Good day, ladies and gentlemen, and welcome to the Third Quarter 2017 OGE Energy Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. I would now like introduce your host for today's conference, Mr. Todd Tidwell. Please go ahead, sir.

Thank you, Kristi, and good morning, everyone, and welcome to OGE Energy Corp.'s Third Quarter 2017 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 third 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 company 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 in the Appendix, along with projected capital expenditures. I will now turn the call over to Sean for his opening comments.

Thank you, Todd, and good morning, everyone, and thank you for joining us on today's call. Earlier this morning, we reported third quarter consolidated earnings of $0.92 per share compared to the same amount in 2016. The utility reported earnings of $0.81 per share and our portion of Enable's earnings were $0.10 per share, and the holding company posted a small gain of $0.01. Additionally, we received approximately $105 million in distributions from Enable year-to-date, and yesterday, Enable declared their third quarter distribution and our share of that will be $35 million to be received later this month. Our results were strong considering the extremely cool summer weather. Like much of the middle portion of the U.S., we incurred some of our mildest temperatures on record. In fact, it was the third coolest Oklahoma summer. As you know, the third quarter under normal circumstances accounts for over half of the utility earnings for the year. Compared to normal, weather reduced earnings this quarter by $0.08 per share, and for the year, weather has lowered margin by $46 million or $0.14 per share compared to normal. I am proud of the manner in which we responded when called to action. The creativity, the teamwork and the focus helped to minimize the impact of low revenues as a result of the mild weather. We're doing well, and we've accomplished a great deal this year. I mentioned last quarter that our members managed to do force significant storm restorations, and since we last spoke when disaster struck in Texas and Florida, our crews were there to help restore power. Thousands of miles were driven, thousands of man-hours worked, all done safely. And this is the one of the hallmarks of our company, our industry and our nation. When people are hurting, we all…

Thanks, Sean and good morning, everyone. For the third quarter, we reported net income of $183 million or $0.92 per share as compared to net income of $184 million or $0.92 per share in 2016. The contribution by business unit on a comparative basis is listed on the slide. At OG&E, net income for the quarter was $162 million or $0.81 per share in 2017 as compared to net income of $160 million or $0.80 per share in 2016. Third quarter gross margin at the utility decreased approximately $13 million, which I will discuss on the next slide. O&M increased approximately $5 million due in part to acceleration of vegetation management year-to-date. An increase, which was included in the OCC rate order for which there's a revenue offset. We are focused on efficiency gains and anticipate to be under plan for the year. Depreciation decreased approximately $5 million due to the reduction in depreciation rates approved in the Oklahoma rate order, partially offset by additional assets being placed into service. AFUDC increased $8 million due to higher construction work in progress, related to our environmental compliance projects in Mustang. Similarly, other income was approximately $11 million higher due in part to an increase in the tax gross-up related to the higher AFUDC. Turning to the third quarter gross margin. Utility margins decreased approximately $13 million for the third quarter of 2017 compared to 2016. There were 2 primary drivers for the change in gross margin, first, weather-reduced margin brought approximately $15 million compared to the third quarter of 2016. We had a very mild summer with cooling degree days, 11% below normal and approximately 16% below last year. Partially offsetting weather was new customer growth contributing approximately $6 million. We added over 8000 new customers to the system as compared…

[Operator Instructions]. Our first question is from the line of Julien Dumoulin-Smith of Bank of America.

This is Josephine Moore, I'm calling in for Julien today. Can you hear me?

Yes.

I was just wondering with the better line of sight in Arkansas, do you think that there's upside to CapEx there?

Yes, I do. I think that's been something that we've been working on for a number of years. And so we would probably suggest it's probably in the $40 million to $50 million a year increase as far as the capital expenditure opportunity in that Arkansas jurisdiction.

Got it. And then maybe just to follow-up on this. You've talked about Enable distribution possibly going up in the long run. And you have this dividend growth that is driven partially by the distribution from Enable. Do you see your dividend payout ratio tied to those LP distributions, i.e. as distributions go up, dividend growth could go up further even?

Yes. Certainly, the Enable distributions contribute to the OGE dividends and that's a factor in our dividend policy. When we set this -- 4 years ago, when we set this 10% a year dividend growth, we set that through 2019, and we're going to reevaluate not only our dividend policy at that point but that Enable will have a big component of that decision-making.

