Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2020 OGE Energy Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Jason Bailey. Please go ahead, sir.

Thank you, operator, and good morning, everyone, and welcome to OGE Energy Corp.'s second quarter 2020 earnings call. I'm Jason Bailey, 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, the second quarter results. And finally, as always, we will answer your questions. I'd like to remind you that this conference is being webcast and you may follow along on our Web site at ogeenergy.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'd 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'd also like to remind you that there is a Reg G reconciliation for gross margin and a 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, Jason, and good morning, everyone. It's great to be with you today. Before we begin, I want to take just a moment to recognize two key members who'll be retiring at year's end. The first is Steve. He's been a valuable member of our leadership team and has played an important role in strengthening the company's solid financial foundation. Steve and I have been discussing his retirement for many months. We are in the process of interviewing external and internal candidates with a plan to name a successor before year end. Next, I want to recognize Todd. As many of you know, he'll be retiring after 32 years with the company, the last 20 of which leading Investor Relations. I, like many of you, are going to miss Todd on these calls. I'm going to miss Todd out on the road. And we're probably all going to miss his invaluable facts around Oklahoma Football. I do want to welcome Jason Bailey, who has moved into the IR role. Jason has been with us since 2002. And during that time, he has developed a broad range of experience and already is doing a great job. And Steve and Todd are going to stay with us. They're not going anywhere and they'll be around for the remainder of the year. If I could describe the second quarter in a simple statement, I would use excelling through challenging times. The pandemic requires all of us to innovate and lead by example. And I'm pleased that our employees, as always, have responded to the call with outstanding performance. Some of the highlights of the second quarter included affirming our 2020 guidance, adding almost 10,000 new customers since this time last year; delivering a 5% reduction in residential fuel rates, achieving quarter-over-quarter utility…

Thank you, Sean. And good morning, everyone. For the second quarter, we reported ongoing net income of $102 million or $0.51 per share as compared to net income of $100 million or $0.50 per share in 2019. On a GAAP basis, OGE Energy Corp. reported net income of $86 million or $0.43 per share. The contribution by business unit on a comparative basis is listed on the Slide. At OG&E, net income for the quarter was $79 million or $0.39 per share. Second quarter gross margin at the utility increased $31 million which I will discuss on the next Slide. Looking at other key drivers, second quarter O&M expense was down $2 million compared to last year, but that really doesn't tell the full story. We added the River Valley plant to our fleet late in the second quarter of 2019, which the O&M wasn't in the prior year results. The impact net of the incremental plant O&M would be a quarter-over-quarter reduction of 4.5%. Depreciation expense increased $13 million as additional assets were placed into service and depreciation expense for the Sooner Scrubbers, which was previously deferred to a regulatory asset. Interest expense increased $6 million, primarily due to additional long-term debt outstanding, along with interest expense for the Scrubbers that was previously deferred in the regulatory asset. Income tax expense increased $4 million, primarily due to higher pretax income and reduced tax credit generation. Overall, the utility is on plan and we're managing the business to deal with any COVID-19 impacts. Turning to second quarter gross margin. Utility margins increased approximately $31 million in the second quarter of 2020 compared to 2019. Compared to the second quarter of 2019, the recovery of environmental assets placed into service added $28 million to margin. We also added $11 million as…

[Operator Instructions] Your first question comes from the line of Shar Pourreza with Guggenheim Partners.

So I'm going to ask a couple of questions, but one, I do have to ask a question on Enable. And what I'll do is, I'll try to ask it a little bit differently here. And kind of, I guess, the reason why I'm asking is obviously strategic options may now be aligned on the other side of your co-owner counterpart, right? So you have a new CEO in place, there's a strategic review in place at CenterPoint, you have new Board Members. Let me ask it slightly differently without getting into the details on actual strategy. Is it at least fair to assume that you are now maybe more aligned with the other GP versus the prior regime that was in place at CenterPoint as you think about Enable?

Well, I think time will tell. I think it's still early. Dave and I have talked briefly a few times. And I'm sure as things settle down for him, we'll talk more. And I look forward to getting to know him.

