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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission File Number

Exact name of registrants as specified in their charters, address of principal executive offices and registrants' telephone number

I.R.S. Employer Identification No.

1-12579

OGE ENERGY CORP.

73-1481638

1-1097

OKLAHOMA GAS AND ELECTRIC COMPANY

73-0382390

321 North Harvey

P.O. Box 321

Oklahoma City, Oklahoma 73101-0321

405-553-3000

State or other jurisdiction of incorporation or organization: Oklahoma

Securities registered pursuant to Section 12(b) of the Act:

Registrant

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

OGE Energy Corp.

Common Stock

OGE

New York Stock Exchange

Oklahoma Gas and Electric Company

None

N/A

N/A

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

OGE Energy Corp. ☑ Yes ☐ No Oklahoma Gas and Electric Company ☑ Yes ☐ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

OGE Energy Corp. ☐ Yes ☑ No Oklahoma Gas and Electric Company ☐ Yes ☑ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

OGE Energy Corp. ☑ Yes ☐ No Oklahoma Gas and Electric Company ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

OGE Energy Corp. ☑ Yes ☐ No Oklahoma Gas and Electric Company ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

OGE Energy Corp.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

Oklahoma Gas and Electric Company

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

OGE Energy Corp. Oklahoma Gas and Electric Company

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

OGE Energy Corp. Yes ☑ No Oklahoma Gas and Electric Company Yes ☑ No

At June 30, 2023, the last business day of OGE Energy Corp.'s most recently completed second fiscal quarter, the aggregate market value of shares of common stock held by non-affiliates was $7,192,319,241 based on the number of shares held by non-affiliates (200,287,364) and the reported closing market price of the common stock on the New York Stock Exchange on such date of $35.91.

At June 30, 2023, there was no voting or non-voting common equity of Oklahoma Gas and Electric Company held by non-affiliates.

At January 31, 2024, there were 200,330,340 shares of OGE Energy Corp.'s common stock, par value $0.01 per share, outstanding.

At January 31, 2024, there were 40,378,745 shares of Oklahoma Gas and Electric Company's common stock, par value $2.50 per share, outstanding, all of which were held by OGE Energy Corp. There were no other shares of capital stock of the registrant outstanding at such date.

 

DOCUMENTS INCORPORATED BY REFERENCE

The Proxy Statement for OGE Energy Corp.'s 2024 annual meeting of shareowners is incorporated by reference into Part III of this Form 10-K.

This combined Form 10-K represents separate filings by OGE Energy Corp. and Oklahoma Gas and Electric Company. Information contained herein related to an individual registrant is filed by such registrant on its own behalf. Oklahoma Gas and Electric Company makes no representations as to the information relating to OGE Energy Corp.'s other operations.

Oklahoma Gas and Electric Company meets the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by General Instruction I(2).

 


 

FORM 10-K

 

FOR THE YEAR ENDED DECEMBER 31, 2023

 

TABLE OF CONTENTS

 

Page

GLOSSARY OF TERMS

3

FORWARD-LOOKING STATEMENTS

4

 

 

Part I

 

Item 1. Business

6

Item 1A. Risk Factors

16

Item 1B. Unresolved Staff Comments

25

Item 1C. Cybersecurity

25

Item 2. Properties

27

Item 3. Legal Proceedings

28

Item 4. Mine Safety Disclosures

29

 

 

Part II

 

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

30

Item 6. [Reserved]

30

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

31

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

46

Item 8. Financial Statements and Supplementary Data

48

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

107

Item 9A. Controls and Procedures

107

Item 9B. Other Information

110

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

110

 

 

Part III

 

Item 10. Directors, Executive Officers and Corporate Governance

111

Item 11. Executive Compensation

111

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

111

Item 13. Certain Relationships and Related Transactions, and Director Independence

111

Item 14. Principal Accountant Fees and Services

112

 

 

Part IV

 

Item 15. Exhibit and Financial Statement Schedules

113

Item 16. Form 10-K Summary

119

Signatures

120

 

 

2


 

GLOSSARY OF TERMS

 

The following is a glossary of frequently used abbreviations that are found throughout this Form 10-K.

Abbreviation

 

Definition

2022 Form 10-K

 

Annual Report on Form 10-K for the year ended December 31, 2022

401(k) Plan

 

Qualified defined contribution retirement plan

APSC

 

Arkansas Public Service Commission

ASC

 

Financial Accounting Standards Board Accounting Standards Codification

ASU

 

Financial Accounting Standards Board Accounting Standards Update

CenterPoint

 

CenterPoint Energy Resources Corp., wholly-owned subsidiary of CenterPoint Energy, Inc.

CO2

 

Carbon dioxide

Code

 

Internal Revenue Code of 1986

COVID-19

 

Novel Coronavirus disease

Dry Scrubber

 

Dry flue gas desulfurization unit with spray dryer absorber

Enable

 

Enable Midstream Partners, LP, partnership formed to own and operate the midstream businesses of OGE Energy and CenterPoint (prior to December 2, 2021)

Energy Transfer

 

Energy Transfer LP, a Delaware limited partnership, collectively with its subsidiaries

EPA

 

U.S. Environmental Protection Agency

Federal Clean Water Act

 

Federal Water Pollution Control Act of 1972, as amended

FERC

 

Federal Energy Regulatory Commission

FIP

 

Federal Implementation Plan

GAAP

 

Accounting principles generally accepted in the U.S.

IRP

 

Integrated Resource Plan

kV

 

Kilovolt

MRG

 

Member Resource Group

MW

 

Megawatt

MWh

 

Megawatt-hour

NAAQS

 

National Ambient Air Quality Standard

NERC

 

North American Electric Reliability Corporation

NOX

 

Nitrogen oxide

OCC

 

Oklahoma Corporation Commission

ODEQ

 

Oklahoma Department of Environmental Quality

OG&E

 

Oklahoma Gas and Electric Company, wholly-owned subsidiary of OGE Energy

OGE Energy

 

OGE Energy Corp., collectively with its subsidiaries, holding company and parent company of OG&E

OGE Holdings

 

OGE Enogex Holdings LLC, wholly-owned subsidiary of OGE Energy, parent company of Enogex Holdings LLC (prior to May 1, 2013) and 25.5 percent owner of Enable (prior to December 2, 2021)

OSHA

 

U.S. Department of Labor's Occupational Safety and Health Administration

Pension Plan

 

Qualified defined benefit retirement plan

PM

 

Particulate matter

Regional Haze

 

The EPA's Regional Haze Rule

Registrants

 

OGE Energy and OG&E

Restoration of Retirement Income Plan

 

Supplemental retirement plan to the Pension Plan

SIP

 

State Implementation Plan

SO2

 

Sulfur dioxide

SOFR

 

Secured Overnight Funding Rate

SPP

 

Southwest Power Pool

System sales

 

Sales to OG&E's customers

U.S.

 

United States of America

USFWS

 

United States Fish and Wildlife Service

Winter Storm Uri

 

Unprecedented, prolonged extreme cold weather event in February 2021

 

3


 

FILING FORMAT

 

This combined Form 10-K is separately filed by OGE Energy and OG&E. Information in this combined Form 10-K relating to each individual Registrant is filed by such Registrant on its own behalf. OG&E makes no representation regarding information relating to any other companies affiliated with OGE Energy. Neither OGE Energy, nor any of OGE Energy's subsidiaries, other than OG&E, has any obligation in respect of OG&E's debt securities, and holders of such debt securities should not consider the financial resources or results of operations of OGE Energy nor any of OGE Energy's subsidiaries, other than OG&E (in relevant circumstances), in making a decision with respect to OG&E's debt securities. Similarly, none of OG&E nor any other subsidiary of OGE Energy has any obligation with respect to debt securities of OGE Energy. This combined Form 10-K should be read in its entirety. No one section of this combined Form 10-K deals with all aspects of the subject matter of this combined Form 10-K.

 

FORWARD-LOOKING STATEMENTS

 

Except for the historical statements contained herein, the matters discussed within this Form 10-K, including those matters discussed within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements that are subject to certain risks, uncertainties and assumptions. Such forward-looking statements are intended to be identified in this document by the words "anticipate," "believe," "estimate," "expect," "forecast," "intend," "objective," "plan," "possible," "potential," "project," "target" and similar expressions. Actual results may vary materially from those expressed in forward-looking statements. In addition to the specific risk factors discussed within "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" herein, factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to:

 

general economic conditions, including the availability of credit, access to existing lines of credit, access to the commercial paper markets, actions of rating agencies and inflation rates, and their impact on capital expenditures;
the ability of the Registrants to access the capital markets and obtain financing on favorable terms, as well as inflation rates and monetary fluctuations;
the ability to obtain timely and sufficient rate relief to allow for recovery of items such as capital expenditures, fuel and purchased power costs, operating costs, transmission costs and deferred expenditures;
prices and availability of electricity, coal and natural gas;
competitive factors, including the extent and timing of the entry of additional competition in the markets served by the Registrants, potentially through deregulation;
the impact on demand for services resulting from cost-competitive advances in technology, such as distributed electricity generation and customer energy efficiency programs;
technological developments, changing markets and other factors that result in competitive disadvantages and create the potential for impairment of existing assets;
factors affecting utility operations such as unusual weather conditions; catastrophic weather-related damage; unscheduled generation outages; unusual maintenance or repairs; unanticipated changes to fossil fuel, natural gas or coal supply costs or availability due to higher demand, shortages, transportation problems or other developments; environmental incidents; or electric transmission or gas pipeline system constraints;
availability and prices of raw materials and equipment for current and future construction projects;
the effect of retroactive pricing of transactions in the SPP markets or adjustments in market pricing mechanisms by the SPP;
federal or state legislation and regulatory decisions and initiatives that affect cost and investment recovery, have an impact on rate structures or affect the speed and degree to which competition enters the Registrants' markets;
environmental laws, safety laws or other regulations that may impact the cost of operations, restrict or change the way the Registrants' facilities are operated or result in stranded assets;
changes in accounting standards, rules or guidelines;
the discontinuance of accounting principles for certain types of rate-regulated activities;
the cost of protecting assets against, or damage due to, terrorism or cyberattacks, including losing control of our assets and potential ransoms, and other catastrophic events;
changes in the use, perception or regulation of generative artificial intelligence technologies, which could limit our ability to utilize such technology, create risk of enhanced regulatory scrutiny, generate uncertainty around intellectual property ownership, licensing or use, or which could otherwise result in risk of damage to our business, reputation or financial results;

4


 

creditworthiness of suppliers, customers and other contractual parties, including large, new customers from emerging industries such as cryptocurrency;
social attitudes regarding the utility and power industries;
identification of suitable investment opportunities to enhance shareholder returns and achieve long-term financial objectives through business acquisitions and divestitures;
increased pension and healthcare costs;
national and global events that could adversely affect and/or exacerbate macroeconomic conditions, including inflationary pressures, rising interest rates, supply chain disruptions, economic recessions, pandemic health events and uncertainty surrounding continued hostilities or sustained military campaigns, and their collateral consequences;
costs and other effects of legal and administrative proceedings, settlements, investigations, claims and matters, including, but not limited to, those described in this Form 10-K; and
other risk factors listed in the reports filed by the Registrants with the Securities and Exchange Commission, including those listed within "Item 1A. Risk Factors" herein.

