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OGE Energy's Unit Files for Rate Hike to Recover Investments

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OGE Energy Corporation’s (OGE - Free Report) subsidiary, Oklahoma Gas and Electric, recently announced that it has submitted a proposal to the Oklahoma Corporation Commission for a rate increase of $77.6 million per year. Notably, the company is trying to recover $609-million investment made to adhere to the federal Regional Haze Rule. Also, it has installed emissions-reducing scrubbers on the two coal-fired units at Sooner and is converting two units from coal to natural gas at Muskogee.

The projects have been completed on time and are under budget and scheduled to go online in January 2019. If approved, customers will witness an increase in monthly bills of $7.60. Even if the rate hikes is approved the company rates will be among the lowest in the country, at 31% below the national average.

OGE Energy is installing scrubbers to lower emission and follow environmental rules. The facility is expected to reduce sulfur dioxide emissions by nearly 90%, nitrogen oxide by 75% and carbon dioxide by 40% for the plants from beginning of 2019.

Importance of Rate Hikes

Regulated Utility companies are capital intensive and keep on making investments toward maintenance as well as upgrade of utility infrastructures. The recovery of the investments is mostly done through rate hikes, which is a common trend in the utility sector. OGE Energy’s rate hike appeal, if approved, is expected to contribute significantly to total revenues.

Long-Term Plan

Between 2018 and 2022, OGE Energy plans to spend around $5 billion, up from the previous five-year investment plan of $3.3 billion. Higher capital spending capabilities reflect enhanced operations, based on which OGE Energy expects long-term utility growth rate in the range of 4-6% with 2018 as the base year.

Moving Toward Emission Free Environment

In the past few years, people have become more conscious about pollution-less environment. The awareness increases the demand for renewable energy sources over coal. The usage of renewable energies and natural gas is increasing rapidly. Utilities and corporations are shifting to renewables, courtesy of declining costs of solar and wind technologies as well as rising demand for more carbon-constrained practices.

The U.S. Energy Information Administration (EIA) expects power sector coal consumption to fall 8% in 2019.

Price Movement

OGE Energy has outperformed the industry in the last 12 months. The company’s shares have returned 17.4% compared with industry’s decline of 0.5%.

Zacks Rank & Key Picks

OGE Energy currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A few other top-ranked stocks from the same industry are Ameren Corporation (AEE - Free Report) , IDACORP, Inc (IDA - Free Report) and Xcel Energy Inc (XEL - Free Report) . While IDACORP sports a Zacks Rank #1, Ameren and Xcel Energy hold a Zacks Rank #2.

Long-term earnings growth of Ameren, IDACORP and FirstEnergy is pegged at 6.80%, 2.80% and 5.90%, respectively.

The Zacks Consensus Estimate for 2019 earnings of Ameren, IDACORP and FirstEnergy inched up 0.3%, 1.1% and 0.7%,in the past 90 days, respectively.

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