Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 OGE Energy earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I will now like to hand the conference over to your host, Todd Tidwell. Sir, please go ahead.

Thank you Lateef. Good morning everyone and welcome to OGE Energy Corp's fourth quarter 2019 earnings call. I am Todd Tidwell, Director of Investor Relations. And with me today I have Sean Trauschke, Chairman, President and CEO of OGE Energy Corp and Steve Merrill, CFO of OGE Energy Corp. In terms of the call today, we will first hear from Sean, followed by an explanation from Steve of the 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 webcast and you may follow along on our website at ogeenergy.com. In addition, the conference call and accompanying slides will be archived following the call on that same website. Before we begin the presentation, I would like to direct your attention to the Safe Harbor statement regarding forward-looking financial 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 a Reg G reconciliation for gross margin in the appendix. I will now turn the call over to Sean Trauschke for his opening comments. Sean?

Thank you Todd. Good morning everyone and thank you for joining us on today's call. Earlier this morning, we reported 2019 consolidated earnings of $2.16 per share compared to a $2.12 per share last year. This includes earnings at the utility of $1.74, well above our initial 2019 midpoint of $1.58 per share. Steve will discuss the details of our full year earnings and the fourth quarter in a moment, but first I would like to spend a few minutes talking about our 2019 accomplishments and areas of focus for 2020. I do want to begin by congratulating everyone at the company on another successful year around safety. Our members consistently demonstrate their commitment to a culture of excellence as they work towards achieving an incident and injury free workplace. Their efforts in 2019 continued our trend of the last four years, being the four safest years in our company's history. Well done. Speaking of history, we are celebrating our 118th anniversary today. As we begin this new year and new decade, we honor those who came before us as we embark on a new chapter in our company's history. Emerging from the completion of our decade-long journey of environmental compliance investments, we now look to the future growth of our company through the lens of three priorities, growing our business, growing our communities and growing the capabilities of our employees. The integration of our River Valley and Frontier power plants continues at an excellent pace. These plants are saving our customers money. They are having a positive economic impact on the communities where they are located and we continue to enhance operations, improve efficiency and lower emissions at these plants. Now, we grow our business by enhancing the customer experience. We do this in a variety of ways. The…

Thanks Sean and good morning everyone. For the fourth quarter, we reported net income of $35 million or $0.18 per share as compared to net income of $55 million for $0.27 per share in 2018. The contribution by business unit on a comparative basis is listed on the slide. For the full year 2019, we reported earnings of $434 million or $2.16 per share as compared to net income of $426 million or $2.12 per share in 2018. At OG&E, net income for the quarter was $29 million or $0.15 per share as compared to net income of $21 million or $0.10 per share in 2018. For the quarter, gross margin increased $28 million primarily due to the addition of environmental assets River Valley and the Frontier plants resulting in considerable savings to our customers. O&M was flat for the quarter and actually down on the per customer basis. Depreciation expense increased by $13 million for the quarter due to additional plant and service primarily associated with generation assets. Net other income decreased $8 million due to lower AFUDC and the tax gross up related to the completion of the environmental projects. Finally, income tax expense decreased $2 million primarily due to an increase in the amortization of net refundable deferred taxes and higher tax credits. Now turning to the full year at OG&E. Net income for the year was $350 million or $1.74 per share as compared to net income of $328 million or $1.64 per share in 2018. Gross margin for 2019 increased $67 million, which I will discuss on the next slide. Looking at the key drivers for the year, they are very similar to the quarter. O&M increased $19 million primarily due to new expenses related to the River Valley power plant, which has a margin…

[Operator Instructions]. Our first question comes from the line of Julien Dumoulin-Smith of Bank of America. Your line is open.

Hello?

Hi. This is Richie. Can you hear me?

Hi Richie, it's Sean. Good morning. How are you today?

Hi. Good morning. Doing well.

Good.

Just had a quick question for you. You are pointing to the low-end now for Enable guidance. Enable's management recently came out with saying essentially they needed to see like a rebound in commodity prices to get to the midpoint of their guidance range. I was just curious, how you are feeling about the Enable distribution now? And if there was any potential cut in the distribution, how would that impact your balance sheet, i.e. could you absorb any potential cash flow impact or would you look to expand the FFO to debt metrics?