 

The Registrants undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

5


 

PART I

 

Item 1. Business.

 

Introduction

 

OGE Energy is a holding company whose primary investment provides electricity in Oklahoma and western Arkansas. OGE Energy's electric company operations are conducted through its wholly-owned subsidiary, OG&E, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas and are reported through OGE Energy's electric company business segment. OG&E's rates are subject to regulation by the OCC, the APSC and the FERC. OG&E was incorporated in 1902 under the laws of the Oklahoma Territory and is the largest electric company in Oklahoma, with a franchised service territory that includes Fort Smith, Arkansas and the surrounding communities. OG&E sold its retail natural gas business in 1928 and is no longer engaged in the natural gas distribution business.

 

The Registrants' principal executive offices are located at 321 North Harvey, P.O. Box 321, Oklahoma City, Oklahoma, 73101-0321 (telephone 405-553-3000). OGE Energy's website address is www.oge.com. Through OGE Energy's website, OGE Energy makes available, free of charge, the Registrants' annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. OGE Energy's website and the information contained therein or connected thereto are not intended to be incorporated into this Form 10-K and should not be considered a part of this Form 10-K. Reports filed with the Securities and Exchange Commission are also made available on its website at www.sec.gov.

 

Strategy

 

OGE Energy's purpose is to energize life, providing life-sustaining and life-enhancing products and services that enrich its communities, encouraging growth and a higher quality of life. Its business model is centered around growth and sustainability for employees (internally referred to as "members"), communities and customers and the owners of OGE Energy, its shareholders.

 

OGE Energy is focused on:

 

delivering top-quartile safety results, while enabling members to deliver improved value to their communities, customers and shareholders;
transforming the customer experience by centering decisions on customer impact, which drives customer operations, communications, programs, product development, and the digital experience including increased personalization and self-service;
providing safe, reliable energy to the communities and customers it serves, with a particular focus on enhancing the value of the grid by improving reliability and resiliency;
leading economic development and job growth by attracting new and diverse businesses to improve the infrastructure of the communities it serves in Oklahoma and Arkansas;
ensuring the necessary mix of generation resources to meet the long-term capacity needs of its customers, with a progressively modernized generation portfolio;
maintaining customer rates that are some of the lowest rates in the country by continuing to focus on innovation, intellectual curiosity and execution with excellence;
delivering on earnings commitments to shareholders to enhance access to lower-cost debt and equity capital that is needed to deploy infrastructure for the long-term economic health of its communities;
fostering strong regulatory and legislative relationships, built on integrity, for the long-term benefit of our customers, communities, shareholders and members; and
developing and growing our members to be able to provide a greater contribution to the company's success, while also improving their own lives.

 

OGE Energy is focused on creating long-term shareholder value by targeting the consistent growth of consolidated earnings per share of five to seven percent, supported by strong load growth enabled by low customer rates and a strategy of investing in lower risk infrastructure projects that improve the economic vitality of the communities it serves in Oklahoma and Arkansas. In the next five years, OGE Energy expects to continue to grow the dividend, targeting a dividend payout ratio of 65 to 70 percent. Over the next

6


 

several years, OGE Energy expects earnings per share growth to exceed the dividend growth rate to help achieve this target. OGE Energy's financial objectives also include maintaining investment grade credit ratings and providing a strong and reliable dividend for shareholders.

 

OGE Energy's long-term sustainability is predicated on providing exceptional customer experiences, investing in grid improvements and investments related to new generation capacity needs, environmental stewardship, strong governance practices and caring for and supporting its members and communities.

 

Electric Operations - OG&E

 

General

 

OG&E provides retail electric service to approximately 896,000 customers in Oklahoma and western Arkansas throughout a service area that covers 30,000 square miles including Oklahoma City, the largest city in Oklahoma, Fort Smith, Arkansas, the third largest city in that state, and other large communities with their contiguous rural and suburban areas. OG&E derived 91 percent of its total electric operating revenues in 2023 from sales in Oklahoma and the remainder from sales in Arkansas. OG&E does not currently serve wholesale customers in either state.

 

In 2023, OG&E's system control area peak demand was 7,384 MWs on August 21, 2023, and OG&E's load responsibility peak demand was 6,573 MWs on August 21, 2023. The following table presents system sales and variations in system sales for 2023, 2022 and 2021.

Year Ended December 31

 

2023

 

 

2023 vs. 2022

 

2022

 

 

2022 vs. 2021

 

2021

 

System sales (Millions of MWh)

 

 

29.7

 

 

(1.0)%

 

 

30.0

 

 

8.3%

 

 

27.7

 

 

OG&E is subject to competition in various degrees from government-owned electric systems, municipally-owned electric systems, rural electric cooperatives and, in certain respects, from other private utilities, power marketers and cogenerators. Oklahoma law forbids the granting of an exclusive franchise to a utility for providing electricity.

 

Besides competition from other suppliers or marketers of electricity, OG&E competes with suppliers of other forms of energy. The degree of competition between suppliers may vary depending on relative costs and supplies of other forms of energy. It is possible that changes in regulatory policies or advances in technologies such as fuel cells, microturbines, windmills and photovoltaic solar cells will reduce costs of new technology to levels that are equal to or below that of most central station electricity production. OG&E's ability to maintain relatively low cost, efficient and reliable operations is a significant determinant of its competitiveness.

7


 

OKLAHOMA GAS AND ELECTRIC COMPANY

CERTAIN OPERATING STATISTICS

Year Ended December 31

 

2023

 

 

2022

 

 

2021

 

ELECTRIC ENERGY (Millions of MWh)

 

 

 

 

 

 

 

 

 

Generation (exclusive of station use)

 

 

13.3

 

 

 

13.6

 

 

 

16.3

 

Purchased

 

 

18.8

 

 

 

19.0

 

 

 

14.6

 

Total generated and purchased

 

 

32.1

 

 

 

32.6

 

 

 

30.9

 

OG&E use, free service and losses

 

 

(1.6

)

 

 

(1.5

)

 

 

(1.6

)

Electric energy sold

 

 

30.5

 

 

 

31.1

 

 

 

29.3

 

ELECTRIC ENERGY SOLD (Millions of MWh)

 

 

 

 

 

 

 

 

 

Residential

 

 

9.6

 

 

 

10.4

 

 

 

9.6

 

Commercial

 

 

8.5

 

 

 

7.8

 

 

 

6.7

 

Industrial

 

 

4.2

 

 

 

4.3

 

 

 

4.3

 

Oilfield

 

 

4.4

 

 

 

4.4

 

 

 

4.2

 

Public authorities and street light

 

 

3.0

 

 

 

3.1

 

 

 

2.9

 

System sales

 

 

29.7

 

 

 

30.0

 

 

 

27.7

 

Integrated market

 

 

0.8

 

 

 

1.1

 

 

 

1.6

 

Total sales

 

 

30.5

 

 

 

31.1

 

 

 

29.3

 

ELECTRIC OPERATING REVENUES (In millions)

 

 

 

 

 

 

 

 

 

Residential

 

$

1,040.4

 

 

$

1,307.0

 

 

$

1,342.1

 

Commercial

 

 

688.4

 

 

 

818.3

 

 

 

763.0

 

Industrial

 

 

240.5

 

 

 

327.5

 

 

 

330.8

 

Oilfield

 

 

211.9

 

 

 

308.8

 

 

 

318.1

 

Public authorities and street light

 

 

234.9

 

 

 

299.0

 

 

 

289.5

 

System sales revenues

 

 

2,416.1

 

 

 

3,060.6

 

 

 

3,043.5

 

Provision for rate refund

 

 

2.0

 

 

 

(1.2

)

 

 

 

Integrated market

 

 

71.6

 

 

 

163.8

 

 

 

468.9

 

Transmission

 

 

143.0

 

 

 

131.7

 

 

 

140.2

 

Other

 

 

41.6

 

 

 

20.8

 

 

 

1.1

 

Total operating revenues

 

$

2,674.3

 

 

$

3,375.7

 

 

$

3,653.7

 

ACTUAL NUMBER OF ELECTRIC CUSTOMERS (At end of year)

 

 

 

 

 

 

 

 

 

Residential

 

 

762,433

 

 

 

756,751

 

 

 

749,091

 

Commercial

 

 

106,787

 

 

 

105,018

 

 

 

103,337

 

Industrial

 

 

2,377

 

 

 

2,464

 

 

 

2,585

 

Oilfield

 

 

6,739

 

 

 

6,791

 

 

 

6,804

 

Public authorities and street light

 

 

17,766

 

 

 

17,735

 

 

 

17,630

 

Total customers

 

 

896,102

 

 

 

888,759

 

 

 

879,447

 

 

Regulation and Rates

 

OG&E's retail electric tariffs are regulated by the OCC in Oklahoma and by the APSC in Arkansas. The issuance of certain securities by OG&E is also regulated by the OCC and the APSC. OG&E's transmission activities, short-term borrowing authorization and accounting practices are subject to the jurisdiction of the FERC. The Secretary of the U.S. Department of Energy has jurisdiction over some of OG&E's facilities and operations. In 2023, 86 percent of OG&E's electric revenue was subject to the jurisdiction of the OCC, eight percent to the APSC and six percent to the FERC.

 

The OCC and the APSC require that, among other things, (i) OGE Energy permits the OCC and the APSC access to the books and records of OGE Energy and its affiliates relating to transactions with OG&E; (ii) OGE Energy employ accounting and other procedures and controls to protect against subsidization of non-utility activities by OG&E's customers; and (iii) OGE Energy refrain from pledging OG&E assets or income for affiliate transactions. In addition, the FERC has access to the books and records of OGE Energy and its affiliates as the FERC deems relevant to costs incurred by OG&E or necessary or appropriate for the protection of utility customers with respect to the FERC jurisdictional rates.

 

8


 

For information concerning OG&E's recently completed and currently pending regulatory proceedings, see Note 14 within "Item 8. Financial Statements and Supplementary Data."

