EUR 850.00 For Business Accounts Only

Morningstar | Better Oklahoma Regulation Key to OGE's Outlook

OGE Energy faces more uncertainty than a typical regulated utility. A below-average regulatory framework in Oklahoma and a significant investment in a midstream business in a very competitive market drive our no-moat rating, despite our view that OGE's regulated utility is well run and its service territory is in a strong economic region.In 2015, the Oklahoma Corporation Commission denied wholly owned Oklahoma Gas & Electric's request for preapproval of the $1 billion Environmental Compliance Plan. That hotly debated decision took 16 months and signaled to us that regulatory relationships in Oklahoma had deteriorated.We are now awaiting a rate case outcome on these environmental investments, projects that have been on the drawing board for almost 10 years. Management has expressed optimism that regulation will improve, but we would like to see progress before changing our no-moat rating due, in large part, to the poor regulatory framework in Oklahoma.In 2013, OGE Energy formed Enable Midstream Partners with two other firms, contributing all of its interstate pipelines and field services business. OGE Energy owns 25.5% of the master limited partnership units and 50% of the general partnership. The partnership has recently had several commercial successes for new business, and drilling activity has strengthened in the regions served by Enable. Thus, our outlook has improved for the partnership, which represents almost one-fourth of our fair value estimate for OGE.Most regulated utilities did not benefit from the 2017 Tax Cuts and Jobs Act, since the benefits of lower tax rates flow to customers. However, because of OGE’s material earnings stream from Enable, which is unregulated and taxed at the OGE level, the company benefited from tax reform.