Todd Tidwell – Investor Relations Peter Delaney – Chairman and Chief Executive Officer Sean Trauschke – President Stephen Merrill – Chief Financial Officer

Good day ladies and gentlemen and welcome to the Fourth Quarter 2014 OGE Energy Earnings Conference Call. My name is Katrina and I’ll be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question-and-answer session. [Operator Instructions] As a remainder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Mr. Todd Tidwell. Please proceed.

Thank you and good morning everyone, and welcome to OGE Energy Corp's fourth quarter 2014 earnings call. I'm Todd Tidwell, Director of Investor Relations and with me today I have Pete Delaney, Chairman and CEO of OGE Energy Corp; Sean Trauschke, President of OGE Energy Corp; and Steve Merrill, CFO of OGE Energy Corp. In terms of the call today, we will first hear from Pete, followed by a regulatory update from Sean and an explanation from Steve of year-end and fourth quarter results, and finally, as always, we will answer your questions. I would like to remind you that this conference is being web cast and you may follow along at our web site at oge.com. In addition, the conference call and accompanying slides will be archived following the call on that same web site. Before we begin the presentation, I would like to direct your attention to the Safe Harbor statement regarding forward-looking statements. This is an SEC requirement for financial statements, and simply states that we cannot guarantee forward-looking financial results, but this is our best estimate to-date. I would also like to remind you that there is Regulation G reconciliation for gross margin in the Appendix, along with projected capital expenditures and more detailed assumptions around 2015 guidance. I will now turn the call over to Pete Delaney for his opening comments. Pete?

Thank you, Todd. Good morning everyone and thank you for joining us on today’s call. Earlier this morning, we reported 2014 consolidated earnings of $1.98 per share compared with $1.94 in 2013. And for the fourth quarter EPS was $0.29 in line with the fourth quarter of 2013. The Utility reported earnings of $1.46 per share with mild summer weather that we discussed in the last call impacting our earnings by about $0.07. Looking back, 2014 was the end of a productive five-year period for OG Energy marked by the IPO of Enable Midstream Partners and OG&E’s successful completion of major infrastructure investments, while significantly improving key operational metrics that position the company to be successful as move forward. Commodity prices have been receiving a lot of attention recently with good reason. As we know oil and gas sector is subject to inevitable commodity cycles in the recent down draft as - they are more precipitous than most and energy companies have responded in kind. Some energy companies here in Oklahoma have announced layoffs that will be expected to increase our unemployment rate, which I will remind you the latest economic statistics still put at below 4% for Oklahoma City and near 4% for the State. So, we have continued to experience strong economic growth here in Oklahoma. Fortunately, as we’ve compared to some of the past cycles the State and local economies here are more diverse than they have been. We are experiencing job growth across industries outside the energy sector that point to Tinker air force base, which employs more than 26,000 civilian and military employees, continues to grow with a recent 500 million expansion soon to be underway to serve, that’s really to serve the new Pegasus [ph] supertanker maintenance repair contract that was awarded to Tanker…

Thanks, Pete, and good morning. First I want to convey that we are on plan with regard to the schedule to being compliance with our environmental ruling. As Pete mentioned the hearings on our environmental compliance plan begin next week and we hope to receive an order shortly thereafter. In addition, we will file for recovery with the Arkansas commission and begin recovering the low NOx burners, which are already in service in April. I am going to provide you with an update on our progress and you will recall that our plan is for Regional Haze and the utility MATS compliance. Regarding the ACI Systems for MATS compliance, we expect to finalize installation contracts in the second quarter of 2015 and the construction will commence in the second half of this year to meet the April 16 compliance deadline. Turning to Regional Haze compliance plan, we have completed the installation of three of the seven low NOx burners, the fourth will be completed this spring and we are in the permitting process for the remaining three units at seminal to be completed each over the next three years. The equipment and installation vendors for the two dry scrubbers at Sooner have been selected and the schedules and budgets are on plan. Engineering studies for the conversion to two gas plants at Muskogee from coal are ongoing and expected to be complete by the middle of this year with permit applications submitted to the Oklahoma department of environmental quality in the second half of 2017. Recall, our plan is to continue to run these coal units as long as possible to maximize the benefits for our customers. Bids for the Mustang plant turbines have been received and we are in selection process. The turbine selection is important because it is…