Our next question is from Andy Levi of Avon Capital.

But you actually answered the questions I had in your formal comments. But the only other question is, which I like to ask you every quarter, Sean, is if you could just talk about consolidation and how that kind of plays or doesn't play for OGE?

Yes, appreciate the question as always, Andy. And we're not going to comment on, kind of, consolidation or M&A or anything in that regard. What I will tell you is we have a very robust plan. We're working through that, and we have a lot of flexibility with our businesses to continue to grow the company. And we're focused on continuing to create value for shareholders and demand for our customers on the utility side.

Okay, that's fair. And then just on Enable, anything you can tell us about the CenterPoint process? Or do we kind of have to wait to see what the CenterPoint says tomorrow?

Yes, I think it's, I think you said it right. The CenterPoint process, it's their process, and I think you need to get that from them.

Our next question is from Paul Ridzon of KeyBanc.

It sounds like, I think your prior language was that you would file Oklahoma in November. Is that pushed to December?

Yes, probably, closer to that, Paul. And we've been having a lot of dialogue with commissioners and staff, customers and AG, and with their schedule, that timing seemed to work better for all parties.

And could you sort of give us...

And that's why in Steve's remarks, he mentioned because remember from November to December, we went ahead and just updated it. And we'll use a September test year and versus June.

Can you give us a preview on what you think the key issues you're going to try to make in your filing?

Yes, I think this is a much simpler case. It's primarily going to be for the recovery of Mustang. There's a tremendous amount of support for that. And the plant will be finished and serviced, so there won't be a question about the cost. And so I think it's a very -- it is a much smaller case than the previous case we had. So I think it's -- I hate to say it straight forward, but it's pretty simple and straightforward.

So this sounds like this will not be the venue for you to kind of take up the depreciation discussion?

Well, I think we've had those discussions with the commissioners. I think they understand, kind of, what happened there and I think the plan of attack will be to kind of gradually try to move some of that back. We were pleased to see we've been following the PSO case and staff's recommendation on depreciation was to begin gradually making those steps too. So we're -- we think that's behind us, and we'll gradually fix that over time.

And then, kind of, given what we've seen with weather this year, what's OGE's appetite? And if that's there, what would the commission's appetite be for any sort of decoupling?

Yes, as we look at our service territory, we are still seeing the growth. There's still a lot of weather impacts. Weather is a very big variable in our business. We got that, but I don't think that's the -- necessarily the key driver and really would have the support for any decoupling mechanism right now.

Understood. And then lastly, just because I get the question from so many investors. I mean I don't think you ever would, but would you consider growing your stake in Enable?

Yes, we're not going to comment on Enable. I think we're very focused on our business mix. I think this 80-20, 75-25 between Utility and Enable, we like that business mix. I like -- we are a utility company that just happens to own a bunch of midstream company. We understand that business. We're not concerned about the volatility of commodity prices. And we view that as a source of cash. So to the extent that it would be valuable to -- we consider everything that would be valuable to creating value.

So kind of, against that backdrop of the current mix as OGE utility grows, does that mean there's potential growth for your Enable ownership to kind of keep that though?

Yes, I don't want to go down that path there Paul, but I think I like the business mix. And that's probably more important to me right now than trying to keep Enable to be able to keep up with utility.

Okay. And then just O&M $5 million net, that was offset in revenues. That's not -- didn't hit EPS.

That's correct. Yes, they actually increased the allowance for us to do a little more vegetation management to help with reliability. And we've got a revenue offset.

Our next question is from Michael Lapides of Goldman Sachs.

Real quick, when you think about the lowered guidance for the utility this year, how should we think about the roll forward to next year?

Michael, I really think just look at the overall base business and kind of original guidance absent the adjustment for the order and the base business, we would expect to continue to grow at basically at 1% clip. And you just need to take into account, we gave a little more information as far as the timing of units coming into play, so you just need to pay attention to that as we file these rate cases on Mustang and the Sooner scrubbers.

Got it. And can you remind me, you may have mentioned it on the beginning of the call, what was the year-to-date? And what was the third quarter impact of weather versus normal?

Sure. Year-to-date impact on weather was $46 million and for the quarter, it was $29.3 million.

