OGE Energy's Infrastructure & Green Projects to Spur Growth

On Jul 15, 2015, we have updated our research report on the Oklahoma City based public utility holding company OGE Energy Corp. OGE.

OGE Energy is the largest electric utility in Oklahoma and its well-positioned regulated utility and unregulated midstream gas businesses carry low risk. The company's steady investments in infrastructure projects are in sync with its strategy of providing reliable services to its customers and meeting the increasing demand.

Between 2015 and 2019, OGE Energy plans to spend a total of around $2.9 billion. It has plans to complete 30 miles of transmission line from OG&E's Gracemont substation to an AEP companion transmission line to its Elk City substation by early 2018. In addition, the company plans to start several integrated transmission projects. The scheduled completion of these ventures will allow OGE Energy to increase its scale of operations.

The company continues to witness customer additions. A stable Oklahoma economy will help drive the company's sales trajectory. In 2014, the company added 8,042 customers over the prior year. OGE Energy's Smart Grid investments will sustain customer satisfaction over the long term. In addition, lower-than-average electricity rates provide the company significant scope for future rate-based growth.

Apart from expanding traditional fuel-fired operations, the company's initiative toward pollution free power generation is also appreciable. OGE Energy is currently in the process of installing scrubbers at the Sooner Units 1 and 2, and converting two coal units to natural gas at the Muskogee generating stations, to reduce the carbon footprint.

The company plans to invest roughly $1 billion between 2014 and 2018 as environmental expenditures. A major portion of this will be allocated for fixing scrubbers. Moreover, the company is leveraging the topography of Oklahoma to develop wind-based energy assets. It currently owns three wind farms. OGE Energy's focus on installing modern equipment at its utility facilities and expanding the renewable generation portfolio will enable it to maintain both federal and state regulated standards. Oklahoma has set a goal of deriving 15% of its total installed generation from renewable sources by this year.

On the flipside, OGE Energy's utility operations are subject to federal, state and local legislative requirements, as well as extensive environmental regulations. Change in the regulatory environment could impact the company's earnings. Inability to comply with various laws and regulations, and obtain fair and timely rate relief and requisite regulatory approvals could have an adverse impact on its future earnings and growth. In addition, natural gas prices are extremely volatile; any adverse change in prices would affect the company's performance.

Zacks Rank

OGE Energy currently holds a Zacks Rank #3 (Hold). Other better-ranked stocks in the utility space include DTE Energy Company DTE, Consolidated Edison, Inc. ED and PG&E Corporation PCG. DTE Energy carries a Zacks Rank #1 (Strong Buy), while Consolidated Edison and PG&E carry a Zacks Rank #2 (Buy).

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