 

Regulatory Assets and Liabilities

 

OG&E, as a regulated electric company, is subject to accounting principles for certain types of rate-regulated activities, which provide that certain incurred costs that would otherwise be charged to expense can be deferred as regulatory assets, based on the expected recovery from customers in future rates. Likewise, certain actual or anticipated credits that would otherwise reduce expense can be deferred as regulatory liabilities, based on the expected flowback to customers in future rates. Management's expected recovery of deferred costs and flowback of deferred credits generally results from specific decisions by regulators granting such ratemaking treatment.

 

OG&E records certain incurred costs and obligations as regulatory assets or liabilities if, based on regulatory orders or other available evidence, it is probable that the costs or obligations will be included in amounts allowable for recovery or refund in future rates. Management continuously monitors the future recoverability of regulatory assets. When in management's judgment future recovery becomes impaired, the amount of the regulatory asset is adjusted, as appropriate. If OG&E were required to discontinue the application of accounting principles for certain types of rate-regulated activities for some or all of its operations, it could result in writing off the related regulatory assets or liabilities, which could have significant financial effects. See Note 1 within "Item 8. Financial Statements and Supplementary Data" for further discussion of OG&E's regulatory assets and liabilities.

 

Rate Structures

 

Oklahoma

 

OG&E's standard tariff rates include a cost of service component (including an authorized return on capital) plus a fuel adjustment clause mechanism that allows OG&E to pass through to customers the actual cost of fuel and purchased power.

 

OG&E offers several alternative customer programs and rate options, as described below.

 

Under OG&E's Smart Grid-enabled SmartHours programs, time-of-use and variable peak pricing rates offer customers the ability to save on their electricity bills by shifting some of their electricity consumption to off-peak times when demand for electricity is lowest.
The Guaranteed Flat Bill option for residential and small general service accounts allows qualifying customers the opportunity to purchase their electricity needs at a set monthly price for an entire year.
The Renewable Energy Credit purchase program, the Green Power Wind Rider and the Utility Solar Program are rate options that make renewable energy resources available as a voluntary option to all OG&E Oklahoma retail customers. OG&E's ownership and access to wind and solar resources makes the renewable option a possible choice in meeting the renewable energy needs of OG&E's conservation-minded customers.
Load Reduction is a voluntary load curtailment program that provides qualifying OG&E commercial and industrial customers who enroll with the opportunity to curtail usage on a voluntary basis when OG&E's system conditions merit curtailment action. Large customers greater than 50 MWs who enroll in the program are also required to participate in Direct Load Control, giving OG&E direct control over the curtailable portion of the customer's load. Customers that curtail their usage will receive credit for their curtailment response.
OG&E offers certain qualifying customers day-ahead price and flex price rate options which allow participating customers to adjust their electricity consumption based on price signals received from OG&E. The prices for the day-ahead price and flex price rate options are based on OG&E's projected next day hourly operating costs.

 

In addition to specific rate structures, OG&E provides customers with other programs such as Average Monthly Billing which helps to make the customer's bill more predictable on a monthly basis. Similarly, OG&E has energy efficiency programs which provide qualified customers with programs such as in-home weatherization and opportunities to lower their monthly bill. OG&E also has a Low Income Assistance Program and a Senior Citizen Discount, which provide qualified customers with a monthly bill credit.

 

OG&E has Public Schools-Demand and Public Schools Non-Demand rate classes that provide OG&E with flexibility to provide targeted programs for load management to public schools and their unique usage patterns. OG&E also provides service level, seasonal

9


 

and time period fuel charge differentiation that allows customers to pay fuel costs that better reflect the underlying costs of providing electric service. Lastly, OG&E has a military base rider that demonstrates Oklahoma's continued commitment to its military partners.

 

The previously discussed rate options, coupled with OG&E's other rate choices, provide many tariff options for OG&E's Oklahoma retail customers. The revenue impacts associated with these options are not determinable in future years because customers may choose to remain on existing rate options instead of volunteering for the alternative rate option choices. Revenue variations may occur in the future based upon changes in customers' usage characteristics if they choose alternative rate options.

 

Arkansas

 

OG&E's standard tariff rates include a cost of service component (including an authorized return on capital) plus an energy cost recovery mechanism that allows OG&E to pass through to customers the actual cost of fuel and purchased power. OG&E's current rate order from the APSC includes a formula rate rider that provides for an annual adjustment to rates if the earned rate of return falls outside of a plus or minus 50 basis point dead-band around the allowed return on equity. Adjustments are limited to plus or minus four percent of revenue for each rate class for the 12 months preceding the test period. The initial term for the formula rate rider has expired; however, the APSC ruled that OG&E was able to undertake two more true-up updates to its formula rate rider with adjustments to rates occurring in April 2023 and April 2024. Subsequent to the April 2024 update, the formula rate rider will continue until new rates are set in a future general rate review.

 

OG&E offers several alternative customer programs and rate options, as described below.

 

The time-of-use and variable peak pricing tariffs allow participating customers to save on their electricity bills by shifting some of their electricity consumption to off-peak times when demand for electricity is lowest.
The Renewable Energy Credit purchase program and the Universal Solar Program are rate options that make renewable energy resources available as a voluntary option to all OG&E Arkansas retail customers. OG&E's ownership and access to wind and solar resources makes the renewable option a possible choice in meeting the renewable energy needs of OG&E's conservation-minded customers.
Load Reduction is a voluntary load curtailment program that provides qualifying OG&E commercial and industrial customers with the opportunity to curtail usage on a voluntary basis and receive a billing credit when OG&E's system conditions merit curtailment action.
OG&E offers certain qualifying customers day-ahead price and flex price rate options which allow participating customers to adjust their electricity consumption based on a price signal received from OG&E. The day-ahead price and flex price rate options are based on OG&E's projected next day hourly operating costs.

 

In addition to specific rate structures, OG&E provides customers with other programs such as the Levelized Billing Plan which helps to make the customer's bill more predictable on a monthly basis. Similarly, OG&E has energy efficiency programs which provide qualified customers with programs such as in-home weatherization and opportunities to lower their monthly bill.

 

Fuel Supply and Generation

 

The following table presents the OG&E-generated energy produced and purchased, by type, for the last three years.

 

Generation Mix (A)

 

 

2023

 

 

2022

 

 

2021

 

Natural gas

 

 

75

%

 

 

60

%

 

 

48

%

Coal

 

 

16

%

 

 

30

%

 

 

40

%

Renewable

 

 

9

%

 

 

10

%

 

 

12

%

Total

 

 

100

%

 

 

100

%

 

 

100

%

(A)
Generation mix calculated as a percent of net MWhs generated and includes purchased power agreements.

 

OG&E participates in the SPP Integrated Marketplace. As part of the Integrated Marketplace, the SPP has balancing authority responsibilities for its market participants. The SPP Integrated Marketplace functions as a centralized dispatch, where market participants, including OG&E, submit offers to sell power to the SPP from their resources and bid to purchase power from the SPP for their customers. The SPP Integrated Marketplace is intended to allow the SPP to optimize supply offers and demand bids based upon reliability and economic considerations and to determine which generating units will run at any given time for maximum

10


 

cost-effectiveness within the SPP area. As a result, OG&E's generating units produce output that is different from OG&E's customer load requirements. Net fuel and purchased power costs are generally recoverable through fuel adjustment clauses.

 

The following table presents the weighted-average cost of fuel used, by type, for the last three years.

 

Fuel Cost (A)
(In cents/Kilowatt-Hour)

 

 

2023

 

 

2022

 

 

2021

 

Natural gas

 

 

2.976

 

 

 

7.032

 

 

 

11.907

 

Coal

 

 

3.385

 

 

 

3.253

 

 

 

1.935

 

Renewable

 

 

 

 

 

 

 

 

 

Total

 

 

2.926

 

 

 

5.480

 

 

 

6.833

 

(A)
Total fuel and purchased power weighted-average cost was 2.837, 5.096 and 6.892 cents per kilowatt-hour in 2023, 2022 and 2021, respectively.

 

The change in the weighted average cost of fuel in 2023 compared to 2022 was primarily due to lower natural gas prices, and the change in 2022 compared to 2021 was primarily due to inflated fuel costs in 2021 during Winter Storm Uri. Fuel costs are generally recoverable through OG&E's fuel adjustment clauses that are approved by the OCC and the APSC. See Notes 1 and 14 within "Item 8. Financial Statements and Supplementary Data" for further discussion.

 

Of OG&E's 7,116 total MWs of generation capability reflected in the table within "Item 2. Properties," 4,754 MWs, or 66.8 percent, are from natural gas generation, 1,559 MWs, or 21.9 percent, are from coal generation, 321 MWs, or 4.5 percent, are from dual-fuel generation (coal/gas), 449 MWs, or 6.3 percent, are from wind generation and 33 MWs, or 0.5 percent, are from solar generation.

 

Natural Gas

 

As a participant in the SPP Integrated Marketplace, OG&E purchases its natural gas supply through short-term agreements. OG&E relies on a diversified portfolio of natural gas supply comprised of (i) base load agreements that include first-of-month agreements with a fixed price for the month term; (ii) call agreements, whereby OG&E has the right but not the obligation to purchase a defined quantity of natural gas; and (iii) day and intra-day purchases to meet the demands of the SPP Integrated Marketplace. OG&E holds two storage service contracts which provides additional physical storage capacity. These two contracts provide OG&E security in both volume and price to further help protect customers against volatile natural gas prices.

 

Coal

 

OG&E's coal-fired units are designed to burn primarily low sulfur western sub-bituminous coal. The coal purchased in 2023 had a weighted average sulfur content of 0.22 percent. Based on the average sulfur content and EPA-certified data, OG&E's coal units have an approximate emission rate of 0.1 lbs. of SO2 per MMBtu.

 

For 2024 through 2026, OG&E has coal supply agreements for 100 percent of its expected coal requirements for both the Sooner and River Valley facilities. For the Muskogee facility, OG&E has a majority of its expected 2024 coal requirements met through a coal supply agreement and will fill any additional coal needs through term agreements, spot purchases and the use of existing inventory. In 2023, OG&E purchased 3.0 million tons of coal from its sub-bituminous suppliers. See "Environmental Laws and Regulations" within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of environmental matters which may affect OG&E in the future, including its utilization of coal.

 

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Wind

 

OG&E owns the 120 MW Centennial, 101 MW OU Spirit and 228 MW Crossroads wind farms. OG&E's current wind power portfolio also includes purchased power contracts as presented in the following table.

