Executive Summary / Key Takeaways

• Robust Load Growth Fuels Expansion: OGE Energy Corp. is experiencing exceptional, broad-based weather-normalized load growth, reaching 7.6% in 2024 and projected at 8.5% for 2025, driven by economic development and new customer additions across Oklahoma and Western Arkansas. This growth underpins the company's capital investment strategy.
• Strategic Capital Deployment: The company is investing significantly in generation capacity (adding 550 MW soon, with plans for another 450 MW by 2029) and critical transmission infrastructure ($240 million Fort Smith-Muskogee line), all aimed at enhancing reliability and meeting surging demand.
• Favorable Regulatory Environment: Recent legislation in Oklahoma (SB 998.00) and Arkansas (Act 373.00) enables Construction Work in Progress (CWIP) recovery for strategic investments, providing financial flexibility and minimizing customer bill impacts, such as an estimated $190 million in savings for customers on proposed Horseshoe Lake units.
• Solid Financial Outlook: OGE projects 2025 consolidated earnings in the top half of its $2.21 to $2.33 diluted EPS guidance range, and anticipates 5% to 7% annual EPS growth through 2029, supported by a strong balance sheet and a commitment to a 65-70% dividend payout ratio without significant external equity needs.
• Operational Excellence & Competitive Edge: OGE maintains a competitive advantage through its low rates (lowest in Oklahoma and Arkansas), high reliability (99.975%), and proactive use of operational technology and diversified energy sources, which attract new businesses and foster economic prosperity in its service territory.

A Century of Powering Progress: OGE's Enduring Foundation

OGE Energy Corp., through its core subsidiary Oklahoma Gas and Electric Company (OGE), has been a foundational energy provider in Oklahoma and Western Arkansas since its incorporation in 1902. The company strategically divested its natural gas business in 1928 to focus exclusively on electric utility operations, a decision that has shaped its identity and long-term trajectory. This singular focus has allowed OGE to cultivate deep regional expertise and build a robust generation, transmission, and distribution network spanning approximately 30,000 square miles.

OGE's overarching strategy, encapsulated by its "North Star" purpose, is to deliver safe, reliable, and affordable electric service. This commitment is not merely operational; it forms the bedrock of a "sustainable business model" that actively drives economic development within its service territory. By maintaining some of the lowest rates in the nation—noted as top decile for overall retail and the lowest in both Oklahoma and Arkansas—OGE attracts new businesses and residents, fostering a virtuous cycle of growth and investment. This competitive pricing power is a significant differentiator against other utilities, such as Duke Energy (DUK) and Southern Company (SO), which, while larger, may not always match OGE's localized cost efficiency.

Operational Technology and Environmental Stewardship: OGE's Differentiated Approach

While OGE does not boast a single, proprietary "core technology" in the manufacturing sense, its differentiation lies in its sophisticated application of operational technology, strategic resource management, and continuous innovation across its utility infrastructure. The company's commitment to grid strengthening, automation, and the integration of artificial intelligence (AI) is central to its operational excellence. These technological enhancements are designed to reduce outages before they occur and significantly decrease restoration times when disruptions do happen.

The tangible benefits of this approach are evident in OGE's impressive reliability metrics, with the system averaging 99.975% reliability even amidst severe weather events like tornadoes and windstorms. This level of performance is a direct result of investments in advanced grid technologies and proactive maintenance. Furthermore, OGE has leveraged digital self-service tools, including mobile apps and websites, to enhance customer experience and drive operational efficiencies.

Environmentally, OGE demonstrates a forward-thinking approach through its diversified generation mix, which includes coal, natural gas, wind, and solar assets. The company has made significant strides in reducing its environmental footprint, achieving approximately 60% reduction in CO2 emissions, 80% in ozone-forming NOX, and 95% in SO2 emissions by calendar year 2024, compared to 2005 levels. These reductions are attributable to strategic coal-to-natural gas conversions, participation in the Southwest Power Pool (SPP) integrated market, and active customer engagement in energy efficiency programs. A notable example of resource efficiency is OGE's use of approximately 2.40 billion gallons per year of treated municipal effluent for cooling water at its Redbud and McClain facilities, conserving fresh water resources. Additionally, about 95% of ash from its coal facilities was recovered and reused in 2024, preventing over 4 million tons of CO2 emissions over the last 16 years. These operational and environmental efficiencies contribute directly to OGE's cost structure, enhancing its competitive position against peers like Constellation Energy (CEG) and NextEra Energy (NEE), particularly in areas of sustainable operations and cost management.

Financial Performance: Riding the Wave of Regional Prosperity

OGE's financial performance reflects its strategic focus on growth and operational efficiency. For the six months ended June 30, 2025, OGE Energy's consolidated net income increased by $49.30 million, or $0.24 per diluted share, reaching $170.20 million ($0.84 per diluted share). This improvement was largely driven by the electric company segment, which saw its net income rise by $44.20 million, or $0.21 per diluted share, to $178.70 million. The increase in operating revenues, stemming from the recovery of capital investments and robust weather-normalized load growth, was a primary catalyst.

The company's load growth has been a standout feature. Weather-normalized load grew by 7.6% in 2024, marking the largest annual growth in nearly 25 years. This momentum continued into 2025, with year-to-date weather-normalized load growth of 6.5% through Q2. Commercial load has been particularly strong, expanding by an extraordinary 21.4% in 2024 and 25% year-to-date Q2 2025. Residential growth also remains healthy, at 2.4% in 2024 and 1% year-to-date Q2 2025. While the industrial and oilfield sectors experienced some temporary softness due to planned and unplanned outages, management anticipates future growth in these areas. This diversified growth across customer classes underscores the underlying economic strength of OGE's service area, with Oklahoma City's unemployment rate consistently below 4% and recognized as a top big city to live in.

