Good day, ladies and gentlemen. And welcome to Q2 2013 OGE Energy Earnings Conference Call. My name is Anna, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the company’s remarks we will conduct a question-and-answer session, and instructions will be provided at that time for you to queue up for questions. (Operator Instructions) Please be advised this conference is being recorded for replay purposes. And now, I’d like to turn the conference over to Todd Tidwell, Director of Investor Relations. Please proceed, sir.

Thank you, Anna, and good morning, everyone. And welcome to OGE Energy Corp.’s second quarter 2013 earnings call. I’m Todd Tidwell, Director of Investor Relations and with me today I have Pete Delaney, Chairman, President and CEO of OGE Energy Corp.; and Sean Trauschke, President of OG&E and CFO of OGE Energy Corp. In terms of the call today, we will first hear from Pete, followed by an explanation from Sean of second 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 oge.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. As a reminder, since the midstream partnership plans to pursue an IPO, we are limited by SEC regulations on the details we can provide you until the S-1 is filed. I would also like to remind you that the presentation of our results reflect the 2-for-1 stock split which was effective July 1, 2013. I will now turn the call over to Pete Delaney for his opening comments. Pete?

Thanks, Todd. Good morning and thank you for joining us this morning. At early this morning we reported second quarter 2013 earnings of $0.46 per share, compared to $0.47 per share in 2012. Our earnings, while basically flat quarter-over-quarter are in line with our expectations. However, assuming normal weather going forward from here, we anticipate being towards the upper end of our guidance of $1.68 to $1.80 per share again post-split, due in large part to the positive impact of the Enable Midstream partnership. The utilities earnings increased quarter-over-quarter due to earnings associated with our higher FERC jurisdictional transmission rate base. Our continued focus remains on managing costs and effort to protect the customer’s bill and that has also helped keep the margin of the retail utility earnings from declining, living in line with our volume growth so to speak. And since 2010 we have been focused on driving productivity gains to make room for the eventual environmental compliance impact on rates. Although, we are not expecting to earn our allowed return in Oklahoma this year, we are not intending to file a general rate case until we have more clarity on our environmental requirements. As you know, the recent 10th Circuit Court decision on Regional Haze which subject to our appeal, which we will provide some clarity as to the compliance timeline to be incorporated now into our regulatory strategy. Accordingly, we have made a technical filing last week with the Oklahoma Corporation Commission that will extend the Smart Grid riders beyond 2013 and continue our commitment of customer savings of $12 million annually. Our customer base growth and the resulting sales growth helps to minimize the negative impact on our return from rising uncontrollable costs and regulatory lag on our investments, some $700 million since the last rate…

Thank you, Pete, and good morning. For the second quarter we reported net income of $92 million or $0.46 per share as compared to net income of $94 million or $0.47 per share in 2012. Year-to-date consolidated earnings per share were $0.58 in 2013, compared to $0.66 last year. The contribution by business unit on a comparative basis is listed on the slide. Before moving on to our businesses, I would like to point out that the $0.01 loss at the holding company is primarily a result of transaction costs associated with the formation of Mid -- Enable Midstream Partners. At OG&E, net income for the quarter was $79 million or $0.40 per share, as compared to net income of $73 million or $0.37 per share in 2012. Second quarter gross margin at utility increased approximately $4 million or 1%, which I will discuss on the next slide. O&M was $8 million lower for the quarter primarily due to the timing of scheduled power plant maintenance and lower employee costs. And finally, income tax expense increased $3 million due to higher pre-tax earnings compared to the second quarter of 2012. Turning to the second quarter gross margin, as I mentioned earlier, utility margins were up for the second quarter despite the impact of weather compared to 2012. There are two primary drivers for the increase in gross margin. First was an increase of wholesale transmission revenues contributing $11 million from an additional investment of approximately $250 million over the last year and secondly, growth from new customers increased gross margin by $3 million. Partially offsetting these increases was mild weather compared to 2012. Looking closer at weather, cooling degree days were 5% below normal and 25% below last year for the second quarter. This translated into $5 million in lower…

Thank you. (Operator Instructions) First question comes from the line of Paul Fremont of Jefferies. Please proceed.

Thanks. So when I add the individual segments, I get $1.72 to $1.86. Is there something that’s preventing you from getting to, sort of, the some of the segments that’s keeping top end of your guidance range at a $1.80?

Hi, Paul. This is Sean. Really, what we’ve done here is we recognized, we’ve increased our guidance for the Midstream businesses. What we were trying to communicate was the third quarter is such a large quarter for the utility and it’s based on normal weather. We’re going to leave that where it is. And when we come out of the third quarter, we’ll adjust the utility guidance at that time if necessary. So it’s really what this action is based on is the impact of the Midstream Partnership.

And I guess my follow-up question would be if the court denies your request for a rehearing, what should we assume is going to be your strategy with respect to compliance? I mean, would you plan on then appealing up to the Supreme Court level or would you at that point basically present some formal plan to the state?

