OGE Energy Corp (OGE) 2004 Q1 法說會逐字稿

Good day and welcome to today's teleconference. At this time all sites are on the line and in a listen-only mode. And right now I would like to hand the meeting over to your host, Mr. Jim Hatfield. Go ahead please, sir.

Thank you and good morning, everybody. Welcome to OGE Energy Corp.'s first-quarter 2004 conference call. I am Jim Hatfield, Senior Vice President, Chief Financial Officer of OGE Energy Corp. I have with me today Steve Moore, Chairman, President and CEO of (technical difficulty) OGE; Pete Delaney, Executive Vice President (technical difficulty) Energy Corp. and CEO Enogex; and Howard Motley, Director of Regulatory Strategies for Oklahoma Gas and Electric. We also have several other members of the management team here to address questions.

In terms of the call today, we're going to start with comments from Steve Moor. I will review the first quarter and the 2004 outlook. Pete Delaney is going to give us an update on (indiscernible). Howard is going to provide us an update on the regulatory activities we have going in Oklahoma and then we will close with question and answers.

Before we begin, I to remind everybody that we have prepared slides to accompany this Web-cast so it will be easier to follow the numbers when we get to that point in the presentation.

Before we begin the presentation, I would like to direct your attention to the Safe Harbor statements regarding forward-looking statements. This is an SEC requirement for financial statements that simply states -- we cannot guarantee forward-looking financial results. But this is our best estimate to date. And then with the Safe Harbor behind us, I now want to turn the call over to Steve Moore. Steve?

Thanks, Jim. I would like to also welcome you to the call and we all appreciate your interest in OG&E Energy. Today we're going to go through the first-quarter financial results and bring you up-to-date on a number of events and issues that have our attention, in our ongoing effort to serve our customers and our shareholders.

And, as always, we will answer any questions you might have for us at the end of the conference.

First of all, I'm pleased to announce that earlier this morning OGE Energy Corp. reported and recorded first quarter earnings of 12 cents per share. A year ago at this time we reported breakeven results for the first quarter, so this is quite an improvement and we're pleased with it.

Our Enogex pipeline accounted for 8 cents per share of the improvement. And OG&E, our Electric Utility, improved earnings by 4 cents per share compared to last year. At OG&E demand for electric power related to winter weather was 14 percent below normal. But still, OG&E was able to improve results, controlling expenses and operating with focus and discipline.

We're also pleased with the sustained level of financial improvement and performance at Enogex. It's their fifth seq. quarter for higher year-over-year earnings comparison. During this time we have consistently told you that we have been encouraged with the progress, but we have also tempered our commentary, knowing there is plenty of room for further improvement, and we repeat that message to you again today.

We continue to improve our business processes, focusing on our costs and quality of service to our customers in both the regulated and unregulated businesses -- and this is very important work for us.

And now that we have demonstrated, in my opinion, our ability to sustain that improvement, we're excited to build on the momentum with new technology and better information.

At Enogex, in particular, we are making good use of that information to execute our plan for accruing the financial return on our existing assets. Jim will explain the financial details in a minute, but I must say, I'm pleased to announce we have increased our 2004 earnings guidance by 20 cents per share, to between $1.60 and $1.70 per share. Part of this is due to nonrecurring items we don't expect every year, but it's good news in any case.

Looking ahead, we're focused on multiple issues in the regulatory arena that I will briefly address -- and you'll hear more about from others. As you may recall, we promised in the rate settlement agreement in 2002 to deliver $75 million in savings to our customers over a three-year period beginning January 1, 2004. Our intent was to deliver these segments through the purchase out of bankruptcy of a 77 percent interest in the McClain power plant. We have not yet completed that purchase, but we are buying low-cost power from a McClain and passing the savings on to our retail customers.

We have extended this power purchase agreement through the end of this year.

With the delay at the Federal Energy Regulatory Commission in getting approval of the McClain transaction there had been some concern that we would need to reduce our electric rates by $25 million annually while we waited for FERC to act. And that issue has now been answered in our favor.

The decision last week by the Oklahoma Corporation Commission was in our view the right decision for our Oklahoma customers. It gives us the financial flexibility to make significant estimates -- investments in the quality of our liability of their electric service.

Meanwhile, we continue our work to gain FERC approval of our agreement to acquire McClain, and to secure savings for our customers for many years to come.

We were disappointed by the recent decision of the FERC administrative law judge not to certify our settlement offer. We did file our appeal of that decision on Monday and we are prepared to go to hearing if necessary.

We believe we have satisfied FERC's requirements and others, support our position that the commission should consider our litigation plan and grant us the approval that they withheld last December.

We hope the formation of a regional translation (ph) organization by our reliability network, the Southwest Power Pool will increase FERC's comfort with our acquisition of the McClain powerplant.

