The following combined discussion is separately filed by OGE Energy and OG&E. However, OG&E does not make any representations as to information related solely to OGE Energy or the subsidiaries of OGE Energy other than itself.
OGE Energy is a holding company with investments in energy and energy services providers offering physical delivery and related services for electricity in Oklahoma and western Arkansas. Prior to September 30, 2022, OGE Energy also held investments in Enable and Energy Transfer, which offered natural gas, crude oil and NGL services. OGE Energy reports these activities through two business segments: (i) electric company and (ii) natural gas midstream operations. The accounts of OGE Energy and its wholly-owned subsidiaries, including OG&E, are included in OGE Energy's consolidated financial statements. All intercompany transactions and balances are eliminated in such consolidation. For periods prior to the December 2, 2021 closing of the Enable and Energy Transfer merger, OGE Energy accounted for its investment in Enable as an equity method investment and reported it within OGE Energy's natural gas midstream operations segment. For the period of December 2, 2021 through September 30, 2022, OGE Energy accounted for its investment in the Energy Transfer units it acquired in the merger as an investment in equity securities. As of the end of September 2022, OGE Energy had sold all of its Energy Transfer limited partner units, becoming primarily an electric company. Electric Company Operations. OGE Energy's electric company operations are conducted through OG&E, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas. OG&E's rates are subject to regulation by the OCC, the APSC and the FERC. OG&E was incorporated in 1902 under the laws of the Oklahoma Territory and is a wholly-owned subsidiary of OGE Energy. OG&E is the largest electric company in Oklahoma, and its franchised service territory includes Fort Smith, Arkansas and the surrounding communities. OG&E sold its retail natural gas business in 1928 and is no longer engaged in the natural gas distribution business. Natural Gas Midstream Operations. For the period of December 2, 2021 to September 30, 2022, OGE Energy's natural gas midstream operations segment included OGE Energy's investment in Energy Transfer's equity securities acquired in the Enable/Energy Transfer merger. For the year ended December 31, 2022, this segment also includes legacy Enable seconded employee pension and postretirement costs. Prior to OGE Energy's sale of all Energy Transfer limited partner units, the investment in Energy Transfer's equity securities was held through wholly-owned subsidiaries and ultimately OGE Holdings. OGE Energy no longer has any ownership interest in natural gas midstream operations.
Oklahoma Fuel Cost Adjustment Show Cause
On September 29, 2022, the OCC Public Utility Division Staff initiated a cause to determine the appropriate methodology to recover OG&E's $424.0 million fuel clause under recovery balance as of August 31, 2022 and how OG&E's fuel factors should be set going forward. The Staff requested that OG&E explain how it arrived at the noted under recovery balance, explain its fuel forecasting process, justify its amortization period of 24 months and explain the adequacy of its resource mix and fuel supply plans. Updated fuel factors were implemented by OG&E on October 1, 2022 to recover the balance from customers over 24 months. The Staff did not oppose OG&E's implementation of updated fuel factors on an interim basis and subject to refund. Despite several public deliberations, the OCC has not issued a final order in this proceeding. On January 1, 2023, OG&E implemented its annual redetermination of its fuel factors, without further action or opposition from the OCC.
Global Macroeconomic Pressures
Geopolitical events, and related governmental and business responses, continue to have an impact on the Registrants' operations, supply chains and end-user customers, including our end-user customers' ability to pay for electric service. The Registrants have experienced raw material inflation, logistical challenges and certain component shortages. Supply chain disruption has resulted, and may continue to result, in delays in construction activities and equipment deliveries related to OGE Energy's capital projects. The timing and extent of the financial impact from these events are still uncertain, and the Registrants cannot predict the magnitude of the impact to the results of their business and results of operations.
OG&E's Regulatory Matters
Completed regulatory matters affecting current period results are discussed in Note 14 within "Item 8. Financial Statements and Supplementary Data."
Summary of OGE Energy 2022 Operating Results Compared to 2021
OGE Energy's net income was $665.7 million, or $3.32 per diluted share, in 2022 as compared to $737.3 million, or $3.68 per diluted share, in 2021. The decrease in net income of $71.6 million, or $0.36 per diluted share, in 2022 as compared to 2021 is further discussed below.
An increase in net income at OG&E of $79.5 million, or $0.39 per diluted share of OGE Energy's common stock, was primarily due to higher operating revenues driven by more favorable weather and revenues from the recovery of capital investments (excluding impacts of recoverable fuel, purchased power and direct transmission expense not impacting earnings), partially offset by higher depreciation and amortization expense due to an increase in depreciation rates resulting from the Oklahoma general rate review order received in September 2022 and additional assets being placed into service, as well as higher income taxes and higher other operation and maintenance expense. • A decrease in net loss of other operations (holding company) of $2.6 million, or $0.01 per diluted share of OGE Energy's common stock, was primarily due to higher other income, partially offset by an increase in net interest expense due to the long-term debt issuance in May 2021. • A decrease in net income at OGE Holdings (Natural Gas Midstream Operations) of $153.7 million, or $0.76 per diluted share of OGE Energy's common stock, was primarily due to a prior year $344.4 million pre-tax gain on the Enable/Energy Transfer merger and the elimination of OGE Energy's equity in earnings of Enable in 2022, which were driven by the merger closing in December 2021, partially offset by a $282.1 million pre-tax gain on OGE Energy's investment in Energy Transfer's equity securities in 2022, distributions received from Energy Transfer of $34.0 million and lower income tax expense. A more detailed discussion regarding the financial performance for the year ended December 31, 2022 as compared to December 31, 2021 can be found under "Results of Operations" below. A discussion of the financial performance for the year ended December 31, 2021 compared to December 31, 2020 for OGE Energy and OG&E can be found within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrants' 2021 Form 10-K . 2023 Outlook
Key assumptions for the Registrants' 2023 outlook are discussed below.