Paul, it’s Pete. As I mentioned in my comments, we will appeal and what’s required is we need to get all of the 10 judges’ majority vote to hear our appeal. And of course, that is probably -- we’re fighting uphill on that one. And so -- and if we’re to lose that if you appeal to the Supreme Court the timeline, the stay would be lifted probably in most -- it could be continued. But that would be a real stretch, we believe. So in fact, if you were successful the time would be pretty far down the road in our implementation. So we are now planning and doing everything we need to do to be able to implement a compliance plan within the 55 months, which may -- that clock may start ticking here this fall. So we’re moving ahead with our planning and design and everything we need to do to -- and of course, scrubbing is a preferred path that we are looking at this point in time.

And can you at all discuss, sort of, the options of going with gas versus scrubbing the existing coal?

Sure. I mean, it’s the economic analysis that we’re looking over the long term in terms of impact on customers. And I mentioned fuel diversity which is, I believe, over the long term continues to be a real issue that given not only the economic and pricing changes associated with natural gas versus coal. There’s a lot of operational issues as well that, in terms of fuel supply, the disruptions and under one set of conditions that you don’t get in the other. We do operate here in Oklahoma in an environment of extreme weather conditions. And so, we really believe in having diversity. So we are going to look to maintain that. Of course, we are going to do what we can to mitigate the impact on our customers because it is significant.

Thank you.

Thank you for your question. The next line of question comes from Brian Russo of Ladenburg Thalmann.

Hi. Good morning.

Hi. Good morning, Brian.

Sean, just a follow-up on the previous question on the guidance, if we assume normal weather at the utility in the third quarter, does that put you above the high end of the range of $1.80?

Yeah. I think the way we’ve been thinking about, Brian, if you just assume the utility at the midpoint of the guidance range. Okay, assuming normal weather that’s $1.42, right. You take the midpoint of the Enable guidance range of essentially $0.40 and you assume a couple of pennies lost there at the holding company, you are right there at that $1.80 range. Right?

Okay. Got you.

So that’s why we are pointing you there. And so obviously if things go well and the weather improves this summer, that would be positive. If the weather doesn’t materialize or other things occur, it wouldn’t be as positive. But that’s how we got to that $1.80. Does that help?

Yes. It does. Thank you.

Okay.

And my next question just on the EPA compliance timeline. Assuming the court rejects the rehearing or votes against your stay in the rehearing and you have 55 months to comply, in terms of the timeline it seems like that would be sometime in early 2018. Is that accurate?

Yes. That’s springtime. Yeah. That is more or less accurate, Brian.

Okay. And when would you think, if you did have to install scrubbers, when do you think that spend would start to pick up?

Well, we are doing a lot -- I don’t think we are ready to disclose that at this point in time. But what -- I don’t know when -- looking at Sean to see if he knows how long it takes to put a scrubber in, but you have got a lot of engineering and design work upfront. And so which is what we are really -- we’ve been studying that and we are going to accelerate that and to break ground, it is going to be still quite a ways away. We are looking at what we can do. Of course, the best thing is to again defer that out as far as you can from a capital expenditure requirement and have them all go on that. If it is April 1 of 2018, I’m not saying that’s the exact date that you want them all to start that day and convert them over in terms of having the control systems, whatever. But we have got outages and things to -- our scheduled outages and things to look at. So they are doing a lot of analysis to see what’s the best way and how we can back end the compliance.

Okay. And lastly, just financing scenarios for this magnitude of CapEx. Is it -- can we assume that the cash flows from the Midstream joint venture combined with operating cash flow and debt can finance the majority of the spend, thereby mitigating any kind of meaningful external equity needs?

Brian, this is Sean. I think that’s a fair statement that certainly the cash flow from Midstream will mitigate any equity needs. I think one variable in there is Pete mentioned we have 55 months to comply. And so as we shape our construction schedule, it is really going to be dependent to a large degree on the intensity and the timing of the investments over that 55-month horizon. So, to say it another way if this is pretty flat each of the 4.5 years, that’s a little easier thing for us to handle then if it’s at all, it was front-end loaded or something. But I think your thesis is right. As we’ve said many times, Enogex previously was a use of capital for us. Now, Enable is going to be a source of capital for us and so our cash and it certainly will mitigate future equity.

Great. Thank you.

Thank you for your question. The next line of question comes from Andy Bischof of Morningstar. Please proceed.

Hi. Good morning. Just a remaining question on competitor low trend, I guess in the quarter you have seen some of those competitors have kind of weak low trends. Can you provide a little bit more color on the trends across your customer base and how that aligns with your expectation?

Customer growth rates?

Yes.

