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DATE
Wednesday, July 30, 2025 at 9 a.m. ET
CALL PARTICIPANTS
- Chairman, President, and Chief Executive Officer — Robert Sean Trauschke
- Executive Vice President and Chief Financial Officer — Charles B. Walworth
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TAKEAWAYS
- Consolidated Earnings -- $0.53 per diluted share, with holding company flat for the quarter.
- Net Income -- $108 million consolidated versus $102 million in the same period of 2024.
- Electric Company Performance -- $108 million net income, or $0.53 per share, compared to $109 million, or $0.54 per share, previously.
- Weather-Normalized Load Growth -- 6.5% year-to-date growth compared to the prior year period, described as "historically strong" by management.
- Customer Growth -- Near 1% year-over-year increase in the second quarter.
- Capital Projects -- Approximately 550 megawatts of new capacity being added, including new natural gas turbines at Tinker and Horseshoe Lake Units 11 and 12, all scheduled to be operational within the next year.
- Planned Generation Expansion -- Filings made for approval to construct Horseshoe Lake Units 13 and 14, targeting an additional 450 megawatts by 2029.
- Transmission Investment -- Notice to construct accepted for a new line from Fort Smith to Muskogee, estimated at $240 million across 2027, 2028, and 2029, FERC-approved for CWIP recovery.
- Midstream Onetime Benefit -- $8.7 million pretax benefit at the holding company related to legacy midstream operations, characterized as nonrecurring.
- Refinancing Schedule -- Next refinancing maturity is $125 million in 2027 and is the highest coupon debt outstanding.
- Legislative and Regulatory Developments -- New Oklahoma and Arkansas statutes allow for CWIP and PISA accounting, with management stating, "will save customers $190 million on our proposed Horseshoe Lake Units 13 and 14 over the life of the units."
- Commercial Load Growth -- 25% year-to-date, on pace to meet or exceed annual guidance.
- Residential Load Growth -- 1% year-to-date, also on pace to meet or exceed guidance.
- Guidance Outlook -- Management reiterated, "we expect results in the top half of our guidance range."
SUMMARY
Management highlighted near-term and future load growth as a central driver of current operational and capital decisions, with strategic expansion of generation and transmission assets supported by favorable state legislation. Several new major capital projects were confirmed as on time and on budget, underpinning ongoing investments in reliability and capacity. Regulatory and legislative gains provide flexibility in financing strategy, with customer cost savings projected from CWIP and PISA adoption. The company indicated that data center loads, if secured, will be accretive but are not included in current load projections.
- Management noted "incremental load coming in the foreseeable future," particularly from industrial and oilfield customers, with actions in progress to address recent unplanned outages in those segments.
- Ongoing negotiations with large load customers and further data center discussions could result in additional generation capacity requirements, "probably going to continue to add generation capacity over the next few years."
- The Oklahoma Innovation Expansion Program, involving 83 companies in the service area, supports expectations for increased industrial, tribal, and defense sector participation.
- Arkansas and Oklahoma rate review filings are planned, with Arkansas to follow after Oklahoma's submission later this year.
- Management confirmed that top-end guidance includes the onetime midstream earnings benefit and current weather impact.
INDUSTRY GLOSSARY
- CWIP: Construction Work in Progress; regulatory mechanism allowing utilities to recover certain construction-related costs prior to project completion.
- PISA: Plant-in-Service Accounting; allows for the inclusion of capital expenditures in rate base upon project completion, enabling quicker recovery compared to traditional approaches.
- SPP: Southwest Power Pool; a regional transmission organization that coordinates the movement of wholesale electricity in the Central U.S.
- FERC: Federal Energy Regulatory Commission; U.S. federal agency that regulates interstate transmission of electricity, natural gas, and oil.
- RFP: Request for Proposals; formal solicitation process inviting bids for projects such as new generation or transmission assets.
- IRP: Integrated Resource Plan; long-term utility planning document that forecasts future power supply needs and outlines resources to meet demand.
Full Conference Call Transcript
Robert Sean Trauschke: Thank you, Jason, and good morning, everyone. Thank you for joining us today. It's certainly great to be with you. Our service area is continuing to grow, and I couldn't be more excited about this growth we're experiencing. Here in Oklahoma City, we've truly entered the global stage. Our Thunder secured their first NBA championship and more than 0.5 million people descended on downtown to help celebrate during the championship parade. But that's not all. In 2028, we will host the softball and canoe slalom events as part of the Los Angeles Olympics. And as we celebrate these milestones, it's important to stay focused on our goals for the year and the years ahead.
