Good day, ladies and gentlemen, and welcome to the Q4 2018 OGE Energy Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded for replay purposes. It is now my pleasure to turn the conference over to your host Todd Tidwell. Please go ahead.

Thank you, Eileen, and good morning everyone, and welcome to OGE Energy Corp.'s fourth quarter 2018 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 yearend and fourth 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 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 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 Regulation G reconciliation for gross margin in the Appendix. I will now turn the call over to Sean Trauschke for his opening comments. Sean?

Thank you, Todd, and good morning everyone, and thank you for joining us on today's call. Earlier this morning, we reported 2018 consolidated earnings of $2.12 per share compared to $1.92 for 2017 net of tax reform. Steve will discuss the details of full year earnings in the fourth quarter in a moment. But I’d like to discuss this year’s accomplishments. Looking back, I believe that 2018 will be regarded as one of the most accomplished years in our 117-year history. I’m most proud of our safety performance finishing number one in the Southeast Electric Exchange and shattering our safety records set to previous two years. Our mission to deliver safe, reliable and affordable energy to our customers is intact. In March we brought our 10 megawatt solar farm online Covington, the completion of the Mustang Energy Center followed in April, we also installed scrubbers on two coal-fired units at Sooner and converted two units from coal to natural gas at Muskogee. The Mustang and Sooner projects will both have substantial scale requiring numerous contractors, hundreds of workers and millions of work hours. The both projects were completed on time significantly under budget and with no loss-time injuries is a testament to the hard work and commitment of all involved. As we look at our entire fleet, our overall plan emissions are significantly lower from 2005 levels. Sulphur dioxide emissions are nearly 90% lower, nitrogen oxide emissions are 75% lower and CO2 is down by 40% and we’re not done. We fully expect the CO2 reduction of 50% by 2030. In December, we announced our intention to acquire the Shady Point plant in Southeast Oklahoma and the Oklahoma Co-Gen plant in Oklahoma City. The purchase price is approximately $53 million for over 500 megawatts of capacity. This will replace capacity…

Thank you, Sean. Good morning everyone. For the fourth quarter we reported net income of $55 million or $0.27 per share as compared to net income of $295 million or $1.48 per share in 2017. You will recall in the fourth quarter of 2017 as a result of tax reform, there was a $1.18 per share gain due to the re-measurement of deferred taxes at the natural gas midstream business. The contribution by business unit on a comparative basis is listed on the slide. For the full year of 2018, we reported earnings of $426 million or $2.12 per share as compared to net income of $619 million or $3.10 per share in 2017. The 2018 results for the holding company are nearly flat with 2017. We anticipate in 2019 the loss to be between $0 and $0.02. In 2017, tax reform accounted for $235 million or an additional $1.18 per share resulting from our investment in Enable. At OG&E net income for the quarter was $21 million or $0.10 per share as compared to the net income of $42 million or $0.21 per share in 2017. For the quarter, gross margin decreased approximately $18 million in part due to the impacts of tax reform on rates. O&M was essentially flat for the quarter. Depreciation expense increased by approximately $5 million for the quarter due to additional plant and service including the Mustang CT, Covington solar farm and the Windspeed II line. Net other income decreased approximately $12 million due to the lower AFUDC and tax gross up related to the completion of the Mustang Energy Center and environmental projects. Finally, income tax expense decreased approximately $18 million primarily due to the decrease in the federal tax rate. Now turning to the full year at OG&E, net income for the…

Thank you. [Operator Instructions] Our first question comes from Julien Dumoulin Smith of Bank of America Merrill Lynch. Your line is now open.

Hey good morning this is actually Richie Ciciarelli here for Julien.

Hi Ritchie, good morning, how are you today?

Doing well. Just wanted to touch base on your grid modernization program in Oklahoma and it seems like stakeholders might be opened to performance space rates given some of the feedback to instate peer rate case. But it's less clear about actual riders or trackers we granted, just wondering how the education process is going around the grid model request?

Yes, so good question, couple of things going on there. We have a great program underway in Arkansas that's achieving, I mean really exceeding our expectations. So we are going to conclude that first phase here next month and we are going to share that with Oklahoma kind of the real customer benefits that we are seeing. So that will be a real good example of what we are going to do there. But at the same time we don't want to get out in front of our skies. We want to make sure that we get these two Oklahoma filings resolved. We are making a consorted effort to keep our filings very simple and straightforward and really around singular issues. And so, while we will begin some education process we are not going to begin making any filings until we get the existing ones resolved. Does that help?