Company

Location

Original Term of
Contract

Expiration of
Contract

MWs

 

CPV Keenan

Woodward County, OK

20 years

2030

 

152.0

 

Edison Mission Energy

Dewey County, OK

20 years

2031

 

130.0

 

NextEra Energy

Blackwell, OK

20 years

2032

 

60.0

 

Solar

 

OG&E currently owns and operates the solar sites presented in the following table.

Name

 

Location

 

Year Completed

 

Photovoltaic Panels

 

 

MWs

 

Mustang

 

Oklahoma City, OK

 

2015

 

 

9,867

 

 

 

2.5

 

Covington

 

Covington, OK

 

2018

 

 

38,000

 

 

 

9.7

 

Choctaw Nation

 

Durant, OK

 

2020

 

 

15,344

 

 

 

5.0

 

Chickasaw Nation

 

Davis, OK

 

2020

 

 

15,344

 

 

 

5.0

 

Branch

 

Branch, AR

 

2021

 

 

15,444

 

 

 

5.0

 

Durant 2

 

Durant, OK

 

2022

 

 

15,471

 

 

 

5.0

 

 

OG&E will continue to evaluate the need to add additional solar sites to its generation portfolio based on customer demand, utility-scale component supply, cost and reliability.

 

Environmental Matters

 

The activities of OG&E are subject to numerous stringent and complex federal, state and local laws and regulations governing environmental protection. These laws and regulations can change, restrict or otherwise impact the Registrants' business activities in many ways, including the handling or disposal of waste material, planning for future construction activities to avoid or mitigate harm to threatened or endangered species and requiring the installation and operation of emissions or pollution control equipment. Failure to comply with these laws and regulations could result in the assessment of administrative, civil and criminal penalties, the imposition of remedial requirements and the issuance of orders enjoining future operations. Management believes that all of the Registrants' operations are in substantial compliance with current federal, state and local environmental standards.

 

President Biden's Administration has taken a number of actions that adopt policies and affect environmental regulations, including issuance of executive orders that instruct the EPA and other executive agencies to review certain rules that affect OG&E with a view to achieving nationwide reductions in greenhouse gas emissions. OG&E is monitoring these actions which are in various stages of implementation. At this point in time, the impacts of these actions on the Registrants' results of operations, if any, cannot be determined with any certainty. In the meantime, the Registrants continue to have obligations to take or complete action under current environmental rules.

 

Management continues to evaluate the Registrants' compliance with existing and proposed environmental legislation and regulations and implement appropriate environmental programs in a competitive market but at the current time, based on existing rules, does not expect capital expenditures for environmental control facilities to be material for 2024 or 2025. For further discussion of environmental matters and capital expenditures related to environmental factors that may affect the Registrants, see "2023 Capital Requirements, Sources of Financing and Financing Activities," "Future Capital Requirements" and "Environmental Laws and Regulations" within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

 

Human Capital Management

 

Our company fulfills a critical role in the nation's electric utility infrastructure. In order to do so, we believe we need to attract, retain, motivate and develop a high quality, diverse workforce and provide a safe, inclusive and productive work environment for everyone. Our company's core values are teamwork, transparency, respect, integrity, public service, and individual safety and well-being. Our company's core beliefs are unleash potential, live safely, achieve together, create shared trust, value diversity and inclusion, take charge and values matter. We believe that our company's values and beliefs serve as a foundation for our relationships with our

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employees, who we refer to internally as "members" of the Registrants. These core values and beliefs are reinforced to all members at the time of hire, annually through a review of our Code of Ethics and periodically through small and large group meetings. We believe the efforts described herein, among others, contribute to our members' sense of purpose for the work we perform and result in the retention of our members. This belief is supported by OGE Energy being named by Forbes as the #1 Best Employer in Oklahoma for 2023 based on safety of work environment, competitiveness of compensation, opportunities for advancement, openness to telecommuting and how likely members would be to recommend OGE Energy as an employer. At December 31, 2023, OGE Energy had 2,329 full-time employees, of which 1,936 are OG&E employees.

 

Total Rewards

 

To help us attract and retain the most qualified individuals for our businesses, we provide a combination of strong compensation and comprehensive benefit offerings, including healthcare, health savings and flexible spending accounts, short-term and long-term incentive plans, retirement savings plans with company matching contributions, disability coverage, paid time off, parental leave and employee assistance programs. We also have a defined benefit pension plan that covers certain members hired on or before December 1, 2009. Our members are also offered two days of paid volunteer leave every year, which is intended to further enrich both their lives and the lives of others in the communities we serve.

 

Employee Recruiting, Development and Engagement

 

We make it a priority to attract, retain, motivate and develop a high-quality workforce. Our recruitment efforts begin with industry and career awareness efforts directed toward learning institutions, parents and students. We have built partnerships with universities, state career tech systems, state education departments, technical learning/trade schools, military bases and local school districts to increase awareness of the employment opportunities we provide and the total rewards packages that are tied to those opportunities. We build these relationships to create talent pipelines that will funnel qualified individuals back to our organization and the workforce needs we have identified.

 

We provide our members with a variety of opportunities for career growth and development. Many of the positions in our company are highly specialized, so having appropriate training and succession planning is critical to business continuity and competitiveness. We provide leadership, career development and skill-building opportunities, including internal and external training as well as tuition reimbursement, to invest in the next generation of leaders for our company. The number of annual hours of training per employee that we target, and historically average, aligns with the benchmark published annually by the American Society of Training and Development.

 

OGE Energy, like many utilities across the country, is planning for and managing the effects of turnover of our workforce due to a significant number of retirements occurring now and expected during the next five to ten years. This will also be a period impacted by major transformation of our business through technology investments, regulatory changes to our electric generation portfolio and upgrades to our distribution infrastructure. Management engages in ongoing succession planning discussions, which includes the annual involvement of OGE Energy's Board of Directors as it relates to officer succession planning.

 

OGE Energy conducts and/or participates in employee engagement surveys to seek feedback from its members on a variety of topics, including understanding of and alignment with the company's strategy, objectives, values and beliefs, management practices, operational performance and the employee value proposition. OGE Energy shares the survey results with members, and senior management incorporates the results of the surveys into their action plans in order to respond to the feedback and further enhance member engagement. In 2023, OG&E was named a Top Workplace in Oklahoma as a result of an employee engagement survey conducted by a third party.

 

Safety

 

At OGE Energy, safety is more than a priority; it is a value and is paramount in the work we perform. Our safety principles are core to who we are and what we do. These principles are communicated, demonstrated and embraced at all levels of the company and supported by our core belief to "Live Safely." To us, "Live Safely" means we protect ourselves and others from injury by constant engagement, "always living safely." Our goal is to have zero safety incidents every year, and we educate all members on our incident and injury-free workplace vision through extensive training on safety culture and task specific training to perform their work safely.

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To further our vision of safety excellence, our health and safety professionals, supervisors and Safety Task Force teams conduct routine work observations to verify members and contractors are following safety protocols and procedures and provide coaching, if necessary. To further drive improvements in our safety performance, we report and analyze all near misses and incidents to understand the causal factors and associated corrective actions necessary to reduce the likelihood of recurrence. We share what we have learned company-wide to provide real-time learning opportunities for all members. We continue to analyze trends and engage in discussions with our members, creating a dialogue to enhance safety performance and work toward our incident and injury-free workplace. Our focus on safety has contributed to the last eight years being the safest in our 121-year history.

Since the inception of our safety principle that all incidents and injuries are preventable and embracing our incident and injury free vision, we have seen a sustained decline in our injury rate. We have reduced our 5-year averages for OSHA recordable injuries by 67 percent and our Days Away, Restricted, Transfer Rate by 74 percent since our 2011 baseline. The Days Away, Restricted, Transfer rate is an OSHA calculation that determines how safe businesses have been in a calendar year in reference to particular types of worker compensation injuries.

 

OG&E is subject to a number of federal, state and local regulations, which are administered by a variety of agencies. These agencies cover areas such as health and safety, transportation and the environment. OG&E has processes and procedures for these areas, and we believe we are in material compliance with all applicable regulations.

 

Diversity and Inclusion

 

Within our overall recruitment efforts, we are focused on fostering a culture of inclusion with our over-arching goal for the company's workforce to look like the communities we serve. Several of the talent pipeline partnerships referenced above are with organizations and trade schools whose student populations represent ethnic, racial, and socio-economic diversity or are raised in underrepresented communities. We continue working with others to recruit students to their programs who represent diverse communities, which can lead to potential employment for our positions. We have also formed relationships with universities to provide scholarships to students with diverse backgrounds and have focused on hiring individuals transitioning out of the military. For our workforce as a whole, the hiring percentage of members representing gender, racial and ethnically diverse communities has been trending upward, and we expect that trend to continue. The retirement of our more tenured employees creates opportunities to promote, attract, and hire additional individuals with diverse backgrounds.

 

We strive to reinforce the belief that our members are one of our greatest assets by creating a culture of inclusion throughout the company. One of our core beliefs is to "Value Diversity and Inclusion," which to us means that we embrace the uniqueness of each individual to make us a stronger and more resourceful organization, which enables us to serve and support the diverse communities where we live and work. We do this by, among other things, encouraging members to treat others justly and considering their views in the decisions we make.

 

The company currently has nine employee-led MRGs supporting Asian American & Pacific Islander, Black, Hispanic, Indigenous People, LGBTQ+, Veteran, and Women members along with new members and those dedicated to public service. All groups are voluntary and inclusive. Each MRG selects an officer of the company to serve as its Executive Sponsor. These MRGs are intended to foster a sense of belonging for all members, inspire conversation, introduce new ways of thinking about issues, drive innovation among our diverse population of members and provide an opportunity for professional development, community involvement and recruitment.

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Information About the Registrants' Executive Officers

 

The following table presents the names, titles and business experience for the most recent five years for those persons serving as Executive Officers of the Registrants as of February 20, 2024:

Name

Age

Current Title and Business Experience

Sean Trauschke

56

2019 - Present:

Chairman of the Board, President and Chief Executive Officer of OGE Energy Corp.

W. Bryan Buckler

51

2021 - Present:

Chief Financial Officer of OGE Energy Corp.





2019 - 2020:

Vice President of Investor Relations - Duke Energy Corporation





2019:

Director of Financial Planning and Analysis - Duke Energy Corporation

Sarah R. Stafford

42

2019 - Present:

Controller and Chief Accounting Officer of OGE Energy Corp.

