Executives at OGE Energy faced questions Thursday on how it plans to deal with several environmental compliance developments at its utility division, Oklahoma Gas and Electric Co.
The questions came during a conference call with analysts to discuss the company's second-quarter earnings, which were essentially flat. OGE reported net income of $91.7 million, or 46 cents per diluted share, in the second quarter. That compared to a profit of $93.9 million, or 47 cents per diluted share, in the second quarter of 2012.
OGE recently closed a deal to combine its Enogex midstream business with the pipeline assets of Houston-based CenterPoint Energy Inc. The new company, Enable Midstream Partners LP, has combined assets of $11 billion. An initial public offering of partnership units is expected in the next year.
OGE Chairman, CEO and President Pete Delaney fielded several questions about environmental compliance costs at OG&E. A three-judge panel of the federal appeals court in Denver ruled 2-1 last month in favor of the Environmental Protection Agency's plan for dealing with regional haze. The rules cover emissions from power plants affecting visibility at federal parks and wilderness areas.
OG&E estimates the EPA's plan could cause it to spend about $1 billion for scrubbers at its coal plants in Red Rock and Muskogee. Delaney said the utility plans to ask the full 10th U.S. Circuit Court of Appeals for a rehearing by early September. If OG&E isn't successful, it will have 55 months to comply with the EPA's regional haze plan.
“As you are no doubt aware, the implication to our customers is significant when you consider adding four scrubbers to the cost of over $1 billion to rate base,” Delaney said. “As noted in the dissent of Judge (Paul J.) Kelly, that even under the EPA's own calculations, adding scrubbers will have little or no impact on visibility, but the OG&E rate payers will be left with a huge bill. We will continue to do what we can to protect our customers from this unfortunate regulatory action.”
In a research note to investors, Morningstar analyst Andrew Bischof said he doesn't expect OG&E to win its bid for a full rehearing from the appeals court.
“If the regional haze rule is upheld, which we view as the likeliest outcome, OGE Energy will be required to spend an estimated $1 billion on scrubber equipment, heightening regulatory risk in a state where regulators are less constructive than its peers,” Bischof said.
OG&E also faces a lawsuit filed in July by the Justice Department on behalf of the EPA for how it estimated emissions changes from a series of upgrades at its coal plants from 2003 to 2006. Delaney said the utility believes it did not violate the Clean Air Act.
Outside of its environmental issues, OGE said mild weather affected sales at OG&E. That was offset by lower operating expenses and higher revenue from transmission projects the utility is completing on behalf of the Southwest Power Pool.
OG&E added 7,000 customers in the second quarter, bringing its total to more than 801,000. It also won an award from a trade group, the Edison Electric Institute, for its efforts to roll out smart meters and its variable pricing plan called SmartHours. Delaney said about 76,000 OG&E customers have signed up for SmartHours.