Consolidated OGE Energy
OGE Energy is projected to earn approximately $387 million to $416 million, or $1.93 to $2.07 per average diluted share, with a midpoint of $402 million, or $2.00 per average diluted share, in 2023 and is based on the assumptions listed below. As a result of OGE Energy's sales of all Energy Transfer limited partner units in 2022, OGE Energy will not report earnings, and therefore guidance, for a natural gas midstream operations segment beginning in 2023.
OG&E (Electric Company)
OG&E is projected to earn approximately $400 million to $421 million, or $1.99 to $2.09 per average diluted share, with a midpoint of $411 million, or $2.04 per average diluted share, in 2023 and is based on the following assumptions:
normal weather patterns are experienced for the year; • operating revenues growth driven by total retail load growth (weather normalized) of approximately 4 to 5 percent, or approximately 2.5 to 3.5 percent assuming an equivalent level of datamining load in 2023 as existed at the end of 2022; • operating expenses of approximately $1.101 billion to $1.109 billion, with operation and maintenance expenses comprising approximately 45 percent of the total; • net interest expense of approximately $204 million to $210 million which assumes a $4 million allowance for borrowed funds used during construction reduction to interest expense and assumes a debt issuance at OG&E of up to $400 million in 2023 in addition to the $450 million that was issued in January 2023; • other income of approximately $32 million including $10 million of allowance for equity funds used during construction; and • an effective tax rate of approximately 15 percent. OG&E has significant seasonality in its earnings. OG&E typically shows minimal earnings in the first and fourth quarters with a majority of its earnings in the third quarter due to the seasonal nature of air conditioning demand. 26 --------------------------------------------------------------------------------
Other Operations (Primarily Holding Company)
A loss of $9 million, or $0.04 per average diluted share, is expected at the holding company, within a range of a loss of $5 million to $13 million, or $0.02 to $0.06 per average diluted share.
Other consolidated assumptions include:
approximately 201.0 million average diluted shares outstanding; and • an effective tax rate of approximately 14 percent.
Results of Operations
The following discussion and analysis presents factors that affected the Registrants' results of operations for the years ended December 31, 2022 and 2021 and the Registrants' financial positions at December 31, 2022 and 2021. The following information should be read in conjunction with the financial statements and notes thereto. Known trends and contingencies of a material nature are discussed to the extent considered relevant. OGE Energy Year Ended December 31, (In millions except per share data) 2022 2021 Net income $ 665.7 $ 737.3 Basic average common shares outstanding 200.2 200.1 Diluted average common shares outstanding 200.8 200.3
Basic earnings per average common share $ 3.33 $ 3.68 Diluted earnings per average common share $ 3.32 $ 3.68 Dividends declared per common share $ 1.64820 $ 1.62500
Results by Business Segment Year Ended December 31, (In millions) 2022 2021 Net income (loss): OG&E (Electric Company) $ 439.5 $ 360.0
OGE Holdings (Natural Gas Midstream Operations) (A) 231.3
385.0 Other operations (B) (5.1 ) (7.7 ) OGE Energy net income $ 665.7 $ 737.3 (A) Net income for the year ended December 31, 2021 includes the $344.4 million gain ($264.8 million after tax) recognized for the Enable merger transaction, as further discussed in Note 1 within "Item 8. Financial Statements and Supplementary Data." (b) Other operations primarily includes the operations of the holding company and consolidating eliminations.
The following discussion of results of operations by business segment includes intercompany transactions that are eliminated in OGE Energy's consolidated financial statements.
