Good morning, ladies and gentlemen, and welcome to the Quarter 3 2020 OGE Energy Earnings conference Call. [Operator Instructions]. I would now like to turn the conference over to your host today, Mr. Jason Bailey. Sir, please go ahead.

Thank you, Mel, and good morning, everyone, and welcome to OGE Energy Corp.'s Third Quarter Earnings -- 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 of third 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 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'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. Thank you for joining us on today's call. It's great to be with you. As some of you may be aware, we are finishing up a very large restoration effort in our service territory. I think we're going to talk a lot about weather today. On Monday, October 26, an ice storm moved into our service area. And over the next 3 days, we experienced 3 separate waves of sleet, freezing rain and, even for us, uncharacteristically high winds. This early season storm brought about a significant accumulation of ice on leaves and trees and weighed down lines and infrastructure, causing an extraordinary number of outages and damage to the system. When it was all said and done, we found ourselves facing the worst storm in the company's history, causing over 400,000 outages at its peak. This extraordinary situation required our best and most extensive restoration efforts. We've mobilized contractors and mutual assistance personnel from 18 different states. We put more than 4,000 restoration personnel in this field. Before I go any further, though, I would like to offer our thoughts and prayers to a mutual assistance lineman and his family, who was injured while helping us restore power to our system. Or certainly, our thoughts and prayers remain with them. At this point, power has been restored to 372,000 customers. Included in this effort was an extraordinary effort to ensure all 800 pulling locations within our service territory were operational for the election on Tuesday. I want to thank our customers who have been so supportive of our workers during this time, and I want to thank the women and men who spent their days and nights, working long hours in difficult conditions to restore service to our customers. Your support is…

Thank you, Sean, and good morning, everyone. For the third quarter, we reported ongoing net income of $207 million or $1.04 per share as compared to net income of $251 million or $1.25 per share in 2019. On a GAAP basis, OGE Energy Corp. reported net income of $177 million or $0.89 per share. The contribution by business unit on a comparative basis is listed on the slide. I will note here that absent a noncash write-down of $11.5 million at enable, the earnings contribution would have been $0.09 for the quarter, which would have made consolidated earnings $1.08 per share. At OG&E, net income for the quarter was $199 million or $1 per share. Third quarter gross margin is lower at the utility by $28 million, which I will discuss on the next slide. Looking at the other key factors, depreciation increased $6 million as additional assets were placed into service. Interest expense increased $2 million, primarily due to additional long-term debt outstanding. Income tax expense increased $10 million, primarily due to reduced tax credit generation and amortization of net unfunded deferred taxes, all included in our original plan for the year. Our O&M expense was down $20 million compared to last year. As we've mentioned before, O&M reductions have covered the COVID impacts incremental interest in ad valorem expense and part of the impact of our mild summer weather. Turning to third quarter gross margin. Utility margins decreased approximately $28 million in the third quarter or 2020 compared to 2019. Year-to-date, mild weather has reduced margin by $25 million or $0.09 per share. Compared to the third quarter of 2019, weather-reduced margin $34 million or $0.13 per share as cooling degree days for the quarter were 21% below last year. Compared to normal, weather reduced margin by $21…

[Operator Instructions]. First question comes from the line of Julien Smith from Bank of America.

This is actually Richie here for Julien. Look, I guess, setting Enable aside for a moment, how do you think about your business mix going forward? Is there any interest in staying in the gas business through, say, gas LDCs. I know there's some adjacent assets in Oklahoma and Arkansas. And just given where some of those multiples are for that subsector, could that be a way to unlock additional growth here?

Yes. I mean, we're -- I think I'd answer this two ways. We're focused on kind of our utility business. We have a bias towards electric. That being said, we're -- our focus is continuing to try to grow our company. But electric is where we're at.

Okay. Got it. That's helpful. And then separately, can you just remind us of the tax basis on Enable?

Yes. Richie, I think at the end of '19 -- 2019, it was about $850 million, negative $850 million, about that.

Next question comes from the line of Shar Pourreza from Guggenheim.

It's actually Constantine here for Shar. Just kind of a couple of questions to round out some of the stuff that you've covered. Just thinking about the low dynamics and kind of recovery going into '21. Kind of how are some of your assumptions starting to build up? What are you kind of seeing as we kind of get past the crisis phase? And maybe in terms of kind of load mix going forward, do you anticipate that some of the increase in the residential load could be kind of sustained? We've kind of been hearing about employers kind of looking to reduce real estate footprint in one way or another.

