Good day, and thank you for standing by. Welcome to the OGE Energy Corp 2023 Fourth Quarter Earnings and Business Update Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Bailey, Director of Investor Relations. Please go ahead.

Thank you, Deedee, and good morning, everyone, and welcome to OGE Energy Corp.'s fourth quarter 2023 earnings and business call update. 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 today. I will now turn the call over to Sean for his opening remarks. Sean?

Thank you, Jason. Good morning, everyone. Thank you for joining us today. It's certainly great to be with you. I'm excited about our message to you this morning as our results for 2023 were top of guidance, and we are updating our 5-year plan, including a consolidated earnings growth rate based on the strong fundamentals of our business. It's truly a great time to be here at the company. Before we get into the plan, I do want to take a moment to talk about our people here at Big Orange. In '23, the team delivered results for our customers, our communities and shareholders by providing liable energy at some of the lowest rates in the nation every day. Once again, our safety results were very strong with the last 8 years being the safest in our 121-year history even as we continue to face some of the most extreme weather in the country, like Winter storms Jerry and Heather in January where our plants ran generating electricity to the grid to ensure our customers could continue to live their lives and run their businesses. Our team achieved recognition for our culture in 2023. I mentioned last quarter that we've been named the number one in state employer in Oklahoma by Forbes Magazine. And later in the year, we were also named a top workplace in Oklahoma following the feedback our employees have in our annual workplace survey. And just last week, Forbes named OGE the 16th best midsized employer in the country, achieving the highest rank in our sector and the highest ranking of any company in Oklahoma. These results are not happen stands. That come from a dedicated commitment to fostering a culture grounded in our values and our beliefs and operationalized with a focus to deliver safe,…

Thank you, Sean. Thank you, Jason, and good morning, everyone. I am pleased to review our 2023 results with you and provide our 2024 outlook as well as details on our long-term consolidated EPS guidance. Let's start on Slide 6 and discuss full year 2023 results. On a consolidated basis, 2023 net income was $417 million or $2.07 per diluted share compared to $666 million or $3.32 per share in 2022. Earnings for last year included $1.16 per share for natural gas midstream operations, which we fully exited in 2022 through the sale of our energy transfer units. We had a great year of execution. OG&E Energy's 2023 consolidated earnings reflect results at the high end of our original and revised guidance. In our core business, the electric company exceeded expectations, achieving net income of $426 million or $2.12 per diluted share compared to $440 million or $2.19 per share in 2022. The year-over-year decrease in electric company net income was primarily due to milder weather compared to the prior year. As you may recall, Oklahoma and Arkansas experienced an exceptionally hot summer in 2022. Milder weather in 2023 was partly offset by the benefits of strong load growth of 2.7% in the year. Other drivers of current year results compared to the prior year were depreciation and interest expense related to our capital investments, increased operation and maintenance expense, higher revenues from recovery of capital investments and allowance for equity funds used during construction related to our 2023 capital investments. Other operations, including our honing company, reported a loss of $10 million or $0.05 per diluted share in 2023 compared to a loss of $5 million or $0.03 per share in 2022. The increase in net loss was primarily due to higher interest expense related to increased short-term debt…

[Operator Instructions] And our first question comes from Shahriar Pourreza of Guggenheim Partners.

Congrats, Sean, on the results.

Thank you. And congrats on the pronunciation of your name. They did.

Maybe just starting off on the recently filed IRP update, there's obviously over gigawatt capacity that's within the 5-year time frame. It's not in plan. I guess how quickly would you look to update that portion of the CapEx after the IRP? So what's the cadence of updates? And could that incremental spending kind of crowd out some of the base spending as you manage customer rates?

Yes. I think that's a great question. And so we'll handle this process just like we did with the last one. And so what we'll do is we'll finalize that IRP. We'll go through the RFP process where we go to an extensive review. There's a lot of stakeholder discussions. We follow all of the commission rules, and then we'll negotiate some agreements. And we'll file that at the commissions. And once we get approval, then we'll layer that into our forecast. A couple of points about that. I think your point there with that crowd out. I'd probably use a different word than crowd. But what I would say to that, is that we have a lot of flexibility around our investments, and we can move some things around. So yes, we will be very flexible and move some things around and really smooth that impact out the customers as much as we can. And then I've said repeatedly, our preference, our very strong preference is to really smooth these generation additions out over a number of years. And I mean so not to create a situation where we have a very large asset going into service over a couple of years. Does that help?

