Oge Energy Corp · NYSE:OGE
Oge Energy — Investor Day (March 2004)
122 slides from Oge Energy's investor day presentation, March 2004
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Slide 2: Safe Harbor
Safe Harbor Some of the matters discussed in this presentation contain forward- looking statements that are subject to certain risks, uncertainties and assumptions. Actual results may vary materially. Factors that could cause actual results to differ materially include, but are not limited to: gener
Slide 3: Welcome & Agenda Review
Welcome & Agenda Review Jim Hatfield Senior Vice President Chief Financial Officer OGE Energy Corp. 3
Slide 4: Presentation Agenda
Presentation Agenda Breakfast 7:45 – 8:30 Welcome & Agenda Review Jim Hatfield 8:30 – 8:35 Opening Remarks Steve Moore 8:35 – 9:00 Strategy Overview Pete Delaney 9:00 – 9:20 Power Supply Jack Coffman 9:20 – 9:35 Break 9:35 – 9:45 Process Initiative Mike Davis 9:45 – 10:00 Electric Services Steve Ger
Slide 5: Steven E. Moore
Steven E. Moore Chairman, President & CEO OGE Energy Corp. 5
Slide 6: Who We Are
Who We Are OGE Energy Corp. Oklahoma Oklahoma Gas&& Gas Enogex Inc. Enogex Inc. Electric Electric (“Enogex”) (“Enogex”) (“OG&E”) (“OG&E”) 6
Slide 7: OGE's Platform of Strength
OGE’s Platform of Strength • Asset diversity • Gas and electric • Regulated electric and unregulated gas • Low costs • Strategically located • Flexible workforce focused on continuous improvement • Long-term focus on core operations 7
Slide 8: Annual Report
Annual Report You Know Who Wins!
Slide 9: Highest residential customer satisfaction, JD Power
Our utility ranks highest in overall residential customer satisfaction for the US Southern Region according to JD Power 9
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Slide 11: Corporate Strategy Overview
Corporate Strategy Overview Pete Delaney Executive Vice President OGE Energy Corp. CEO - Enogex 11
Slide 12: Strategy Review Agenda
Strategy Review Agenda • Review Strategy Statement • Discuss the key components of strategy • Progress on strategy execution • Look into 2005-06 12
Slide 13: OGE's Vision: changed focus as customer choice is delayed
OGE’s Vision: changed focus as customer choice is delayed From To The converged, low-cost, A regional, utility-focused regionally based energy energy business recognized for platform preferred by strong financial performance customers and operational excellence 13
Slide 14: Corporate Strategy Review
Corporate Strategy Review Corporate Vision A regional, utility-focused energy business recognized for strong financial performance and operational excellence Corporate Strategy - Regional Utility Plus A regional electric/gas utility with a smaller unregulated energy business 14
Slide 15: Driver Behind Direction of Culture
Driver Behind Direction of Culture Changing Industry Fundamentals • Uncertainty Requires ability in industry to respond • Utility quickly to regulation at external changes: wholesale More and retail complex levels • Broader set of operating skills and • Increased volatility of environment capabiliti
Slide 16: OGE Corporate Strategy Components
OGE Corporate Strategy Components • Improve return on Enogex assets, pursue organic growth • Invest in utility infrastructure • Position for growth Core Skill Group Balanced Growth z Process Ability to Management ride out Skills business z Commercial Skills Skills & cycles and Asset z Risk managemen
Slide 17: Re-balancing Asset Mix
Re-balancing Asset Mix % of Consolidated $ in Millions Assets $35 38.0% $29 $30 37.0% $25 $25 36.0% $20 35.0% $15 34.0% $10 $8 33.0% $5 32.0% ($1) $0 31.0% 2001 2002 2003 2004E ($5) 30.0% Net Income* Enogex Assets *Net income excludes asset write downs and gains or losses associated with asset sales
Slide 18: People, Processes & Technology
