OG&E 2015 Annual Report Download - page 8

OGE Energy Corp. 13
2016 Outlook
Key assumptions for 2016 include:
OG&E
The฀Company฀projects฀OG&E฀to฀earn฀approximately฀$288฀million฀to฀
$300฀million฀or฀$1.44฀to฀$1.50฀per฀average฀diluted฀share฀in฀2016฀and฀฀
is฀based฀on฀the฀following฀assumptions:
•฀ ฀normal฀weather฀patterns฀are฀experienced฀for฀the฀remainder฀of฀
the฀year;฀
•฀ ฀new฀rates฀take฀effect฀in฀Oklahoma฀in฀mid฀2016;
•฀ ฀gross฀margin฀on฀revenues฀of฀approximately฀$1.405฀billion฀to฀
$1.415฀billion฀based฀on฀sales฀growth฀of฀approximately฀one฀percent฀
on฀a฀weather-adjusted฀basis;฀
•฀ ฀approximately฀$106฀million฀of฀gross฀margin฀is฀primarily฀attributed฀to฀
regionally฀allocated฀transmission฀projects;
•฀ ฀operating฀expenses฀of฀approximately฀$885฀million฀to฀$895฀million,฀
with฀operation฀and฀maintenance฀expenses฀comprising฀54฀percent฀of฀
the฀total;
•฀ ฀interest฀expense฀of฀approximately฀$140฀million฀which฀assumes฀a฀
$8฀million฀allowance฀for฀borrowed฀funds฀used฀during฀construction฀
reduction฀to฀interest฀expense;
•฀ ฀other฀income฀of฀approximately฀$27฀million฀including฀approximately฀
$15฀million฀of฀allowance฀for฀equity฀funds฀used฀during฀construction;฀
and
•฀ ฀an฀effective฀tax฀rate฀of฀approximately฀28฀percent.
OG&E฀has฀significant฀seasonality฀in฀its฀ea nings.฀OG&E฀typically฀
shows฀minimal฀earnings฀in฀the฀first฀and฀ ourth฀quarters฀with฀a฀majority฀
of฀earnings฀in฀the฀third฀quarter฀due฀to฀the฀seasonal฀nature฀of฀air฀
conditioning฀demand.฀
OGE Enogex Holdings LLC
The฀Company฀projects฀the฀earnings฀contribution฀from฀its฀ownership฀
interest฀in฀Enable฀Midstream฀to฀be฀approximately฀$56฀million฀to฀
$66฀million฀or฀$0.28฀to฀$0.33฀per฀average฀diluted฀share.
Consolidated OGE
The฀Company’s฀2016฀earnings฀guidance฀is฀between฀approximately฀
$344฀million฀and฀$366฀million฀of฀net฀income,฀or฀$1.72฀to฀$1.83฀per฀
average฀diluted฀share฀and฀is฀based฀on฀the฀following฀assumptions:
•฀ ฀approximately฀200฀million฀average฀diluted฀shares฀outstanding;฀and
•฀ ฀an฀effective฀tax฀rate฀of฀approximately฀29฀percent.
Non-GAAP Financial Measures
Ongoing฀Earnings฀and฀Ongoing฀Earnings฀per฀Average฀Diluted฀Share฀
are฀defined฀ y฀the฀Company฀as฀GAAP฀Earnings฀and฀GAAP฀Earnings฀
per฀Average฀Diluted฀Share฀adjusted฀to฀exclude฀non-cash฀charges.฀
These฀financial measures฀excluded฀non-cash฀charges฀of฀approximately฀
$108.4฀million฀or฀$0.33฀per฀average฀diluted฀share฀associated฀with฀฀
the฀Company’s฀share฀of฀Enable’s฀goodwill฀impairment฀as฀well฀as฀a฀฀
non-cash฀pension฀settlement฀charge฀of฀approximately฀$5.8฀million฀or฀
$0.02฀per฀average฀diluted฀share.฀The฀Company’s฀management฀believes฀
that฀ongoing฀earnings฀and฀ongoing฀earnings฀per฀average฀diluted฀share฀
provide฀a฀more฀meaningful฀comparison฀of฀earnings฀results฀and฀are฀
more฀representative฀of฀the฀Company’s฀fundamental฀core฀earnings฀
power.฀The฀Company’s฀management฀uses฀ongoing฀earnings฀and฀
ongoing฀earnings฀per฀average฀diluted฀share฀internally฀for฀financial
planning฀and฀analysis,฀for฀reporting฀of฀results฀to฀the฀Board฀of฀Directors,฀
and฀when฀communicating฀its฀earnings฀outlook฀to฀analysts฀and฀
investors.฀Reconciliations฀of฀ongoing฀earnings฀and฀ongoing฀earnings฀
per฀average฀diluted฀share฀for฀the฀year฀ended฀December฀31,฀2015฀and฀
2014฀are฀below.