Thank you, Sean. For the fourth quarter, earnings were comparable to 2013 with net income of $58 million or $0.29 per share for both periods. The contribution by business units on a comparative basis is listed on the slide. And for the full year of 2014, we reported net income of $396 million or $1.98 per share as compared to net income of $388 million or $1.94 per share in 2013. As you recall, the loss at the holding company in 2013 was primarily due to the cost associated with a formation of Enable Midstream. At OG&E, net income for the quarter was $37 million or $0.19 per share as compared to net income of $29 million or $0.15 per share in 2013. For the quarter, gross margin came in stronger as we saw an increase of approximately $13 million or 5% primarily due to transmission revenues, higher average prices and new customer growth partially offset by mild weather. Heating degree days were 14% below last year and 3% below normal. Now looking at other key drivers, O&M improved a $11 million driven in part by the timing of ongoing maintenance at the power plants. You will recall on the third quarter call, O&M expenditures were above the prior period due to this timing issue. What’s important to note is that the company remained on plan for the entire year. Depreciation increased $10 million primarily due to four large transmission lines that were added in 2014. Income tax expense increased $5 million due to higher pretax net income. Now, turning to the full year, at OG&E net income for the year was $292 million or $1.46 per share as compared to net income of $293 million or $1.47 per share in 2013. Gross margin for 2014 came in stronger as…

Thank you. [Operator Instructions] Your first question comes from the line of Neil Mitra. Please proceed.

Hi, good morning.

Good morning, Neil.

I had a question on the O&M outlook for 2015. It looks quite a bit higher than 2014 and correspondingly the Utility earnings seem to decrease year-over-year. Could you may be talk about the drivers behind the Utility earnings in 2015?

Sure. The key drivers really O&M is only up modestly from 2014. The real key driver that’s impacting results for 2015 are a few things. Its increased depreciation associated with new plant and service, that’s about $0.07 to 2015. We’ve got that expiring wholesale contract in Arkansas, that’s about $0.03 lag on 2015. And then that retail portion of the transmission that we need to recover in associated depreciation and property taxes with that about $0.04.

Got it. So when you file for the rate case, do you expect all of this to be trued up?

We do. Yes, at the end of 2015.

And to be clear, the rate case is going to be filed with this year or next year or you haven’t decided yet?

Neil, we’ll file that as soon as the writer is in place for the environmental compliance plant and we expect to file that this summer.

Okay. And then for the rate case, what test year is going to be used, is it 2015?

Well, we have – we will use the 2014 year end test year and we have the opportunity to utilize six month look forward. I will tell you if the writer goes in place later in the year, in the summer, we will look to update that with the most current quarter. So we could actually move that up and include to Q1 of 2015.

Okay. So just to be clear or so kind of 2014 since you outlined as a drag between 2014 and 2015, can all of that be recovered if you use 2014 as a test year or how would you plan to recover?

No, it will all get picked up. It will all get picked up regardless of the test year we use.

And then, sorry, go ahead.

Go ahead.

I think in the past you guys have guided towards Utility growth rate kind of around 5%, have you updated that or is earnings backend loaded versus frontend loaded, can you just comment on that?

Yeah. So historically, we had a consolidated growth rate of 5% to 7% and that included our Enogex since we – as Pete was talking about in his comments since we moved Enogex to Enable and it’s become a standalone MLP, we are really communicating 3% to 5% growth rate at the Utility. That’s actually consistent with what it was previously. Where we were previously is we had a 3% to 5% growth rate to Utility and then in Enogex was the really growth engine that got us to a consolidated 5% to 7%. As we look forward to this 3% to 5% growth rate, you can look at our CapEx table. We have a large percentage of the capital expenditures related to the environmental plan are towards the back end of this period, and that was done intentionally, Neil, to really mitigate the impact of customers.

Got it. Okay, great. Thank you.

Your next question comes from the line of Matt Tucker. Please proceed.

Hi guys, good morning.

Good morning.

Good morning.

Just first question on the dividend K you target, it seems like Enable is kind of [indiscernible] suspended their longer term guidance. So I am just curious what gives you confidence in maintaining that target and are you willing to up your Utility payout ratio if you needed to support that.