Scott A. Briggs

52

2020 - Present:

Vice President - Human Resources of OG&E





2019 - 2020:

Managing Director Human Resources of OG&E

Robert J. Burch

61

2020 - Present:

Vice President - Utility Technical Services of OG&E





2019 - 2020:

Managing Director Utility Technical Services of OG&E

Andrea M. Dennis

47

2019 - Present:

Vice President - Transmission and Distribution Operations of OG&E





2019:

Managing Director Transmission and Distribution Operations of OG&E





2019:

Director System Operations of OG&E

Keith E. Erickson

50

2022 - Present:

Vice President - Sales and Customer Operations of OG&E

 

 

2019 - 2022:

Director of Sales and Business Development of OG&E

Donnie O. Jones

57

2019 - Present:

Vice President - Utility Operations of OG&E





2019:

Vice President - Power Supply Operations of OG&E

Cristina F. McQuistion

59

2020 - Present:

Vice President - Corporate Responsibility and Stewardship of OGE Energy Corp.





2019 - 2020:

Vice President - Chief Information Officer of OG&E

Kenneth A. Miller

57

2019 - Present:

Vice President - Public and Regulatory Affairs of OG&E

David A. Parker

47

2020 - Present:

Vice President - Technology, Data and Security of OG&E





2019 - 2020:

Director Enterprise Security and Risk of OGE Energy Corp.





2019:

Director of Internal Audit of OGE Energy Corp.

Matthew J. Schuermann

45

2020 - Present:

Vice President - Power Supply Operations of OG&E





2019 - 2020:

Managing Director Power Plant Operations of OG&E





2019:

Special Projects Director of OG&E

William H. Sultemeier

56

2022 - Present:

General Counsel, Corporate Secretary and Chief Compliance Officer of OGE Energy Corp.

 

 

2019 - 2022:

General Counsel and Chief Compliance Officer of OGE Energy Corp.

Charles B. Walworth

49

2019 - Present:

Treasurer of OGE Energy Corp.

Johnny W. Whitfield, Jr.

47

2022 - Present:

Vice President - Business Intelligence and Supply Chain of OG&E

 

 

2019 - 2022:

Director of Business Intelligence of OG&E

 

 

2019:

Sr. Manager of Resource Coordination of OG&E

Christine O. Woodworth

53

2021 - Present:

Vice President - Marketing and Communications of OG&E





2019 - 2021:

Vice President of Public Relations - Sonic Drive-In, a fast-food restaurant chain

 

 

No family relationship exists between any of the Executive Officers of the Registrants. Messrs. Trauschke, Buckler, Sultemeier, Walworth and Mses. McQuistion and Stafford are also officers of OG&E. Each Executive Officer is to hold office until the next annual election of officers by the Board of Directors which is typically accomplished at the first regular board meeting following the Annual Meeting of Shareholders, currently scheduled for May 16, 2024.

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Item 1A. Risk Factors.

 

In the discussion of risk factors set forth below, unless the context otherwise requires, the terms "we," "our" and "us" refer to the Registrants. In addition to the other information in this Form 10-K and other documents filed by us and/or our subsidiaries with the Securities and Exchange Commission from time to time, the following factors should be carefully considered in evaluating OGE Energy and its subsidiaries. Such factors could affect actual results and cause results to differ materially from those expressed in any forward-looking statements made by or on behalf of us or our subsidiaries. Additional risks and uncertainties not currently known to us or that we currently view as immaterial may also impair our business operations.

 

The Registrants are subject to a variety of risks which can be classified as regulatory, operational, financial and general. Risk factors of OG&E are also risk factors of OGE Energy.

 

REGULATORY RISKS

 

The Registrants' profitability depends to a large extent on the ability of OG&E to fully recover its costs, including its cost of capital, from its customers in a timely manner, and there may be changes in the regulatory environment that impair its ability to recover costs from its customers.

 

OG&E is subject to comprehensive regulation by several federal and state regulatory agencies, which significantly influences its operating environment and its ability to fully recover its costs, including its cost of capital, from customers. Recoverability of any under recovered amounts from OG&E's customers due to a rise in fuel costs is a significant risk. The utility commissions in the states where OG&E operates regulate many aspects of its electric operations including siting and construction of facilities, customer service and the rates that OG&E can charge customers. The profitability of the electric operations is dependent on OG&E's ability to fully recover costs related to providing electricity and power services to its customers in a timely manner. Any failure to obtain commission approval to increase rates to fully recover costs, or a delay in the receipt of such approval, could have an adverse impact on OG&E's results of operations. In addition, OG&E's jurisdictions have fuel adjustment clauses that permit OG&E to recover fuel and purchased power costs through rates without a general rate review, subject to a later determination that such costs were prudently incurred. If the state regulatory commissions determine that such costs were not prudently incurred, recovery could be disallowed.

 

In recent years, the regulatory environments in which OG&E operates have received an increased amount of attention. It is possible that there could be changes in the regulatory environment that would impair OG&E's ability to fully recover costs historically paid by OG&E's customers. State regulatory commissions generally possess broad powers to ensure that the needs of the utility customers are being met. OG&E cannot assure that the OCC, APSC and the FERC will grant rate increases in the future or in the amounts requested, and they could instead lower OG&E's rates.

 

The Registrants are unable to predict the impact on their operating results from future regulatory activities of any of the agencies that regulate OG&E. Changes in regulations, legislation or the imposition of additional regulations or legislation could have an adverse impact on the Registrants' results of operations.

 

OG&E's rates are subject to rate regulation by the states of Oklahoma and Arkansas, as well as by a federal agency, whose regulatory paradigms and goals may not be consistent.

OG&E is a vertically integrated electric company. Most of its revenue results from the sale of electricity to retail customers subject to bundled rates that are approved by the applicable state regulatory commission.

 

OG&E operates in Oklahoma and western Arkansas and is subject to rate regulation by the OCC and the APSC, in addition to FERC regulation of its transmission activities and any wholesale sales. Exposure to inconsistent state and federal regulatory standards may limit our ability to operate profitably. Further alteration of the regulatory landscape in which we operate, including a change in our authorized return on equity, may harm our financial position and results of operations.

 

Costs of compliance with environmental and other laws and regulations are significant, and the cost of compliance with future environmental and other laws and regulations may adversely affect our results of operations, financial position or liquidity.

 

We are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, wildlife conservation, natural resources and health and safety that could, among other things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or require additional

16


 

pollution control equipment and otherwise increase costs. We are also subject to SPP-related capacity methodologies which are expected to continue to impact our future capacity needs. There are significant capital, operating and other costs associated with compliance with these environmental and other statutes, rules and regulations and those costs may be even more significant in the future.

 

In response to recent regulatory and judicial decisions and international accords, emissions of greenhouse gases including, most significantly, CO2, could be restricted in the future as a result of federal or state legal requirements or litigation relating to greenhouse gas emissions. No rules are currently in effect that require us to reduce our greenhouse gas emissions, but laws and regulations to which we must adhere change, and the Biden Administration's agenda includes a significant shift in environmental and energy policy, focusing on reducing greenhouse gas emissions and addressing climate change issues. Together, these actions reflect climate change issues and greenhouse gas emission reductions as central areas of focus for domestic and international regulations, orders and policies, such as proposed rules from the EPA in 2023 to reduce emissions of greenhouse gases from fossil fuel-fired electric generating units under Clean Air Act Section 111. In addition, a parallel focus on reducing greenhouse gas emissions is reflected in legislation introduced in Congress. For example, the Infrastructure Investment and Jobs Act and Inflation Reduction Act were passed into law in 2022. These laws present opportunities for federal grants and tax incentives intended to hasten the future economy-wide deployment of various greenhouse gas emission reducing technologies and approaches. These initiatives could lead to new and revised energy and environmental laws and regulations, including tax reforms relating to energy and environmental issues. Any such changes, as well as any enforcement actions or judicial decisions regarding those laws and regulations, could result in significant additional compliance costs that would affect our future financial position, results of operations and cash flows if such costs are not recovered through regulated rates. Such changes also could affect the manner in which we conduct our business and could require us to make substantial additional capital expenditures or abandon certain projects.

 

Recently proposed environmental regulations may also impact our plan to comply with potential additional changes to the SPP’s planning reserve margin and, as further discussed in Note 14 within "Item 8. Financial Statements and Supplementary Data," recent changes to the resource capacity accreditation methodologies for both thermal and renewable resources. Both changes may increase OG&E's generation capacity needs. We may be constrained by the ability to procure resources or labor that is needed to construct projects on time and at a reasonable price, which could significantly impact the extent to which we can successfully comply with these proposed environmental regulations and SPP requirements.

 

There is inherent risk of the incurrence of environmental costs and liabilities in our operations and historical industry practices. These activities are subject to stringent and complex federal, state and local laws and regulations that can restrict or impact OG&E's business activities in many ways, such as restricting the way OG&E can handle or dispose of its wastes or requiring remedial action to mitigate pollution conditions that may be caused by its operations or that are attributable to former operators. OG&E may be unable to recover these costs from insurance or other regulatory mechanisms. The Biden Administration has suggested that it will enact stricter laws, regulations and enforcement policies that could significantly increase compliance costs and the cost of any remediation that may become necessary. If regulations are enacted regarding any of our generating units, as listed in "Item 2. Properties," it could potentially result in stranded assets.

 

In addition, we may be required to make significant expenditures in connection with the investigation and remediation of alleged or actual spills, personal injury or property damage claims, and the repair, upgrade or expansion of our facilities to meet future requirements and obligations under environmental laws.

 

For further discussion of environmental matters that may affect the Registrants, see "Environmental Laws and Regulations" within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

 

We are subject to financial risks associated with climate change and the transition to a lower carbon economy.

 

In addition to the potential for physical risk related to climate change (discussed below), climate change, and the risks related to our transition to a lower carbon economy, creates financial risk. Transition risks represent those risks related to the social and economic changes needed to shift toward a lower carbon future. These risks are often interconnected, representing policy and regulatory changes, technology and market risks, and risks to our reputation and financial performance.

 

Potential regulation associated with climate change legislation could pose financial risks to OGE Energy and its affiliates. The U.S. is a party to the United Nations' "Paris Agreement" on climate change, and the Agreement, along with other potential legislation and regulation discussed above, could result in enforceable greenhouse gas emission reduction requirements that could lead to increased compliance costs for OGE Energy and its affiliates. For example, in May 2023, the EPA proposed rules to reduce emissions of

17


 

greenhouse gases from fossil fuel-fired electric generating units under Clean Air Act Section 111. The proposal encompasses rulemakings for both new units and existing units. For further discussion, see "Environmental Laws and Regulations" within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." It is unknown what the outcome, or any potential material impacts, if any, will be from the final action by the EPA.

 

As we expand our cleaner energy generation asset mix, the ability to integrate renewable technologies into our operations and maintain reliability and affordability is key. The intermittency of renewables remains a critical challenge particularly as cost-efficient energy storage is still in development. Other technology risks include the need for significant upfront financial investments, lengthy development timelines, and the uncertainty of integration and scalability across our entire service territory.

