OGE ENERGY CORP. (OGE)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following combined discussion is separately filed by OGE Energy and OG&E. However, OG&E does not make any representations as to information related solely to OGE Energy or the subsidiaries of OGE Energy other than itself.

Introduction and Overview

OGE Energy is a holding company whose primary investment provides electricity in Oklahoma and western Arkansas. OGE Energy's electric company operations are conducted through its wholly-owned subsidiary, OG&E, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas and are reported through OGE Energy's electric company business segment. OG&E's rates are subject to regulation by the OCC, the APSC and the FERC. OG&E was incorporated in 1902 under the laws of the Oklahoma Territory and is the largest electric company in Oklahoma, with a franchised service territory that includes Fort Smith, Arkansas and the surrounding communities. OG&E sold its retail natural gas business in 1928 and is no longer engaged in the natural gas distribution business.

The accounts of OGE Energy and its wholly-owned subsidiaries, including OG&E, are included in OGE Energy's condensed consolidated financial statements. All intercompany transactions and balances are eliminated in such consolidation.

OGE Energy's purpose is to energize life, providing life-sustaining and life-enhancing products and services that enrich its communities, encouraging growth and a higher quality of life. OGE Energy's purpose comes with a balanced approach to multifaceted stewardship: keeping its employees (internally referred to as "members") safe, reducing its environmental impact, strengthening its diverse communities and ensuring its effective corporate governance. OGE Energy's business model is centered around growth and sustainability for members, communities and customers and the owners of OGE Energy, its shareholders. OGE Energy is focused on creating long-term shareholder value by targeting the consistent growth of consolidated earnings per share of five to seven percent through 2030, and consolidated earnings per share in the top half of the range in 2027 and 2028, supported by expected strong load growth enabled by low customer rates and a strategy of investing in lower risk infrastructure projects that improve the economic vitality of the communities it serves in Oklahoma and Arkansas. OGE Energy's long-term sustainability is predicated on providing exceptional customer engagement, strengthening the energy grid, investing in proven technologies to meet generation capacity needs, environmental stewardship, strong governance practices and caring for and supporting its members and communities. Further discussion of OGE Energy's strategy can be found in its 2025 Form 10-K.

Recent Developments

OG&E's Regulatory Matters

Current activity related to OG&E's regulatory matters is discussed in Note 13 within "Item 1. Financial Statements."

Summary of OGE Energy Operating Results

Three Months Ended June 30, 2026 as compared to the Three Months Ended June 30, 2025

OGE Energy's net income was $116.3 million, or $0.56 per diluted share, during the three months ended June 30, 2026 as compared to $107.5 million, or $0.53 per diluted share, during the same period in 2025. The increase in net income of $8.8 million, or $0.03 per diluted share, is further discussed below.

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An increase in net income at OG&E of $12.4 million, or $0.05 per diluted share of OGE Energy's common stock, was primarily due to higher operating revenues (excluding the impact of recoverable fuel, purchased power and direct transmission expense not impacting earnings) driven by the recovery of capital investments, the deferral of certain interest expense to a regulatory asset in accordance with Oklahoma PISA, and higher other income, partially offset by increased other operation and maintenance expense.

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An increase in net loss of other operations of $3.6 million, or $0.02 per diluted share of OGE Energy's common stock, was primarily due to higher interest expense and lower net other income driven by a one-time benefit related to activity at OGE Energy's legacy midstream operations recognized in 2025, which was partially offset by increased other income from OGE Energy’s other energy-related investments.

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Six Months Ended June 30, 2026 as compared to the Six Months Ended June 30, 2025

OGE Energy's net income was $166.5 million, or $0.80 per diluted share, during the six months ended June 30, 2026 as compared to $170.2 million, or $0.84 per diluted share, during the same period in 2025. The decrease in net income of $3.7 million, or $0.04 per diluted share, is further discussed below.

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A decrease in net income at OG&E of $0.7 million, or $0.02 per diluted share of OGE Energy's common stock, was primarily due to an increase in other operation and maintenance expense, partially offset by the deferral of certain interest expense to a regulatory asset in accordance with Oklahoma PISA and higher operating revenues (excluding the impact of recoverable fuel, purchased power and direct transmission expense not impacting earnings) driven by the recovery of capital investments which offset the impact of milder first quarter weather.