Yes, totally. And then just lastly, just a balance sheet question. I mean, obviously, there's incremental spending, just one of the key things on the call today, right? As you're getting to that 17% FFO to debt metric, would you look at further equity support in line with the opco authorized cap structure of roughly 50-50 or something different or not at all, actually?

Yes. Thanks for that. And what I would say, Shahriar, is I think Bryan was very clear there's really no equity needs in our plan. I think what I would offer for you, though, is that we're managing this business for the long term. And when we have the opportunity with our investments and our growth down the road, and we need to issue the equity, we'll issue it.

And our next question comes from Nicholas Campanella of Barclays.

So yes, thanks for the increase in the CapEx plan and all the details there. I guess, simplistically, what is rate base growth on this new plan as you see it?

Bryan, you want to cover that one?

Sure. Sure. Nick. And yes, in the appendix, we've given our best current estimate of our 5-year capital expenditures and we've also provided our starting rate base number as filed in our recent rate case filing as well as an annual depreciation expense trend line during the 5 years. So maybe I'll punt to Jason maybe after the call to help with kind of the annual rate base number across the 5-year plan, but from a 5-year CAGR perspective, it's roughly 7.5%.

And then, I guess just holdco was $0.05 in '23. You have another $0.05 of drag in '24 from probably just new debt issuances. Just -- how do you kind of see your holdco drag progressing through the plan here? Does it remain consistent at that $0.10? Or does it still grow through '25 and beyond?

Yes. Nick, it's Bryan again. As I've spoken to the last few quarters, the utility and holding company are lining up very well for 2024 and beyond. You've heard us speak to the many tailwinds at utility we spoke about today, namely the very strong load growth and a host of incremental infrastructure investment needs. And so we're expecting utility to grow very meaningfully during the 5-year period. And the holding company really is there to help to finance the business as we go along the way. So you have the capital plan numbers and today, we're providing this consolidated view of OGE Energy Corp., and we have a lot of confidence in achieving that 5% to 7% consolidated EPS growth rate throughout the 5-year period next. So we're looking at it as a consolidated view. And certainly, you'll see the holding company tick up a little bit each year. But in total, when you look at the whole package, we feel very confident and strongly about our ability to deliver that 5% to 7% consolidated CAGR and annual growth rate.

And our next question comes from Durgesh Chopra of Evercore ISI.

Happy 122nd birthday in advance.

Thank you. Thank you. That will be a big day.

Just maybe can you help us bridge, obviously, a very steep increase in capital plan. And it's nice to see load growth is supporting a lot of that. But just can you help us bridge what big projects, big generation projects are in the plan now? Obviously, I think Horseshoe Lake is in the plan now, but just any big projects that you can call out, which helps us bridge going from $4.75 billion to $6 billion, please?

Yes. Really, Horseshoe Lake is the single big project in the 5-year capital plan, really what is driving a lot of that is load growth. We are investing a lot in connecting new customers and building infrastructure to support them all the while improving the reliability and resiliency of our assets. But other than Horseshoe Lake, there's not a big project in there that's really driving that.

And then maybe just -- any updates on the Oklahoma rate case here and feedback or initial feedback from stakeholders or discussions with regulators and others that you can share with us?

Not at this time. I mean, it's still early in the process and testimony has been filed for already yet. And so we'll go through that and we'll get this resolved. And continue executing on our business.

And our next question comes from Julie Dumoulin-Smith of Bank of America.

Very nicely done on holding the line on that 5 to 7. So kudos to the whole team there on that front. Appreciate it.

Thanks, Julien. Good to hear from you.

Yes, absolutely. All right. Well, maybe just -- let me kick it off on this front. You talked about, look, being open issuing equity. You obviously have a variety of further incremental generation projects potentially coming into the picture. Maybe over the next year or so, you can define that. How do you think about like what the moderator or governor is when it comes to raising that CapEx? You kind of talked about maybe not call it crowding out, but then the element of like sort of trying to tailor a program that's palatable to customers in palatable to your balance sheet. Is there some more specific metrics you'd like to offer? I mean is there some kind of FFO metric or inflationary metric? Or how do you think about box net in, if you will, a little bit more, start to reask a little differently.

And I think all of those points you raised are important points for us to consider. I think the credit metrics and the FFO to debt, that's very important to us, and we're going to manage our balance sheet that way. As we think about the customer impact, inflation, that is a key indicator that we would look at, but I think more importantly to that is we really forecast this load growth to continue for many, many years. And we play a big role in facilitating that continuation, that growth. And so what we want to do is make sure that our service area does not see any large increases in rates, thereby mitigating or slowing down that growth. Does that help?

