Executive Summary / Key Takeaways

• Load Growth Without Data Centers: OGE's 7.6% weather-normalized load growth in 2024—its strongest in nearly 25 years—was achieved entirely without data center contributions, positioning the company to layer incremental megawatts on top of an already robust baseline, directly supporting its 5-7% EPS growth target through 2029.

• Regulatory De-Risking of $6.5B Capex: New CWIP legislation in Oklahoma (SB 998) and Arkansas (Act 373) allows OGE to recover financing costs during construction, saving customers an estimated $190 million on Horseshoe Lake Units 13-14 while preserving balance sheet strength during peak capital intensity, fundamentally altering the risk profile of its generation buildout.

• Affordability as a Moat: OGE's non-fuel rates have increased at less than half the rate of inflation over the past decade while maintaining top-decile affordability, creating a self-reinforcing cycle where low rates attract commercial expansion and residential growth, spreading fixed costs across a widening customer base.

• Data Center Optionality: Management is in "very serious negotiations" with roughly half a dozen data center projects totaling 250-500 MW, representing potential upside that is explicitly excluded from guidance and would be accretive to an already-strong load growth trajectory.

• Balance Sheet Pressure Point: Moody's negative outlook revision in April 2025 reflects legitimate concerns about holding company debt and capital expenditure intensity, making execution on load growth timing and regulatory recovery critical to maintaining financial flexibility.

Setting the Scene

OGE Energy Corp., incorporated in 1902 under the laws of the Oklahoma Territory and headquartered in Oklahoma City, operates through its wholly-owned subsidiary Oklahoma Gas and Electric Company (OG&E) as the largest electric utility in Oklahoma. The company's 120-year history reveals a deliberate focus: after divesting its retail natural gas business in 1928, OGE concentrated exclusively on generating, transmitting, and distributing electric energy—a specialization that today serves approximately 879,000 customers across a 30,000-square-mile franchised territory in Oklahoma and western Arkansas.

This geographic concentration is not a limitation but a strategic choice. Unlike multi-state peers such as American Electric Power (AEP) or Entergy (ETR) that must navigate fragmented regulatory regimes, OGE's dual-state footprint allows for deeper relationships with the Oklahoma Corporation Commission (OCC) and Arkansas Public Service Commission (APSC). The company's recent history is defined by two transformative events: Winter Storm Uri in February 2021, which forced cost deferrals and highlighted the need for dispatchable generation, and the 2024-2025 legislative session that delivered CWIP recovery mechanisms, fundamentally changing how OGE finances infrastructure.

OGE sits in the Southwest Power Pool (SPP) region, where transmission congestion and capacity constraints are acute. The company's strategy hinges on a simple but powerful equation: maintain rates among the lowest in the nation while investing heavily in grid reliability and generation capacity, thereby attracting economic development that drives load growth, which in turn spreads costs across more customers and keeps rates low. This self-reinforcing cycle has produced a 6% EPS CAGR over the past decade while non-fuel rates increased at less than half the rate of inflation—a track record that distinguishes OGE from peers facing more aggressive rate escalation.

Technology, Products, and Strategic Differentiation

OGE's core technology is not software but a physical grid optimized for reliability and cost efficiency. The company operates 7,207 MW of generation capacity from a diversified mix of natural gas, coal, wind, and solar assets. What matters is not the fuel mix itself but how OGE leverages it: since 2008, the company has used approximately 2.4 billion gallons per year of treated municipal effluent for cooling water at its Redbud and McClain facilities, reducing freshwater dependency and operating costs while improving environmental sustainability. This operational efficiency translates directly to rate affordability, which management correctly identifies as "key to our community success and central to our planning."

The strategic differentiation lies in OGE's ability to layer new capacity onto an already-efficient system. The company currently has 550 MW of natural gas combustion turbines under construction at Horseshoe Lake (Units 11-12) and Tinker Air Force Base, scheduled for operation in 2025-2026. More significantly, OGE has filed for approval of two additional 450 MW turbines (Units 13-14) at Horseshoe Lake, targeting 2029 completion. The "so what" is that these units will be recovered through CWIP riders, allowing OGE to earn a return on construction work in progress rather than waiting for commercial operation—a mechanism that reduces the long-term cost to customers by $190 million while providing balance sheet support during the construction phase.

On the transmission side, the $250 million Fort Smith to Muskogee project addresses reliability and capacity constraints in one of SPP's most congested areas. Approved by FERC in July 2025 and set for phased completion in 2027-2029, this 106-mile high-voltage line will be recovered primarily through FERC formula rates, with CWIP recovery approved during construction. This project exemplifies OGE's strategy: invest in grid infrastructure that enables economic development, which drives load growth, which justifies further investment.