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An increase in net loss of other operations of $3.0 million, or $0.02 per diluted share of OGE Energy's common stock, was primarily due to lower net other income driven by a one-time benefit related to activity at OGE Energy's legacy midstream operations recognized in 2025, which was partially offset by increased other income from OGE Energy’s other energy-related investments.

2026 Outlook

OGE Energy’s consolidated earnings guidance remains unchanged from OGE Energy's original 2026 earnings guidance range of $494 million to $514 million, or $2.38 to $2.48 per average diluted share. This guidance assumes, among other things, approximately 207.3 million average diluted shares outstanding and normal weather for the remainder of the year. OG&E has significant seasonality in its earnings due to weather on a year-over-year basis. See OGE Energy's 2025 Form 10-K for other key factors and assumptions underlying its 2026 guidance.

Results of Operations

The following discussion and analysis presents factors that affected the Registrants' results of operations for the three and six months ended June 30, 2026 as compared to the same periods in 2025 and the Registrants' financial position at June 30, 2026. Due to seasonal fluctuations and other factors, the Registrants' operating results for the three and six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026 or for any future period. The following information should be read in conjunction with the condensed financial statements and notes thereto. Known trends and contingencies of a material nature are discussed to the extent considered relevant.

Results by Business Segment

The following discussion of results of operations for OG&E includes intercompany transactions that are eliminated in OGE Energy's condensed consolidated financial statements.

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OG&E (Electric Company)

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following combined discussion is separately filed by OGE Energy and OG&E. However, OG&E does not make any representations as to information related solely to OGE Energy or the subsidiaries of OGE Energy other than itself.

Overview

OGE Energy is a holding company whose primary investment provides electricity in Oklahoma and western Arkansas. OGE Energy's electric company operations are conducted through its wholly-owned subsidiary, OG&E, which generates, transmits, distributes and sells electric energy in Oklahoma and western Arkansas and are reported through OGE Energy's electric company business segment. OG&E's rates are subject to regulation by the OCC, the APSC and the FERC. OG&E was incorporated in 1902 under the laws of the Oklahoma Territory and is the largest electric company in Oklahoma, with a franchised service territory that includes Fort Smith, Arkansas and the surrounding communities. OG&E sold its retail natural gas business in 1928 and is no longer engaged in the natural gas distribution business.

The accounts of OGE Energy and its wholly-owned subsidiaries, including OG&E, are included in OGE Energy's consolidated financial statements. All intercompany transactions and balances are eliminated in such consolidation.

Recent Developments

OG&E's Regulatory Matters

On March 27, 2025, the OCC issued a final order approving the settlement agreement relating to OG&E's 2023 general rate review and approved the ALJ report on the remaining one MW issue with one exception. OG&E also issued its 2025 IRP to the OCC and APSC and has filed for and/or received preapproval, in both Oklahoma and Arkansas, of certain generation and capacity investments identified by OG&E's IRP and related request for proposals process. These matters, as well as other regulatory matters, are discussed in Note 14 within "Item 8. Financial Statements and Supplementary Data."

Legislative Matters

Federal

On July 4, 2025, the legislation known as the “One Big Beautiful Bill” was signed into law, which includes significant changes to federal tax law and other regulatory provisions that may impact the Registrants. The Registrants will consider the legislation’s provisions, such as changes to tax credits for renewables, and the potential impact on future investment decisions.

Oklahoma

In May 2025, SB 998 was passed into law and became effective August 29, 2025. This legislation allows rate-regulated retail electric service providers, such as OG&E, to receive CWIP recovery of new natural gas generation capacity, if those proposed generation sources are approved by the OCC under existing statutory review procedures, and sets specific timelines for the OCC to review proposed projects. SB 998 also allows utilities to establish a regulatory asset to defer 90 percent of depreciation expense and return associated with qualified plant investments, that are not classified as transmission or new generation, for recovery over an allowed 20-year period in a future rate review filing. OG&E began deferring such costs to a regulatory asset in September 2025, as further discussed in Note 1 within "Item 8. Financial Statements and Supplementary Data."