Yes. I think I would characterize it -- I agree with that thesis. I think you're going to see some of that residential load be sustained just from more and more people working from home. We have more people working from home. So -- and we figured out opportunities to do more of that. For the benefit of our business. So I think you're going to see more of that. As we survey our segments and talk to various people, it does look like, to us, that a lot of the industrial and commercial businesses are -- I've mentioned that, we've provided some detail there. They're improving. There is momentum there. The area that we've just -- while we've seen improvement -- haven't seen as much improvement, has really been around our public authority area, which is really schools. A lot of schools have not been in operation and things like that. I think we all would agree we need to educate our children. And so those schools will come back some. I think that's positive momentum there. And then on oilfield, that's a relatively smaller and smaller piece of our overall margin contribution. And believe it or not, that seems to be improving. So we're watching this very, very closely. We look at this monthly, actually more than that. But we forecasted that, that we think the total would be only down 1.6% by year-end, and we would expect continued improvement in 2021, and we'll update all that in February, what those growth projections are for us. I will point out, this is really something that I think is going to be unique for us because we do see the momentum building in our service territories. Remember, prepandemic, we were actually talking about load growth greater than 1%. And so we're excited to get back there. And so we're watching it very close. We'll update all this in February, but I think that is a good catalyst for us for next year.

That's great color. And one kind of follow-up to that in a similar kind of line. You talked about kind of the offsets to O&M that you had this year of around kind of $0.10. And just curious to kind of how you're thinking about the kind of recurrence and kind of sustainable kind of cost levers coming out of 2020 into '21? Kind of how should we think about that?

Yes. Great question. I appreciate you asking that question. So Steve talked about $20 million of reductions, and that's going to flow through. That's going to carry through into '21. Obviously, in addition to that, as we went through the year, recognizing the pandemic, we've deferred some things. It didn't make a lot of sense from a health standpoint to have a lot of people in working on a plant outage or things like that. So we've deferred that. As we've gone through the year, we've actually brought some of that back into 2021 -- I mean, 2020. So 2 points I'd make to you is, yes, we have some deferrals that will pick up into '21 that we didn't do in '20. But the $20 million that we have addressed in our business because of the changes in load, that's going to carry forward into '21.

And the next question comes from the line of Andrew Levi from HITE Hedge.

First, Todd. It's been a good run, you've been a good friend, so I really appreciate that, number one. And Steve, he's been a great CFO. We don't know each other as long, but I'm sorry to interrupt you there, Todd. So -- but you guys both have done a great job, and I'm really sorry to see you both go. Especially you Todd. So anyway, now to answer the questions. So just -- I know you're not answering anything on Enable. But just can you just talk about -- because this -- you have kind of made public is just the alignment with CenterPoint? And in your words, what does that really mean?

Yes. I think what I'm going to just say is I really don't want to comment about that. My focus is -- because that gets taken out of context and creates more speculation and rumor. So Andy, I would just defer that to say no comment and just reiterate my focus and our focus has consistently -- we've been resolute about the idea that we look at Enable in terms of how do we maximize value for the OGE shareholder. I'm not focused on anybody else, but the OGE shareholder. So -- but I'm not going to comment on anybody else.

Okay. And then kind of maybe on the shareholder part. I guess, we've had discussions in the past, how in the past, you created shareholder value when you did the initial Enable deal. Can you maybe just talk about that? And as a shareholder or potential shareholder, what -- how should we think about that in the context of Enable?

Andy, I'm -- yes. Can you help me out a little bit here? I'm not sure I'm following.

Well, basically, I think you've talked about in the past how you've always been very focused on the shareholder and that how -- when you did the initial Enable transaction, it created a lot of shareholder value. And I think in the past, you put dollar amounts on that and how much value it created. So as you kind of contemplate this possible change in whether it's ownership or strategy or whatever it may be, as a shareholder, how should we think about how you will think the Board would think when it comes to doing something, whether kind of the pluses, minuses things that you're thinking about as you contemplate what you may or may not do?

I'm not -- I'm still not following.

Okay. That's fine. I'm trying to get some information out of you, but that's fine. And then we'll just leave it at that. And then the last question is just more on the industry. So getting off of Enable and looking at like a negative carbon type environment going forward, whether it's on the oil side and maybe to a lesser degree on the nat gas side? And then the country, whether it's a Biden administration or Trump administration, it's clearly going to move towards electricity. There's going to be a big transformation within in the sector over the next decade. Can you maybe just talk about that? And how OGE management and the Board is kind of looking at what the opportunities are over the next decade as the country becomes more electrified, a better way to put it?