Reconciliation of Ongoing Earnings (Loss) to GAAP Earnings
(Loss)
฀ Goodwill and 2015฀ 2014฀GAAP
฀2015 GAAP Pension Ongoing฀ and฀Ongoing
฀Earnings Settlement Earnings฀ Earnings
(Net฀of฀tax,฀in฀millions)฀(Loss) Charges(A) (Loss)฀ (Loss)(B)
OG&E฀ $268.9 $ — $268.9 $292.0
Natural฀Gas฀Midstream฀฀
฀ Operations฀ 9.4 70.8 80.2 102.3
Holding฀Company฀ (7.0) — (7.0) 1.5
Consolidated฀ $271.3 $70.8 $342.1฀ $395.8
Reconciliation of Ongoing Earnings (Loss) per Average Diluted
Share to GAAP Earnings (Loss) per Average Diluted Share
฀ Goodwill and 2015฀ 2014฀GAAP
฀2015 GAAP Pension Ongoing฀ and฀Ongoing
฀Earnings Settlement Earnings฀ Earnings
฀(Loss) per Charges per (Loss) per฀ (Loss)฀per
฀Share Share(A) Share฀ Share(B)
OG&E฀ $ 1.35 $ — $ 1.35 $1.46
Natural฀Gas฀Midstream฀฀
฀ Operations฀ 0.05 0.35 0.40 0.51
Holding฀Company฀ (0.04) — (0.04) 0.01
Consolidated฀ $ 1.36 $0.35 $ 1.71฀ $1.98
(A)฀ ฀
On฀September฀30,฀2015,฀the฀Company฀recognized฀a฀non-cash฀pre-tax฀charge฀of฀
$108.4฀million฀or฀$0.33฀per฀average฀diluted฀share฀for฀its฀portion฀of฀Enable’s฀goodwill฀
impairment.฀Additionally,฀the฀Company฀recognized฀a฀non-cash฀pre-tax฀charge฀of฀
$5.8฀million฀or฀$0.02฀per฀average฀diluted฀share฀for฀a฀pension฀settlement฀charge฀related฀
to฀Enable.
