Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 OGE Energy Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Mr. Todd Tidwell. Please go ahead, sir.

Thank you, operator, and good morning, everyone, and welcome to OGE Energy Corp.'s First Quarter 2020 Earnings Call. I'm 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 first 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 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 and reconciliation of ongoing earnings to GAAP earnings in the appendix. I will now turn the call over to Sean for his opening comments. Sean?

Thank you, Todd, and good morning, everyone, and thank you for joining us on today's call. I want to begin by recognizing the severity of the COVID-19 crisis and the impact it has had and is continuing to have on our communities. Public service is a core value that underscores all of our efforts throughout the communities we serve. In this unusual time, caring for each other is more important, I believe, than ever. We believe our company is only as strong as the communities we serve, and it's this shared responsibility to ensure our communities remain strong that will help us all navigate through this unprecedented crisis. From the outset, we took decisive action to help our customers by suspending disconnects for nonpayments and making flexible payment arrangements for residential and small business customers financially impacted by this extraordinary situation. The Arkansas Commission has allowed accounting mechanisms and processes that will allow for future recovery of costs resulting from the suspension of disconnects. The Oklahoma Commission will hear a similar request today. We are certainly appreciative of both commissions for their partnership and collaborative efforts during this typical time. We continue to engage with our communities and provide support. One example is our recent donation to the Meals on Wheels program, which basically enabled local restaurant owners to bring back their employees to provide nutritious meals and then to utilize the Meals on Wheels infrastructure to deliver those meals to homebound seniors and other families impacted by job losses during the crisis. We'll continue to monitor the crisis as it evolves and take additional actions for our customers and communities as appropriate. Of course, we also took definitive action with the health and safety of our members. We were prepared, and we executed our plans by establishing a situation…

Thank you, Sean, and good morning, everyone. For the first quarter, we reported ongoing net income of $45 million or $0.23 per share as compared to net income of $47 million or $0.24 per share in 2019. On a GAAP basis, OGE Energy Corp. reported a loss of $2.46 per share due to a $780 million impairment charge of the equity value of our Enable units. We saw a significant drop in the trading value of the units in the first quarter from our book value of just over $10 per share and determined that an impairment charge to $3.13 per share was necessary. The contribution by business unit on a comparative basis is listed on the slide. As a result of the impairment, the holding company's earnings includes a tax benefit due to a consolidating tax adjustment related to the interim period that will reverse over the course of the year. At OG&E, net income for the quarter was $20 million or $0.10 per share. First quarter gross margin at the utility increased almost $19 million, which I'll discuss on the next slide. Looking at the other key drivers, first quarter O&M expense was essentially flat despite adding the River Valley plant to our fleet. Depreciation increased $12 million as additional assets were placed into service and the depreciation expense for the Sooner Scrubbers, which was previously deferred to a regulatory asset. Interest expense increased $5 million, primarily due to additional long-term debt outstanding, along with interest expense for the scrubbers that was previously deferred in the regulatory asset. Overall, the utility is on plan and off to a good start. We are managing the business to deal with any COVID-19 impacts. Turning to first quarter gross margin. Utility margins increased approximately $19 million in the first quarter of…

Operator?

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

This is Richie here for Julien. Just wanted to ask a question around your - you reaffirmed your guide for the utility, which implicitly implies confidence in the outlook. Just wondering what you're sort of seeing with sales trends in April and what you're expecting through the year. Was the commentary around the 5% increase in resi and 5% decline elsewhere kind of what you're expecting for the year? And how are you thinking about the O&M efforts to offset that impact?

