OGE Energy Aims To Lower Customer Bill Through Rate Review

OGE Energy Corp’s. (NYSE:OGE) subsidiary, Oklahoma Gas & Electric Company (OG&E), recently signed an agreement with Oklahoma Corporation Commission (OCC) and other regulatory parties to review rates for its Oklahoma customers. If approved, the new rates will take effect from Jul 1, 2018.

Alongside the agreement, the company also reaffirmed its 2018 earnings guidance. It continues to expect the net income in the range of $380-$410 million or $1.90-$2.05 per share.

Benefits of the Agreement

The agreement aims at the recovery of $400 million investment that OGE Energy made in its Mustang Energy Center.

Under the terms of the agreement, the utility provider will cut down its rates by approximately $64 million. This in turn will reduce an average Oklahoma resident’s electricity bill by $4.44 per month.

Rationale Behind the Rate Reform

Rate reduction is nothing new in the Utility space. In the United States, government regulations dominate the Utility sector. Therefore, the utility providers frequently file for rate changes with the states’ utility commission, to keep their revenue requirement competitive in tandem with changing market conditions.

We believe that, this time, the latest tax reform has triggered this rate reduction. Of late, we have witnessed the latest tax reduction resulting in lower accrued tax expenses for the utilities and various companies passing on this benefit to the customers by reducing utility rates and bills. In this regard, OGE Energy is no exception as is evident from the latest rate review settlement for its Oklahoma customers. This rate review is preceded by the fuel cost reduction that the company implemented in March 2018. Such rate reviews tend to attract customers for the utility providers.

In recent times, we have witnessed some other utilities, directing the federal tax savings to reduce electricity bills for the customers. Notably, utility providers, including the likes of Duke Energy (NYSE:DUK) , NextEra Energy (NYSE:NEE) and AVANGRID (NYSE:AGR) , have expressed intention to pass on tax savings benefits to customers.

Looking Ahead

OGE Energy plans on filing a rate review to the Oklahoma Commission, later this year, for two of its environmental projects, based in Oklahoma. These projects include the installation of dry scrubbers at its Sooner Power Plant and the conversion of two of the three coal-fired units to natural gas units at its Muskogee plant. Both these plants are on course to meet the U.S. Environmental Protection Agency (EPA) Regional Haze Rule requirements.

Management expects Mustang Energy Center to aid the company in further reducing OG&E's carbon footprint, enhancing grid reliability and offering an improved ability to support renewable energy resources, such as wind and solar. If approved by OCC, the latest settlement agreement will facilitate reducing the expanding costs in connection to the aforementioned environmental projects.

Price Movement

OGE Energy’s stock has gained 8% in the last one year compared to the industry’s decline of 2.9%. The outperformance may have been led by its systematic investment in base distribution and generation projects.

Zacks Rank

OGE Energy currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Wall Street’s Next Amazon (NASDAQ:AMZN)

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>