Financial Performance & Segment Dynamics

OGE's financial results are evidence of a strategy working exactly as designed. For the nine months ended September 30, 2025, operating revenues increased 13.9% to $2.53 billion while net income rose 17.3% to $421.6 million.

The electric company segment generated $242.9 million in Q3 2025 net income, flat year-over-year at $1.20 per diluted share, but the composition reveals more than the headline. The main driver was increased recovery of capital investments, partially offset by milder weather and higher O&M expenses. This pattern—growing earnings through regulatory recovery despite weather headwinds—demonstrates the resilience of the rate base growth model.

The segment dynamics show broad-based strength. Weather-normalized load growth was 6.5% year-to-date through Q3 2025, with residential customers growing 1% and commercial load surging 25%. This commercial acceleration is critical: it reflects new business relocations and expansions that create durable load additions, not temporary usage spikes. Industrial and oilfield load showed softness due to unplanned customer outages, but management emphasizes this is timing-related rather than structural. The key insight is that OGE's two largest customer classes—residential and commercial—are both expanding, with commercial growth at extraordinary levels that far surpass national utility trends.

The holding company segment reported a $11.6 million loss in Q3 2025, widening from $6.3 million in the prior year due to higher interest expense from the April 2025 $350 million senior notes issuance. This is the pressure point Moody's identified when revising the outlook to negative. While OGE's electric subsidiary maintains a strong Baa1 rating, the holding company's increased debt to fund capital expenditures creates a leverage concern that investors must monitor.

The mitigating factor is that these proceeds directly fund accretive investments in generation and transmission that will be recovered through rates, making the debt essentially self-liquidating over time.

Cash flow performance supports the investment thesis. Net cash from operating activities increased 10.1% to $752.3 million for the nine-month period, driven by cash received from customers. Investing activities used $806.8 million, reflecting the timing of power delivery and generation projects. The $54.2 million in financing activities represents a 69.5% decrease from 2024, as the company shifted from large debt issuances to commercial paper and short-term borrowings. With $693.3 million in available liquidity under revolving credit agreements and regulatory approval for up to $1 billion in short-term borrowings through 2026, OGE has adequate funding capacity for its $6.5 billion five-year capital plan.

Outlook, Management Guidance, and Execution Risk

Management's guidance frames 2025 as a year of exceptional performance within a longer-term growth trajectory. The company affirmed its expectation to deliver earnings in the top half of the original $2.21-$2.33 per share range, representing a 7% increase from 2024's midpoint. This guidance assumes normal weather and approximately 202.1 million diluted shares outstanding. The 5-7% EPS growth target through 2029 is built on three pillars: continued strong load growth, competitive customer rates, and ongoing infrastructure investment.

The load growth outlook is particularly instructive. Management expects approximately 7.5% weather-normalized load growth for 2025, down slightly from the 8.5% forecast earlier in the year but still representing the fifth consecutive year of historically strong growth. The reduction is attributed to timing—specifically, one large customer coming online about a quarter later than anticipated. This "chunky load" dynamic is inherent to economic development but does not change the fundamental trajectory. Critically, this growth projection excludes any data center contributions, which management describes as "incremental to our already strong load growth."

The execution risk centers on capital deployment and regulatory recovery. The $6.5 billion capital plan through 2029 includes the 550 MW under construction, the 450 MW Horseshoe Lake expansion, the $250 million Fort Smith-Muskogee transmission line, and grid reliability investments. The CWIP legislation in both states de-risks this plan by allowing cost recovery during construction, but execution on budget and timeline remains critical. Management emphasizes that key components like transformers and wire are secured through 2026, mitigating supply chain risk, but labor availability and construction delays could pressure timelines.

A key variable is the timing of the next Oklahoma rate review. Management has indicated that if the preapproval case for Horseshoe Lake Units 13-14 is approved, they may move the planned rate review from late 2025 to the second half of 2026. This would allow the company to incorporate the new units into rate base more efficiently, but it also delays the opportunity to reset base rates and address any cost pressures. The strategic patience reflects confidence in the CWIP mechanism but creates a near-term earnings trajectory that depends on rider recovery rather than base rate increases.

Risks and Asymmetries

The central risk to OGE's thesis is execution failure on its capital plan. If load growth disappoints or if construction costs exceed estimates, the company could face a situation where it has invested $6.5 billion in assets that strain the balance sheet without delivering the expected earnings accretion. Moody's negative outlook explicitly cites "pressure related to OGE's capital expenditure plan and higher debt levels at the holding company." The asymmetry is that successful execution delivers a rate base growing at 7-8% annually with immediate recovery through CWIP, while failure could compress ROE and pressure the dividend payout ratio, currently at 67.8%.