Okay. All right. Let me kind of take those in pieces here. Maybe dealing with O&M first. We were very fortunate to really have a low-growth plan in front of us, and we've been very fortunate to have growth in our service territory. And over the years, we've been diligent in making sure that our O&M per customer does not increase, and so we've been really cost-conscious in reducing our O&M costs. At the same time, we've been trying to expand our customer base. And when this came on and we saw that, we have built plans for roughly something greater than a 1% growth. I mean we were talking about that. We recognized that probably wasn't going to happen immediately, so we did not execute on those resources that we were planning to accommodate that new growth. So we've already taken those actions and revised our business plans to minimize any of that increased growth. As far as what we're seeing in sales, I mentioned to you in my remarks that we actually did see positive growth on a weather-normalized basis in the first quarter. April is probably the lowest load month we have. It's just a shoulder season, pretty calm. But it confirmed a lot of the things that we expected to see, i.e. we'd expect residential sales to increase, we'd expect some deterioration in commercial and industrial sales. What's given us that confidence is the fact that what a lot of these large commercial and industrial customers are telling us is they do have plans to start back up over the next several weeks. So the last point, we mentioned that 5%. That was just a sensitivity we were trying to give you. Residential sales represent almost 50% of the margin, so it's a large component. And so what we're trying to share with you, though - there was, as residential sales increase, it covers a large percentage of any deterioration in load from the other classes all combined.

Got it. That is very helpful. I appreciate all the color. And congrats on the - keeping the guidance for the utility. That's quite impressive. Just curious if you can potentially comment on your - any initial reaction to your peers' strategic review process?

Probably no comment. I saw that right before I walked in here, Richie, so I'm reading it at the same time you are.

Your next question comes from the line of Insoo Kim from Goldman Sachs. Your line is now open.

My first question is on the deferral filing that's currently before the Oklahoma Commission. I know - I believe you said that they're hearing is slated for today on the release or 10-Q. When is the expected decision for such a deferral? And could you detail a little bit of what would be embedded in that if - or included if that is approved?

Sure. So we would hope that the approval is today. We expect that. Just a little color around that, Insoo. This is for deferral of those bad debts and all the COVID-related expenses that we're incurring. But a piece I want to make sure is clear, this is not an OGE filing. We certainly led the effort, but we created a coalition of all the utilities, gas utilities included in Oklahoma. And so this is a utility filing that was made over at the Oklahoma Corporation Commission, and it's going to be heard this morning, and we would hope to have an order this morning.

So with the bad debt expense and I guess, COVID-related O&M costs?

Yes, yes, yes. And - I mean, that's not a - yes, that's true.

Got it. And nothing in there that includes any COVID-related sales impact?

No.

Understood. And then just on the grid enhancement plan docket, it seems like the schedule that you've laid out is pretty much in line. Any logistical delays that you're seeing because of COVID?

Not at this time. I mean - the commission is still - they're going to have this hearing today virtually. They're still conducting business as usual, and we're in constant dialogue, but no change at this point.

Your next question comes from the line of Anthony Crowdell from Mizuho. Your line is now open.

If I could jump on one of Insoo's questions. You said it was a group effort filing for the COVID-related expenses and maybe bad debt expense. Has the company quantified what their forecasted bad debt expense is to be in 2020 or 2021?

No, we haven't. There's a slight tick-up at this stage, but nothing material. And as you know, we're already allowed $3 million of bad debt expense in base rate, and we're not there yet.

Is there any chance you know what was the number that utility had hit in '08, '09 crisis? Is that something that you'd have handy?

Yes. So we had $3.1 million.

Got it.

And we're - again, we're - we have $3 million recoverable in base rates.

If I could shift to the write-down. I think you spoke about the ability to amortize that and maybe it's a $49 million impact annually. Is that something that now has to be funded with $49 million of additional equity?

No, it's really an accounting adjustment. So a way to think about it, Anthony, is we just wrote down our book value in Enable because their cash flows are strong, didn't have a write-down. So they're recording higher depreciation than effectively we - would pass through to us. So we're now accreting that back up to equalize what they are - to basically eliminate the depreciation that they're passing through to us for the write-down that we took, and that creates that accretion event. But it has really no cash implications whatsoever.

Got it. And lastly, I know it's a really small part of your business, but decline or anything in drilling activity or anything you could read through to the utilities business?

Surprisingly, through 4 quarters, it's held up. We do expect some deterioration there. But of all of our - between residential, commercial, industrial and oilfield, oilfield is the smallest sector and a smallest contributor to margin. It's less than 8%. It's important to jobs and things like that, but it's not a big driver in the long run for us.

[Operator Instructions] There are no questions from participants online. I will now turn the call over to Mr. Sean Trauschke for closing remarks.

Okay. Thank you for that. Thank you all for joining us today. Thank you for your interest in OGE. Please take care of yourselves and those around you and stay healthy. All the best, and have a great day.

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