Arkansas

In March 2025, Act 373 was signed into law by the Governor of Arkansas. Act 373 enables rate-regulated retail electric providers, such as OG&E, to receive CWIP recovery of "strategic investments," including (i) new electric generating facilities, including transportation and storage facilities for associated fuel, (ii) upgrades, expansions, or fuel conversions of electric generating facilities, including transportation and storage facilities for associated fuel, and (iii) new or upgraded electric transmission facilities, including substations. All projects are subject to review and approval by the APSC. Act 373 further authorizes use of a rider to recover approved strategic investments that are not being recovered through previously approved rates, upon approval of the project by the APSC.

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Summary of OGE Energy 2025 Operating Results Compared to 2024

OGE Energy's net income was $470.7 million, or $2.32 per diluted share, in 2025 as compared to $441.5 million, or $2.19 per diluted share, in 2024. The increase in net income of $29.2 million, or $0.13 per diluted share, in 2025 as compared to 2024 is further discussed below.

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An increase in net income at OG&E of $29.9 million, or $0.14 per diluted share of OGE Energy's common stock, was primarily due to higher operating revenues (excluding the impact of recoverable fuel, purchased power and direct transmission expense not impacting earnings) driven by the recovery of capital investments, which offset the impact of milder weather, partially offset by higher depreciation and amortization expense driven by additional assets being placed into service, operation and maintenance expense, income tax expense, and interest expense driven by OG&E's senior notes issuances in August 2024 and April 2025.

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An increase in net loss of other operations of $0.7 million, or $0.01 per diluted share of OGE Energy's common stock, was primarily due to higher interest expense, partially offset by higher net other income driven by a one-time benefit related to activity at OGE Energy's legacy midstream operations and a higher income tax benefit.

A more detailed discussion regarding the financial performance for the year ended December 31, 2025 as compared to December 31, 2024 can be found under "Results of Operations" below. A discussion of the financial performance for the year ended December 31, 2024 compared to December 31, 2023 for OGE Energy and OG&E can be found within "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrants' 2024 Form 10-K.

2026 Outlook

Key assumptions for the 2026 outlook are discussed below.

OGE Energy is projected to earn approximately $494 million to $514 million, or $2.38 to $2.48 per average diluted share, with a midpoint of approximately $504 million, or $2.43 per average diluted share in 2026 and is based off the following assumptions:

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OGE Energy forecasts earnings for OG&E of approximately $533 million, or $2.57 per average diluted share;

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OGE Energy forecasts a loss of approximately $30 million for other operations (primarily the holding company), or a loss of $0.14 per average diluted share;

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OG&E experiences normal weather patterns for the year; OG&E has significant seasonality in its earnings; OG&E typically shows minimal earnings in the first and fourth quarters with a majority of its earnings in the third quarter due to the seasonal nature of air conditioning demand;

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total retail load growth of approximately 4 to 6 percent;

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operating expenses of approximately $1.228 billion to $1.238 billion, with operation and maintenance expenses comprising approximately 45 percent of the total;

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net interest expense of approximately $256 million to $261 million which assumes a $14 million allowance for borrowed funds used during construction reduction to interest expense, and assumes a debt issuance at OG&E of approximately $300 million;

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other income of approximately $24 million including $26 million of allowance for equity funds used during construction;

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an effective consolidated tax rate of approximately 16.8 percent; and

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approximately 207.3 million average diluted shares outstanding.

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Results of Operations

The following discussion and analysis presents factors that affected the Registrants' results of operations for the years ended December 31, 2025 and 2024 and the Registrants' financial positions at December 31, 2025 and 2024. The following information should be read in conjunction with the financial statements and notes thereto. Known trends and contingencies of a material nature are discussed to the extent considered relevant.

Results by Business Segment

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The following discussion of results of operations for OG&E includes intercompany transactions that are eliminated in OGE Energy's consolidated financial statements.

OG&E (Electric Company)

(A)
Degree days are calculated as follows: The high and low degrees of a particular day are added together and then averaged. If the calculated average is above 65 degrees, then the difference between the calculated average and 65 is expressed as cooling degree days, with each degree of difference equaling one cooling degree day. If the calculated average is below 65 degrees, then the difference between the calculated average

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