Morningstar | Management Meeting: OGE Energy's CFO Confident Oklahoma Regulatory Framework Can Be Improved
We are reaffirming our no-moat rating and $34 per share fair value estimate after meeting with OGE Energy CFO Stephen Merrill at the Edison Electric Financial Conference in San Francisco. We discussed future regulatory developments in Oklahoma and the 2018 third-quarter results.Merrill was confident the challenging regulatory framework could be improved in Oklahoma following the rate case to be filed before year-end addressing recovery of the approximately $532 million investment in scrubbers at the Sooner coal plant and approval of new capacity agreements from an RFP process.
Merrill believes the rate case filing is straight forward and should be approved by mid-2019. In addition, the new capacity agreements will replace existing higher price agreements and will lower costs for customers. OGE Energy has not made a competing self-build proposal. Once these regulatory filings are approved, CFO Merrill believes there will likely be a three-year window in which no additional rate case filings will be needed in Oklahoma.
This window will provide time to address rider mechanisms for grid modernization. We believe rider mechanisms would reduce regulatory lag and allow wholly owned OG&E to earn above its cost of capital more consistently.
OGE Energy reported earnings of $1.02 per share in the recently ended quarter versus $0.92 per share in the same period last year. The strong results benefited from warm weather and tax reform rate adjustment timing. Enable also continues to post solid results and contributed $0.14 in the third quarter, $0.04 per share more than last year. Due to the strong third-quarter and year-to-date results, OGE increased its earnings guidance to $2.05-$2.10 per share versus the previous range of $1.90-$2.05 per share. We increased our 2018 EPS estimate to $2.08 from $2.03, but the increase in this year's estimate didn’t have a material impact on our fair value estimate.
OGE Energy is a holding company. Through its subsidiaries, the company is an energy and energy services provider providing physical delivery and related services for both electricity and natural gas primarily in the south central United States Co. conducts these activities through two business segments: electric utility, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas; and natural gas midstream operations, which consist of the company's investment in Enable Midstream Partners, LP, which is primarily engaged in the business of gathering, processing, transporting and storing natural gas.
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