Our Company has been a strong supporter of the principles associated with the creation of this RTO, and just last week at a meeting, here in Oklahoma City, work was completed to satisfied FERC's requirements for formal approval of the RTO.

In addition, we support the creation of the Southwest Power Pool's new Regional State Committee, shared by the Denise Bode of the Oklahoma Corporation Commission. We look forward to working with this group as they go about the important task of getting the RTO organized and up and running.

Another issue in the headlines here in Oklahoma City has been our intent not to renew the federally mandated Smith Cogeneration contract under its original terms. A few weeks ago, we announced a tentative agreement that enables us to utilize the Smith plant's capacity on terms that are more favorable to our customers.

A definitive agreement has not yet been reached but the expectation is that we will have done our part to protect our customers from above market cogeneration costs, and at the same time, helping to preserve 2,000 jobs at the Dayton powerplant.

It's also encouraging news from the standpoint that Dayton Power is a large OG&E electric customer.

So, clearly, we're off to a great start in 2004. And as always, we're focused on challenges ahead and we'll work very hard on it. Again, I would like to thank you for your continued interest in the Company, and turn the program back over to Jim. Jim?

Thank you, Steve. I would now cover the earnings of OGE Energy Corp. And as I said, I will start with a discussion of the first quarter. Discuss the contributions of the business units and discuss an updated 2004 guidance.

First today we reported net income of $10.2 million or 12 cents per share for the first quarter in 2004, as compared to a net loss of $310,000 or breakeven in the first quarter of 2003.

The contribution by business units on a comparative basis is as follows -- OG&E, the regulated utility, breakeven versus a loss of 4 cents in 2003. Enogex, 15 cents versus 7 cents in 2003. And the holding Company was a loss of 3 cents in both quarters, consolidated 12 cents versus breakeven.

For OG&E net income was breakeven as compared to a net loss of 3.3 million or 4 cents a share in the first quarter of 2003.

Gross margin on revenues was up 2.4 million or 2 cents per share to 121.1 million in 2004 from 118.7 million in the first quarter of 2003. The major factors impacting increased gross margins were growth and additional fuel recoveries -- partially offset by warmer than normal weather. (indiscernible) 14 percent below last year's quarter and 10 percent below normal.

In terms of expenses, O&M expenses decreased $0.5 million in 2004 from last year's quarter. As we commented in our last earnings call, we have established a contingency plan to address the uncertainty surrounding the $25 million customer savings, and have therefore reduced our level of spending, pending resolution of that issue. As Steve mentioned, that issue was resolved positively in April.

As a result, I do not expect that the level of expenses in the first quarter are necessarily representative of our annual expense levels. As our expenses dropped 700,000 in 2004 from last year's quarter. This includes other all other expenses except income taxes.

Together, total expenses were 1.2 million below last year's quarter or 1 cent a share.

We also had a positive tax bearing to $1.7 million resulting in a 1 cent per share benefit. This tax credit is an Oklahoma investment tax credit.

To summarize the utility, gross margins were up 2 cents, expenses were 1 cent benefit, and taxes were 1 cent benefit for the 4 cent bearing.

At Enogex, net income more than doubled coming in at 12.8 million or 15 cents per share in 2004, as compared to 5.5 million or 7 cents per share in the first quarter of 2003.

At Enogex, gross margin on revenues were 65.7 million up 2.6 million or 2 cents per share, as compared to 63.1 million in the first quarter of 2003.

Gathering and processing posted the largest gross margin on revenue increase. I want to direct your attention to the footnote on the marketing business. If you remember, in last year's first quarter, we had a change in accounting principle which benefited gross margins in marketing. This gross margin benefit was offset by an income statement line item of a similar amount, which reduced net income. There was no material impact in the financial statements in the first quarter of 2003.

During the first quarter of 2004, transportation storage gross margins increased by 2.8 million from the first quarter 2003. The three biggest items benefiting gross margins were -- higher firm and nonfirm revenues and higher pipeline in balance recoveries. Margin impact from the negotiation of more favorable terms on both new and expiring contracts. And increased transportation revenues from the OG&E contract, which was effective May 2003.

In terms of gathering and processing, gross margins increased 10.3 million quarter-over-quarter. Gathering gross margins were 9.7 million higher in 2004 as compared to the first quarter of 2003. The higher gross margins were primarily the result of our continued efforts to increase margins from our existing asset base, as we renegotiated expiring contracts.

We have previously discussed our efforts to increase the profitability of the gathering business.

In addition, Enogex is benefiting from the favorable metric gas pricing environment -- well connects were 49 in this year's quarter as compared to 34 in last year's quarter.

Marketing gross margins were down 10.5 million from the first quarter in 2003. The reduction was primarily the result of the positive benefit in last year's quarter due to the change in accounting methods. As I mentioned earlier, the posit benefit was offset from an earnings perspective and the cumulative benefit line recorded elsewhere in the Enogex's financial statements.

