OGE Energy Corp
.’s (OGE - Free Report
) subsidiary, Oklahoma Gas & Electric Company (“OG&E”), recently received approval from the Oklahoma Corporation Commission (OCC) for acquiring Oklahoma-based Shady Point plant and the Oklahoma Cogeneration LLC facility. OG&E will pay a total of $53 million for the two power plants.
In addition to the OCC approval, the transaction also requires approval from The Federal Energy Regulatory Commission (FERC) and Arkansas regulators.
What Will the Buyouts Offer?
Post all the regulatory approvals related to the proposed acquisition agreement, OG&E anticipates its customers to save millions of dollars each year from the elimination of costly, federally mandated agreements, which will provide reliable energy to the customers at much less costs.
The coal and natural gas-fired Shady Point power plant will provide 360 megawatts (MW) of power to OG&E, post the acquisition. It is expected to help OG&E in maintaining grid stability in eastern Oklahoma and western Arkansas.
On the other hand, the acquisition of the natural gas-fired combined-cycle Oklahoma Cogeneration power plant will provide OG&E up to 146 MW of power to continue support reliability and resiliency of electricity in the ever-growing Oklahoma City-metro area.
The combined 506-MW-generating capacity will also benefit the company’s customers by further reducing OGE Energy’s electricity rate, which is currently 31% below the national average.
Rationale Behind the Deal
As demand for electricity is increasing rapidly across the United States, Oklahoma currently ranks 11th among all states in relation to energy used per capita (per the latest report by the U.S. Energy Information Administration). Notably, electricity consumption per capita in Oklahoma is greater than it is in about three-fourths of the United States. Keeping in tandem with the global transformation toward a cleaner energy environment, coal fueled power generation has decreased drastically in this state.
As coal's contribution witnessed a dip, the share of state generation from natural gas has remained relatively stable, with natural gas-fired power plants having contributed half of state electricity generation in 2018.
In this backdrop, it is quite obvious that major utilities in the state like OGE Energy shall strive for expanding its natural-gas fueled power generation capacity to meet the growing need for electricity with a cleaner approach. With this strategy in view, OGE Energy had filed a preapproval request to the OCC, last December, as OG&E entered the two deals for acquiring the Shady Point plant from AES Corporation (AES - Free Report
) and the other facility from Oklahoma Cogeneration.
These acquisitions will support OGE Energy’s aim to further reduce its power plant air emissions, particularly mitigating CO2 emissions to 50% by 2030. Impressively, OG&E power plant emissions are already significantly lower from the 2005 level, with sulfur dioxide emissions lower by nearly 90%, nitrogen oxide by 75% and carbon dioxide by 40%. The latest buyouts should enable OG&E to further progress in such emission reductions.
OGE Energy’s stock has gained 24.1% in the past year compared with the industry
’s growth of 14.1%. The outperformance may have been led by a systematic investment in base distribution and generation projects.
Zacks Rank & Key Picks
OGE Energy currently carries a Zacks Rank #3 (Hold).
DTE Energy delivered average positive earnings surprise of 12.24% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen by 0.3% to $6.20 in the past 90 days.
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