Heat pushes income higher for OG&E; smart grid plan approved

High temps in the Oklahoma and Arkansas pushed second quarter income up more than 33% for Oklahoma City-based Oklahoma Gas & Electric.

The utility reported Thursday (Aug. 4) net income of $103 million, up 33.24% compared to the second quarter of 2010. The per share earnings of $1.05 blew past the consensus analyst estimate of 88 cents.

Total revenue during the second quarter was $978.1 million, up 10.24% from the 2010 period.

OG&E has more than 786,000 customers in a service territory spanning 30,000 square miles in Oklahoma and western Arkansas, and of OGE Enogex Holdings LLC, a midstream natural gas business with principal operations in Oklahoma. Of its customer base, about 64,700 are in western Arkansas.

For the first six months of 2011, the company had revenue of $1.818 billion, up 3.15% from the 2010 period. Income for the first half totaled $127.8 million, or 25.9% higher than in the 2010 period.

"The summer heat in our service area highlights the outstanding performance by our members to serve our customers, as well as the importance of our continuing infrastructure investments for reliable service," Pete Delaney, OGE Energy chairman and CEO, said in the earnings statement. "In our midstream business, we’re pleased to report margins are up in all areas as we continue to see growth in the natural gas liquids-rich basins of the midcontinent."

In a conference call with analysts, Delany said the past few days has seen peak demand reach 7,000 megawatts, “an unprecedented 400 megawatt increase in our peak demand over last year’s record peak.”

According to the company, the revenue and income increase was due primarily to hot weather, with cooling-degree days 20% higher and 62% above normal. Net income in the electricity segment was $79 million, up over the $60 million in the 2010 quarter.

Revenue in the electricity segment derived from residential customers totaled $234.4 million in the second quarter, up 12.85% compared to the 2010 period.

Enogex, the company’s natural gas sector, posted net income of $25 million, up from $19 million in the 2010 period.

Delany also noted in the conference call that a smart grid settlement was reached in Arkansas with the Public Service Commission that allows the utility to move forward with replacing about 58,000 meters in its Arkansas territory.

Indeed, on Aug. 3, the PSC did sign off on an agreement between the Arkansas Attorney General’s office, Gerdau MacSteel and OG&E.

OG&E, in a filing first made Dec. 17, 2010, asked for approval to add a surcharge to consumer bills to pay for the upfront costs of the new digital-measuring and management systems. OG&E has said the “net present value benefit” of the new technology to Arkansas customers after 15 years of use will be $26.3 million.

The AG’s office rebutted the benefit claim and MacSteel objected to the smart grid costs being applied to the industrial class at the residential rate. But a June 22 agreement modified the revenue return provision for OG&E, required certain customer education efforts and created variables in the different rate classes. (Link here for the lengthy document detailing the smart grid agreement.)

OG&E shares (NYSE: OGE) closed Thursday at $46.66, down $2.76. During the past 52 weeks, the share price has ranged from a high of $53.50 high and a $33.87 low.