Morningstar | OGE's Earnings Lag as It Waits on Oklahoma Rate Case
We are reaffirming our no-moat rating and $37 per share fair value estimate after OGE Energy reported weak earnings for the 2019 first quarter but reaffirmed 2019 earnings guidance.Consolidated EPS for the quarter was $0.24 versus $0.27 in the same period last year. Our unchanged 2019 earnings estimate of $2.12 per share is flat versus 2018 and near the midpoint of management's $2.05-$2.20 guidance.
Oklahoma Gas & Electric contributed $0.10 per share in the recently ended quarter versus $0.16 per share in the same period last year. We expected the weak results as OG&E awaits the outcome of its Oklahoma rate case, which is expected this summer, earlier if a settlement is reached.
The new scrubbers at the Sooner coal plant and the new gas-fired units at Muskogee, both in service, are two large investments that are not reflected in rates. A portion of the Sooner scrubber investment is reflected in a regulatory asset, but the regulatory asset does not receive a return on the equity. This lag in returns is due in large part to the poor regulatory framework in Oklahoma and one of the reasons we believe OG&E is a no-moat utility.
OGE Energy Holdings, which holds the 25.5%-owned Enable Midstream Partners, LP, contributed $0.11 per share in the first quarter, flat with last year. Enable had higher volumes and revenue across all business segments, but these were for the most part offset by a pension settlement charge. OGE did receive a $35 million cash distribution in each of the first quarters of 2019 and 2018.
We assume Enable’s cash distributions increase about 2% per year over the next five years. However, we are not highly confident in that assumption as the quarterly distributions were last increased in the 2015 fourth quarter. That said, we believe Enable’s current distribution level is secure.
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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