Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2020 Earnings and Business Update Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to, Mr. Jason Bailey, Director of Investor Relations. Please go ahead sir.

Thank you, operator and good morning everyone, and welcome to OGE Energy Corp.'s Fourth 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 Bryan Buckler, CFO of OGE Energy Corp. In terms of the call today, we will first hear from Sean, followed by an explanation from Bryan of financial 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. Good morning everyone. I hope all of you are well and thank you for joining us on today's call. It's certainly great to be with you this morning, and I'd like to start off today by welcoming Bryan to the call this morning. Bryan started with us on January 1 and we couldn't be happier to have him with us. So, turning to the business. Over the course of a couple of weeks, the region, including our service territory, experienced an unprecedented prolonged cold spell that disrupted natural gas supplies, resulting in extreme natural gas prices. The cold spell also resulted in a record winter peak demand for electricity. While our service territory experienced record snowfall and record temperatures, our customers experienced minimal disruptions. Through the efforts of our employees, our generation fleet performed admirably over the course of the week. And so did our customers, heeding the call to conserve natural gas and electricity, so that more serious shortages could be avoided. Every day, we had generation online at each of our power plants. Our fuel and purchase power costs for this event alone were more than all of our fuel and purchase power costs in 2020. We anticipate the regulatory asset that will be created, as a result of the storm to be in the range of approximately $800 million to $1 billion. We have secured $1 billion of additional bank financing or liquidity to cover these costs. We certainly understand the pressure that this event will have on our customers and we will work with our commissions to help mitigate the impact to our customers' bills. To that end, yesterday, we filed an application at the Oklahoma Corporation Commission, requesting an intra-year fuel adjustment for a portion of the weather events cost. To help…

Great. Thank you, Sean, and good morning everyone. Starting on slide 10 and before we discuss 2020 results and this year's outlook, I'd like to update you on the financial effects from the extraordinary February 2021 weather events, which will likely have a negative impact to our current year earnings. As Sean mentioned, in order to keep life-sustaining power on for our customers during the 11 days when temperatures were between 23 degrees and 45 degrees below average, the company incurred in the range of $800 million to $1 billion in fuel and purchase power costs. We will be able to firm up these estimates once we receive settlement statements from the Southwest Power Pool in the coming weeks. From a funding standpoint while we already have a $900 million credit facility in place. We felt it important to obtain an incremental funding source. And this week we closed on a $1 billion credit commitment agreement that will allow for ample liquidity. With respect to cost recovery the company has fueled tracker mechanisms in both, Oklahoma and Arkansas. In Oklahoma, we are allowed to file for intra-year adjustments to the cost once fuel and purchase power costs exceed $50 million and under or over collections in a year. Thus, this week, as Sean mentioned, we filed an application in Oklahoma requesting an intra-year fuel adjustment for a portion of the weather events fuel cost. We expect this revised tariff to become effective in rates this spring, providing support to our credit metrics. For the remaining cost, our filing in Oklahoma seeks commission approval to place the deferred cost in a regulatory asset accruing at our weighted average cost of capital. We will work with the commission to obtain an order as quickly as possible. Switching gears to 2020 results. On…

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

Hey, good morning, guys. It's actually Richie here for Julien. Surprise, surprise.

Good morning, Richie. Surprise to surprise, that was Richie Dumoulin-Smith. How's that?

Yes. No that works I guess. Just a quick one. I'm curious you guys gave a lot of color on how you intend to get treatment of these fuel costs. I'm curious, if the financing cost could be potentially deferred as a regulatory asset as well and just how that kind of fits with your long-term EPS growth of 5%, given that you raised CapEx by 15%. Is -- because it was largely unchanged there, but is that due to this financing drag from the storm, or is there other lag or drag that we should be assuming?

Yes. So a couple of different pieces in there and I'll take a shot at this. So yes, we would expect all those financing costs. We just wanted to -- what we're seeing today the results from February, we wanted to just be upfront and share all those with you. We're going to work with our commissions to recover all of those events as Bryan mentioned. What we proposed is a basically a 10-year amortization program that would also include a weighted average cost of capital. So you would pick that up there. As far as the capital plan, there -- I'm not sure I understood your question about the five-year plan. Could you repeat that?

Yes, sorry. I was just saying you raised your CapEx pretty good amount 15%, but it looks like the EPS growth was largely unchanged at 5%. I was just curious if there's financing drag from the storm embedded with that. Or is there incremental regulatory lag that we should be assuming that kind of offsets the rate base growth relative to EPS?

Yes. I think there's a -- certainly there's the timing of regulatory recovery that's in there as well. But I think the other thing, Richie that we don't lose sight of we have a higher expectation. So Bryan talked about the load growth. We're only expecting a 0.5% increase in load growth from 2019 levels. Recall, we were well above 1% pre-COVID. So we haven't quite returned to that pre-COVID load growth state. So that's got something to do with this as well. Does that help?

Yes, that's very helpful. And then just a question around the midstream with Enable and how you guys are thinking about the time line for the exit there? And then I guess around the eventual use of proceeds given you do have such a strong balance sheet, would it be for incremental CapEx opportunities especially with this upcoming IRP filing, or would you consider other forms of capital allocation such as share repurchases et cetera?