Yes. Andy, and I appreciate -- I understand this question now, so I got this one. No, I think -- and Andy, we've had this discussion, I mean, I think your thesis and your thinking about this is really quite insightful. The way we think about it is it goes back to that fundamental point about economic development because I think if we can continue to operate our business as -- with affordability and reliability in mind, we can attract more people to our service territory. We're able to compound that idea that you have because I agree with you. I think there's going to be much more electrification, whether in the home, in the vehicles and processes, things like that and manufacturing. And then you compound that with a growing service territory, you get that multiplier effect. So we think this idea of actual load growth today that is separate and aside from electrification is huge. And so we believe we are very, very well positioned. Now as you think about any kind of CO2 tax or things like that, we're not waiting, as I've mentioned, to 2050. We're plowing through that, and we've made huge inroads already. And we've been able to do that without affecting the economic vitality of our communities. And so you should expect us to continue to march down that path as well. And those are investment opportunities. Everything you're talking about are investment opportunities, whether it's decarbonization, whether it's because of economic development or, as you profess, just more electricity sales. I think it's bright. Tell me the name of your firm again?

It's H-I-T-E Hedge. You can look it up.

Next question comes from the line of Charles Fishman from Morningstar.

I sort of lost track of your settlement agreement, that's my bad. And I just want to make sure that what is on the agenda today in the Oklahoma Commission is the full 5-year $800 million, $900 million grid enhancement plan. Am I correct?

Yes. Steve, do you want to kind of put the details on that?

Yes. So what we got through on the settlement was not the full CapEx plan. We're kind of capped at a revenue requirement around $7 million, $8 million for the first couple of years. And then we've got to file a rate case by the end of 2022. And then we can take the mechanism back up in a general rate case. I think that was really what was preferred is to try to deal with this in an overall review of costs. So we felt like we made great inroads in getting this mechanism in place, and we can build from there.

Okay. So do you think that -- does that give you any room or upward trajectory on your most recent rate base guidance for OG&E?

Yes, we'll address any change to our CapEx plans in February. So at this point, our plan is just to continue to execute the plan as laid out that we've already laid out before you.

And the next question comes from the line of David Peters from Wolfe Research.

So just a scenario where you say you have 100% regulated earnings profile. When thinking about the balance sheet, what would be the appropriate credit metrics to target for you guys to kind of maintain the ratings you currently have today?

Yes. Probably, if you're talking about FFO to debt, probably mid-teens.

Next question comes from the line of Brandon Lee from Mizuho.

Congrats, Steve and Todd on your retirement and the next phase of your life. First question is of the decrease in outlook, how much of that is attributed to weather? And how much are other factors?

Yes. Good question. And so it's almost all weather, right? I mean, Steve remarked that we've had $0.09 of weather impact for the year. You add that to our revised outlook, we'd be at the top end of our guidance. We operated very, very well. And I'm not making excuses for the weather. It happened, and it's our job as management to address as much of that as we could. We took a lot of that. Unfortunately, late August, early September is where this hit, and you're just not really able to kind of do enough things to overcome that. And this was a big one, right? I mean, $0.09 for the year, $0.07 for the quarter, that's a lot to overcome. And so it's all weather. Again, not -- that's our job to kind of address this, and not making any excuses or anything like that, but we covered about 1/3 of that weather impact with what we've got. Hopefully, just one other point, July was so-so August was worse, and then September was really bad. But in Oklahoma, October is actually a summer rate month because it usually gets hot here in October too. And instead of heat, we had an Ice storm. So hopefully, we've consolidated all this bad weather flow into these 4 months, and we'll have great weather into the future. It's -- I was looking all around our service territory, and everyone was reporting record cooling degree days, and we were in this bubble there where it just -- it didn't get hot. And so I think that bodes well for the future because I do believe all things are leaving out, and we'll get there. We'll get there. So thanks, Brandon, for the question. Do you have another one?

Yes, just on rate base growth, is there an ability to get to maybe a higher rate base growth? More in line with the average of like 7%? Or do you think the states that you operate in will not permit like a more aggressive CapEx plan?

Yes. Good question. I think what we're focused on is the earnings growth. We're making sure that we earn our allowed returns and we grow earnings. And we don't necessarily focus on the rate base growth. That being said, we've got a very solid plan. And as you've seen over the years, we usually or we will layer in additional opportunities as we go forward. So I would view our plan as kind of the base case with going through the execution phase with upside.

Great. And then I guess just one last one. Should you decide to exit Enable, what do you see as the possible alternatives?

Alternative...

For the proceeds.

I think I'm going to no-comment on that and just say that whatever we would do would be focused on the OGE shareholder.

[Operator Instructions]. We don't have any question from the queue as of the moment, please continue, presenters.

Okay. Thank you, Mal. Thank you all for your interest in OGE Energy Corp. and for being with us on the call today. Everyone stay safe, and I look forward to seeing many of you very soon. All the best. Take care. Bye-bye.

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