detail in a minute.

On the regulatory front we successfully settled two rate proceedings, around the last earnings call we had received regulatory approval for our $48 million rate case settlement, which has been implemented. The key component was the increase in the monthly customer charge from $6.50 to $13 a month accounting for $44 million of that increase, a good step directionally given our escalating demand side management efforts.

Secondly, we just recently settled with the Attorney General’s Office of Oklahoma Corporate Commission staff and the Oklahoma Industrial Group in regard to the rate recovery of our $270 million investment in the 101-megawatt OU Spirit Wind Farm. Administrative of law judge has recommended approval of the settlement, which is a key step toward approval by the Oklahoma Corporation Commission which we hope will occur in November as the farm should begin service by year end providing additional earnings of 2010.

This will have been the tenth rate matter settled within the last two years, good work in our opinion. Throughout the year I have been reporting that our economy in Oklahoma has not been affected, as much as other areas of the country and that storyline continues today. Unemployment in the Metro Oklahoma City area is about 6.8%, not where we want it, but still 3% below the nation. Our customer growth continues to be just under 1% year-to-date inline with historical levels.

Industrial sales, which have been down considerably seem to have stabilized this quarter based in part by the incremental 45 megawatts of new load that has already come online this year, with another nine megawatts expected by year end. Industrial sales were down some 15% for the third quarter. However, this is an improvement of last quarter’s negative variance of 16%.

As discussed on the last call, we expect this upward trend to continue as many of these new projects have come online the second half of the year. Another positive note, Mitsubishi Power Systems announced a new wind turbine manufacturing plant in our Fort Smith, Arkansas service area, which should add to our load in 2007.

All-in-all our economy continues to sustain itself in the face of lower natural gas prices and overall decline in the national economy. I think representative of the outlook of the leadership in the region is that the City Council of Oklahoma City has scheduled a vote in December to extend a $0.01 tax to invest approximately $800 million over the next seven years in the metro region, including the first phase of a rail system, which would be powered electrically.

Read the rest of this transcript for free on seekingalpha.com