Yes. No, great question. So first things first, we want this to close, right? And we'll certainly get across that bridge first. And then the way we're thinking about it is certainly we want to be very prudent and thoughtful about how we transact here. We've got the balance sheet to make sure that we really optimize execution. And Bryan and his team are going to be keenly focused on that. But the other thing that's important to us is, and we're having those discussions with the agencies now. Obviously, with the winter storm that's been kind of pushed back to second chair. But we were having that discussion in terms of at what point would we receive a lower credit threshold in terms of FFO today. So that's a discussion that we're going to have and that's going to – we're interested in having a lower downgrade threshold. So Bryan and his team will pick that back up with the agencies and so that's going to be a key determinant for the timing and the amount that we do. Does that help Richie? And as far as proceeds, I believe we're going to be reinvesting back into our utility business. We are not constrained or limited in any way in terms of the opportunities we see in our growing service territory. And we will do what we're focused on that was making sure that we continue to take costs out of our business to minimize that impact to customers at the same time.

Yeah. That's very helpful. Appreciate all the color. That's all I have for today.

All right. See you, Richard.

Okay.

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

Hey. Thank you. My first question is on – back to the storm. So just clarify for this year out of that $0.10 you do have about the $0.03 to $0.04 drag from the short-term financing that you do. But the expectation is that I guess starting next year any replacement of that with the permanent financing will be trued up over that proposed 10-year amortization program through rates?

Yeah. Hey, Insoo, it's Bryan. We believe the financing cost for the storm will ultimately be deferrable. We – you've seen our filing. We've requested a WACC. So depending on the recovery period of the regulatory asset if it ends up being a multiyear regulatory recovery, we certainly believe a WACC return is appropriate. But that should cover our financing costs too in the short term.

Got it. And then when we think about that recovery over time from all of this – the time line needed to I guess balance the potential impact of customer bills, while it's still allowing you to continue with the CapEx plan, have you done that initial analysis? And do you think that'll have the support of the regulator so you'll get to continue to invest in the system at the rate that you're proposing?

Yeah. Insoo, I think that's a great question and the answer for us is yes. It's – if you look – that's why we're proposing this program to kind of minimize the impact to customers and smooth this out. We've got the balance sheet to kind of manage that and that's what we're trying to do. The real catalyst to our business is economic development and we believe it's driven by our low rates. And so we're starting from a position where our rates are already some, if not the lowest – some of the lowest in the country. The other thing and don't lose sight of this, we've structurally removed a lot of O&M out of the business. So we're already going to make sure that customers get that benefit as well. And then I think the last point, I would make is, from our perspective this is going --- if – we're in a load growth and customer growth area and so this is going to be less and less of an impact going forward.

Got it. And maybe one more question, if I may. I guess, when we think about the updates to the long-term generation plan whether it's you guys or just other utilities in the state do you think – have there been any initial conversations with regulators and legislators about what the right generation mix is given what just transpired in Oklahoma?

Yes. No, I think – no discussions at this point on generation fleet. But I'll tell you from my seat, a lot of credit goes to our commissions. It's our responsibility to design and plan and operate maintain that generation fleet. We made a number of winterization efforts on our combined cycle plants three or four years ago and the commission supported what we were doing. They supported what we were doing with the conversion of our coal units. They supported what we were doing with the scrubbers at Sooner. They supported what we did with the new combustion turbines at Mustang. And I'll tell you during this event into that -- those Mustang units, in terms of controlling and managing voltage across the largest load center around Oklahoma City were critical and that's why there were minimal disruptions across our service territory. And all of our units did very, very well through the storm. So from my perspective there haven't been a lot of discussions of what we ought to be doing going forward. I think this is really a validation of the planning that we've done and the support we received at the commission and really the faith and confidence they had in us in making the right decisions. It was just validated right here.

Yeah. That definitely makes sense. That's all I had. Thank you so much and congrats on getting through this crazy event.

All right. Thank you, Insoo. Take care.

Thank you.

[Operator Instructions] Your next question comes from the line of Brandon Lee with Mizuho. Your line is now open.

Hey, Sean, hey, Brian.

Hey, good morning, Brandon.

Hope everyone if fine?

Hope you are?

Yeah. Just got a quick question around the payout ratio. If I look at your current annual dividend and I look at your 2021 Utility EPS, your payout ratio is around 90% which is about -- above the average of 60% to 70% for the industry. Is there a payout ratio that you guys are targeting, or are you comfortable with that one?

Yeah. And that's on a Utility-only basis. And when you look at it on a consolidated basis, it's significantly lower. Obviously, with the transaction we've announced or supported with Enable, we are going to - as that approach is closing, we are going to transition there and we will be monitoring that, but the dividend is absolutely safe. You should expect utility earnings to clearly out -- will outpace dividend increases going forward. But the -- we're in very good shape here and we're committed to the dividend.

Great. Yeah. That’s all I had. Thanks.

All right. Thanks, Brandon. Take care. Have a good day.

You too.

[Operator Instructions] And pardon me presenters, we have no further questions at this time. You may continue.

Okay. Well thank you all for your interest in OGE Energy Corp. and for being on the call today. I wish you all well. Take care of yourselves and take care of those around you. Bye-bye.

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