People, Processes & Technology Approach to Skills & Capabilities • Processes provide Training, Pr le structure, education and metrics and oc op performance objectives es feedback Pe • Metrics provide basis s for accountability and effective Technology feedback Technology provides members the tools t
Slide 19: Cyclical Nature of Utility Business
Cyclical Nature of Utility Business C og en B R Cogen Costs D as Inflection at e 18-24% fo ecr Ra Point es Ba r D ea te D ec se er se s re e g Pr Ra se as ea ul ep Inflation te e at a n s r cr io e s Ra tio ate De n In R f la se cr s Ba rease te In ea Inc se se Ba Growth 8%>7% Growth 5%>4% Growth 3%
Slide 20: Balanced Growth
Balanced Growth Utility Enogex • Acquire or build power • Continue to improve plants to meet native load return on existing assets requirements • Focus on organic growth • Invest in reliability – in gathering volumes existing generation, transmission, and • Explore growth distribution opportunities
Slide 21: Electric Utility Strategy Components
Electric Utility Strategy Components • Invest in reliability, distribution, transmission and generation • Purchase new generation facility • Evaluate opportunities to replace out-of-market contracts Balanced Growth Integrated z Process Electric Utility, Approach Distribution, to Work Transmission, z
Slide 22: McClain Facility near Newcastle
McClain Facility near Newcastle 22
Slide 23: Cogeneration Cost Decreases Allow Investment Opportunity
Cogeneration Cost Decreases Allow Investment Opportunity Allows for McClain plant to be rate based without increasing customer prices 450 $100 400 $90 350 $80 300 $70 $60 250 $50 200 400 $40 150 $30 $42 $35 100 $20 50 110 $10 0 $0 Smith McClain 23 MW's Annual Cost to Ratepayers
Slide 24: Unregulated Business Unit Strategy Focus
Unregulated Business Unit Strategy Focus • Achieving organic growth • Improving gross margins • Capturing opportunities in natural gas marketing Balanced Growth Integrated z Advanced Pipeline Commercial Business, Processes Transmission z Implement Gathering, Skills & Asset Metrics Processing, Capabi
Slide 25: Strategy Roadmap
Strategy Roadmap 2002 2003 2004 Reassess Focus Focuson onStrategy Strategy Realizing Capabilities Execution Execution Financial Objectives • Strategy Review • Execute Strategy • Balanced Growth • Process Initiatives • Skills & Capabilities – Obtain FERC approval to complete plant − Enogex • Process
Slide 26: Strategy Roadmap
Strategy Roadmap 2002 2003 2004 Reassess Focus Focuson onStrategy Strategy Realizing Capabilities Execution Execution Financial Objectives • Strategy Review • Execute Strategy • Balanced Growth • Process Initiatives • Skills & Capabilities – Obtain FERC approval to complete plant − Enogex • Process
Slide 27: Strategy Roadmap
Strategy Roadmap 2002 2003 2004 Reassess Focus Focuson onStrategy Strategy Realizing Capabilities Execution Execution Financial Objectives • Strategy Review • Execute Strategy • Balanced Growth • Process Initiatives • Skills & Capabilities – Obtain FERC approval to complete plant − Enogex • Process
Slide 28: Strategy Roadmap: 2005-2006 Goals
Strategy Roadmap 2005-2006 Goals Realizing Financial Objectives - Leverage Platform for Growth • Balanced Growth – Earn return on McClain plant – Unregulated Business approaches ROIC target – Reach dividend payout ratio target • Skills & Capabilities – Major process initiatives complete – Performanc
Slide 29: Summary
Summary • We have a strategy in place • It is the right strategy • We are acting on that strategy • It is working 29
Slide 30: Power Supply
Power Supply Jack Coffman Senior Vice President Power Supply OG&E Electric Services 30
Slide 31: Assets
Assets Capability 2003 Energy • Coal 2500 MW 77.4% • Gas 3500 MW 22.4% Oil capability • Wind Power 50 MW 0.2% 31
