OGE Energy Corporation (OGE)

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OGE Energy Corp. (OGE)

Q2 2011 Earnings Call

August 4, 2011 9:00 AM ET


Todd Tidwell – IR Manager

Peter Delaney – Chairman and CEO

Sean Trauschke – VP and CFO

Keith Mitchell – COO, Enogex


Brian Russo – Ladenburg Thalmann

Anthony Crowdell – Jefferies



Good day ladies and gentlemen and welcome to the Second Quarter 2011 OGE Energy Earnings Conference Call. My name is Keesha will be your conference operator today. At this time all participants are in listen-only mode. We will conduct a question-and-answer towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to hand the conference over to Mr. Todd Tidwell, Director of Investor Relation. Please proceed sir.

Todd Tidwell

Thank you, Keesha. Good morning, everyone, and welcome to OGE Energy Corp.’s second quarter 2011 earnings call. I’m Todd Tidwell, Director of Investor Relations. And with me today I have Pete Delaney, Chairman and CEO of OGE Energy Corp.; Sean Trauschke, Vice President and CFO of OGE; 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, followed by an explanation of second quarter results and an overview of the Oklahoma rate filing 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 comments. Pete?

Peter Delaney

Thank you, Todd. Good morning, everyone and welcome to call. This quarter’s finance performance was driven extraordinary hot summer weather and to a lesser extent increased NGL pricing. As of this call we have experienced 40 days of day time highs in Oklahoma City since June 14 over 100 degrees.

Normally we would have about 10 days per year over 100 degrees, so this summer is really shaping up to be one of the hottest on record in Oklahoma. Enogex is on plan to meet the financial target again by NGL prices over the prior year. Operationally we are making good progress on key initiatives in both businesses as you may recall this is the major build year for us with a record 1.4 billion capital budget.

In the second quarter we reported earnings $1.04 per share compared to $0.78 in the second quarter of 2010. And so the gross margins were higher primarily for the quarter due to the hot weather I mentioned, regulatory riders associated with pre-approved utility investments and new customer growth. This higher gross margin was partially offset by higher operating expenses.

We established a new all-time peak demand, last couple of days that peak demand has been about 7000 megawatts. This is an unprecedented 400 megawatt increase in our peak demand over last year’s record peak. We believe obviously, this huge increase in the peak driven by the weather as opposed to growth, that our plants will be analyzing that data.

As an extreme weather condition our infrastructure systems and members are seriously challenged by report that operations have been able to meet the demand of our service with minimum disruption. You may recall from our prior quarter call, we’ve increased our spent last year as part of a mechanical integrity plan. Those investments have really paid off so far and the performance of our power plants in meeting record demand.

The recovery of infrastructure investments is a key component of our regulatory filing made with the Oklahoma Corporation Commission. Rate case we have invested approximately 500 million in our utility to maintain a high level viable electric service which resolved and a $285 million increase rate base from which we are not currently earnings a return. We have a requested a base rate increase of 73 million. Sean will get into the details later.

And then in the past Howard Motley, our Vice President of Regulatory Affairs, who unexpectedly passed away several weeks ago, we would be reviewing our plans. I would like to recognize his contribution particularly to the regulatory success of this company. I did want to update you on some of our initiatives at the utility associated with the largest investment program in our company’s history is now $1.4 billion. That amount approximately $1 billion is related to the utility. So far major projects on track to be completed on operating in either 2011 or 12 as planned.

Transmission investment for this year is over $250 million and these projects are progressing at various stages of planning and design. The 228 megawatt Crossroads wind farm is moving forward. A majority of the turbines are expected to be in service by the end of this year. This market rollout on schedule is over 350,000 smart meters now in place.

On the regulatory front, there Arkansas Rate Case was solved in June with new base rate increase of $8.8 million implemented that same month. We received I think yesterday an order approving the settlement reached in our Smart Grid filing in Arkansas which will allow us to complete our deployment system wide.

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