Matt, it’s Pete. When we - actually couple of others on the last call and the work that we went through when we established our guidance of – what we did our 11% increase in September of last year and we gave our 10% dividend growth rate. Of course we looked at a Marryat of financial scenarios and looked at our financial flexibility. We recognize and the voice recognize that we have cycles in Western cycles and commodity cycles, Western cycles in the Utility business and commodity cycles in the other business and the Enable business. And when we gave our guidance of 10% per year on a dividend growth rate, we did that with a high level of confidence at our ability to meet those objectives. And so as I think I mentioned in my remarks when they lower their guidance for 2015 on cash distributions, we came out quickly and reiterated that that is not going to change our plans to grow our dividend at a 10% annual rate for the next five years. Our current plans are to continue to recommend that to the Board of Directors. We seem to, from our standpoint, the financial flexibility to continue to do that and still invest in our utility. We talked about the generation portfolio, what we are doing there. We plan to be able to accomplish that, continue to build out our smart grid platform and not have to go the equity market. So yes, we do continue to plan on that 10% dividend growth rate.

Okay, great. That was helpful. And then just in the recent past on past calls you’ve talked about SPP, per quarter 1,000 transmission opportunities, I believe they came out with a long-term plan around year-end. Could you just talk about what opportunities you still see there and how that compares to what you were thinking previously?

Sean?

Sure. So, Matt, this is Sean. When the SPP came out with their recent plan, there were not a lot of new projects out there. There certainly were not many what we would consider competitive projects. To be honest with you, that’s what we expected. We expected with the significant amount of transmission has been built over the previous five years. A lot of that was built by us. We thought that there was a bit of digestion that was going to go on in the SPP and that’s what occurring. We do have some notices construct for two lines that occur beginning in ’17, ’18. We will build those and we are active in continuing to evaluate opportunities, but at this time there is nothing on the horizon that’s not been previously disclosed.

Okay, thanks and apologize if you just said, this I missed it. But with the Utility growth target, should we be thinking about 2014 as a base year, 2015, could you just comment on that please?

Yes, you can use either one.

I guess I am just thinking if you are using 2014 and 2015 ends up flattish like you are guiding to, that implies a stronger may be towards the high end of the growth rate thereafter to catch up, is that how we should be thinking about it?

I think just for the sake of simplicity, you can use 2014.

Okay, thanks guys. I’ll jump back in the queue.

Okay.

Your next question comes from the line of Arshad Khan. Please proceed.

Good morning. I guess my question was, I was trying to find out what should be the base line for the growth of the utility so I guess we can use 2014 as that base line right?

Sure.

Thank you.

Your next question comes from the line of Anthony Coldwell. Please proceed.

Hi, good morning. It’s Anthony from Coldwell Bankers. Just…

Hey, good morning, Anthony.

Good morning. Tough market right now with this weather, not many home buyers. Just some quick housekeeping first, what’s a good tax rate to use at the corporate level here when I think if the distribution is coming in OG&E earnings, what’s reasonable tax rate to use at the corporate level?

Yeah, corporate level about 30% effective rate.

Okay. And you may have said this earlier in your remarks and I missed it, just - you’ve given a growth rate at the Utility, I know with Enable, have you given a growth rate at a consolidated company or thoughts on giving a growth rate?

We have and we’re really trying to move away from that because what’s important is articulated on the call is the cash that’s coming in from Enable. So we will put a growth rate around that but we are really just moving towards a Utility growth rate and then the increasing cash that’s coming in from Enable.

Okay. And then I guess lastly, I guess it was new from may be the third quarter call or even at EEI, I guess the extension bonus of depreciation, I think you said you’re not going to be a cash tax payer I guess until if I heard correctly 2018. And I guess that’s new from previously I think you were not going to be a cash tax payer either end of ’15 or may be ’16 it was.

That’s correct. I mean the bonus depreciation really had a significant impact on us, that’s about $140 million worth of cash to us, so that really pushed our full cash tax payer status out.

So, it doesn’t look like CapEx is really changing, your CapEx plan has stated the same and you’re now just having extra $140 million of cash. Any plans you have for the $140 million?