Slide 32: Sooner Muskogee
P oP ower at the speed of life: if ea Sooner
Slide 33: Mustang Horseshoe Lake Seminole
Mustang Horseshoe Lake Seminole Horseshoe Lake 33
Slide 34: Power at the speed of life
> wer at the speed of life: 34
Slide 35: Weather Normalized Peak Load Data
Weather Normalized Peak Load Data 5,800 5,700 5,600 5,500 5,400 MW 5,300 5,200 5,100 5,000 4,900 1997 1998 1999 2000 2001 2002 2003 Year 35
Slide 36: New Merchant Plants
New Merchant Plants Oklahoma Utility Installed Capability 14,600 800 Oneta Demand 12,500 Green Country 1220 Merchant Capability 5,110 Redbud Calpine Spring Creek 1000 320 McClain 520 Kiamichi Energy Facility Kiamichi 1250 36
Slide 37: Assets
Assets • Low Cost Coal Plants • Consistently in top ten lowest cost coal plants nation wide • Coal Contracts Gas Plants • Total cost compares favorably to new combined cycle units • Gas price indexed 37
Slide 38: Dispatch Order
100% Dispatch Order 90% 80% Gas Combined 70% Percent of Peak 60% Cycle 50% 40% 30% 20% Coal 10% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Percent of Year 38
Slide 39: Members & Technology
Members & Technology • Workforce Safety Training Program Non-Union • SAP Reliability Centered Maintenance 39
Slide 40: Major Projects
Major Projects • Turbine Rotors • Economizers • Boiler Surface Additions • Controls 40
Slide 41: EPA Issues
EPA Issues • Air Quality Current • Interstate Air Quality Rule (IAQR) • Mercury • Regional Haze Future • CO2 Reductions 41
Slide 42: EPA Issues
EPA Issues • Air Quality Control Technology • SO2 - scrubbers • NOX – selective catalytic reduction (SCR) • Mercury – baghouses with activated carbon • CO2 – fuel switching 42
Slide 43: EPA Issues
EPA Issues • Water 316B • May require new intake structures and systems 43
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Slide 45: Process Initiative
Process Initiative Mike Davis Vice President Business Systems & Services OGE Energy Corp. OG&E Electric Services 45
Slide 46: Technology
Power at the speed of life: T echnology
Slide 47: Productivity: Creating Headroom
Creating Headroom Process Management Enterprise Software Productivity Redesign Quality Process Reorganization Time 47
Slide 48: OG&E shapes its destiny
OG&E shapes it’s destiny. '03 Redesign of Electric Services: Creating a new structure that allows new process changes to take hold A thread of Continuous ’02 Business Process Management: Began the redesign of all core Utility processes Improvement and ’00 Operating Councils: Aligning business units
Slide 49: Process is a solution that addresses
We believe… “Process” is a solution that addresses: • Customer • Shareholder • Regulator • Member • Safety is core to what we do 49
Slide 50: What is a Process?
What is a Process? Example: Restore Customer Power Inputs Downed Lines Customer Out of Service Take customer calls Assess outage Assign resources Request materials Provide materials Communicate with public Outputs Repair Facilities Restored Lines etc. Satisfied Customer The Restore Customer Power pr
Slide 51: Restore Customer Power Current State
Restore Customer Power Current State Scrub Orders at Night to Eliminate Work & Duplicate CCS does Limited Orders Call Backs Make Assignments for CADS Users CADS Dispatches Detailed Notification of System Analyze Orders to Trouble, Assessment Serviceman, and St. Paper Sketch and Outage OMS & SCADA fr
Slide 52: Restore Customer Power Future State
Restore Customer Power Future State Notification of Aerial Sketch & System Analyze Detail Construction Outage Assessment to Material List to OMS & AMR Assessment Completes (AMR) GIS System Construction Work Send Material Step High Level List to Restoration Assessment Stores Require Off System Manpow
Slide 53: What are our Utility processes?