Environmental compliance represents a material but manageable risk. The EPA's Good Neighbor FIP could require $2.4-2.8 billion in NOX emissions controls, with $100-300 million in the first 12-18 months. OGE plans to seek recovery but cannot guarantee approval or timing. The 2024 greenhouse gas rules, currently subject to EPA reconsideration, would impose additional requirements on fossil units. The "so what" is that OGE's fossil-heavy generation mix (approximately 80% gas and coal) creates regulatory exposure that peers like Evergy (EVRG) with aggressive renewable targets or IDACORP (IDA) with hydro assets do not face. However, the company's ability to recover environmental costs through fuel adjustment clauses and rate cases historically has been constructive, and the new CWIP legislation may provide additional recovery pathways.

Data center negotiations present an asymmetry with upside bias. Management is in "very serious negotiations" with multiple projects totaling 250-500 MW, but no agreements have been finalized. If these projects materialize, they would add 3-7% to OGE's current load base and provide decades of stable, high-margin revenue. The risk is that data center developers choose alternative locations with more aggressive incentives or fewer regulatory hurdles. The mitigating factor is Oklahoma's combination of low rates, available land, and political support for economic development, which management believes creates a durable competitive advantage.

Interest rate risk is amplified by the holding company structure. The April 2025 $350 million senior notes issuance at 5.80% for 30 years locks in long-term financing, but short-term rates on commercial paper borrowings (average balance $581.8 million in 2025) create earnings sensitivity. If the Federal Reserve maintains higher rates for longer, interest expense could pressure earnings beyond what rate recovery can offset. The asymmetry is that if rates decline, OGE can refinance and capture savings, but the near-term pressure is real.

Valuation Context

Trading at $44.25 per share, OGE Energy carries a market capitalization of $9.12 billion and an enterprise value of $14.96 billion. The stock trades at 17.8 times trailing earnings and 11.1 times EV/EBITDA, multiples that sit modestly below the utility peer average. For context, American Electric Power (AEP) trades at 17.3 times earnings and 12.5 times EV/EBITDA, while Entergy (ETR) trades at 22.9 times earnings. OGE's discount reflects its smaller scale and higher regulatory concentration risk, but also its superior load growth profile.

The dividend yield of 3.83% is attractive relative to peers: AEP yields 3.19%, ETR yields 2.75%, and Evergy (EVRG) yields 3.74%. OGE's payout ratio of 67.8% is at the high end of its 65-70% target range, which management has indicated may lead to slower dividend growth until earnings catch up.

The company's balance sheet strength—Baa1 credit rating, debt-to-equity of 1.22, and $693 million in available liquidity—supports the dividend but leaves limited room for error if capex exceeds plan.

Cash flow metrics reinforce the valuation case. OGE trades at 10.3 times operating cash flow, a slight premium to AEP's 9.2 times but below ETR's 7.9 times, reflecting its smaller scale but consistent generation. The company's return on equity of 10.7% is solid but trails AEP's 12.9% and ETR's 11.2%, consistent with its more conservative capital structure and lower leverage. The key valuation driver is whether OGE can sustain its 5-7% EPS growth while maintaining its dividend, which would justify a peer-level multiple expansion as investors reward the load growth premium.

Conclusion

OGE Energy has engineered a rare utility setup: historically strong load growth, favorable regulatory mechanisms that de-risk massive capital investment, and a rate structure that attracts rather than deters economic development. The company's 7.6% load growth in 2024 and projected 7.5% in 2025—achieved without data centers—provides the earnings power to support 5-7% EPS growth through 2029. New CWIP legislation in Oklahoma and Arkansas transforms the $6.5 billion capital plan from a balance sheet risk into a manageable, customer-friendly investment program that strengthens the grid while preserving affordability.

The investment thesis hinges on execution. If OGE delivers its 550 MW under construction on time and budget, secures approval for the additional 450 MW at Horseshoe Lake, and captures even a portion of the 250-500 MW data center pipeline, the company will have created a self-reinforcing growth engine that justifies its current valuation and supports dividend growth. If load growth disappoints, construction costs escalate, or environmental compliance costs spike without timely recovery, the negative outlook from Moody's could become a downgrade, pressuring the stock and limiting financial flexibility.

For investors, the critical variables are load growth timing, regulatory recovery on environmental costs, and data center contract finalization. OGE's low rates and strong reliability provide a durable competitive moat, but the company's fossil-heavy generation mix and holding company debt create vulnerabilities that require monitoring. The story is not about navigating challenges but about capitalizing on a uniquely favorable setup where growth, regulation, and affordability align to create a multi-year earnings trajectory that few utilities can match.