In terms of expenses, operating expenses increased slightly by 1.8 million over the first quarter of 2003. Other income decreased 2.9 million, primarily due to the recognition of the sale of a portion of the Ozark pipeline in the first quarter of 2003, which was partially offset by gains on the sale of certain Enogex compression and processing assets in 2004.

Interest expense was 600,000 lower, due to lower levels of long-term debt outstanding -- the result of our efforts to deliver the balance sheet. Like the utility, Enogex benefited from an Oklahoma investment tax credit. This was a $2 million benefit resulting in a 4 cent per share benefit in 2004.

Discontinued operations had income of 400,000 in 2004, versus income of 1.3 million in the first quarter of 2003 or a 1 cent per share decrease.

And I mentioned earlier, the reduction in gross margins in the marketing business. Here's the offset for that margin reduction. The cumulative effect on prior years, a change in accounting for energy trading contracts is 9.6 million or 7 cents per share benefit in 2004. Again, this issue, as a whole, had no material impact on Enogex's net income.

In the first quarter of 2004, we recorded several non-recurring items at Enogex that had a positive benefit to net income. Before we discuss 2004 outlook, we thought it will be relevant to review those items with you. As you can see, we had a total of 3.8 million in net income relating to these items.

The largest item was the previously mentioned Oklahoma investment tax credit of 2 million. You can see the other items on the chart.

These nonrecurring items contributed 4 cents per share in the first quarter, as compared to 2003 nonrecurring items of 2.4 million or 3 cents a share.

Looking ahead, we are increasing our 2004 guidance to $1.60 to $1.70 per share. The new range reflects higher expected contributions from every business segment, and assumes that OG&E will earn between 120 and 124 million, Enogex will earn between 34 and 38 million, and the Holding Company will post a loss of 13 to 14 million.

We're projecting a $7 million increase in net income at the utility is coming from two areas. First, slightly higher than forecasted margins of approximately 6 million, driven by additional fuel recoveries. Second, we project operating expenses will be less than that in our previous guidance. We anticipate lower O&M expense of approximately 2.4 million due to a decrease in pension expense, and a decrease in depreciation expense of approximately $2.5 million.

At Enogex, we're projecting a $7 million increase in net income as well. The anticipated increase in net income is driven by nonrecurring items of $5 million, and the continued business improvements of approximately $2 million. We expect the additional nonrecurring items to fall in the transportation business, and the 2 million of additional business improvements to occur in the Gathering business.

We're also reducing the estimated loss at the Holding Company to 13 to 14 million as a result of lower than forecasted commercial paper levels.

And I want to emphasize that our revised guidance includes the positive effect of the nonrecurring items. We have assumed 88.2 million shares -- average shares outstanding, reflecting the full year impact of our August 2003 equity offering, and the issuance of additional group shares in the second half of 2004.

Now, I would like to turn to call over to Pete Delaney, who will provide an update on the McClain acquisition. Pete?

Thank you, Jim. The McClain powerplant on an operational basis continues to perform well. You may recall, as a part of our acquisition -- the acquisition structure of that powerplant, we signed a PPA agreement last summer through May of this year. That allows us to take energy from that unit. The unit is -- has been performing and is ready for the summer.

Recognizing, however, that the FERC process on the approval side may last the better part of the year. And as Steve mentioned in his remarks, we have extended the purchase power agreement through December of this year. This power from this -- power from this PPA is from McClain is the basis, as you know, for the $75 million of savings that we promised our customers in Oklahoma under the 2002 rates stipulation.

Turning for a minute to the regulatory front, principally the actions at FERC -- we continue all our efforts to settle our FERC case with the sole intervener -- which in this instance is InterGen. And you may recall, InterGen has a 1200 megawatts IPP plant here in Oklahoma. It was one of those plants that we reviewed as an acquisition candidate prior to our successful negotiation the McClain powerplant.

As a part of these settlement efforts, we filed a unilateral offer settlement with the FERC on March 8th of this year. Our unilateral offer settlement was supported by several parties -- and notably, it was supported by the FERC trial staff itself.

However, InterGen did reject that settlement, and OG&E had asked the ALJ again to certify our offer settlement as a contested offer of settlement to the commission.

And on April 12th of this year ALJ declined to certify our unilateral offer of settlement.

OG&E then petitioned the ALJ to reconsider his decision. He agreed to rehear and promptly again denied our motion to certify the offer. In addition, he denied our requests for interlopatory appeal to the commission. His denial really permitted us to appeal directly to the FERC chairman, which we have done, and the commission chairman has seven days from our action -- from our appeal with take action on our appeal.