Got it. And then just on the Oklahoma Grid mod. It sounds like you're highlighting that you can start investment in 2021. Just remind us real quick, what's in the plan, what's the placeholder and what's incremental on that?

I mean it's really incrementally it's a couple of hundred million dollars of year of incremental CapEx. We've actually started making those investments this year. The investments are substantial this year and are primarily on the back end of the year, but we'll really go full bore with it next year, especially as we get through the regulatory schedule later this year.

Got it. And then just lastly, a follow-up on the second quarter results and COVID impacts. It looks like residential had made up a large portion of industrial and oilfield activity. Does the higher-margin resi load offset COVID impacts on earnings? And can you just talk about the O&M savings that you have achieved and have embedded in plan as you reiterated 2020 guidance?

Yes. So residential basically does offset commercial and industrial. And I think we gave a sensitivity last time, a 1% increase in residential offsets, basically a 1% on all other rate categories. So we're very fortunate that residential did shoot up. As far as COVID impacts, we've seen probably through the first half of the year about $11 million of savings. We'll see something similar probably on the back end as we continue to adjust the business to deal with the decreases in load as businesses were shut down for a period of time.

Got it. Thanks guys. And Steve and Todd, congrats on phase two of your life. And I know it's not a good bye. And I can tell you, Sean is going to miss you every quarter now.

[Operator Instructions] Your next question comes from the line of Julien Smith with Bank of America.

This is actually Richie here for Julien. Just curious with the announcement that Steve is retiring here at the end of the year. How are you guys thinking about replacing him on the Board of Enable? It seems like CenterPoint shows to keep a little distance by appointing some Halliburton members there. Is that your strategy or would you look to keep it kind of in-house and have someone from OGE appointed to the Board there?

Yes. That's a good question, Richie. I haven't really made a final decision there. Steve is going to stay on through the balance of the year. And Steve came out of that business. So he knows it very well. So I like to have people that know that business. We have some people in the company that could fill that role. But I'm going to put the best person I can on that Board to continue to maximize the value of Enable.

Got it. Thanks a lot. That's helpful. And then just separately, you mentioned like sales are improving month-to-month in your service territory with the economies reopening. Just curious how you're thinking about your guidance range in the back half of the year. Is there any upward bias to that given the O&M management you guys have been able to pursue as well as some of the weather trends, I guess quarter-to-date?

Yes. The way I would say that, Richie is, I think, as Steve mentioned more than half of the earnings come in the third quarter and weather is the big variable. We're assuming normal weather and I would point to that.

[Operator Instructions] At this time, there are no further questions. I would like to turn the call over to Sean Trauschke. I do apologize. We do have a question from David Peters with Wolfe Research.

Sean, I appreciate your comment on Enable from the prepared remarks and I know you addressed it in the first question in the Q&A. But just maybe if I could ask it little bit differently. I'm wondering if you could give just a little bit more color on kind of your latest thoughts for your ownership stake. I know historically, you guys have engaged in these types of discussions like CenterPoint has. But has that changed at all in light of recent developments across the midstream space and really just trends we've seen across the utility sector to move towards a more regulated and simplified business mix? And have you been approached at all by CenterPoint throughout their process?

Yes. So I'm not involved or familiar with other than what's been publicly announced about the CenterPoint process. So I'll leave that to them to comment on that. We since the very beginning of Enable, we are always looking at our valuation of Enable. That has not changed and it doesn't -- increased or decreased over time. The one thing that we do look at recent transactions and things like that, I will tell you as you think about the pure play and the current sentiment, we recognize that is prevalent in the market right now. But the point I would make there is that Enable is an interest that we have. It is not a wholly-owned subsidiary. It is not an entity that we control. We have intentionally set that aside from our utility business. So it is just an interest that we own versus some of the recent transactions that were wholly-owned, embedded in an entity. So my answer to this, David, is really, we're always evaluating our value of all of our assets, including Enable. We don't incorporate current transactions. But we're not going to talk publicly about strategic alternatives because that does not help increase value.

There are no further questions. I'll now turn the call over to Mr. Sean Trauschke.

Thank you, Lisa. Well, look, thank you all for your interest and your time this morning. We appreciate that and have a great day.

This concludes today's conference. You may now disconnect.