What are our Utility processes? Provide Routine Installations “Serve New Business” Provide Custom (engineered) Installations Restore Customer Power (Major Event) Restore Customer Power (24 Hour Event) “Restore Customer Power” Restore Customer Power (Routine Outage) Install and Maintain Street Lights
Slide 54: Electric Services
Electric Services Steve Gerdes Vice President Utility Operations & Shared Services OGE Energy Corp. OG&E Electric Services 54
Slide 55: Functions
FUNCTIONS CUSTOMER CONSTRUCTION OPERATIONS ENERGY SERVICE ENGINEERING SERVICES 55
Slide 56: Customers
FUNCTIONS CONSTRUCTION OPERATIONS CUSTOMERS PROCESSES RESTORE CUSTOMER POWER CUSTOMER ENGINEERING ENERGY SERVICES 56 SERVICE
Slide 57: Electric Services
Electric Services • Departments to Teams • Behavior Changes are Changing Culture • Job Changes / Member Capability • Efficiency / Effectiveness • Transparency / Openness 57
Slide 58: How do we make the metrics work
How do we make the metrics work… MISSION: Build a Utility based on safe, competitive, customer focused processes, which will prepare us for the future and allow us to remain independent. STRATEGY: Customer Focus MEASURE: Customer Satisfaction Lin PROCESS: Restore Customer Power e-o MEASURE: Outage D
Slide 59: Annual Net Charge-offs
Annual Net Charge-offs $8 $7 $6 $5 $ M illio n s $4 $3 $2 $1 $0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 59 Actual 2003 Actual 2002 Goal 2003
Slide 60: Additional Results
Additional Results • Removed layer of management Now have 5 levels Improved communications both up and down • Workforce reduction over past 3 years 8.8% reduction Approximately $7.5 mil. 60
Slide 61: Future Improvements
Future Improvements • Back Office Billing • Design- Build Engineering thru Construction optimization of process • Work Management 61
Slide 62: Summary
Summary • Increasing expectations • Member satisfaction • Headroom for ‘Continuous Improvement’ • Adaptable to technology changes • ‘Operational Excellence’ 62
Slide 63: Enogex Operations
Enogex Operations Dan Harris Vice President & COO Enogex 63
Slide 64: Operations Focus
Operations Focus • Past approach Field management responsible for all facilities in a geographical area Generic field personnel, dealt with all facilities in their area • Compression operations & maintenance • Measurement operations & maintenance • Pipeline operations & maintenance • Plant opera
Slide 65: Operations Focus
Operations Focus Faults of old philosophy • Highly technical talent performing unskilled labor task • Technical work performed by lesser skilled workers with poor results • Lack of accountability for individual asset performance Supervisors guiding work had varying expertise with types of assets 6
Slide 66: Operations Focus
Operations Focus • Current approach Over-riding philosophy – operational excellence • Process focused • Organized by technical discipline (interim approach) • Technically proficient managers responsible for operations & maintenance for each technical discipline across entire system – Measurement –
Slide 67: Operations Focus
Operations Focus • Current approach (continued) Safety • Vastly improved safety record • Good safety performance is indicator of focus on business details Focus on cost drivers • Low value wells (coordinate with commercial) • Gas quality management (enforcement of contract terms) • Economic main
Slide 68: Fuel Use and Distribution
Fuel Use and Distribution Uncategorized Fuel Gas Burned Known Losses < 0.02 – 0.87% < 0.52 - 0.54% < 0.11% Gas Into System Gas out of System ~ 98.48 - 99.35% Enogex Pipeline System 68
Slide 69: Total Fuel Burn By Month
MMbtu/mo Total Fuel Burn By Month 470,000 420,000 2002 2003 370,000 2004 320,000 270,000 220,000 170,000 120,000 Ma J ul Aug Sep No De J an Feb Ma Apr J un Oc v c y t r 69
Slide 70: Uncategorized Fuel By Month
Uncategorized Fuel By Month MMBtu/mo 700,000 2002 600,000 2003 500,000 2004 400,000 300,000 200,000 100,000 0 Ma J ul Aug Sep N ov D ec J an F eb Ma Apr J un O ct 70 (100,000) y r
Slide 71: Operations Focus: Benefits of new philosophy
Operations Focus • Benefits of new philosophy Good use of member’s technical skills Member working in area of strength Better member satisfaction Member accountability for individual asset performance Supervisors working in area of strength Focus on performance metrics 71