Utility -- our customer growth rates we -- I mentioned we generally run 9,000 customers roughly a year. That’s just under 1%. It is a little over 1% now. That has picked up a little bit over the last two years. Our economy remains very robust. Our unemployment rates around 5% or so and we continue to see population influx -- inflows into Oklahoma. And so we don’t really see that -- those trends reversing at this point in time. Oil field load has helped with our sales growth. And that -- we believe that from what we see in our Midstream business is from our oil production side that’s going to continue. I know, in Devon’s earnings call they talked about a new play in Oklahoma. I believe that they are excited about and looking to drive up their production as well as Continental resources in the scoop area. So some of which we serve and some which we don’t. But -- so we pretty much see our continued customer growth of about that level and that’s really the biggest driver behind our sales growth assumptions about 1%.

Great. And how would you describe about July weather?

Golfer’s delight.

All right. Thanks very much.

(Operator Instructions) And the next round of question comes from Sarah Akers of Wells Fargo. Please proceed.

Thank you. Good morning, everyone.

Good morning.

Good morning.

Just a follow-up on the NGL discussion, I guess, first, how are ‘13 prices looking, relative to your expectations headed into the year? And then also, if you could just share your thoughts on your overall view of NGL prices over the next few years and to what extent higher NGL prices would drive new Midstream growth projects?

Hi Sarah. This is Sean. There are -- obviously they are a little lower than we forecasted in our original guidance. But we are hopeful that it is going to begin strengthening. We’ve said a couple of times that we think there is more upside to the commodity price environment than there is downside considering where we are. Certainly, if we did see some improvement in commodity prices, we think we are in an advantageous position that would spur additional growth. And then, I think the other point is as far as commodity sensitivity, I think it’s important to note that there’s not -- in the former Enogex business there wasn’t a lot of commodity sensitivity, but because of the fixed fee conversions but as part of the bigger Enable, there’s just very little commodity sensitivity.

Okay. Thank you. And then, one on the utility side, you mentioned that any new transmission projects would likely be under the FERC 1000 competitive process. When do you expect that process to be ironed out and to start competing for some projects there?

You know the -- couple of things going on. One we do have legislation in the state of Oklahoma that passed around as another surrounding states. 300 KV and below would not be subject to the competitive FIN rules, but would be -- again, we’d continue with the right of first refusal based on who is owning and maintaining the assets. Lot of concern particularly given the type of storms that we have had and the tornadoes, ensuring that power restoration is always done as quickly as possible, as safely as possible and efficiently as possible. The rules of the SBP are -- I know FERC rejected some of the provisions that the SBP had for running there and excluding certain lines from the competitive bid process. And that -- I still think we are probably a good six to maybe nine months away from clarity on that. I don’t know if anybody has any other, Sean or -- better data than that. But there’s of course a lot of movement. And we continue to look for what’s the best way to approach that market and again we have constructed a lot of transmission assets. So particularly in the SBP, we believe that we do have expertise to bring to bear there. We do believe there is a lot of still constructions particularly in seams areas and the area of Arkansas, of course, we have a small presence there. So we’re continuing to have a group that’s studying that. And we hope to make something happen there. We like transmission investment. Of course, it’s obviously different set of operating conditions when you have competition, but again, there’s much more clarity around how that competition is, how you are going to select the winner. It’s really hard to comment on one’s competitive position. So we are anxiously weighing that clarity as I know you are.

Great. And then actually a follow-up to my first question, are you seeing any response, any negative response in terms of drilling activity to the lower NGL prices or can you comment on the economics in some of the areas where you are seeing growth and how the lower NGLs are impacting volume growth?

I know -- and I guess, Sean and I both talked about this one. I know talking with Keith over the last month or so that in terms of when we’ve talked about that, the impact on our volumes, that the zones that they are targeting is the more heavy crude oil zones as opposed to the natural gas zones. And that’s impacted us where in terms of volumes we have already reported and lower volume growth although we have volume growth. It was not as you know as high as we had once thought several months ago. Was a switch to, again, targeted more of the crude oil. But we continued to see with the NGL prices, there are a lot of continued activity in scoop and some of the other areas. And hooking up -- continued to really be very busy at Enogex hooking up wells. So it seems to be a continuation of what we have seen in the last couple of months. Sean, do you have any, anything to add to that?

No.

Great. Thanks everyone.

Thank you, Sarah.

Thank you for your questions. Ladies and gentlemen, that now concludes the question-and-answer session. I would now like to turn the conference over to Pete Delaney for closing remarks.

Thank you, Operator. In closing, I want to thank our members for their efforts and overall achievements. It has been a very trying quarter from an operational perspective. Of course, the devastation of the May tornadoes that was well publicized nationally, but what you may not know there has been numerous other storms over the quarter that continues to place heavy demands on our members. In the Midstream business, integrating two businesses into one takes a great deal of work and brings on additional stress. And I’m grateful for our members’ patience and dedication to keep us moving forward. Thank you again for your interest in OGE Energy and have a great day.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.