Thanks Richie. Thanks for the question. Their guidance supports a 1:3 coverage ratio. So if you back in and do the math, that's a roughly $160 million of cash cushion there. So we feel very good about the distribution in that regard. As far as the distribution cut, we don't see it but we have said many times, if Enable cut the distribution 10%, that would be $14 million to us. That's not going to move the needle in our credit metrics, as an example.

Okay. That's very helpful.

Okay. But look, that 1:3 coverage is really strong and that cash cushion they have, that's why when we created Enable, we built the balance sheet to be strong to weather environment like this. They are built for the long term.

Got it. That makes a lot of sense. And then separately, I was just curious on the utility growth outlook, 4% to 6%. Should we be using the new 2020 guide at OG&E or still the 2019 base after you adjust out weather and normalize that for other one-time items?

Yes. Richie, a clean number for 2019 that we would use as our base for growth is $1.65. So given where our midpoint of our guidance is, that's 6% growth rate from 2019 to 2020.

Got it. That's very helpful. And then just last one on the grid mod rider or excuse me, the enhanced recovery mechanism in Oklahoma. Just curious how much regulatory lag could that potentially mitigate if that were to be approved?

Yes. It will basically mitigate all of it because these projects are short term in nature and we would go in each quarter with those projects that have been completed and then rates would go into place within 30 days after a commission review. So at the most, 30 days of lag associated with each quarter's completed investments.

All right. Thank you. That's very helpful.

Thanks Richie. Have a great day.

You too. Take care.

[Operator Instructions]. Our next question comes from the line of Vedula Murti of Avon Capital. Your line is open.

Hi. Good morning Sean.

Hi. Good morning Vedula. How are you?

Hi. I am okay. Just so I understand this regulatory mechanism, has this been approved or is this already part of our some statute that already exists that you will be applying these expenditures to? Can you explain it to me a little bit more? And whether there is any regulatory steps that need to occur prior to initiating this?

Yes. So, a good question. So this has been a very constructive and thoughtful process of partnership really that we have had with the commission and customers and the staff laying out this framework. So we made this filing. We will go through the normal customer hearings. And we have filed testimony. The commission held a public meeting where we could kind of talk about the attributes of these investments we are talking about here. So we would expect an order later this year to approve this mechanism for us. And to your other question, we are not expecting, we don't need any other regulatory approvals or anything like that. This is just what I would characterize as normal course.

So this will be principally a 2021 and ongoing effect?

Yes. This has a bigger impact in 2021. We certainly want to get this done this year and get starting, get mobilized. But yes, this is a 2021 impact.

Is there procedural schedule in terms of accomodation --

Yes. Not at this time, not yet.

Okay. Thank you.

Thanks Vedula. Have a great day.

Thank you. Our next question comes from Anthony Crowdell of Mizuho. Your line is open.

Hi. Good morning Sean. Good morning Steve.

Hi Anthony. Good morning.

Good morning Anthony.

Hopefully, easy question. Just if I wanted to, I guess, dig deeper into the write-down, one is, you are including that in your operating number, any chance why you are didn't exclude and I believe that some of the reason you wrote it down was lower commodity prices. If commodity prices rebound, do you then mark that back up?

You don't. This was really goodwill at Enable, which the way the accounting rules work now, you don't amortize goodwill. It just sits there. So now that it has being written off, it's gone. It will have no future impact on a go-forward basis. So there is not a ride up that would occur if commodities rebound.

Any reason you guys didn't back that out of your earnings number, like an ongoing number?

Well, we called it out but the SEC is really cracking down on non-GAAP items and that's considered a non-GAAP item when we back that out. So we just chose to at least highlight it, but not report that as a special item.

Great. Thanks for taking my question.

Thanks Anthony.

Thank you. At this time, I would like to turn the call back over to Sean Trauschke for closing remarks. Sir?

Thank you Lateef. Thank you all for your interest in OG Energy Corp and for being on the call today. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.