That helps. That makes lot of sense. And then, just in terms of, it looks like some of the capital in your plan shifted from 21 to some other years. What's sort of the moving pieces going on there. And how do you execute kind of within the plan?

Sure. That's really just trued up, as we have more granularity into our actual plans on how we will spend especially grid mod and do maintenance on our distribution system. What you can really expect is a pretty consistent around $600 million a year in each of the years, but each year that's going to true up a little bit as we decide more clarity.

Got it and I mean, assuming I mean, not trying to put the cart before the horse but assuming you could be successful in a grid mod request is 600 million still kind of the full run rate level?

Sure that's a very comfortable rate. The question is could be higher or lower yes, but I think it helped us to balance that and make sure that we achieve all the benefits.

Great, thank you. That's all I had.

Thank you. Have a good day.

Thank you. Our next question comes from Paul Ridzon of KeyBanc. Your line is now open.

Good morning Sean and Steve.

Good morning.

It looks like midstream did a little better than the top end of guidance, kind of what drove that?

Part of that is, they did have mark- to-market gains on their hedging. I think that was around $26 million or so, so that drove it up just a bit.

And then, what was the impact of weather in the quarter versus normal?

Weather for the quarter versus normal was about $0.02 higher about $6 million.

In the epic versus 2017?

It was about a penny, just under $3 million.

Positive, yes.

And what's driving the outlook for lower holding company losses for 2019?

We just had some noise associated with tax reform. We also as our -- so our deferred comp program expenses actually go there and we can't invest in OGE stock in that so we have to invest in an index and when our stock over performs that creates a loss that the holding company. So it was actually a good new situation that we have those expenses, our stock actually outperform the index.

Got it and then lastly, how is your outreach with the parties going regarding what I thought was a punitive depreciation outcome in the last rate case or two rate cases?

Yes. I mean, you saw that there was much more support for correcting that in the last case, but it didn't make its way through the settlement but there were parties, in particularly the staff that was supportive of our depreciation position. My view on that is, I think everyone recognizes what needs to happen there and Paul I'm not anticipating that we're going to flip it all back all in one case. But I think we are going to make progress on that and incrementally get those depreciation rates back to where they need to be.

Thank you very much.

Thanks. See you.

Thank you. Our next question comes from Charles Fishman of Morningstar Research. Your line is now open.

Thank you, good morning. I've lost track of what happened to the committee formed in Oklahoma that I think was a select committee, special committee to evaluate the structure of the OCC. Did that ever issue its final report?

They did. They issued their final report in middle of November and there are a number of recommendations really around, but nothing I would characterize it as like we anticipated that there were opportunities for how everyone could kind of work together and streamline the operations and become more efficient. There weren't any strong recommendations on the structure of the commission in terms of whether there ought to be more or fewer commissioners, whether they ought to be appointed or elected. They didn't go down that path. The one interesting point that came out of there though that there was recommendation as it relates to allowing the commissioners to talk to one another outside of a called meeting where that fell under the open meetings request. So the ability for the commissioners to engage one another and build a relationship was one of the recommendations and we certainly support that.

But with respect to what you call streamline riders whatever you want to call it, they really didn't address that which would have helped the visibility of how you're going to do the grid modernization, correct?

Right, there's no linkage there. That's correct.

And so as I understood -

But Charles, just so we're clear there was no statutory restriction for them to grant riders or anything like that. The commission has done that in the past, we have riders today. There's no issue there and with regards to their ability to grant riders.

And then so, based on the answer to a previous question your strategy is to, the Sooner rate case, the other rate case let those get settled mid-year and then really hit this hard of how you're going to address recovery on grid modernization is that -- do I understand that correctly?

I think that's a very fair assessment. Now that being said, we're talking and educating people on what's coming up. But as far as new regulatory filings we're going to keep these very straightforward one at a time.

And I think, I suspect that your story would be look at our rates, look at what happened in Arkansas when we had formula rate mechanism that's the message you'll be sending?

That's exactly right. We may call you to be a witness too Charles. That was well done.