(B)฀ ฀
There฀were฀no฀similar฀charges฀for฀the฀year฀ended฀December฀31,฀2014,฀therefore฀
ongoing฀earnings฀and฀GAAP฀earnings฀are฀the฀same.฀
Gross฀margin฀is฀defined฀ y฀OG&E฀as฀operating฀revenues฀less฀fuel,฀
purchased฀power฀and฀certain฀transmission฀expenses.฀Gross฀margin฀is฀
a฀non-GAAP฀financial฀measure฀because฀it฀ xcludes฀depreciation฀and฀
amortization,฀and฀other฀operation฀and฀maintenance฀expenses.฀
Expenses฀for฀fuel฀and฀purchased฀power฀are฀recovered฀through฀fuel฀
adjustment฀clauses฀and฀as฀a฀result฀changes฀in฀these฀expenses฀are฀
offset฀in฀operating฀revenues฀with฀no฀impact฀on฀net฀income.฀OG&E฀
believes฀gross฀margin฀provides฀a฀more฀meaningful฀basis฀for฀evaluating฀
its฀operations฀across฀periods฀than฀operating฀revenues฀because฀gross฀
margin฀excludes฀the฀revenue฀effect฀of฀fluctuations฀in฀these฀ xpenses.฀
Gross฀margin฀is฀used฀internally฀to฀measure฀performance฀against฀
budget฀and฀in฀reports฀for฀management฀and฀the฀Board฀of฀Directors.฀
OG&E’s฀definition฀of฀ ross฀margin฀may฀be฀different฀from฀similar฀terms฀
used฀by฀other฀companies.฀
12 OGE Energy Corp.
Overview
Company Strategy
The฀Company’s฀mission,฀through฀OG&E฀and฀its฀equity฀interest฀in฀
Enable,฀is฀to฀fulfill฀its฀c itical฀role฀in฀the฀nation’s฀electric฀utility฀and฀
natural฀gas฀midstream฀pipeline฀infrastructure฀and฀meet฀individual฀
customers’฀needs฀for฀energy฀and฀related฀services฀focusing฀on฀safety,฀
efficienc ,฀reliability,฀customer฀service฀and฀risk฀management.฀The฀
Company’s฀corporate฀strategy฀is฀to฀continue฀to฀maintain฀its฀existing฀
business฀mix฀and฀diversified฀asset฀position฀of฀its฀regulated฀elect ic฀
utility฀business฀and฀interest฀in฀a฀publicly฀traded฀midstream฀company,฀
while฀providing฀competitive฀energy฀products฀and฀services฀to฀
customers,฀as฀well฀as฀seeking฀growth฀opportunities฀in฀both฀businesses.฀
OG&E฀is฀focused฀on:฀
•฀ ฀Providing฀exceptional฀customer฀experiences฀by฀continuing฀to฀improve฀
customer฀interfaces,฀tools,฀products฀and฀services฀that฀deliver฀high฀
customer฀satisfaction฀and฀operating฀productivity.฀
•฀ ฀Providing฀safe,฀reliable฀energy฀to฀the฀communities฀and฀customers฀฀
we฀serve.฀A฀particular฀focus฀is฀on฀enhancing฀the฀value฀of฀the฀grid฀by฀
improving฀distribution฀grid฀reliability฀by฀reducing฀the฀frequency฀and฀
duration฀of฀customer฀interruptions฀and฀leveraging฀previous฀grid฀
technology฀investments.฀
•฀ ฀Maintaining฀strong฀regulatory฀and฀legislative฀relationships฀for฀the฀
long-term฀benefit฀of฀our฀customer ,฀investors฀and฀members.฀
•฀ ฀Continuing฀to฀grow฀a฀zero-injury฀culture฀and฀deliver฀top-quartile฀
safety฀results.฀
•฀ ฀Complying฀with฀the฀EPA’s฀MATS฀and฀Regional฀Haze฀requirements.฀
•฀ ฀Ensuring฀we฀have฀the฀necessary฀mix฀of฀generation฀resources฀to฀
meet฀the฀long-term฀needs฀of฀our฀customers.฀
•฀ ฀Continuing฀focus฀on฀operational฀excellence฀and฀efficiencies฀in฀order
to฀protect฀the฀customer฀bill.฀
Additionally,฀the฀Company฀wants฀to฀achieve฀a฀premium฀valuation฀฀
of฀its฀businesses฀relative฀to฀its฀peers,฀grow฀earnings฀per฀share฀with฀a฀
stable฀earnings฀pattern,฀create฀a฀high฀performance฀culture฀and฀achieve฀
desired฀outcomes฀with฀target฀stakeholders.฀The฀Company’s฀financial
objectives฀include฀a฀long-term฀annual฀earnings฀growth฀rate฀for฀OG&E฀
of฀three฀to฀fi e฀percent฀on฀a฀weather-normalized฀basis,฀maintaining฀฀
a฀strong฀credit฀rating฀as฀well฀as฀targeting฀dividend฀increases฀of฀
approximately฀10฀percent฀annually฀through฀2019.฀The฀targeted฀annual฀
dividend฀increase฀has฀been฀determined฀after฀consideration฀of฀
numerous฀factors,฀including฀the฀largely฀retail฀composition฀of฀the฀
Company’s฀shareholder฀base,฀the฀Company’s฀financial฀position,฀
the฀Company’s฀growth฀targets฀and฀the฀composition฀of฀the฀Company’s฀
assets฀and฀investment฀opportunities.฀The฀Company฀also฀relies฀on฀cash฀
distributions฀from฀its฀investment฀in฀Enable฀to฀fund฀its฀capital฀needs฀฀