27 -------------------------------------------------------------------------------- OG&E (Electric Company) Year Ended December 31 (Dollars in millions) 2022
Operating revenues $ 3,375.7 $
Fuel, purchased power and direct transmission expense 1,662.4
Other operation and maintenance 491.9 464.7 Depreciation and amortization 460.9 416.0 Taxes other than income 98.0 99.3 Operating income 662.5 546.1 Allowance for equity funds used during construction 6.9
Other net periodic benefit income (expense) 1.2 (4.3 ) Other income 6.5 7.1 Other expense 3.4 1.8 Interest expense 157.8 152.0 Income tax expense 76.4 41.8 Net income $ 439.5 $ 360.0 Operating revenues by classification: Residential $ 1,307.0 $ 1,342.1 Commercial 825.6 766.9 Industrial 322.4 328.2 Oilfield 306.7 316.8 Public authorities and street light 298.9 289.5 System sales revenues 3,060.6 3,043.5 Provision for rate refund (1.2 ) - Integrated market 163.8 468.9 Transmission 131.7 140.2 Other 20.8 1.1 Total operating revenues $ 3,375.7 $ 3,653.7 MWh sales by classification (In millions) Residential 10.4 9.6 Commercial 7.9 6.8 Industrial 4.2 4.2 Oilfield 4.4 4.2 Public authorities and street light 3.1 2.9 System sales 30.0 27.7 Integrated market 1.1 1.6 Total sales 31.1 29.3 Number of customers 888,759 879,447 Weighted-average cost of energy per kilowatt-hour (In cents) Natural gas (A) 7.032 11.907 Coal 3.253 1.935 Total fuel (A) 5.480 6.833 Total fuel and purchased power (A) 5.096 6.892 Degree days (B) Heating - Actual 3,652 3,281 Heating - Normal 3,568 3,452 Cooling - Actual 2,385 1,896 Cooling - Normal 1,893 1,912 (A) Decreased primarily due to both elevated pricing from Winter Storm Uri and higher market prices related to increased natural gas prices in 2021. (b) Degree days are calculated as follows: The high and low degrees of a particular day are added together and then averaged. If the calculated average is above 65 degrees, then the difference between the calculated average and 65 is expressed as cooling degree days, with each degree of difference equaling one cooling degree day. If the calculated average is below 65 degrees, then the difference between the calculated average and 65 is expressed as heating degree days, with each degree of difference equaling one heating degree day. The daily calculations are then totaled for the particular reporting period. The calculation of heating and cooling degree normal days is based on a 30-year average and updated every ten years, which most recently occurred in mid-2021. 28
-------------------------------------------------------------------------------- OG&E's net income increased $79.5 million, or 22.1 percent, in 2022 as compared to 2021. The following section discusses the primary drivers for the increase in net income in 2022 as compared to 2021.
Operating revenues decreased $278.0 million, or 7.6 percent, primarily driven by the below factors.
(In millions) $ Change
Fuel, purchased power and direct transmission expense (A) $ (465.2 ) Wholesale transmission revenue
(4.2 ) Other (2.8 ) Industrial and oilfield sales 5.0 Non-residential demand and related revenues 10.2 New customer growth 13.0 Guaranteed Flat Bill program (B) 16.3 Quantity impacts (primarily weather) (C) 68.0 Price variance (D) 81.7 Change in operating revenues $ (278.0 ) (A) These expenses are generally recoverable from customers through regulatory mechanisms and are offset in Fuel, Purchased Power and Direct Transmission Expense in the statements of income, as further described below. The primary drivers of the changes in fuel, purchased power and direct transmission expense during the period are further detailed in the table below. (B) Increased primarily due to the loss from the Guaranteed Flat Bill program in 2021 related to Winter Storm Uri. The Guaranteed Flat Bill program allows qualifying customers the opportunity to purchase their electricity needs at a set monthly price for an entire year which can result in variances when actual fuel and purchased power prices differ from what is included in Guaranteed Flat Bill Program rates. (C) Increased primarily due to a 25.8 percent increase in cooling degree days and an 11.3 percent increase in heating degree days. (D) Increased primarily due to the Oklahoma general rate review order received in September 2022 that approved new rates effective July 1, 2022, the impact of the Arkansas Formula Rate Plan and increased recovery through rider mechanisms, such as the Storm Cost Recovery Rider and energy efficiency riders. Fuel, purchased power and direct transmission expense for OG&E consists of fuel used in electric generation, purchased power and transmission related charges. As described above, the actual cost of fuel used in electric generation and certain purchased power costs are generally recoverable from OG&E's customers through fuel adjustment clauses. The fuel adjustment clauses are subject to periodic review by the OCC and the APSC. OG&E's fuel, purchased power and direct transmission expense decreased $465.2 million, or 21.9 percent, primarily driven by the below factors. (In millions) $ Change % Change Fuel expense (A) $ (369.6 ) (33.2 )% Purchased power costs: Purchases from SPP (B) (94.2 ) (10.8 )% Wind 2.2 3.9 % Other (0.3 ) (2.8 )% Transmission expense (3.3 ) (4.3 )% Change in fuel, purchased power and direct transmission expense $ (465.2 )
Decreased primarily due to inflated fuel costs in 2021 during Winter Storm Uri. (B) Decreased primarily due to higher market prices in 2021 during Winter Storm Uri.
Other operation and maintenance expense increased $27.2 million, or 5.9 percent, primarily driven by the below factors.
(In millions) $ Change %
Contract technical and construction services (A) $ 6.7 12.8 % Materials and supplies (B) 4.1 15.5 % Other 3.9 1.3 % Vegetation management 3.8 9.9 % Fees, permits and licenses 3.3 15.7 % Fleet transportation (C) 2.9 35.3 % Contract professional services 2.5 12.8 % Change in other operation and maintenance expense $ 27.2
Increased primarily due to higher equipment maintenance which included additional Arkansas storm restoration. (B) Increased primarily due to inflationary increases throughout the supply chain. (C) Increased primarily due to higher fuel prices, including diesel which supports the majority of company fleet. 29 -------------------------------------------------------------------------------- Depreciation and amortization expense increased $44.9 million, or 10.8 percent, primarily due to an increase in depreciation rates effective as of July 1, 2022 resulting from the Oklahoma general rate review order received in September 2022, additional assets being placed into service and increased amortization of the regulatory asset related to storms. Other net periodic benefit income changed $5.5 million, primarily due to lower pension expense driven by changes to the level of pension expense included in base rates, effective July 1, 2022, as approved in the Oklahoma general rate review order received in September 2022. Income tax expense increased $34.6 million, or 82.8 percent, reflecting additional income taxes primarily related to higher pretax income and decreased federal and state tax credit generation, partially offset by higher amortization of net unfunded deferred taxes.