 

In addition, to the extent that any climate change adversely affects the national or regional economic health through physical impacts or increased rates caused by the inclusion of additional regulatory costs, CO2 taxes or imposed costs, OGE Energy and its affiliates may be adversely impacted. There are also increasing risks for energy companies from shareholders currently invested in fossil-fuel energy companies concerned about the potential effects of climate change who may elect in the future to shift some or all of their investments into entities that emit lower levels of greenhouse gases or into non-energy related sectors. Institutional investors and lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable investing and lending practices and some of them may elect not to provide funding for fossil fuel energy companies. To the extent financial markets view climate change and emissions of greenhouse gases as a financial risk, this could negatively affect our ability to access capital markets or cause us to receive less than ideal terms and conditions.

 

In addition, we may be subject to financial risks from private party litigation relating to greenhouse gas emissions. Defense costs associated with such litigation can be significant and an adverse outcome could require substantial capital expenditures and could possibly require payment of substantial penalties or damages. Such payments or expenditures could affect results of operations, financial condition or cash flows if such costs are not recovered through regulated rates.

 

We may not be able to recover the costs of our substantial investments in capital improvements and additions.

 

Our business plan calls for extensive investments in capital improvements and additions in OG&E, including modernizing existing infrastructure as well as other initiatives. Significant portions of OG&E's facilities were constructed many years ago. Older generation equipment, even if maintained in accordance with good engineering practices, may require significant capital expenditures to maintain efficiency, to comply with environmental requirements or to provide reliable operations. As discussed above, the Infrastructure Investment and Jobs Act and Inflation Reduction Act present opportunities for federal grants and tax incentives intended to hasten the future economy-wide deployment of various greenhouse gas emission reducing technologies and approaches. We have been awarded grant funds for specific projects through the Infrastructure Investment and Jobs Act, and we plan to pursue additional opportunities available to us under this Act. We expect to typically be responsible for any project costs not covered by grants on further investments related to this Act. OG&E currently provides service at rates approved by one or more regulatory commissions. If these regulatory commissions do not approve adjustments to the rates OG&E charges, it would not be able to recover the costs associated with its planned extensive investment. This could adversely affect the Registrants' financial position and results of operations. While OG&E may seek to limit the impact of any denied recovery by attempting to reduce the scope of its capital investment, there can be no assurance as to the effectiveness of any such mitigation efforts, particularly with respect to previously incurred costs and commitments.

 

The regional power market in which OG&E operates has changing transmission regulatory structures, which may affect the transmission assets and related revenues and expenses.

 

OG&E currently owns and operates transmission and generation facilities as part of a vertically integrated electric company. OG&E is a member of the SPP regional transmission organization and has transferred operational authority (but not ownership) of OG&E's transmission facilities to the SPP. The SPP has implemented regional day ahead and real-time markets for energy and operating reserves, as well as associated transmission congestion rights. Collectively, the three markets operate together under the global name, SPP Integrated Marketplace. OG&E represents owned and contracted generation assets and customer load in the SPP Integrated Marketplace for the sole benefit of its customers. OG&E has not participated in the SPP Integrated Marketplace for any speculative trading activities. Our revenues, expenses, assets and liabilities may be adversely affected by changes in the organization, operation and regulation of the SPP Integrated Marketplace by the FERC or the SPP.

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Increased competition resulting from efforts to restructure utility and energy markets or deregulation could have a significant financial and load growth impact on us and consequently impact our revenue and affordability of services.

 

We have been and will continue to be affected by competitive changes to the utility and energy industries. Significant changes have occurred and additional changes have been proposed to the wholesale electric market. Retail competition and the unbundling of regulated energy service could have a significant financial impact on us due to possible impairments of assets, a loss of retail customers, impact profit margins and/or increased costs of capital. Further, we regularly engage in negotiations on renewals of franchise agreements with municipal governments within our service territories. Any such restructuring could have a significant impact on our financial position, results of operations and cash flows. Further, our load growth could be impacted, which could result in an impact on the affordability of our services. We cannot predict when we will be subject to changes in legislation or regulation, nor can we predict the impact of these changes on our financial position, results of operations or cash flows.

 

We are subject to substantial regulation by governmental agencies. Compliance with current and future regulatory requirements and procurement of necessary approvals, permits and certifications may result in significant costs to us.

 

We are subject to substantial regulation from federal, state and local regulatory agencies. We are required to comply with numerous laws and regulations and to obtain permits, approvals and certifications from the governmental agencies that regulate various aspects of our businesses, including customer rates, service regulations, retail service territories, sales of securities, asset acquisitions and sales, accounting policies and practices and the operation of generating facilities. We believe the necessary permits, approvals and certificates have been obtained for our existing operations and that our business is conducted in accordance with applicable laws; however, we are unable to predict the impact on our operating results from future regulatory activities of these agencies.

 

The NERC is responsible for the development and enforcement of mandatory reliability and cyber security standards for the wholesale electric power system. OG&E's plan is to comply with all applicable standards and to expediently correct a violation should it occur. As one of OG&E's regulators, the NERC has comprehensive regulations and standards related to the reliability and security of our operating systems and is continuously developing additional mandatory compliance requirements for the electric power industry. The increasing development of NERC rules and standards will increase compliance costs and our exposure for potential violations of these standards.

 

OPERATIONAL RISKS

 

Our results of operations may be impacted by disruptions to fuel supply or the electric grid that are beyond our control.

 

We are exposed to risks related to performance of contractual obligations by our suppliers and transporters. We are dependent on coal and natural gas for much of our electric generating capacity. We rely on suppliers to deliver coal and natural gas in accordance with short- and long-term contracts. We have certain supply and transportation contracts in place; however, there can be no assurance that the counterparties to these agreements will fulfill their obligations to supply and transport coal and natural gas to us. The suppliers and transporters under these agreements may experience financial or technical problems that inhibit their ability to fulfill their obligations to us. In addition, the suppliers and transporters under these agreements may not be required to provide the commodity or service under certain circumstances, such as in the event of a natural disaster. Deliveries may be subject to short-term interruptions or reductions due to various factors, including transportation problems, weather, availability of equipment and labor shortages. Failure or delay by our suppliers and transporters of coal and natural gas could disrupt our ability to deliver electricity and require us to incur additional expenses to meet the needs of our customers.

 

Additionally, due to our generation and transmission systems being part of an interconnected regional grid, we face the risk of possible loss of business due to a disruption or black-out caused by an event such as a severe storm, generator or transmission facility outage on a neighboring system or the actions of a neighboring utility. Any such disruption could result in a significant decrease in revenues and significant additional costs to repair assets, which could have a material adverse impact on our financial position, results of operations and cash flows.

 

 

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OG&E's electric generation, transmission and distribution assets are subject to operational risks that could result in unscheduled plant outages, unanticipated operation and maintenance expenses, increased purchased power costs, accidents and third-party liability.

 

OG&E owns and operates coal-fired, natural gas-fired, wind-powered and solar-powered generating assets. Operation of electric generation, transmission and distribution assets involves risks that can adversely affect energy output and efficiency levels or that could result in loss of human life, significant damage to property, environmental pollution and impairment of OG&E's operations. Included among these risks are:

 

increased prices for fuel, fuel transportation, purchased power and purchased capacity as existing contracts expire;
facility shutdowns due to a breakdown or failure of equipment or processes or interruptions in fuel supply;
operator or contractor error or safety related stoppages;
disruptions in the delivery of electricity;
intentional destruction of electric grid equipment; and
catastrophic events such as fires, explosions, tornadoes, floods, earthquakes or other similar occurrences.

 

The occurrence of any of these events, if not fully covered by insurance or if insurance is not available, could have a material effect on our financial position and results of operations. Further, when unplanned maintenance work is required on power plants or other equipment, OG&E will not only incur unexpected maintenance expenses, but it may also have to make spot market purchases of replacement electricity that could exceed OG&E's costs of generation, or be forced to retire a generation unit if the cost or timing of the maintenance is not reasonable and prudent. If OG&E is unable to recover any of these increased costs in rates, it could have a material adverse effect on our financial performance.

 

Changes in technology, regulatory policies and customer electricity consumption may cause our assets to be less competitive and impact our results of operations.

 

OG&E is a vertically integrated electric company and primarily generates electricity at large central facilities. We believe this method is the most efficient and cost-effective method for power delivery, as it typically results in economies of scale and lower costs than newer technologies such as fuel cells, microturbines, wind turbines and photovoltaic solar cells. It is possible that advances in technologies or changes in regulatory policies will reduce costs of new technology to levels that are equal to or below that of most central station electricity production, which could have a material adverse effect on our results of operations. OG&E's widespread use of Smart Grid technology allowing for two-way communications between the electric company and its customers could enable the entry of technology companies into the interface between OG&E and its customers, resulting in unpredictable effects on our current business.

 

Reductions in customer electricity consumption, thereby reducing electric sales, could result from increased deployment of renewable energy technologies as well as increased efficiency of household appliances, among other general efficiency gains in technology. However, this potential reduction in load would not reduce our need for ongoing investments in our infrastructure to reliably serve our customers. Continued electric infrastructure investment without increased electricity sales could cause increased rates for customers, potentially resulting in further reductions in electricity sales and reduced profitability.

 

Weather conditions such as tornadoes, thunderstorms, ice storms, windstorms, flooding, earthquakes, prolonged droughts and the occurrence of wildfires, as well as seasonal temperature variations may adversely affect our financial position, results of operations and cash flows.

 

Weather conditions directly influence the demand for electric power. In OG&E's service area, demand for power peaks during the hot summer months, with market prices also typically peaking at that time. As a result, overall operating results may fluctuate on a seasonal and quarterly basis. In addition, we have historically sold less power, and consequently received less revenue, when weather conditions are milder. Unusually mild weather in the future could reduce our revenues, net income, available cash and borrowing ability. Severe weather, such as tornadoes, thunderstorms, ice storms, windstorms, flooding, earthquakes, prolonged droughts and the occurrence of wildfires, may cause outages and property damage which may require us to incur additional costs that may not be adequately insured and that may not be recoverable from customers. The effect of the failure of our facilities to operate as planned, as described above, would be particularly burdensome during a peak demand period. In addition, prolonged droughts could cause a lack of sufficient water for use in cooling during the electricity generating process.

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Physical risks from climate can be considered in both acute (event-driven) and chronic (longer-term shifts in climate patterns) terms. The effects of climate change could exacerbate physical changes in weather and the extreme weather events discussed above, including prolonged droughts, rise in temperatures and more extreme weather events like wildfires and ice storms, among other weather impacts. We have observed some of these events in recent years, and the trend could continue. OG&E can incur significant restoration costs as a result of these weather events. If OG&E is unable to recover any of these increased costs in rates, it could have a material adverse effect on our financial performance.