Slide 72: Enogex Commercial
Enogex Commercial John McDougal Vice President Chief Commercial Officer Enogex 72
Slide 73: Who We Are
Who We Are Oklahoma Gas & Enogex Inc. Electric (“Enogex”) (“OG&E”) 73
Slide 74: Enogex - Who We Are
Enogex - Who We Are • Fully integrated pipeline company & “market hub” in the 3rd largest natural gas producing state Wellhead Gathering Processing Transportation Storage 74
Slide 75: Enogex - Who We Are
Enogex - Who We Are • Enogex serves the needs of the majority of gas fired electric generation in Oklahoma Equipped & experienced at meeting the instantaneous demands of power generation • Over 60 interconnects with 15 major pipelines Provides access to midwest, northeast, gulf coast, & western
Slide 76: Commercial Focus: Philosophy Changes
Commercial Focus • Philosophy Changes From unstructured commercial activity to process focused efficiency From independent economic evaluations to consistency & economic discipline From individual efforts to team coordination From volume focus to value focus 76
Slide 77: Commercial Focus: Commercial Processes
Commercial Focus • Commercial Processes Becoming more process focused in commercial activities Reviewing, improving & documenting processes for: • Market Assessment • Sales • Market Communications 77
Slide 78: Commercial Focus: Commercial Structure
Commercial Focus • Commercial Structure Group restructured to facilitate: • Consistent economic analysis of our new and existing business– “deal discipline” • Coordination with operations • Optimization & risk management, including: – Active management of imbalances and all other commodity positio
Slide 79: Commercial Structure
Commercial Focus • Commercial Structure Group relocated to facilitate: • Creation of the “Nerve Center” – Co-location of major decision makers for system set-up & optimization (cross discipline) – Taking advantage of better and more accessible information from technology investments • Better teamw
Slide 80: Processing Optimization
Processing Optimization Contract Information System Capabilities Commodity Prices Calumet Canute Cox City Maximize Wetumka Maint. Schedules Commercial Skills Harrah Weather Thomas 80
Slide 81: Commercial Focus: Contract Negotiations
Commercial Focus • Contract Negotiations Active renegotiation of unfavorable or unprofitable contracts Negotiation of new contracts and “evergreen” contracts for proper value Successfully restructured the processing portfolio • Default Processing Fee implemented Seeing resulting margin impro
Slide 82: Default Processing Fee
Default Processing Fee • Part of Enogex Statement of Operating Conditions • Provides protection against negative processing margins Properly allocates risk to the producer rather than the processor • The underlying principle: there is an “imbedded treating service” that exists within the processin
Slide 83: 2003 Wellhead Gathering Margin
2003 Wellhead Gathering Margin $0.250 $0.200 Margin per MMBtu $0.150 $0.100 $0.050 J-03 F-03 M-03 A-03 M-03 J-03 J-03 A-03 S-03 O-03 N-03 D-03 Budget Actual 83
Slide 84: 2003 New Well Volume Contribution
2003 New Well Volume Contribution 200,000 180,000 A vg.W ellhead C on tribution, MMB tu/d 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 J-03 F-03 M-03 A-03 M-03 J-03 J-03 A-03 S-03 O-03 N-03 D-03 Subsequent Mo. Vol. 1st Mo. Well Volume Budget Volume 84
Slide 85: Marketing
Power at the speed of life: Marketing
Slide 86: Marketing
Marketing • Market knowledge is and has always been crucial to success in the energy business • Execution in both physical and financial markets both mitigates the risk attributable to, and maximizes the opportunities afforded by, our strategic asset position • Focused on origination business • OGE’
Slide 87: Marketing Opportunities
Marketing Opportunities • Gulf Coast/East Coast Market Origination Natural extension of business with existing customers Market niche opportunity - replace disappearance of mega-marketers Identical products & services that we offer to Mid-continent customers Internal processes in place Man
Slide 88: Marketing Opportunities
Marketing Opportunities • Cheyenne Plains Pipeline Project Firm transport for 60,000 Mmbtu/d Access to developing supply basin in the Rockies Project expected on-line by early 2005 Expect $1–2 Million in additional revenues by 2006 88
Slide 89: What's Next?