OGE Holdings (Natural Gas Midstream Operations)
On December 2, 2021, Energy Transfer completed its previously announced acquisition of Enable. Prior to the Energy Transfer and Enable merger closing, OGE Energy's natural gas midstream operations segment included its equity method investment in Enable, and from December 2, 2021 to September 30, 2022, this segment included OGE Energy's investment in Energy Transfer's equity securities. Legacy Enable seconded employee pension and postretirement costs are also included for the year ended December 31, 2022. Therefore, results of operations for the natural gas midstream operations segment are not comparable for the year ended December 31, 2022 compared to the year ended December 31, 2021. See "Investment in Equity Securities of Energy Transfer" in Note 1 within "Item 8. Financial Statements and Supplementary Data" for further discussion of the net proceeds from sales of Energy Transfer's equity securities, realized gain/loss on Energy Transfer's equity securities and dividend income recognized by OGE Energy. See OGE Energy's 2021 Form 10-K for discussion of the primary drivers of Enable's income statement information for the period of January 1, 2021 through December 2, 2021.
OGE Holdings' income tax expense decreased $52.9 million, or 52.4 percent, primarily due to lower pre-tax income and tax adjustments from the sale of Energy Transfer limited partner units, partially offset by state deferred tax adjustments related to OGE Energy's midstream investment in Energy Transfer subsequent to the acquisition of Enable.
Liquidity and Capital Resources
Cash Flows OGE Energy $ % Year Ended December 31 (In millions) 2022 2021 Change Change Net cash provided from (used in) operating activities (A) $ 843.1 $ (313.3 ) $ 1,156.4 * Net cash provided from (used in) investing activities (B) $ 12.9 $ (749.1 ) $ 762.0 * Net cash (used in) provided from financing activities (C) $ (767.9 ) $ 1,061.3 $
(1,829.2 ) *
* Change is greater than 100 percent. (A) Changed primarily due to an increase in cash received from customers, the receipt of securitization funds from the ODFA and a decrease in vendor payments, including payments for fuel and purchased power costs related to Winter Storm Uri in 2021, partially offset by additional income tax payments primarily relating to the sale of Energy Transfer's limited partner units in 2022. (B) Changed primarily due to proceeds from the sale of Energy Transfer's limited partner units, partially offset by increased investment in power delivery projects at OG&E. (C) Changed primarily due to decreased proceeds from long-term debt reflective of the debt issuance in May 2021 and decreased short-term debt, which was used to provide additional liquidity for the fuel and purchased power costs incurred by OG&E related to Winter Storm Uri in 2021.
Working capital is defined as the difference in current assets and current liabilities. OGE Energy's working capital requirements are driven generally by changes in accounts receivable, accounts payable, commodity prices, credit extended to and the timing of collections from OG&E's customers, the level and timing of spending for maintenance and expansion activity, inventory levels and fuel recoveries. The following discussion addresses changes in OGE Energy's working capital balances at December 31, 2022 compared to December 31, 2021. 30 -------------------------------------------------------------------------------- Cash and Cash Equivalents increased $88.1 million, primarily due to proceeds received from OGE Energy's sales of Energy Transfer limited partner units and OG&E's receipt of securitization funds from the ODFA, which OGE Energy intends to utilize to help fund the repayment of the senior notes due in May 2023. Accounts Receivable and Accrued Unbilled Revenues increased $97.0 million, or 42.7 percent, primarily due to an increase in billings to OG&E's retail customers reflecting higher usage and new rates as approved in the Oklahoma general rate review order received in September 2022, as well as increased fuel prices.
Income Taxes Receivable increased $18.1 million, primarily due to the timing of cash payments to tax authorities.
Fuel Inventories increased $68.2 million, primarily due to higher prices and volumes of coal and gas purchases.
Materials and Supplies, at Average Cost increased $62.6 million, or 53.1 percent, primarily due to increased inventory which is partly a result of the ongoing supply chain and inflation impacts of the current economic environment.
Fuel Clause Under Recoveries increased $363.0 million, primarily due to lower recoveries from OG&E retail customers as compared to the actual cost of fuel and purchased power. OG&E has implemented updated fuel factors to address recovery of the fuel under recovery balance, as further discussed in Note 14 within "Item 8. Financial Statements and Supplementary Data." Other Current Assets increased $30.2 million, or 41.2 percent, primarily due to an increase in SPP deposits, partially offset by a decrease in under recovered riders. Short-term Debt decreased $486.9 million, or 100.0 percent, primarily due to the repayment of short-term borrowings used for general operating needs. OGE Energy borrows on a short-term basis, as necessary, by the issuance of commercial paper and borrowings under its revolving credit agreements and term credit agreements.