 

FINANCIAL RISKS

 

Market performance, increased retirements, changes in retirement plan regulations and increasing costs associated with our Pension Plan, health care plans and other employee-related benefits may adversely affect our financial position, results of operations or cash flows.

 

We have a Pension Plan that covers certain employees hired before December 1, 2009. We also have defined benefit postretirement plans that cover certain employees hired prior to February 1, 2000. Assumptions related to future costs, returns on investments, interest rates and other actuarial assumptions with respect to the defined benefit retirement and postretirement plans have a significant impact on our results of operations and funding requirements. We expect to make future contributions to maintain required funding levels as necessary, and it has been our practice to also make voluntary contributions to maintain more prudent funding levels than minimally required. We may continue to make voluntary contributions in the future. These amounts are estimates and may change based on actual stock market performance, changes in interest rates and any changes in governmental regulations.

 

If the employees who participate in the Pension Plan retire when they become eligible for retirement over the next several years, or if our plan experiences adverse market returns on its investments, or if interest rates materially fall, our pension expense and contributions to the plans could rise substantially over historical levels. The timing and number of employees retiring and selecting the lump-sum payment option could result in pension settlement charges that could materially affect our results of operations if we are unable to recover these costs through our electric rates. In addition, assumptions related to future costs, returns on investments, interest rates and other actuarial assumptions, including projected retirements, have a significant impact on our financial position and results of operations. Those factors are outside of our control.

 

In addition to the costs of our Pension Plan, the costs of providing health care benefits to our employees and retirees have increased in recent years. We believe that our employee benefit costs, including costs related to health care plans for our employees, will continue to rise. The increasing costs and funding requirements with our Pension Plan, health care plans and other employee benefits may adversely affect our financial position, results of operations or liquidity.

 

OGE Energy is a holding company with its primary asset being its subsidiary, OG&E.

 

OGE Energy is a holding company and thus its primary asset is its subsidiary, OG&E. Substantially all of OGE Energy's operations are conducted by this subsidiary. Consequently, OGE Energy's operating cash flow and its ability to pay dividends and service its indebtedness are dependent upon the operating cash flow of OG&E and the payment of funds by OG&E to OGE Energy in the form of dividends. At December 31, 2023, OGE Energy and OG&E had outstanding indebtedness and other liabilities of $8.3 billion. OG&E is a separate legal entity that has no obligation to pay any amounts due on OGE Energy's indebtedness or to make any funds available for that purpose. In addition, OG&E's ability to pay dividends to OGE Energy depends on any statutory and contractual restrictions that may be applicable to the entity, which may include requirements to maintain minimum levels of working capital and other assets. Claims of creditors, including general creditors, of OG&E on its assets will generally have priority over OGE Energy claims (except to the extent that OGE Energy may be a creditor and its claims are recognized) and claims by OGE Energy shareholders.

 

In addition, as discussed above, OG&E is regulated by state utility commissions in Oklahoma and Arkansas as well as a federal regulatory agency which generally possess broad powers to ensure that the needs of customers are being met. To the extent that the state commissions or federal regulatory agency attempt to impose restrictions on the ability of OG&E to pay dividends to OGE Energy, it could adversely affect its ability to continue to pay dividends.

 

 

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GENERAL RISKS

 

Governmental and market reactions to events involving other public companies or other energy companies that are beyond our control may have negative impacts on our business, financial position, results of operations, cash flows and access to capital.

 

Accounting irregularities at public companies in general, and energy companies in particular, and investigations by governmental authorities into energy trading activities and political contributions, could lead to public and regulatory scrutiny and suspicion for public companies, including those in the regulated and unregulated utility business. Accounting irregularities could cause regulators and legislators to review current accounting practices, financial disclosures and relationships between companies and their independent auditors. The capital markets and rating agencies also could increase their level of scrutiny. We believe that we are complying with all applicable laws and accounting standards, but it is difficult or impossible to predict or control what effect any of these types of events may have on our business, financial position, cash flows or access to the capital markets. It is unclear what additional laws or regulations may develop, and we cannot predict the ultimate impact of any future changes in accounting regulations or practices in general with respect to public companies, the energy industry or our operations specifically. Any new accounting standards could affect the way we are required to record revenues, expenses, assets, liabilities and equity. These changes in accounting standards could lead to negative impacts on reported earnings or decreases in assets or increases in liabilities that could, in turn, affect our financial position, results of operations and cash flows.

 

Economic conditions, including inflationary pressures and supply chain disruptions, could negatively impact our business and our results of operations.

 

Our operations have been and are affected by local, national and worldwide economic conditions. National and global events could adversely affect and/or exacerbate macroeconomic conditions, including inflationary pressures, rising interest rates, supply chain disruptions and economic recessions, which in turn affect our operations and our customers. OG&E has experienced rising costs to produce electricity through increased fuel prices, raw material inflation, logistical challenges and certain component shortages. We are dependent upon others, such as fuel suppliers and transporters and suppliers for our capital projects, to help execute our operations. Supply chain disruption has resulted, and may continue to result, in delays in construction activities and equipment deliveries related to our capital projects.

 

The consequences of a recession could include a lower level of economic activity and uncertainty regarding energy prices and the capital and commodity markets. A lower level of economic activity and general inflation could result in a decline in energy consumption, which could adversely affect our revenues and future growth. Instability in the financial markets, as a result of recession or otherwise, also could affect the cost of capital and our ability to raise capital. Economic conditions may also impact the valuation of certain long-lived assets that are subject to impairment testing, potentially resulting in impairment charges, which could have a material adverse impact on our results of operations.

 

Economic conditions may be impacted by insufficient financial sector liquidity or inflationary pressures, leading to potential increased unemployment, which could impact the ability of our customers to pay timely, increase customer bankruptcies, and could lead to increased bad debt. If such circumstances occur, we expect that commercial and industrial customers would be impacted first, with residential customers following.

 

In addition, economic conditions, particularly budget shortfalls, could increase the pressure on federal, state and local governments to raise additional funds by increasing corporate tax rates and/or delaying, reducing or eliminating tax credits, grants or other incentives that could have a material adverse impact on our results of operations and cash flows.

 

We are subject to cybersecurity risks and increased reliance on processes dependent on technology.

 

In the regular course of our business, we handle a range of sensitive security and customer information. We are subject to numerous laws and rules concerning safeguarding and maintaining the confidentiality of this information. A security breach of our information systems due to theft, ransomware, viruses, increased use of artificial intelligence technologies, denial of service, hacking, acts of war or terrorism, or inappropriate release of certain types of information, including confidential customer information or system operating information, could have a material adverse impact on our financial position, results of operations and cash flows.

 

OG&E operates in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure. Despite implementation of security measures, the technology systems are vulnerable to disability, failures or unauthorized access. Such failures or breaches of the systems could impact the reliability of OG&E's generation,

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transmission and distribution systems which may result in a loss of service to customers and also subject OG&E to financial harm due to the significant expense to respond to security breaches or repair system damage. Our generation and transmission systems are part of an interconnected system. Therefore, a disruption caused by the impact of a cybersecurity incident of the regional electric transmission grid, natural gas pipeline infrastructure or other fuel sources of our third-party service providers' operations could also negatively impact our business. If the technology systems were to fail or be breached and not recovered in a timely manner, critical business functions could be impaired and sensitive confidential data could be compromised, which could have a material adverse impact on our financial position, results of operations and cash flows.

 

Security threats continue to evolve and adapt. We and our third-party vendors have been subject to, and will likely continue to be subject to, attempts to gain unauthorized access to systems and/or confidential data, or to disrupt operations. None of these attempts has individually or in aggregate resulted in a security incident with a material impact on our financial condition or results of operations. Despite implementation of security and control measures, there can be no assurance that we will be able to prevent the unauthorized access of our systems and data, or the disruption of our operations, either of which could have a material impact. Our security procedures, which include among others, virus protection software, cybersecurity controls and monitoring and our business continuity planning, including disaster recovery policies and back-up systems, may not be adequate or implemented properly to fully address the adverse effect of cybersecurity attacks on our systems, which could adversely impact our operations.

 

We maintain property, casualty and cybersecurity insurance that may cover certain resultant cyber and physical damage or third-party injuries caused by potential cyber events. However, damage and claims arising from such incidents may exceed the amount of any insurance available and other damage and claims arising from such incidents may not be covered at all. For these reasons, a significant cyber incident could reduce future net income and cash flows and impact financial condition.

 

The failure of our technology infrastructure, or the failure to enhance existing technology infrastructure and implement new technology, could adversely affect our business.

 

Our operations are dependent upon the proper functioning of our internal systems, including the technology and network infrastructure that support our underlying business processes. Any significant failure or malfunction of such technology infrastructure may result in disruptions of our operations. In the ordinary course of business, we rely on technology infrastructure, including the internet and third-party hosted services, to support a variety of business processes and activities and to store sensitive data. Our technology infrastructure is dependent upon global communications and cloud service providers, as well as their respective vendors, many of whom have at some point experienced significant system failures and outages in the past and may experience such failures and outages in the future. These providers' systems are susceptible to cybersecurity and data breaches, outages from fire, floods, power loss, telecommunications failures, physical attack and similar events. Failure to prevent or mitigate data loss from system failures or outages could materially adversely affect our results of operations, financial position and cash flows.

 

In addition to maintaining our current technology infrastructure, we believe the digital transformation of our business, including potential generative artificial intelligence, is key to driving internal efficiencies as well as providing additional capabilities to customers. Our technology infrastructure is critical to cost-effective, reliable daily operations and our ability to effectively serve our customers. We expect our customers to continue to demand more sophisticated technology-driven solutions, and we must enhance or replace our technology infrastructure in response. This involves significant development and implementation costs to keep pace with changing technologies and customer demand. If we fail to successfully implement critical technology infrastructure, or if it does not provide the anticipated benefits or meet customer demands, such failure could materially adversely affect our business strategy as well as impact our results of operations, financial position and cash flows.

 

Terrorist attacks, and the threat of terrorist attacks, have resulted in increased costs to our business and could impact our ability to operate critical infrastructure. Continued hostilities or sustained military campaigns may adversely impact our financial position, results of operations and cash flows.