And that's versus normal pretax.

That's correct.

If you're looking for pennies, it's $0.14 and $0.08, respectively.

That's correct.

Got it. Thank you for that. Finally, Sean, you've talked a lot, you've talked 6 or 7 months now about wanting to invest -- continue investing significant capital in Oklahoma. Your capital spend budget for 2018 and beyond hasn't really budged. What is the signal? What is the tipping point or inflection point or the item that OG&E needs to see before kind of moving forward on making sizable revisions to the capital plan?

Yes, I think it was really out of respect and consideration of we had it a lot of rate activity in front of us. We had this Mustang filing in front of us and then Steve mentioned the end of next year, we'll have the recovery for the Sooner filing and so really, not just -- we want to make sure that we have clear line of sight to how this is going to be recovered. But as we were heading into this environment compliance plan, remember this was a court order that required us to do a lot of this, we actually began scaling back some of our capital to kind of make room for this. So it wasn't 2 owners from a customer standpoint, and so we do have some more catch up to do. We will begin putting that out as we get some of these regularly filings completed. My belief for the way we think about this is I think about in terms of those projects, and I would characterize most of them are in and around the grid. Those things that improve the resiliency and reliability of our system without really putting a big impact on our customers from a bill standpoint. And then the last point is to make sure we have clear line of sight to recoveries. So I think you're going to see us in February as we get through this Mustang case, begin to provide some more clarity on the outer years' capital plan.

Got it. And can you remind me trackers in Oklahoma, it's actually a little bit confusing? There are some cases where trackers are actually legal and there's been some history in -- or regulatory precedents and others may be less so. Are there opportunities to have trackers or kind of real-time cash flow recovery on distribution-related investments in Oklahoma?

Yes, there's the ability to do that. And historically, we've had a lot of -- I don't want to be caught up in terminology between trackers and riders and all that, but historically, Oklahoma has utilized a lot of riders in the past.

Got it. But there are none available for you to start investing in now and be able to kind of pick up or start reutilizing. You'd have to go back to the commission and get permission to do so.

Exactly right, it's exactly right. And that's just a timing issue. We have these other more pending issues we need to get resolved too. So the point here is we're trying to keep this simple, keep this straightforward and get a very quick constructive resolution of these.

Our next question is from Andy Levi of Avon Capital.

Just to follow-up on Michael's questions and just in general on the regulatory front. Just to be clear, so if this regulatory process in Oklahoma doesn't go as well as you guys expect or should go or deserve to go, however you want to characterize it, that's when you'll have to make a decision of whether you do want to allocate more capital there or start a significant stock buyback program, is that right? I'm serious about that because there's going to be -- because if you don't, if you don't increase CapEx, then there's going to be a lot of free cash flow...

Yes.

And you're going to have to allocate that in some way. And at the same time, you have a very high equity ratio at the utility. And if you're not getting proper treatment there, there's no reason to have that high equity ratio if you're not investing and it would be better to enhance earnings by buying back stock. Don't you agree?

Well, you're giving me -- you're leading me down a path for, kind of, one way to create shareholder value. And my preference, Andy, is that we seize this opportunity to reinvest in those territories where we serve. But your point’s well taken, if you can't recover it, it doesn't make sense. But my message here is that I expect to be able to invest in those areas, and I appreciate your question because you're highlighting something that I think is a real strength of our company that we have multiple sources of capital. We have legitimate investment opportunities that we want to pursue. We have a very large capital program that will be concluding at the end of '18. And you're exactly right, we've got to continue to evaluate what our portfolio looks like and what the best use of that cash is, and we will do that appropriately and continue to be prudent allocators of capital. But I think speculating on that today is probably a bit premature.

I understand that. But obviously, the hope is that you do get treated well, but again, just to be clear, if you're not, it's changed, is that correct?

Well, I think we have to evaluate all those options. But again, I want you to hear it from me, I am optimistic that we are going to continue to grow and reinvest in our service territories.

And that does conclude our Q&A session for today. I'd like turn our call back over to MSean Trauschke for any further remarks.

Okay, thank you. You know in closing, I just want to thank you for your time this morning. I appreciate your interest and support of the company. I look forward to visiting with many of you next week at EEI and take care, and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.