Accounts Payable increased $174.9 million, or 63.8 percent, primarily due to timing of vendor payments.
Long-Term Debt Due Within One Year increased $999.9 million, due to the reclassification of long-term debt that will mature in May 2023.
Other Current Liabilities increased $15.5 million, or 45.5 percent, primarily due to an increase in SPP projected payables as well as changes in amounts of taxes due.
2022 Capital Requirements, Sources of Financing and Financing Activities
OGE Energy's total capital requirements, consisting of capital expenditures and maturities of long-term debt, were $1,051.0 million, and contractual obligations, net of recoveries through fuel adjustment clauses, were $0.5 million, resulting in total net capital requirements and contractual obligations of $1,051.5 million in 2022. This compares to net capital requirements of $778.6 million and net contractual obligations of $1.0 million totaling $779.6 million in 2021. In 2022, OGE Energy's primary sources of capital were cash generated from operations, proceeds from the issuance of long- and short-term debt, sales of Energy Transfer's limited partner units and distributions received from Energy Transfer. Changes in working capital reflect the seasonal nature of OGE Energy's business, the revenue lag between billing and collection from customers and fuel inventories. See "Working Capital" for a discussion of significant changes in net working capital requirements as it pertains to operating cash flow and liquidity.
Future Material Cash Requirements
OGE Energy's primary, material cash requirements are related to acquiring or constructing new facilities and replacing or expanding existing facilities at OG&E. Other working capital requirements are expected to be primarily related to maturing debt, operating lease obligations, fuel clause under recoveries and other general corporate purposes. Further, working capital requirements can be seasonal. OGE Energy generally meets its cash needs through a combination of cash generated from operations, short-term borrowings (through a combination of bank borrowings and commercial paper) and permanent financings. 31 --------------------------------------------------------------------------------
The following table presents OGE Energy's estimates of capital expenditures for the years 2023 through 2027. These capital investments are customer-focused and targeted to maintain and improve the safety, resiliency and reliability of OG&E's distribution and transmission grid and generation fleet, enhance the ability of OG&E's system to perform during extreme weather events and to serve OG&E's growing customer base. (In millions) 2023 2024 2025 2026 2027 Total Transmission $ 125 $ 145 $ 160 $ 160 $ 160 $ 750 Oklahoma distribution & grid advancement 490 490 550 550 550 2,630 Arkansas distribution 20 20 20 20 20 100 Generation 115 115 120 120 120 590 Other (A) 200 180 100 100 100 680 Total $ 950 $ 950 $ 950 $ 950 $ 950 $ 4,750 (A)
Estimated capital expenditures associated with OG&E's enterprise resource planning system project are included in 2023 and 2024.
Additional capital expenditures beyond those identified in the table above, including additional incremental growth opportunities, will be evaluated based upon the requirements of OG&E's power supply, transmission and distribution operational teams and the expected resultant customer benefits. The investments above do not include amounts related to new generation capacity needs as outlined in OG&E's October 2021 IRP and recent changes to the SPP's planning reserve margin and resource capacity accreditation. OG&E intends to file for approval of the generation capacity investments and would expect to update its capital plan based on a final order. The annual level of investments in the transmission and distribution system could vary depending on the amount and timing of incremental generation capacity investments. Supply chain disruption may increase the risk of delays in construction activities and equipment deliveries related to OGE Energy's capital projects.
The following table presents OGE Energy's total contractual obligations for the next five years at December 31, 2022. For further detail of OGE Energy's contractual obligations, which include operating leases, long-term debt and purchase obligations and commitments (including information for maturities beyond the next five years), see Notes 4, 9 and 13, respectively, within "Item 8. Financial Statements and Supplementary Data." (In millions) 2023 2024 2025 2026 2027 Total Total contractual obligations $ 1,174.4 $ 167.0 $ 259.0 $ 102.0 $ 290.1 $ 1,992.5 Amounts recoverable through fuel adjustment clause (A) (168.8 ) (149.5 ) (123.8 ) (81.9 ) (82.3 ) (606.3 ) Total contractual obligations, net $ 1,005.6 $ 17.5 $ 135.2 $ 20.1 $ 207.8 $ 1,386.2 (A)
Includes expected recoveries of costs incurred for OG&E's railcar operating lease obligations, OG&E's minimum fuel purchase commitments and OG&E's expected wind purchase commitments.
The actual cost of fuel used in electric generation (which includes the operating lease obligations for OG&E's railcar leases shown in Note 4 within "Item 8. Financial Statements and Supplementary Data") and certain purchased power costs are passed on to OG&E's customers through fuel adjustment clauses. Accordingly, while the cost of fuel related to operating leases and the vast majority of minimum fuel purchase commitments of OG&E noted in Notes 4 and 13, respectively, within "Item 8. Financial Statements and Supplementary Data" may increase capital requirements, such costs are generally recoverable through fuel adjustment clauses and have little, if any, impact on net capital requirements and future contractual obligations. The fuel adjustment clauses are subject to periodic review by the OCC and the APSC. Otherwise, as discussed above, OGE Energy expects to meet these cash requirement needs through cash generated from operations, short-term borrowings and permanent financings.