What’s Next? • Earnings growth through continued execution of our plan • Beginning to “Lift our head”, to look for opportunities for organic growth • Current effort is building the platform for disciplined growth 89
Slide 90: Enogex Summary
Enogex Summary • Organizational focus on value • Teamwork & coordination in all activities • Optimization of daily commercial & physical operations • Active mitigation of risk elements • Operational excellence 90
Slide 91: Risk Management
Risk Management Jerry A. Peace Chief Risk Officer OGE Energy Corp. 91
Slide 92: Corporate Risk Management Focus
Corporate Risk Management Focus • Market Risks Commodity prices Commodity price volatilities Interest rates • Reliance Risks Counterparty credit Credit concentrations • Operations Risk Asset operations performance Infrastructure mechanical failures Natural disaster/weather 92
Slide 93: Risk Management Organization
Risk Management Organization Audit Committee OGE Energy Corp. Chief Risk Officer Structured Middle Risk Credit Corporate Services Office Controls Insurance Market & Market & Compliance Reliance Operations Reliance Reliance Risk Risk Risk Risk Analysis Reporting 93
Slide 94: Risk Committee Architecture
Risk Committee Architecture Audit Committee (OGE Board of Directors) Risk Oversight Committee (Officers) Risk Mgt Committee Risk Mgt Committee (Regulated Business) (Unregulated Business) 94
Slide 95: 2004 Enogex Commodity Price Risk Analysis
2004 Enogex Commodity Price Risk Analysis 3.00% 2.50% 2.00% Probability (%) Default Processing Fee 1.50% Protection 1.00% 0.50% 0.00% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% Forecasted 2004 Enogex Net Income as % of Budget * All non-commodity price related
Slide 96: Effect of Natural Gas Prices on 2004 Enogex Net Income
Effect of Natural Gas Prices on 2004 Enogex Net Income Forecasted 2004 Enogex Net Income as % of Budget 180.0% 150.0% 120.0% 90.0% 60.0% 30.0% 0.0% $3.00 $3.50 $4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50 $8.00 $8.50 $9.00 $9.50 $10.00 Natural Gas Price Current Forecasted NGL Prices 10% Decrease
Slide 97: Credit Exposure by S&P Ratings
OGE Energy Resources, Inc Credit Exposure by S & P Ratings as of January 30, 2004 (Unrated Counterparties are Assigned Proxy Ratings Based upon Internal Scores) *BB or Below AAA 5% 5% AA 24% BBB 33% A 33% * These counterparties do not have credit ratings, but are assigned proxy ratings based upon In
Slide 98: Next Steps
Next Steps • Continue to Refine the Risk Management Practices at Enogex • Intensify the Decomposition of the Regulated Utility 98
Slide 99: Summary
Summary • Focus Market Risk Reliance Risk Operations Risk • Risk Organization Structure Audit Committee Interface Independence • Benefits Have Been Realized • Practices Will Continuously Be Refined 99
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Slide 101: Regulatory Update
Regulatory Update Pete Delaney Jim Hatfield 101
Slide 102: Oklahoma Corporation Commission
Oklahoma Corporation Commission Chairman Denise Bode: Elected 1998-2004 (Republican) •Professional Experience: President of the Independent Petroleum Association of America, Chief advocate for America’s 8,000 oil and natural gas producers. Vice Chairman Bob Anthony: Elected 2000-2006 (Republican)
Slide 103: Arkansas Public Service Commission
ARKANSAS PUBLIC SERVICE COMMISSION Commissioner Randy Bynum: Appointed 2003-2007 • Professional Experience: Private Law Practice, Washington, D.C. and Little Rock, Arkansas President, Bynum Furniture Group, Inc., Springdale, Arkansas Certified Public Accountant, Arkansas Chairman Sandra Hochst
Slide 104: Acquire Power Plant: McClain Update
Acquire Power Plant: McClain Update • December 18th order by FERC sent application to hearing • Original FERC order contained numerous errors, omissions, and arbitrary findings • January 20th OGE request for rehearing • March 2nd OGE filed testimony • March 8th unilateral settlement offering 104
Slide 105: McClain Update – Proposed Mitigation
McClain Update – Proposed Mitigation • Original application improved import capabilities at Ft. Smith with an 18 month timeline • Application for rehearing included upgrades to 4 additional substations and OGE agreed not to close on McClain until mitigation measures were complete • Litigation positi
Slide 106: Power Smith Case
Power Smith Case PUD 564 • Procedural Schedule ─ February 18 Responsive Testimony Filed ─ March 16 All Parties File Rebuttal Testimony ─ March 25 Hearing Scheduled ─ April 22 ALJ Report Issued ─ May 10 Appeals Hearing Before Commission 106