So here we are, halfway through the year, and we've achieved a lot, and we're confident in our plans for the year and expect to deliver in the top half of our earnings guidance range. This morning, we reported consolidated earnings of $0.53 per diluted share with the holding company flat for the quarter. We built a strong foundation for future growth and remain committed to providing safe, reliable and affordable service to our customers. The second quarter usually includes severe weather in our service area, and I'm happy to report the system performed well and impacts on our customers were minimal as a result of our investment and outstanding team.
I'm very proud of our people and the work they do every day. This month, the weather is heating up, and as always, our system will be prepared. Moving on to customer growth and demand. Our service area is poised for continued growth across all customer segments. Additional generation projects under construction are all on time and all on budget. Our growth and performance continues to excel, providing 3 future opportunities: new generation capacity, transmission and large loads that I'm happy to update you on. To address the growing customer demand, we are adding approximately 550 megawatts of capacity today.
This includes the new natural gas, combustion turbines at Tinker as well as construction of new natural gas combustion turbines at Horseshoe Lake Units 11 and 12, and we expect these units all to be operational within the next year. We've also filed for approval of 2 more natural gas combustion turbines, again at Horseshoe Lake, Units 13 and 14, which would add approximately 450 megawatts to our generation capacity in 2029. We're not finished. We'll continue to explore options to meet our growing generation needs, and I expect we will continue to add generation at the same pace for the next few years.
On the transmission side, next month, we will accept an NTC for a line from Fort Smith, Arkansas to Muskogee, which will address -- which will help address reliability in the Fort Smith area. And Chuck will tell you more about that in just a moment. And data centers continue to have an interest in our service area. Negotiations and conversations continue to progress, and our load projections are solid, even without the data centers. So any data centers that we're adding, we add to our service area will certainly be accretive to our business.
In preparation for these opportunities, we supported the passage of legislation that would help minimize customer impacts, specifically CWIP for generation, and we filed for and received CWIP for this future transmission project as well. Turning to economic development. The Oklahoma Department of Commerce announced the 2025 Oklahoma Innovation Expansion Program, which includes 83 companies in our service area. This program supports high-impact, new capital investment across a broad range of industries to help diversify the state's economy, lead to new product development or increase capacity at Oklahoma's existing companies. In addition to encouraging new capital investment, these awards support existing jobs and the creation of new jobs.
And this is just another example of the growth opportunities in our service area. We continue to see diversified growth, including tribal and defense sectors. In late February, OKANA, a $400 million resort and water park opened along with still developing Oklahoma River in Oklahoma City, and their traffic this summer has really taken off. Tinker Air Force Base announced the purchase of 131 acres of land adjacent to the base, allowing for future expansion, including more than 1,000 new jobs. Additionally, we see retail and restaurant chains expand in our service area, including Bass Pro shops in Fort Smith, which is set to open early next year.
And then just last month, conceptual designs for the new $900 million Thunder Arena were shared with the arena set to open in the summer of '28. Our economies remain strong with unemployment in Oklahoma and Arkansas continuing to outpace the national average. For the 46th straight month, Oklahoma City unemployment rate is below 4%. The city also had the lowest unemployment rate in the nation for April and May. And U.S. News & World Report just named Oklahoma City the #1 best big city to live in, in the U.S., underscoring the Metro's national rise as a destination for both opportunity and quality of life.
As I close my remarks and prepare to hand it over to Chuck, I hope you hear how excited we are about the future and our confidence in delivering on our commitments, and we are on track to deliver in the top half of our guidance range. So as we close the books on another successful quarter, our strategic initiatives, our sustainable business model position us well to achieve our goals and to continue to grow the company and provide excellent service to our customers. So thank you. I'll turn it over to Chuck. Chuck?
Charles B. Walworth: Thank you, Sean, and thank you, Jason. Good morning, everyone. I'm pleased to review 2025 second quarter and year-to-date results with you and provide an update on our 2025 financial plan. Halfway through the year, we are confident in achieving results in the top half of our earnings guidance range. More importantly, we execute today with an eye on our long-term success. I'm excited to discuss some of those benefits with you today. But first, let's review our recent performance. Starting on Slide 5. For the second quarter, consolidated net income was $108 million or $0.53 per diluted share compared to $102 million or $0.51 per share in the same period of '24.