It’s going to be to fund – our CapEx while it doesn’t ramp up significantly till the tail end, we do have significant CapEx for next year and then we’ll also be funding our dividend growth. So I think I went over the cash flow slide for ’15, we have about $115 million of excess cash that’s available in 2015. We will start paying some cash taxes. We just aren’t full payer until 2018, but it does ramp up.

But I guess I am looking at it slightly differently that at third quarter call in EEI you were funding all those great CapEx with no equity. You went out to dividend, I believe the dividend growth was announced prior to the extension of bonus depreciation and I may be wrong on that, so I am thinking that this $40 million [ph] is incremental to funding a dividend and CapEx, is that fair?

It is, that’s primarily what it is. The cash taxes, while it will change a little bit what it really does is just smooth out our cash needs over that period of time. It would push out a little bit of financing needs that we would have in lighter years.

Great. Thanks for taking my question guys.

Thanks, Anthony.

Thanks.

Your next question comes from the line of Brian Russo. Please proceed.

Hi, good morning.

Good morning.

Good morning, Brian.

Just on the 3% to 5% EPS CAGR at the Utility, should we use weather normalized 2014 as a base?

Yeah.

Okay. And just to kind of reiterate what you said earlier, it looks like you are experiencing some regulatory lag in 2015, which would be captured in this upcoming rate case, when would you expect new rates to go into effect?

Early in ’16.

Okay. And is that a statutory deadline because if I recall in the past you’ve experienced delays in final outcomes in your rate cases?

Right. Now there is - we do have the opportunity to begin implementing rates within 180 days, but depending on when we file the case and that’s why we said beginning at ’16 end of ’15, but that’s what our expectation is, I don’t think we will have a long projected process.

Got it. And any thoughts on what your kind of earned ROE is at the mid-point of your utilities 2015 guidance?

So let me answer it this way Brian, if we thought about year-end ’14 we were probably earning around 10% in Oklahoma, obviously Arkansas is much lower than that and the FERC transmission we are in our allowed 11.1.

Okay. Alright and…

And so to your point with the lag going down you will see the earned ROE in Oklahoma decline from what year end 2014 was.

Okay great and how confident are you in the continuation of your 1% customer growth. It’s hard to believe that you won’t experience some impact of the layoffs in the energy sector and the ancillary services in your service territory, so just if you kind of elaborate a little bit more as to what you are seeing today and what you expect to see kind of a year or two from now?

Brian, so yeah we are seeing some of the - of course service companies throughout Oklahoma close some offices, some of the - there has been some decline in employment in some of the companies based here - oil and gas companies based here not the big ones for say, but some of the smaller ones. We continue to and I mentioned Tinker, you know we’ve got GE who has moved building worldwide oil and gas research here and that’s ramping up. Boeing continues to move people research here. Tinker has got this large mission that’s going to go on through next fourth, fifty years out there. And so we do see away from the oil and gas sector areas of growth in Oklahoma. We see - we have a lot of construction still in - funded in Oklahoma City by the math is a $800 million tax that was put in for - it was like seven or eight years and so there is a lot of store construction here. So, we see - and again we still see and as you know from probably Enable’s call and some other calls we still see growth in production in Oklahoma, however it is not at the same rate it was. In parts of Oklahoma and there is still lot of CapEx being spent here. So, it is always hard to predict, so it’s a mixed bag because we got pluses and minuses. Of course it’s not going to be as strong as it was looking at ‘15, Of course we will see where commodity prices go, that’s anybody’s guess at this point in time, but we do have other areas that - in Oklahoma City is attracting a lot of new businesses. So, it’s - we see no reason at this point to everything that we see going on in the Community instance that we would back off for 1%. That seems to be very consistent. I think for the last ten years or so, I mean we showed a 0.9% to 1%, it’s been very consistent. So, we are not, I think we are still from a planning perspective expecting that at this point.

Alright, so you are at the mid-point of your ’15 guidance that kind of encompasses kind of that 1% to 1.4% with a normalized load growth?

1%.

Okay, alright great. Thank you very much.

You’re welcome.

With no further questions at this time, I would now like to turn the call back to Mr. Pete Delaney for any closing remarks.

As always I would like to recognize our members whose hard work and commitment have driven our results and I believe deliver these results and again I want to thank all of you for your continued interest in OG Energy, have a great day.

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.