The company's capital investment program is substantial, with estimates for 2025-2029 remaining consistent with its 2024 Form 10-K. These investments are customer-focused, targeting the safety, resiliency, and reliability of the grid and generation fleet. OGE recently issued $350 million of 5.80% senior notes due April 1, 2055, completing its planned financing for 2025. The company maintains a strong balance sheet, forecasting Funds From Operations (FFO) to debt of approximately 17% through 2029, with no need for external equity issuances beyond a modest annual Dividend Reinvestment Plan (DRIP). This financial discipline, coupled with low refinancing risk (next fixed-rate maturity is a modest $125 million in 2027), positions OGE favorably compared to peers who may face higher debt burdens or greater equity dilution.

Strategic Expansion and Regulatory Tailwinds

OGE is actively pursuing significant capacity additions to meet the escalating demand. Approximately 550 megawatts (MW) of new natural gas combustion turbines are currently under construction at Tinker Air Force Base and Horseshoe Lake (Units 11 and 12), expected to be operational within the next year. Further plans include filing for approval of Horseshoe Lake Units 13 and 14, which would add another 450 MW by 2029. Management expects to continue adding generation capacity at a similar pace for the foreseeable future, with a strong preference for direct ownership of these assets.

On the transmission front, OGE is set to begin construction on a $240 million, 80-mile high-voltage transmission line from Muskogee, Oklahoma, to Fort Smith, Arkansas. This project, approved by FERC for Construction Work in Progress (CWIP) and abandoned plant incentives, is expected to come online in phases between 2027 and 2029, enhancing reliability and capacity in the Fort Smith area.

A critical enabler of OGE's growth strategy is the constructive regulatory environment in its key jurisdictions. Oklahoma's SB 998.00, effective August 29, 2025, allows CWIP recovery for new natural gas generation and permits deferral of 90% of depreciation expense and return on qualified plant investments. Similarly, Arkansas's Act 373.00, signed in March 2025, enables CWIP recovery for strategic generation and transmission investments. These legislative successes provide OGE with greater financial flexibility, reducing customer impacts and facilitating timely investments. For instance, the CWIP benefits are projected to save customers $190 million on the proposed Horseshoe Lake Units 13 and 14 over their lifetime.

The company is also actively engaged in discussions with several potential large load customers, including data centers, with opportunities potentially ranging from 250 MW to 500 MW each. These projects are viewed as accretive to the business, and OGE's current load projections are solid even without their inclusion. The company's ability to attract such large loads is a testament to its competitive rates and reliable service, a key differentiator in the competitive landscape where companies like MYR Group (MYRG) also vie for infrastructure projects related to data center expansion.

Outlook and Risk Considerations

OGE Energy's 2025 consolidated earnings guidance remains within the range of $2.21 to $2.33 per average diluted share. Given year-to-date performance, strong economic growth, and the benefits of new legislation, management is confident in achieving results in the top half of this range. The long-term outlook is equally compelling, with a target of 5% to 7% annual EPS growth through 2029, based on the higher 2025 midpoint. This guidance assumes continued strong weather-normalized load growth (8.5% for 2025) and normal weather for the remainder of the year. The company also aims to maintain its dividend payout ratio in the 65% to 70% range, supported by robust operating cash flows.

Despite this positive outlook, investors should consider several risks. Regulatory and environmental compliance costs, particularly related to the EPA's Cross State Air Pollution Rule (Good Neighbor FIP) and greenhouse gas regulations, pose potential financial impacts. While litigation and proposed repeals introduce uncertainty, OGE has preliminarily estimated compliance costs for the FIP could range from $2.40 billion to $2.80 billion. The company expects to seek recovery for these expenditures, but timely and full approval is not guaranteed.

Credit rating pressure is another factor, with Moody's Investors Service revising OGE's outlook from stable to negative in April 2025, citing capital expenditure plans and higher debt levels. Management believes credit-accretive legislation and a proven track record will be considered in Moody's resolution, emphasizing their commitment to maintaining a strong balance sheet with a 17% FFO to debt target. Litigation, such as the $60 million apartment fire lawsuit and a potential $14 million refund for SPP Z2 charges, also presents ongoing contingencies. However, OGE has reserved for the latter and expects insurance to cover the former. Proactive supply chain management, securing key components through 2026, mitigates immediate operational risks from material availability.

Conclusion

OGE Energy Corp. stands as a compelling investment proposition, firmly rooted in its century-long commitment to providing essential electric service. The company's core investment thesis is built upon a foundation of robust, diversified load growth driven by a thriving regional economy and OGE's strategic economic development initiatives. This growth, coupled with a highly constructive regulatory environment that supports capital recovery through mechanisms like CWIP, enables OGE to execute a substantial capital expenditure program aimed at fortifying its grid and expanding generation capacity.

The company's operational excellence, underpinned by continuous investment in grid technology, automation, and environmental stewardship, translates into high reliability and cost efficiency, reinforcing its competitive advantage of low rates. As OGE continues to attract new large loads and expand its infrastructure, its consistent financial performance and clear guidance for 5-7% annual EPS growth through 2029 underscore its potential for sustained shareholder value creation. While regulatory and environmental compliance costs, alongside credit rating scrutiny, present ongoing considerations, OGE's proactive management and strong balance sheet position it to navigate these challenges, making it an attractive option for investors seeking stable, growth-oriented exposure in the regulated utility sector.