Pension and Postretirement Benefit Plans
At December 31, 2022, 24.5 percent of the Pension Plan investments were in listed common stocks with the balance primarily invested in corporate fixed income and other securities, U.S. Treasury notes and bonds and mutual funds as presented in Note 11 within "Item 8. Financial Statements and Supplementary Data." During 2022, the actual return on the Pension Plan was a loss of $82.2 million, compared to an expected return on plan assets of $25.4 million. During the same time, corporate bond yields, which are used in determining the discount rate for future pension obligations, decreased. Funding levels are dependent on returns on plan assets and future discount rates. OGE Energy did not make any contribution to its Pension Plan in 2022 and made a contribution of $40.0 million in 2021. OGE Energy does not expect it will need to make any contributions to the Pension Plan in 2023. OGE Energy could be required to make additional contributions if the value of its pension trust and postretirement benefit plan trust assets are adversely impacted by a major market disruption in the future. 32 -------------------------------------------------------------------------------- The following table presents the status of OGE Energy's Pension Plan, the Restoration of Retirement Income Plan and the postretirement benefit plans at December 31, 2022 and 2021. These amounts have been recorded in Accrued Benefit Obligations with the offset in Accumulated Other Comprehensive Loss (except OG&E's portion, which is recorded as a regulatory asset as discussed in Note 1 within "Item 8. Financial Statements and Supplementary Data") in the balance sheets. The amounts in Accumulated Other Comprehensive Loss and those recorded as a regulatory asset represent a net periodic benefit cost to be recognized in the statements of income in future periods. Restoration of
Pension Plan Income Plan Benefit Plans December 31 (In millions) 2022 2021 2022 2021 2022 2021 Benefit obligations $ 358.5 $ 502.9 $ 5.8 $ 5.9 $ 101.9 $ 137.3 Fair value of plan assets 293.0 486.0 - - 32.8 44.3
Funded status at end of year $ (65.5 ) $ (16.9 ) $ (5.8 )
$ (5.9 ) $ (69.1 ) $ (93.0 )
Common Stock Dividends
OGE Energy's dividend policy is reviewed by the Board of Directors at least annually and is based on numerous factors, including management's estimation of the long-term earnings power of its businesses. Prior to the approval of a change in the dividend in 2022, the Board of Directors reviewed a recommendation from management of an increase in the quarterly dividend to $0.4141 per share from $0.41 per share and subsequently approved the recommendation to become effective with the dividend payment in October 2022.
Financing Activities and Future Sources of Financing
Management expects that cash generated from operations, proceeds from the issuance of long- and short-term debt, proceeds from the sales of common stock to the public through OGE Energy's Automatic Dividend Reinvestment and Stock Purchase Plan or other offerings will be adequate over the next three years to meet anticipated cash needs and to fund future growth opportunities. OGE Energy utilizes short-term borrowings (through a combination of bank borrowings and commercial paper) to satisfy temporary working capital needs and as an interim source of financing capital expenditures until permanent financing is arranged. In January 2023, OG&E issued $450.0 million of Senior Notes due January 15, 2033, as further discussed within "Long-Term Debt" below.
Short-Term Debt and Credit Facilities
OGE Energy borrows on a short-term basis, as necessary, by issuance of commercial paper and borrowings under its revolving credit agreements and term credit agreements maturing in one year or less.
OGE Energy has unsecured five-year revolving credit facilities totaling $1.1 billion ($550.0 million for OGE Energy and $550.0 million for OG&E), which can also be used as letter of credit facilities. As further discussed below, in May 2022, OGE Energy entered into a $100.0 million floating rate unsecured three-year credit agreement, of which $50.0 million is considered a revolving loan. The following table presents information about OGE Energy's revolving credit agreements as of December 31, 2022. (Dollars in millions) December 31, 2022 Balance of outstanding supporting letters of credit $
Weighted-average interest rate of outstanding supporting letters of credit
1.15 % Net available liquidity under revolving credit agreements, commercial paper borrowings and letters of credit
Balance of cash and cash equivalents $
The following table presents information about OGE Energy's total short-term debt activity for the year ended December 31, 2022.
Year Ended December (Dollars in millions) 31, 2022 Average balance of short-term debt $
Weighted-average interest rate of average balance of short-term debt
0.97 % Maximum month-end balance of short-term debt $
OG&E must obtain regulatory approval from the FERC in order to borrow on a short-term basis. OG&E has the necessary regulatory approvals to incur up to $1.0 billion in short-term borrowings at any one time for a two-year period beginning January 1, 2023 and ending December 31, 2024.
In May 2022, OGE Energy entered into a $100.0 million floating rate unsecured three-year credit agreement, of which $50.0 million is considered a revolving loan and $50.0 million is considered a term loan, and borrowed the full $50.0 million term loan, in order to preserve general financial flexibility within the company. Advances under this agreement were used to refinance existing indebtedness and for working capital and general corporate purposes of OGE Energy. The credit agreement, under certain circumstances, may be increased to a maximum commitment limit of $135.0 million and contains substantially the same covenants as OGE Energy's existing $550.0 million revolving credit agreement. The credit agreement is scheduled to terminate on May 24, 2025. At December 31, 2022, the weighted-average interest rate for the amount drawn on the term loan under this credit agreement was 3.48 percent. In January 2023, OG&E issued $450.0 million of 5.40% Senior Notes due January 15, 2033. The proceeds from the issuance were added to OG&E's general funds to be used for general corporate purposes, including to help fund the repayment of its $500.0 million 0.553% Senior Notes, Series due May 26, 2023 and the funding of its capital investment program and working capital needs.