 

In recent years, physical attacks on electric equipment owned by other electric companies in the U.S. resulted in the loss of power for a period of time. Authorities have indicated they believe these attacks may have been carried out by domestic extremists, as the U.S. electric grid is noted as being highly vulnerable to domestic terrorism. While OG&E has experienced physical attacks on its electric equipment, these incidents have not been material to its operations. The long-term impact of terrorist attacks and the magnitude of the threat of future terrorist attacks on the electric utility in general, and on us in particular, cannot be known. Increased security measures taken by us as a precaution against possible terrorist attacks have resulted in increased costs to our business. Uncertainty surrounding continued hostilities or sustained military campaigns may affect our operations in unpredictable ways, including disruptions of supplies and markets for our products, and the possibility that our infrastructure facilities could be direct targets of, or

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indirect casualties of, an act of terror. Changes in the insurance markets attributable to terrorist attacks may make certain types of insurance more difficult for us to obtain. Moreover, the insurance that may be available to us may be significantly more expensive than existing insurance coverage.

 

Health epidemics and other outbreaks could adversely impact economic activity and conditions worldwide, which could have a material adverse effect on our results of operations and financial condition.

 

Health epidemics and other outbreaks could adversely impact economic activity and conditions worldwide, by, among other things, leading to shutdowns, disrupting supply chains, increasing unemployment, resulting in customer slow payment or non-payment and decreasing commercial and industrial load. In response to health epidemics and other outbreaks, an extended slowdown of the United States' economic growth, demand for commodities and/or material changes in governmental policy could result in lower economic growth and lower demand for electricity in our key markets as well as the ability of various customers, contractors, suppliers and other business partners to fulfill their obligations, which could have a material adverse effect on our results of operations, financial condition and prospects.

 

We face certain human resource risks associated with the availability of trained and qualified labor to meet our future staffing requirements.

 

Workforce demographic issues challenge employers nationwide and are of particular concern to the electric utility industry. The median age of utility workers is higher than the national average. Over the next three years, 24.6 percent of our current employees will meet the eligibility requirements to retire. Failure to hire and adequately train replacement employees, including the transfer of significant internal historical knowledge and expertise to the new employees, may adversely affect our ability to manage and operate our business.

 

We may be able to incur substantially more indebtedness, which may increase the risks created by our indebtedness.

 

The terms of the indentures governing our debt securities do not fully prohibit OGE Energy or OG&E from incurring additional indebtedness. If we are in compliance with the financial covenants set forth in our revolving credit agreements and the indentures governing our debt securities, we may be able to incur substantial additional indebtedness. If we incur additional indebtedness, the related risks that we now face may intensify.

 

Any reductions in our credit ratings or changes in benchmark interest rates could increase our financing costs and the cost of maintaining certain contractual relationships or limit our ability to obtain financing on favorable terms.

 

We cannot assure you that any of the current credit ratings of the Registrants will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant. Our ability to access the commercial paper market could be adversely impacted by a credit ratings downgrade or major market disruptions. Pricing grids associated with our credit facilities could cause annual fees and borrowing rates to increase if an adverse rating impact occurs. The impact of any future downgrade could include an increase in the costs of our short-term borrowings, but a reduction in our credit ratings would not result in any defaults or accelerations. Any future downgrade could also lead to higher long-term borrowing costs and, if below investment grade, would require us to post collateral or letters of credit.

 

Beginning December 2022, the Registrants utilize SOFR for their credit facility reference rate. SOFR is a relatively new reference rate without much historical rate information. The change to SOFR or transition to other alternative rates, whether in connection with borrowings under the current credit facilities, or borrowings under replacement facilities or lines of credit, could expose the Registrants' future borrowings to less favorable rates. If the change to SOFR, or other alternative rates, results in increased alternative interest rates or if the Registrants' lenders have increased costs due to such phase out or changes, then the Registrants' debt that uses benchmark rates could be affected and, in turn, the Registrants' cash flows and interest expense could be adversely impacted.

 

 

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Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

 

We have revolving credit agreements for working capital, capital expenditures, acquisitions and other corporate purposes. The credit facilities for OGE Energy and OG&E have a financial covenant requiring them to maintain a maximum debt to capitalization ratio of 70 percent and 65 percent, respectively. The levels of our debt could have important consequences, including the following:

 

the ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or the financing may not be available on favorable terms;
a portion of cash flows will be required to make interest payments on the debt, reducing the funds that would otherwise be available for operations and future business opportunities; and
our debt levels may limit our flexibility in responding to changing business and economic conditions.

 

We are exposed to the credit risk of our key customers and counterparties, and any material nonpayment or nonperformance by our key customers and counterparties could adversely affect our financial position, results of operations and cash flows.

 

We are exposed to credit risks in our generation and retail distribution operations. Credit risk includes the risk that counterparties who owe us money or energy will breach their obligations. If the counterparties to these arrangements fail to perform, we may be forced to enter into alternative arrangements. In that event, our financial results could be adversely affected, and we could incur losses.

 

We have seen increased interest for electric service from emerging industries such as data mining and hydrogen production, which are both large consumers of electricity. If this continues, these types of customers could represent a significant portion of our revenues.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 1C. Cybersecurity.

 

Risk Management and Strategy

In the regular course of business, the Registrants handle a range of sensitive security and customer information. The Registrants are subject to numerous laws and rules concerning safeguarding and maintaining the confidentiality of this information. The Registrants utilize a risk-based, comprehensive, systematic and layered approach to cybersecurity risk, which helps them to continually assess, identify and manage enterprise-wide material cybersecurity risks. The Registrants have a comprehensive cybersecurity threat detection and monitoring program for their technology and network infrastructure, which leverages various systems, processes and operational measures to monitor, detect and respond to cyber incidents. The Registrants have established a security incident response plan, a business resiliency and event management framework, as well as disaster recovery mechanisms, which are tested and updated to prepare the Registrants to respond to material cybersecurity threats. The Registrants’ cybersecurity processes, including their threat detection, monitoring and response protocols, are subject to periodic internal audits. The Registrants’ Enterprise Security team partners with Internal Audit and third-party experts to conduct periodic penetration tests and assessments of the Registrants' cybersecurity processes.

 

Cybersecurity risks are integrated into the Registrants’ Enterprise Risk Management process. The Enterprise Risk Management process engages internal stakeholders, helps identify key internal and external business risks, including cybersecurity risks, and then supports evaluations of those risks, providing consistent assessment. Key risks are then assessed using a methodology that includes a quantification of potential financial and operational impacts. Priority cybersecurity risks are assigned internal risk owners which report to the Vice President of Technology, Data and Security, who is responsible for the Registrants’ Enterprise Security including, among other responsibilities, developing and updating risk management plans.

 

The Enterprise Security team utilizes third-party consultants to regularly conduct a review of the Registrants’ cybersecurity program that includes assessing their (i) ability to detect and respond to malicious behavior, (ii) configuration of security tools and (iii) security roadmap, training and staffing plans. The Enterprise Security team also utilizes multiple sources of threat intelligence

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information from real time feeds that come from government, industry and private sources to help stay abreast of emerging threats that could impact the Registrants.

 

The Registrants have third-party vendor risk management processes to oversee and identify risks from cybersecurity threats associated with their use of third-party service providers. Enterprise Security works cross-functionally across the companies to review new vendors and their proposed solutions as they are engaged by the Registrants. The Enterprise Security team’s monitoring and assessment of third-party cybersecurity practices is continuous and ongoing throughout the Registrants’ relationship with the third party. Based on this process, the Enterprise Security team may require specific security controls on the third-party application, system, hardware or software being deployed. Enterprise Security monitors vendors for disclosed vulnerabilities and change in scores from external risk scoring agencies.

The Registrants and their third-party vendors have been subject to, and will likely continue to be subject to, attempts to gain unauthorized access to systems, or confidential data, or to disrupt operations. None of these attempts has individually or in aggregate resulted in a security incident with a material impact on the Registrants financial condition or results of operations. Although prior incidents have not materially affected the Registrants, any future incidents related to the Registrants' information systems due to theft, ransomware, viruses, increased use of artificial intelligence technologies, denial of service, hacking, acts of war or terrorism, or inappropriate release of certain types of information, including confidential customer information or system operating information, could have a materially adverse impact on the Registrants, and affect their business strategy, results of operations or its financial condition. See “Item 1A. Risk Factors” for further discussion.

 

Governance

 

The Board of Directors is responsible for reviewing and overseeing the long-term strategic plans and principal issues facing the Registrants and includes the oversight of the major risk exposures and the risk management activities of the Registrants. As part of its risk oversight role, the Board delegates specific roles to its committees to help ensure risks, mitigations and opportunities are appropriately monitored and managed. The Audit Committee has overall oversight responsibility over the Registrants’ major financial risks, while the Nominating, Corporate Governance and Stewardship Committee oversees the Registrants’ cybersecurity risk exposure and management. These Committees and the full Board of Directors are updated regularly by the Vice President of Technology, Data and Security and the Director of Enterprise Security on cybersecurity risks and related matters, including results from audits and assessments of the Registrants’ cybersecurity practices and systems, as well as the results of their incident response and business resiliency exercises.

 

The Vice President of Technology, Data, and Security leads an information security team responsible for management of cybersecurity risk. The Vice President of Technology, Data and Security has decades of experience relevant to risk management, information systems and enterprise security. The Vice President of Technology, Data and Security serves on the Corporate Risk Oversight Committee where cyber risks are regularly discussed and addressed. The Registrants’ Corporate Risk Oversight Committee includes corporate officers and members of management and is responsible for the overall development, implementation and enforcement of strategies and policies for all significant risk management activities of the Registrants.

 

The Registrants’ contingency plans, including its security incident response plan and event management framework, set forth the processes through which cybersecurity incidents are managed, including how management is informed of cybersecurity incidents. As part of these plans, incidents are evaluated, classified and elevated, as necessary, to an executive team which includes the Vice President of Technology, Data and Security and other executives on the Registrants’ Corporate Risk Oversight Committee. Once elevated, these executives are ultimately responsible for the management, mitigation and remediation of incidents.

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Item 2. Properties.

 

OG&E owns and operates an interconnected electric generation, transmission and distribution system, located in Oklahoma and western Arkansas, which included 17 generating stations with an aggregate capability of 7,116 MWs at December 31, 2023. The following table presents information with respect to OG&E's electric generating facilities. Unless otherwise indicated, these electric generating facilities are located in Oklahoma.

Station & Unit

 

 

 

Year
Installed

 

Unit Design
Type

 

Fuel
Capability

 

2023
Capacity
Factor (A)

 

 

Unit
Capability
(MW)

 

 

Station
Capability
(MW)

 

Seminole

 

1

 

1971

 

Steam-Turbine

 

Gas

 

 

19.9

%

 

 

500

 

 

 

 

 

2

 

1973

 

Steam-Turbine