Well, thank you. That's the only thing I had.

Thanks and have a good day.

Thank you. Our next question comes from Greg Reese of [Indiscernible]. Your line is now open.

Hi guys, can you hear me?

Hi Greg, good morning.

Good morning and congrats on good report. Two quick questions; just wanted to see the utility tax rates taken down a little bit in 2019. Just wanted to see what was driving that?

Sure, there's really three main drivers; the largest of which is just federal wind tax credit. We've got some investment tax credits that impact that and then you just got the impact of tax reform as we're amortizing the ADIT give back that brings down our net effective tax rate.

And how much ADIT is going back? I know there is like protected and unprotected piece just wanted to see if you kind of have -

Yes, for 2019 that'll be about $38 million.

For both protected and unprotected?

Yes, that's all in at this point.

Got you and over how many years is that going to be going back?

It's about 30 years.

30 years.

It's all tied to the asset life so that number will change every year but that's where it is for 2019.

Got you, so somewhere in like the $30 odd million per year is a good number to use for that?

It ebbs and flows, it can be a little less than that at times but that's not a bad, around 30 million is probably not a bad number.

And what's the cash tax rate on Enable distributions?

I mean, we don't really look at it that way because we're just a corporate tax payer. So it all just goes into OGE's bucket.

Got you, but the statutory book rates somewhere in like the 25% range?

Yes that's right. That's correct.

Got you and one last one, what's 2018 year end rate base across the company?

That number is about 6.5 billion.

Perfect. That is all I had. Appreciate it guys.

Thanks Greg.

Thank you. Our next question comes from Vedula Murti of Avon Capital. Your line is now open.

Hi, good morning Sean.

Hi good morning, Vedula, how have you been? I haven't talked to you in a while.

I am doing fine. Thank you very much.

Good.

Couple of things, one for 2018 what was the earned ROEs in the regular jurisdictions for Oklahoma and Arkansas?

So in Oklahoma we're very close to our allowed return. Obviously we had probably in the 9% range obviously we had two big assets coming into service. So we're a little bit below that but that'll all get trued up. And then Arkansas, right there at the allowed.

And if you can remind me, in terms of Enable beyond the distribution you get on your shares and the cash flow you get per your general partnership, ownership what else causes variability in terms of income recognition from Enable?

I mean, we just recognize our proportional share of the net income to the common unit holders. So the variability would be just the variability in the business commodity exposure however I'll mention 97% of their margin is either fee-based or hedge. You do have exposure to volume swings. And then, what they do to help mitigate that is that I have a hedging program but you will have mark-to-market adjustments associated with that. Those are the key variables.

Okay. Because I was taking a look at these with some of Wall Street, how is the outlook? It's quite variable but it seems based on I guess commodity forecast and things of that nature but until that big pipeline I think you referenced in your script, it actually comes into service. It appears that underlying growth absent tailwinds of commodity and activity is fairly modest.

They've done a good job there of balancing the business. And since we formed Enable, we've been focused on the cash distributions to our company and even in some very significant downturns in the commodity market, the cash flow at our company's been stable. And I think that's a really good thing.

No, I certainly appreciate that. And I guess in terms of the utilities going forward here, if we get to $600 million of our CapEx which is higher than which you have in the slide deck here on an ongoing basis. It appears that the rate base growth and aggregate maybe about 4.5% net with DD&A. So, usually that and the earnings growth is probably something close to that maybe modestly less than that over a period of time. Is that a fair characterization?

But I think our stated guidance around earnings growth rate utilities 4% to 6%, and we're very comfortable with that.

Okay. And I guess, in the past you've talked about once you get through this right case at the end of the year, once you've -- as everyone calls it 10% dividend growth for the year 2019, and then you'll establish dividend policy and basically I just back with our term capital allocation policy, at some point towards the end of this year. Can you remind me again kind of what's kind of what how what you might be thinking about using the past reference here a possibility of stock buybacks is part of capital allocation as well and also maybe current thoughts in terms of M&A?