OG&E expects to issue up to $400.0 million of long-term debt to support its current year capital investment plan and for the repayment of maturing debt.
Securitization of Oklahoma Winter Storm Uri Extreme Purchase Costs
As further discussed in Note 14 within "Item 8. Financial Statements and Supplementary Data," on July 20, 2022, the ODFA issued securitization bonds, and OG&E received proceeds of approximately $750 million for the sale of securitization property to the ODFA. OG&E used these proceeds to fund the Oklahoma Winter Storm Uri regulatory asset by recovering the authorized extreme, extraordinary fuel and purchased power costs incurred during Winter Storm Uri, as well as carrying costs. Security Ratings Moody's Investors S&P's Global Ratings Fitch Ratings Service Rating Outlook Rating Outlook Rating Outlook OG&E Senior Notes A3 Stable A- Stable A Stable OG&E Commercial Paper P2 Stable A2 Stable F2 Stable OGE Energy Senior Notes Baa1 Stable BBB Stable BBB+ Stable OGE Energy Commercial Paper P2 Stable A2 Stable F2 Stable Access to reasonably priced capital is dependent in part on credit and security ratings. Generally, lower ratings lead to higher financing costs. Pricing grids associated with OGE Energy's credit facilities could cause annual fees and borrowing rates to increase if an adverse rating impact occurs. The impact of any future downgrade could include an increase in the costs of OGE Energy's short-term borrowings, but a reduction in OGE Energy's credit ratings would not result in any defaults or accelerations. Any future downgrade could also lead to higher long-term borrowing costs and, if below investment grade, would require OGE Energy to post collateral or letters of credit. A security rating is not a recommendation to buy, sell or hold securities. Such rating may be subject to revision or withdrawal at any time by the credit rating agency, and each rating should be evaluated independently of any other rating. Future financing requirements may be dependent, to varying degrees, upon numerous factors such as general economic conditions, abnormal weather, load growth, commodity prices, acquisitions of other businesses and/or development of projects, actions by rating agencies, inflation, changes in environmental laws or regulations, rate increases or decreases allowed by regulatory agencies, new legislation and market entry of competing electric power generators.
OGE Energy does not expect to issue any common stock in 2023 from its Automatic Dividend Reinvestment and Stock Purchase Plan. See Note 8 within "Item 8. Financial Statements and Supplementary Data" for a discussion of OGE Energy's common stock activity.
Distributions by Enable and Energy Transfer
During the year ended December 31, 2022, OGE Energy received distributions of $34.0 million from Energy Transfer. During the years ended December 31, 2021 and 2020, OGE Energy received distributions of $73.4 million and $91.7 million, respectively, from Enable. 34 --------------------------------------------------------------------------------
Sale of Energy Transfer's Equity Securities
As previously disclosed, OGE Energy intended to become primarily an electric company by exiting its investment in Energy Transfer's equity securities. As of the end of September 2022, OGE Energy had sold all of its 95.4 million Energy Transfer limited partner units, resulting in pre-tax net proceeds of $1,067.2 million. OGE Energy intends to use these proceeds to help repay the $1.0 billion in senior notes due in May 2023 and for general corporate purposes.
Critical Accounting Policies and Estimates
The financial statements and notes thereto contain information that is pertinent to management's discussion and analysis. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes to these assumptions and estimates could have a material effect on the Registrants' financial statements. However, the Registrants believe they have taken reasonable positions where assumptions and estimates are used in order to minimize the negative financial impact to the Registrants that could result if actual results vary from the assumptions and estimates. In management's opinion, the areas where the most significant judgment is exercised include the determination of pension and postretirement plan assumptions, income taxes, contingency reserves, asset retirement obligations, regulatory assets and liabilities, unbilled revenues and the allowance for uncollectible accounts receivable. The selection, application and disclosure of the following critical accounting estimates have been discussed with the Audit Committee of OGE Energy's Board of Directors. The Registrants discuss their significant accounting policies, including those that do not require management to make difficult, subjective or complex judgments or estimates, in Note 1 within "Item 8. Financial Statements and Supplementary Data."