Fair enough. Indeed. And then if I can follow up a little bit on some of the specifics there. Just from an authorized equity ratio perspective though, to the extent to which that would deviate here in the rate case, could that drive equity needs here? Again, I know that there's kind of utility 17% here.

Yes. Julien, just to be perfectly clear, we have no needs and no plans to issue equity over this 5-year horizon.

It's not in the different parameters of equity ratio. All right. Wonderful. And then just moving on, if I can, just to pivot back to Durgesh's point from earlier, I mean, given the protracted nature of process last year, I mean, wouldn't it be appropriate to think about pursuing settlement in the right time in place in as much as that could help expedite what is otherwise a busy schedule here this year?

And we've pursued those and executed those settlements in the past. And we did that during our Horseshoe Lake proceedings, and we hope to do that again this time.

And sorry to clarify this one more time, 17% through the period here, in terms of seeing that the cadence through that, that 17% through the whole period, it's not necessarily fading at the end of that period or what have you, right?

Yes. I think Bryan was very clear to say there was no dips.

And our next question comes from Anthony Crowdell of Mizuho.

If I could follow up on Julien's question there on the 17% FFO to debt target. I believe -- I may have it wrong, I thought your Moody's downgrade threshold was 18%. It seems that you -- is that -- if that is accurate, are you guys comfortable operating below the threshold?

Yes. Let Bryan, do you want to tackle that?

Sure, sure. And Anthony, previously, we were projecting more in the neighborhood of 18%. And now that we've updated the capital investment plan and made other updates to the plan, including this load growth, which just continues to shine and grow. We now see our FFO numbers coming in around 17% and each year 2024 through 2028. With respect to Moody's, we have discussed these plans with them. We did that back in December. And I believe they really appreciate our track record. The lower-risk way we deploy capital the constructive nature regulation in Oklahoma and Arkansas. And so my hope and belief is that our financial plans to continue to support our current credit ratings.

And then if I could just a high-level question on the 5% to 7% EPS growth rate. Does the company have a buy you see the way are you guys targeting the midpoint? And then also attached to that. Just is it going to be linear the whole forecast period?

Yes. Thanks, Anthony. I think you should expect it to be linear. We have every expectation to do what we say we're going to do. And there's not a particular bias to the upside on the low side, but the bias is to do what we say we're going to do and achieve the 5% to 7% on an annual basis.

Our next question comes from Paul Fremont of Ladenburg Thalman & Company.

Congratulations on a great quarter. I'm just trying to reconcile some of your comments. So I'm assuming that well, the current CapEx plan equity sort of get you to that 17% FFO to debt level? Or can you do more CapEx and still get 7%...

Bryan, do you want to tackle that one?

Sure. And Paul, our FFO estimates of 17% throughout the forecast period are predicated really on all the assumptions we've put in the materials today. So that $6 billion capital investment plan, the load growth we're projecting in 2024. I mentioned that we expect 2025 and beyond to be well north of 1%. So strong load results throughout the 5-year period, staying on top of our regulatory recovery for investments. So think of that as kind of annual type of rate case cadence. And so all those assumptions, you see in the materials today are what's embedded in that estimate.

Right. So then when Sean says that there's no that that he doesn't expect equity in the 5-year plan. Does that imply that the plan likely the planned capital spending is likely to remain roughly then where it is today as opposed to some of these new projects being additive?

Yes. Paul, this is Sean. I think that's accurate where we sit today. right? And I think as Bryan mentioned, as we see other projects come in, we have a lot of latitude, a lot of flexibility to move things around in our investment profile, and we're going to be very cognizant of the previous question in terms of managing our balance sheet and our credit metrics and the impact to customers, so it's not to slow down this tremendous loan growth that we see continuing for many years.

Great. And then last question for me. Can you guys be more specific in terms of your 5% to 7% EPS growth plan and telling us what load growth is embedded in that 5% to 7%? Because you've said above 1%, but that's a pretty wide potential range.

Yes, that's right, Paul. To give you some guardrails maybe, our draft IRP, which is out there in public, you can see some of the energy usage numbers that are based on our conversations with customers and their plans. Obviously, we stay very close with our large customers to understand their needs and expected usage. So I might point you to that. And we're more conservative in our financial planning and what you'll see in that draft IRP. We've given you the load growth expectations for 2024, 2025 and beyond. An IRP have some really large growth numbers. We're not going all the way that far, but it's in that 2%-plus area.

The 2% plus being what's embedded in your current forecast, that you.

Correct. That's right.

And our next question comes from Travis Miller of Morningstar.