In our core business, the electric company achieved net income of $108 million or $0.53 per diluted share compared to $109 million or $0.54 per share in the same period of '24. The main drivers of the year-over- year net income decrease were milder weather and higher interest and depreciation expense on a growing asset base, partially offset by increased recovery of capital investments, higher weather-normalized load and lower operation and maintenance expense. The holding company reported a small loss of less than $1 million or flat on a per diluted share basis compared to a loss of $7 million or $0.03 per share in the same period of '24.
The change was primarily attributed to a onetime pretax benefit of $8.7 million related to our legacy midstream operations. Let's review our load results by turning to Slide 6. Year-over-year customer growth continued at its healthy multiyear pace, near 1% in the second quarter. Our weather-normalized load continues to be historically strong and has grown 6.5% year-to-date compared to the same period in '24. Year-to-date growth of our 2 largest customer classes, residential and commercial, was 1% and 25%, respectively, putting them on pace to meet or exceed our full year guidance. Industrial and oilfield load continued to show some softness this year. As I mentioned last quarter, some of that performance can be explained by unplanned customer outages.
We are excited about the future growth of these sectors. For example, one update is ONEOK's plan to have their natural gas liquids fractionator in Medford online in 2027. Sean discussed the strength of the local economy and communities, which are buoyed by our intentional efforts to drive economic and business development. The additional industrial and oilfield opportunities expected to result from our efforts should spur increased residential and commercial growth. This is our sustainable business model at work, attracting new customers to our service area with low rates, excellent service, helping communities grow and prosper. Let's turn our attention to our 2025 financial plan on Slide 7.
As we pass the midyear mark, we anticipate consolidated earnings in the top half of our guidance range. We've completed our planned financing activities for the year. As a reminder, our refinancing risk is low. Our next refi isn't until 2027, and it's a modest $125 million. It's also our highest coupon debt. Our balance sheet remains one of the strongest in the industry and is an important competitive advantage, one that we're committed to maintaining. Sean mentioned our successful legislative session that resulted in several new customer benefiting and credit accretive provisions. In Oklahoma and Arkansas, new legislation allows for CWIP recovery during the construction phase of certain generation capacity projects.
We are now going through the regulatory steps of putting relevant CWIP recovery mechanisms in place in both states. The CWIP benefits of the legislation will save customers $190 million on our proposed Horseshoe Lake Units 13 and 14 over the life of the units. In Oklahoma, the new legislation also allows for plant-in-service or PISA accounting. The combined benefits to all our stakeholders of this legislation should reduce customer costs, facilitate new investment, which strengthens the grid with new dispatchable generation and provide additional strength to an already strong balance sheet. There's one other credit accretive development I can update you on.
We received a notice to construct from the SPP to build a transmission line from Fort Smith, Arkansas to Muskogee, Oklahoma, and we are near the final acceptance of this project. This important line will address reliability and capacity issues in the Fort Smith area. We have received approval from the FERC to utilize CWIP recovery during the construction phase of this project. We estimate this line to cost approximately $240 million and to be constructed in multiple phases coming online in 2027, '28 and '29 with recovery primarily through our FERC formula. Together, these regulatory and legislative changes give us greater flexibility to minimize customer impacts and to finance the construction of projects.
Once we receive the appropriate approvals, we will share our plans for the proposed natural gas combustion turbines in the SPP transmission project, including prospective financing with you. As we continue to grow the company, we will keep our financial plan objectives at the forefront, which include maintaining our competitive low rate advantage by focusing on our cost structure, minimizing the time between investments in their return and recovery and growing OGE Energy by maintaining a highly credible total return proposition for our shareholders. I'll close by summarizing our progress this quarter.
With the first half historically representing only 30% or so of the electric company earnings for a year, our financial plan is on track, and we expect results in the top half of our guidance range. Our legislative successes provide additional flexibility that will benefit our customers, and we plan to file an Oklahoma rate review by the end of the year with Arkansas to follow thereafter. We are confident in our ability to achieve our consolidated earnings growth rate of 5% to 7% based on the midpoint of our 2025 guidance.
The strength of the current year's plan allows us to continue to focus on the future, address our customers' expectations of a safe and reliable system and to deliver power at some of the lowest rates in the nation. As always, our confidence remains based on the dedication of our employees and their ability to get the job done. That concludes our prepared remarks, and we'll now open the line for your questions.
Operator: [Operator Instructions] And our first question comes from the line of Nicholas Campanella, Barclays.
Nathan Joseph Richardson: It's actually Nathan Richardson on for Nick. Just a few questions here. Can you please provide a little bit of color on what is driving the weaker industrial sales?