Pension and Postretirement Plan Assumptions
OGE Energy has a Pension Plan that covers certain employees, including OG&E's employees, hired before December 1, 2009. Effective December 1, 2009, OGE Energy's Pension Plan is no longer being offered to employees hired on or after December 1, 2009. OGE Energy also has defined benefit postretirement plans that cover certain employees, including OG&E's employees. Pension and other postretirement plan expenses and liabilities are determined on an actuarial basis and are affected by the market value of plan assets, estimates of the expected return on plan assets, assumed discount rates and the level of funding. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets and the expected return on plan assets could have a material effect on the amount of pension expense ultimately recognized. The Pension Plan rate assumptions are shown in Note 11 within "Item 8. Financial Statements and Supplementary Data." The assumed return on plan assets is based on management's expectation of the long-term return on the plan assets portfolio. The discount rate used to compute the present value of plan liabilities is based generally on rates of high-grade corporate bonds with maturities similar to the average period over which benefits will be paid. Funding levels are dependent on returns on plan assets and future discount rates. Higher returns on plan assets and an increase in discount rates will reduce funding requirements to the Pension Plan. The following table presents the sensitivity of the Pension Plan funded status to these variables. Change Impact on Funded Status Actual plan asset returns +/- 1 percent +/- $2.9 million Discount rate +/- 0.25 percent +/- $5.6 million Contributions +/- $10 million +/- $10.0 million Income Taxes The Registrants use the asset and liability method of accounting for income taxes. Under this method, a deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences between the financial statement basis and the tax basis of assets and liabilities as well as tax credit carry forwards and net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period of the change. The application of income tax law is complex. Laws and regulations in this area are voluminous and often ambiguous. Interpretations and guidance surrounding income tax laws and regulations change over time. Accordingly, it is necessary to make 35 -------------------------------------------------------------------------------- judgments regarding income tax exposure. As a result, changes in these judgments can materially affect amounts the Registrants recognized in their financial statements. Tax positions taken by the Registrants on their income tax returns that are recognized in the financial statements must satisfy a more likely than not recognition threshold, assuming that the position will be examined by taxing authorities with full knowledge of all relevant information.
In the normal course of business, the Registrants are confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits or claims made by third parties, including governmental agencies. When appropriate, management consults with legal counsel and other experts to assess the claim. If, in management's opinion, the Registrants have incurred a probable loss as set forth by GAAP, an estimate is made of the loss, and the appropriate accounting entries are reflected in the financial statements.
Asset Retirement Obligations
OG&E has recorded asset retirement obligations that are being accreted over their respective lives ranging from five to 68 years. The inputs used in the valuation of asset retirement obligations include the assumed life of the asset placed into service, average inflation rate, market risk premium, credit-adjusted risk-free interest rate and the timing of incurring costs related to the retirement of the asset.
Regulatory Assets and Liabilities
OG&E, as a regulated utility, is subject to accounting principles for certain types of rate-regulated activities, which provide that certain incurred costs that would otherwise be charged to expense can be deferred as regulatory assets, based on the expected recovery from customers in future rates. Likewise, certain actual or anticipated credits that would otherwise reduce expense can be deferred as regulatory liabilities, based on the expected flowback to customers in future rates. Management's expected recovery of deferred costs and flowback of deferred credits generally results from specific decisions by regulators granting such ratemaking treatment. OG&E records certain incurred costs and obligations as regulatory assets or liabilities if, based on regulatory orders or other available evidence, it is probable that the costs or obligations will be included in amounts allowable for recovery or refund in future rates. Management continuously monitors the future recoverability of regulatory assets. When in management's judgement future recovery becomes impaired, the amount of the regulatory asset is adjusted, as appropriate. Unbilled Revenues OG&E recognizes revenue from electric sales when power is delivered to customers. OG&E measures its customers' metered usage and sends bills to its customers throughout each month. As a result, there is a significant amount of customers' electricity consumption that has not been billed at the end of each month. OG&E accrues an estimate of the revenues for electric sales delivered since the latest billings. Unbilled revenue is presented in Accrued Unbilled Revenues in the balance sheets and in Revenues from Contracts with Customers in the statements of income based on estimates of usage and prices during the period. The estimates that management uses in this calculation could vary from the actual amounts to be paid by customers. At December 31, 2022 and 2021, Accrued Unbilled Revenues were $74.2 million and $65.0 million, respectively.
At December 31, 2022, if the estimated usage or price used in the unbilled revenue calculation were to increase or decrease by one percent, this would cause a change in the unbilled revenues recognized of $0.4 million.
Allowance for Uncollectible Accounts Receivable
Customer balances are generally written off if not collected within six months after the final billing date. The allowance for uncollectible accounts receivable for OG&E is generally calculated by multiplying the last six months of electric revenue by the provision rate, which is based on a 12-month historical average of actual balances written off and is adjusted for current conditions and supportable forecasts as necessary. To the extent the historical collection rates, when incorporating forecasted conditions, are not representative of future collections, there could be an effect on the amount of uncollectible expense recognized. Also, a portion of the uncollectible provision related to fuel within the Oklahoma jurisdiction is being recovered through the fuel adjustment clause. The allowance for uncollectible accounts receivable is a reduction to Accounts Receivable in the balance sheets and is included in Other Operation and Maintenance Expense in the statements of income. The allowance for uncollectible accounts receivable was $1.9 million and $2.4 million at December 31, 2022 and 2021, respectively. 36 -------------------------------------------------------------------------------- At December 31, 2022, if the provision rate were to increase or decrease by 10 percent, this would cause a change in the uncollectible expense recognized of $0.2 million. Accounting Pronouncements See Note 2 within "Item 8. Financial Statements and Supplementary Data" for further discussion of recently adopted accounting standards and recently issued accounting standards that are not yet effective that could have a material impact on the Registrants' financial position, results of operations or cash flows upon adoption. Commitments and Contingencies In the normal course of business, the Registrants are confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits or claims made by third parties, including governmental agencies. When appropriate, management consu