Fitch: Oklahoma Commission's Order Raises Credit Concerns for OG&E and OGE

NEW YORK--()--Oklahoma Corporation Commission's (OCC) denial to pre-approve Oklahoma Gas and Electric's (OG&E; 'A' IDR, Outlook Stable) Environmental Compliance Plan (ECP) raises credit concerns primarily due to the uncertainty created amidst a tight deadline to comply with the federal mandates. However, in Fitch's view the order does not warrant a negative rating action at this time as OG&E and its parent OGE Energy Corp. (OGE; 'A-' IDR, Outlook Stable) have reasonable headroom in their credit metrics and the completion of a large capex spending program in 2013 alleviates immediate negative pressure. Fitch will closely monitor OGE and OG&E's course of actions and the likely financial impact to assess whether a Negative Rating Outlook or a downgrade is appropriate.

OG&E is required by the Environmental Protection Agency (EPA) to meet emission limits for nitrogen oxide (NOx), sulfur dioxide (SO2), and mercury. The deadline for meeting the SO2 emission requirements is January 2019. On Dec. 2, 2015, OCC issued an order denying OG&E's request for pre-approval of it ECP, stating that OG&E failed to demonstrate the financial benefits of its plan over alternatives such as renewables, acquiring existing generation facilities or power purchase agreements. It also indicated that OG&E failed to assess availability of existing natural gas-fired combined cycle plants. The decision, which took 16 months to deliver, set a negative tone in a jurisdiction Fitch has long considered as supportive.

In Fitch's opinion, OG&E has several alternatives including challenging the order in the courts, submitting a new plan that addresses OCC's concerns, and/or filing a general rate case. Fitch considers submitting a new plan for pre-approval the most prudent approach from a credit perspective, although it could be a time consuming process. If OG&E proceeds with a general rate case, it is allowed to implement the requested rate increase if OCC doesn't render a decision within 180 days.

OGE and OG&E's ratings and Outlooks are closely linked, as OG&E is the primary subsidiary of OGE. Fitch intends to maintain the existing one-notch difference between the two companies' ratings primarily due to OGE's ownership interest in Enable Midstream Partners ('BBB' IDR, Outlook Stable), a publicly listed master limited partnership, which has a materially riskier credit profile than OG&E.

Additional information is available at 'www.fitchratings.com'.

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Contacts

Fitch Ratings
Julie Jiang
Director
+1-212-908-0708
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Kevin Beicke
Director
+1-212-908-0618
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Julie Jiang
Director
+1-212-908-0708
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Kevin Beicke
Director
+1-212-908-0618
or
Media Relations
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com