Charles B. Walworth: Yes, Nathan. So we've talked about this -- addressed this in the comments a little bit. I mean these types of customers, first of all, they're a little more chunky, if you will, right? I mean it's -- they're a little more power-intensive customers. And they're going to have cycles for maintenance. And so it's going to be a little noticeable when they go down for areas like that. And like I said earlier, we've got line of sight to many of those coming back online as well as incremental load coming in the foreseeable future. So I think, again, there's just one section. Take a step back and you look at the overall growth, we're at 6.5%.
And so you're really seeing strong performance across the portfolio as a whole.
Nathan Joseph Richardson: Got it. Okay. That makes sense. And then excluding the midstream operations onetime legacy benefit, how can we think about parent drag for 2025? And how could that grow for the remainder of the forecast period as you finance your growth plan?
Charles B. Walworth: So I think the onetime benefit that we mentioned is just that. It's a onetime benefit. So I think you should largely ignore that from that perspective. And so we're really squarely on our guidance for this year, excluding that item.
Nathan Joseph Richardson: Okay. Got it. And then just one more. So you're still exploring options for generation capacity additions into '29. You mentioned a few things, but I was wondering how could it end up shaping out for ownership versus PPA? And could there be an update on year-end?
Robert Sean Trauschke: Yes. This is Sean. Absolutely. I think we've expressed our strong preference to own these assets. While we're building them, we do secure kind of short-term bridge capacity to kind of as we're building those out. I would expect -- we're going through all those right now. What we filed for earlier this summer was what we concluded in terms of negotiations, but we're still negotiating other agreements. And when we get those finalized, we'll file for those.
Operator: [Operator Instructions] And Our next question comes from the line of Julien Dumoulin-Smith of Jefferies.
Brian J. Russo: It's Brian Russo on for Julien. Just maybe to follow up on the upcoming additional capacity procurement. Can you kind of tie that into what's been outlined in the 2025 draft IRP I think it's at least 800 megawatts maybe by 2030. And what is kind of the update there with, like you mentioned, ongoing negotiations with bidders and own versus PPAs or bridge PPAs?
Robert Sean Trauschke: Yes. What -- I'm sorry, Brian. A couple of things are going on at the same time with the updated RFP, right? I mean, so we've made some assumptions in there for some potential large loads that we're negotiating on. As I said before, those don't all occur at once. There's a ramp schedule. So there's a little bit of movement there. And then the second piece is we're still in negotiations from the last RFP we did. So to the extent we fill some of that, you're looking for what the gap looks like. And I think what we're trying to convey is, we're probably going to continue to add generation capacity over the next few years.
But the absolute amount and timing is going to be somewhat dependent upon some of these loads coming in. And so instead of -- I'm not really in a position to give you a definitive number, but I think what I'm doing is giving you a directional number that you should expect us to continue to add capacity.
Brian J. Russo: Okay. Great. And then also the mention of company X and then company Y in the 2025 draft IRP. Just curious, are there any updates on the development of the Google Stillwater data center site?
Robert Sean Trauschke: Yes. I think those negotiations are progressing. And I think we're getting closer and closer to achieving our objectives in terms of protecting our existing customers and make sure it's value accretive to us. And so those negotiations are getting closer and closer.
Brian J. Russo: Okay. Great. And then just lastly, just to clarify, does the -- now that you're at the top end of your guidance, does that include the onetime midstream tax gain? Otherwise, you'd probably still be in the middle? Or is July weather a factor as well?
Charles B. Walworth: So just to clarify, we're pointing towards the top half of the range. And yes, that does include the impact. That's -- it's on the earnings we will report at the end of the year. So that would include this benefit that was mentioned.
Operator: Our next question comes from the line of Dylan Lipner of Ladenburg Thalmann.
Dylan Alexander Lipner: Congrats on a good quarter. Just real quick kind of piggybacking with the 450 megawatts of Horseshoe Lake coming on in 2029, is the company expected to be long capacity at the end of the decade? And if so, how do you see that need being filled?
Robert Sean Trauschke: Yes, I don't anticipate us being long. I think we've been very consistent in saying that we're going to be in a continuous adding capacity mode, and we're doing that into the load growth. So you should expect us to -- if there is any surplus, it's de minimis and will quickly be filled by future growth.
Operator: I'm showing no further questions at this time. I would now like to turn it back to Sean Trauschke for closing remarks.
Robert Sean Trauschke: Thank you, Marvin. Well, thank you all for joining us today. Thank you for your interest, and I look forward to seeing everyone very soon. Have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