Slide 107: 2002 Oklahoma Settlement Agreement
2002 OKLAHOMA SETTLEMENT AGREEMENT • $25 M Reduction Scheduled for January 1, 2004 • OG&E Delivering Customer Savings Through PPA • Oklahoma Commission Timetable ─ January 8 OG&E Filed Application Requesting Confirmation of Compliance With Settlement ─ April 19 Hearing Scheduled • Staff/Attorney Gen
Slide 108: Gas Transportation & Storage Case
GAS TRANSPORTATION & STORAGE CASE • OG&E/Enogex $46.8 M Contract • Oklahoma Jurisdiction Timetable ─ March 31 OG&E Supplemental Testimony ─ May 28 Staff & Interveners Responsive Testimony ─ June 28 Rebuttal Testimony ─ July 27 Settlement Conference ─ August 10 Hearing Scheduled ─ September Commissio
Slide 109: Deregulation Transition Costs
DEREGULATION TRANSITION COSTS • Arkansas Jurisdiction ─ January 20 Commission Approved Recovery of Prior Expenditures ─ OG&E Authorized to Collect $1.9 M from Arkansas Customers ─ Recovery Period February 2004 through July 2005 109
Slide 110: Financial Update
Financial Update Jim Hatfield Senior Vice President Chief Financial Officer OGE Energy Corp 110
Slide 111: 2004 Outlook
2004 Outlook • 2004 net income is projected to be between $1.40 to $1.50 per share, excluding any regulatory action that might affect the electric rates at OG&E OG&E earning $113-$117 million. Enogex earning $27-$31 million After tax interest expense of $16 million Cash flow from operations
Slide 112: 2004 Financing Plan
2004 Financing Plan • $110 million debt issuance at OG&E assumed in 4th quarter for plant acquisition • Equity infusion to utility of $130M at time of power plant purchase (4th qtr 2004) • $50M DRIP issued in second half of 2004 • $48 million of debt retired at Enogex • Enogex 50/50 capital structur
Slide 113: 2004 Assumptions
2004 Assumptions • Utility 1.6% retail revenue growth No change in rates Operating expense growth of 2.8% McClain acquired in the 4th quarter of 2004 Capital expenditures increase to $212 million • Enogex Natural gas price of $4- $5 per mmBTU Average NGL price of $0.514/gallon 200 ad
Slide 114: OGE Energy Capital Expenditures
OGE Energy Capital Expenditures ($ millions) Regulated 2003 2004 Electric Services $110 $126 Transmission 7 28 Power Supply 31 50 Shared Services 5 8 subtotal 153 212 Unregulated Gathering – Well Connects 8 9 Transportation & Marketing 5 6 Info Systems & Measurement 6 10 Environmental & Safety - 4 O
Slide 115: Enogex Gross Margin by Business Line
Enogex Gross Margin by Business Line 2003 2004E % U Transportation $ 101 $ 85 (a) -15.8% Storage $ 20 $ 24 20.0% Gathering $ 57 $ 72 (a) 26.3% Processing $ 34 $ 28 (b) -17.6% Ozark $ 17 $ 16 -5.9% Marketing $ 24 $ 19 (c) -20.8% Total $ 253 $ 244 a) 2003 results include approx $17 million of past fue
Slide 116: Enogex Business Line Assumptions
Enogex Business Line Assumptions • Transportation - $85M Gross Margin 82% of Gross Margin is based on Firm Contracts Contractual gains will be recognized in the Gathering business line in 2004 • Storage - $24M Gross Margin OG&E contract of $12.7M Third-party contracts of $11.3M 116
Slide 117: Enogex Business Line Assumptions (continued)
Enogex Business Line Assumptions (continued) • Gathering - $72M Gross Margin Sustain $4-5 natural gas prices • 200 new well connects • Contractual gains previously recognized in Transportation in 2003 • Processing - $28M Gross Margin Liquids prices $0.514/gallon ($0.604/gallon in 2003) Assumed
Slide 118: Enogex Business Line Assumptions (continued)
Enogex Business Line Assumptions (continued) • Ozark - $16M Gross Margin 62% of Gross Margin is based on Firm Contracts Maintain 2003 volumes, prices, and fuel recoveries • Marketing - $19M Gross Margin Increase origination volumes (Gulf & East Coast) Focus on assets Margin does not reflec
Slide 119: Corporate Financial Objectives
Corporate Financial Objectives • Top 1/3 of total return in our industry • Earnings growth consistent with our peer group • 75% Dividend Payout Ratio • ROIC > WACC • Improve Credit rating 119
Slide 120: Steven E. Moore
Steven E. Moore President, CEO & Chairman OGE Energy Corp. 120
Slide 121: Investment Highlights
Investment Highlights • Strong and stable cash flow • Low electric rates with coal based generation • Clear strategy for growth • Common dividend 57 year record of paying and never reducing Current dividend $1.33 per share Dividend yield above 5% 121
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