Yes. so, what we said is we certainly want to get through the two Oklahoma filings, we want to see the finalization of the Arkansas Formula Rate implementation April 1st, you mentioned Enable there were certainly monitoring Enable going forward to see if there's what's going on there in terms of future distributions. But you're exactly right. We made a five year commitment to grow the dividend 10% a year for five years to the end of '19. We're going to watch those mile markers I just mentioned, we're going to go through that. And our focus there is to grow. And our focus there is the kind of create a real return proposition for our shareholders and line of sight and regulatory recoveries important to us. And we will make sure we have that before we get too far out over our skies on commitment and then certainly we have the opportunity around the dividend. We do intend to grow the earnings of the company and the dividends of the company. And I think we're going to have a very good return proposition. I think I'll just leave with that.

One last thing you featured, I guess when you think about what would be kind of like the objectives, our payout ratio over the extended period of time after you kind of come to your conclusions. Do you have a recur range here, you said you are kind of working with to figure out how the pieces set?

Yes. And we've not really -- I'm not focused this much on a payout ratio. We're unique in that, we have a source of cash flow coming out of the Enable that certainly we value tremendously. We think there is a lot of upside there because of our IDR ownership as well. But the way we're thinking about it is in terms of a return proposition between dividends and earnings and we're certainly going to be cognizant of what the market is I'm recognizing and paying for. But no we don’t have a payout ratio guideline per se. I will tell you we were not anticipating or not expecting and would not be interested in something that was 90% plus payout EBITDA. I mean, it's kind of hard to grow when your payout ratio is that high. But nevertheless we're focused on return proposition.

Okay. One last question, I apologize. You mentioned the IDR. What is the annual cash flow you receive associated with your GP interest?

Well, today they are not in the IDR splits, so that is zero today and by going forward we have 60% of the IDRs.

Okay, thank you very much.

All right, thank you.

Thank you. Our next question comes from Shahriar Pourreza of Guggenheim Securities. Your line is now open.

Hi, guys. It's actually Konstantin here for Shahriar. A lot of questions have been answered. I just wanted to kind of taking a high couple of numbers but I saw that the actual sales stats have been pretty robust for this year due to weather and kind of the hitting the good days and what not. Can you comment on kind of the underlying normalized low growth that you're seeing in the area?

We are we continue to see 1% and that's really overcoming a lot of what we see on the residential side in terms of energy efficiency, pickups that we've been helping to promote. And so, the economy is robust and we are watching very closely some of the local economic forecast around population growth and things like that. We've had a number of economic development successes that we're very involved in. and so, we're watching these indicators in terms of whether low growth actually could be higher in the future.

Okay, that answers that. And another one around kind of looking from the operating stats for kind of fuel costs per kilowatt-hour. I think that the trends been coming down but kind of including purchase power, the number seems like it could further kind of mitigate some of the rate increases.

Yes. I think that is right on point.

Do you see a timeline for kind of how that goes, is there any specific kind of purchase power contracts that are rolling off except for the one that's obviously you're in the process of the acquisition.

Yes. That one you mentioned about, that's going to reduce cost to customer significantly. We are seeing that benefit to customers because of our fuel expense, certainly not having as many purchased obligations helps to and that's a fixed obligation. And so, that certainly helps us. The other thing that I think is really important in you hear this phrase a lot about fuel diversity but our fleet being positioned the way it is, we're able to satisfy our customers and keep our rates low and remove that volatility, where we're totally led to particular weather, the weather environment or gas prices or anything like that.

Right. And I guess just one short follow-up to that. Is there any more kind of contracts in 2019, 2020 timeframe that you kind of see rolling off or?

None that have a roll off date defined in the near term.

Okay. Yes thanks, that answers for me.

Okay.

Thank you. And we do have a follow-up question from Paul Ridzon of KeyBanc. Your line is now open.

I think Enable had some capacity additions that kind of helped the back-end of the year. When did those come online?

I think you're talking about Wildcat. And I don’t remember the exact date when that came online but they did come on in 2018, the CaSE Project Wildcat, they did the Velocity acquisition they added to the crude oil system. But off the top of my head, I do not remember the exact in service dates of those.

Okay. I'll trickle back. Thank you.

Okay.

Thank you. Ladies and gentlemen, this concludes today's question and answer session. I would like to turn the call back to Sean Trauschke for any closing remarks.

Thank you, Hailey. And thank you all for your interest in participation today. Should you have any follow-up questions on time in case, we're certainly available to answer those. And have a great day!

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