Answered most of my questions, but 1 clarification around how you're bucketing the load growth. Obviously, in commercial, the big 1 up in the data. How does that relate to some of these larger projects you've talked about, the manufacturing projects on the commodity production, ex oil and gas projects. Would those go into or are they in that bucket? Or would they then switch over to the industrial would you expect more industrial growth?

Travis, it's Bryan. We're seeing nice loan growth prospects across a lot of different industries. Western Arkansas is very manufacturing heavy, so that's going to show up in the industrial sector over the next 5 years. In Oklahoma, you see a lot of different -- the defense industry, food and beverage distribution, data centers is a big driver. And as I mentioned in the past, that data center load is fast to come on, it's kind of a lower margin type of sector. But it's turned out to be pretty, at least so far, very sustainable, and it's more trending to generative AI data centers as opposed to the old Bitcoin mining. So does that give you a feel for what we're looking at?

Yes. Are those flowing through those commercial numbers...

I'm sorry. Yes, and that's going through the commercial sector. That's right.

Okay. So we shouldn't see a huge shift from commercial to industrial is just continued pretty much -- that commercial growth and also some industrial growth?

Yes, you're going to see our biggest increases in the commercial sector in the next 5 years. We do believe there's going to be a nice pickup in the industrial sector compared to what we've seen in the last couple of years, but it will be modest compared to what you'll see in the commercial sector.

Sorry to drill down so much on annulment. And then kind of along those lines, when these big customers come on in their manufacturing or like you mentioned, the data centers, what concerns do you the most? Or what investment is needed the most to serve those customers, in particular, is it generation? Or is it more of the wires parts, the substation, the transmission?

Well, on the transmission side, the data centers work with us and they do look to place their infrastructure where we have the load capacity on our transmission lines. So the need to invest on that front is pretty minimal. And as I mentioned earlier, our IRP has some pretty substantial growth numbers already included in it, the draft one I'm speaking to has assumed some of these large loads that we were speaking to today coming to fruition in the next 5 years and they're very likely to come to fruition. So yes, that gets embedded into the generation capacity planning, including our DSM energy efficiency programs, load reduction type services. So it may or may not have an impact on our generation depending on how successful we are with energy efficiency load reduction in DSM.

And our next question comes from Aditya Gandhi of Wolfe Research.

Can you hear me?

Yes, we can.

Bryan, I just wanted to go back to next question on holdco leverage. Could you give a little bit more color around holdco debt issuance needs beyond 2024? And you've mentioned the 5% to 7% consolidated annual and your -- you've reiterated confidence in achieving it. Just how should we kind of think about where you're tracking within that range beyond '24?

Aditya, I'll maybe go back to some of my messaging in previous quarters. I think the one thing that's changed from a year ago is our capital investment plan has been updated our messaging has been very consistent. We've been speaking to all the investments that Sean alluded to earlier. And so when you think about our consolidated entity and maintaining the cap structure at utility and in the dividend payout ratio we've spoken to. I believe what I've referenced in the past is the holding company debt increasing somewhere in the neighborhood of $200 million to $300 million per year. That number gets smaller as the 5-year period goes on. So I wouldn't necessarily think the $0.05 increase you're seeing this year is necessarily going to be $0.05 each year. That should decline a little bit as time goes by. But again, this is all a part of the consolidated EPS package. And don't forget about the great tailwinds that we're seeing at the utility and the overall growth we're seeing in our core operations.

And then just on the Oklahoma rate case. I know it's still early testimonies yet to be filed, but can you speak to how you feel about the case given that the lower fuel factors were sort of passed through to customers late last year? And what was the time for a potential settlement be?

Aditya, it will be an ongoing discussion. I think the first step in all of that is you need testimony to be filed and then we'll begin those discussions, but I think that would be in the second quarter.

[Operator Instructions] And our next question comes from Greg Orrill of UBS.

Congratulations. The only thing I have left is just guidance on the tax rate for '24 through the plan.

Bryan?

All right. Well, Gregg, the tax -- effective tax rate we're estimating for 2024 at 16%. And -- what we -- when you think about our effective tax rate reconciliation, one of the larger items is the flowback of excess deferred income taxes, which lowers that effective tax rate compared to the statutory rate. So while you may see the ETR tick up a bit as time goes on, that's just because we've returned state ITCs and then the federal excess deferred income taxes. So the net income impact should be negligible from an ETR changing over time point of view.

I'm showing no further questions at this time. I would now like to turn it back to Sean Trauschke for closing remarks.

Thank you, Deedee, and thank you, everyone, for joining us today. Thank you for your interest in OGE Energy and for being on the call, and have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.