and฀support฀future฀dividend฀growth.฀The฀Company฀believes฀it฀can฀
accomplish฀these฀financial฀objecti es฀by,฀among฀other฀things,฀pursuing฀
multiple฀avenues฀to฀build฀its฀business,฀maintaining฀a฀diversified฀asset
position,฀continuing฀to฀develop฀a฀wide฀range฀of฀skills฀to฀succeed฀with฀
changes฀in฀its฀industries,฀providing฀products฀and฀services฀to฀customers฀
efficientl ,฀managing฀risks฀effectively฀and฀maintaining฀strong฀regulatory฀
and฀legislative฀relationships.฀
Summary of Operating Results
2015 compared to 2014.฀Net฀income฀attributable฀to฀OGE฀Energy฀was฀
$271.3฀million,฀or฀$1.36฀per฀diluted฀share,฀in฀2015฀as฀compared฀to฀
$395.8฀million,฀or฀$1.98฀per฀diluted฀share,฀in฀2014.฀The฀decrease฀in฀net฀
income฀attributable฀to฀OGE฀Energy฀of฀$124.5฀million,฀or฀31.5฀percent,฀
or฀$0.62฀per฀diluted฀share,฀in฀2015฀as฀compared฀to฀2014฀was฀primarily฀
due฀to:
•฀ ฀a฀decrease฀in฀net฀income฀at฀OGE฀Holdings฀of฀$92.9฀million,฀or฀
90.8฀percent,฀or฀$0.46฀per฀diluted฀share฀of฀the฀Company’s฀common฀
stock,฀primarily฀due฀to฀the฀goodwill฀impairment฀adjustment฀at฀Enable฀
in฀September฀2015฀and฀lower฀revenues฀driven฀by฀lower฀average฀
natural฀gas฀and฀NGLs฀prices;฀
•฀ ฀a฀decrease฀in฀net฀income฀at฀OGE฀Energy฀of฀$8.5฀million,฀or฀$0.05฀per฀
diluted฀share฀of฀the฀Company’s฀common฀stock,฀primarily฀due฀to฀
charges฀associated฀with฀pre-construction฀expenditures฀for฀new฀office
space฀to฀consolidate฀Oklahoma฀City฀personnel;฀and฀
•฀ ฀a฀decrease฀in฀net฀income฀at฀OG&E฀of฀$23.1฀million,฀or฀7.9฀percent,฀
or฀$0.11฀per฀diluted฀share฀of฀the฀Company’s฀common฀stock,฀primarily฀
due฀to฀an฀increase฀in฀depreciation฀expense฀due฀to฀additional฀assets฀
being฀placed฀in฀service฀in฀2015,฀and฀a฀decrease฀in฀gross฀margin฀
related฀to฀milder฀weather฀and฀decreased฀wholesale฀transmission฀
revenues.฀Partially฀offsetting฀these฀items฀was฀an฀increase฀in฀
customer฀growth,฀an฀increase฀in฀other฀income฀and฀an฀increase฀in฀
allowance฀for฀equity฀funds฀used฀during฀construction.
2014 compared to 2013. Net฀income฀attributable฀to฀OGE฀Energy฀was฀
$395.8฀million,฀or฀$1.98฀per฀diluted฀share,฀in฀2014฀as฀compared฀to฀
$387.6฀million,฀or฀$1.94฀per฀diluted฀share,฀in฀2013.฀The฀increase฀in฀net฀
income฀attributable฀to฀OGE฀Energy฀of฀$8.2฀million,฀or฀2.1฀percent,฀or฀
$0.04฀per฀diluted฀share,฀in฀2014฀as฀compared฀to฀2013฀was฀primarily฀
due฀to:
•฀ ฀an฀increase฀in฀net฀income฀at฀OGE฀Holdings฀of฀$2.4฀million,฀or฀
2.4฀percent,฀or฀$0.01฀per฀diluted฀share฀of฀the฀Company’s฀common฀
stock,฀due฀partially฀to฀the฀accretive฀effect฀to฀OGE฀Holdings฀of฀Enable฀
partially฀offset฀by฀a฀reduction฀in฀deferred฀state฀income฀taxes฀in฀2013฀
associated฀with฀a฀remeasurement฀of฀the฀accumulated฀deferred฀taxes฀
related฀to฀the฀formation฀of฀Enable;฀
•฀ ฀an฀increase฀in฀net฀income฀at฀OGE฀Energy฀of฀$6.4฀million,฀or฀
$0.04฀per฀diluted฀share฀of฀the฀Company’s฀common฀stock,฀primarily฀
due฀to฀decreased฀transaction฀expenses฀related฀to฀the฀formation฀of฀
Enable฀and฀a฀decrease฀in฀losses฀for฀the฀deferred฀compensation฀
plan;฀and
•฀ ฀a฀decrease฀in฀net฀income฀at฀OG&E฀of฀$0.6฀million,฀or฀0.2฀percent,฀or฀
$0.01฀per฀diluted฀share฀of฀the฀Company’s฀common฀stock,฀reflecting
an฀increase฀in฀depreciation฀expense฀due฀to฀additional฀assets฀being฀
placed฀in฀service฀in฀2014,฀a฀decrease฀in฀gross฀margin฀related฀to฀
milder฀weather฀compared฀to฀2013,฀an฀increase฀in฀other฀operation฀and฀
maintenance฀expense฀and฀an฀increase฀in฀interest฀expense฀related฀to฀
the฀issuance฀of฀debt.฀Partially฀offsetting฀these฀items฀was฀an฀increase฀
in฀wholesale฀transmission฀revenues,฀an฀increase฀in฀customer฀growth฀
and฀a฀decrease฀in฀incentive฀compensation.
A฀more฀detailed฀discussion฀regarding฀the฀financial฀per ormance฀of฀
OG&E฀and฀the฀Natural฀Gas฀Midstream฀Operations฀can฀be฀found฀under฀
“Results฀of฀Operations”฀below.