Absent cognizant confirmation of our offer settlement or certification of our offer settlement or a settlement with InterGen through other means, we will be headed for the hearing that is scheduled to commence in August. We have filed our legal case for that hearing. We filed it on March 2nd, and we're prepared for the hearing.

Again, we remained committed to this acquisition because of the long-term benefits to our customers associated with the purchase of the plant.

I will now turn over to Howard Motley.

Thanks, Pete. I'm going to explain three regulatory activities we have going in the Oklahoma jurisdiction.

First slide is the 2002 settlement agreement. In that agreement, OG&E agreed to acquire at least 400 megawatts of generation capacity, and to deliver $75 million worth of customer savings during a three-year period. These savings were to begin January 1, 2004.

Our original intention was to start delivering those savings with the McClain plants. But, we did not have the ownership of the plant in December of '03 to start producing those savings. But we did have the purchase power agreement that we talked about today.

So, OG&E filed an application with the Oklahoma Corporation Commission on January the 8th of this year requesting the commission to determine that OG&E was in compliance with producing these savings through a purchase power agreement with McClain, even though we didn't have the ownership of the McClain facility.

The Oklahoma commission issued an order on April 28th, and in that order they stated that OG&E had acted in good faith and is delivering the savings -- that OG&E is in compliance with the settlement agreement based on the McClain PPA that is providing the customer savings. And (indiscernible) a $25 million rate reduction beginning in January of this year was not required.

Another key point I think that the commission pointed out in the order was that the -- this order was very helpful to our customers because it will allow us to move forward with the Company's plan to make significant investments this year, that will improve or enhance the quality and the reliability of our electric service to our customers here in Oklahoma.

Finally, I would like to make one last point on this slide is that -- we have -- that McClain PPA has been extended through December 1 of 2004 this year, and will be producing savings and filing monthly reports with the Oklahoma Corporation Commission.

The next slide relates to our gas transportation and storage case. Also back in the 2002 settlement we agreed to consider competitive bidding gas transportation service when we were looking at extending the Enogex contract. The Company performed a comprehensive study, and we determined that we really needed integrated gas transportation and gas storage service in order to be able to serve our customers with reliable and low-cost energy.

We believe that the only way that we could do that is with a Enogex. And we don't believe that that type of service is available from Oklahoma, other markets in Oklahoma.

OG&E and Enogex signed a contract for that type of a service in May of 2003. And as part of the 2002 settlement, if we did not competitive bid that service before we extended the Enogex contract, we had to inform the commission and the Attorney General of Oklahoma of our reasons for not competitive bidding.

The Company opted to file a comprehensive case. We did that in April 29, 2003. We have filed testimony supporting our decision. The Company -- or the commission has issued a procedure schedule. The staff, the Attorney General and the other parties of the case will file testimony responding to our case May 28th, that all parties will have a chance to file rebuttal testimony on June 28th, and then we will have a settlement conference July 27th.

If we do not settle the case July 27th, we will go to hearing on August 10th and August 11th of this year to determine the issues in that case.

And the last action that has been going on for a while was the security writer case. We filed with the commission an application back in April of 2002 asking for a security writer for us to invest in security and to automatically pass that cost onto the consumer through a writer instead of having to go through a rate investigation.

We filed our testimony in August of '02 -- the staff retained a consultant to review OG&E's testimony. And we were moving forward with that case. And then in October of 2003 the OCC's staff filed a notice of inquiry to look at security for the utility system infrastructure and key assets, statewide, for all the utilities in Oklahoma. They reported back to the commission in March 4, 2004, and the commission directed the staff to file a rulemaking which they will be filing in the next month or so, that will take some time to set rules in place for the security of the natural gas and electric industry in Oklahoma.

We did not know whether that would slow up our case or we would have to to have the rulemaking before we could proceed with our case. But we now expect to be able to go ahead and move forward in the security writer case -- even now, before we finalize the rulemakings in Oklahoma.

And I will turn it back to Jim, for the summary.

Thanks, Howard. Before we get to Q&A, I want to summarize the first quarter and the outlook.

Our first quarter benefited from a positive business environment and several nonrecurring items previously mentioned. A revised guidance reflects a stronger than expected first quarter, and an ongoing positive business environment.

I want point out that we had no short-term debt and a significant cash balance at the end of the first quarter reflecting the improvement in our financial profile and resulting in increased financial flexibility.

The OCC has affirmed our compliance with the 2002 rate settlement. That was the right decision for our customers and shareholders, as it allows us to begin making the significant investments in the quality and reliability of our electric service.

As we look forward, we maintain the commitment to close on the McClain plant and execute our business plan for both the regulated and unregulated business.

And that concludes our prepared remarks. We would now be happy to answer any questions you may have.

(Operator Instructions). Doug Fischer, A.G. Edwards.

Congratulations on solid quarter. A few questions with regard to the higher guidance. If I recall, at one point you were talking about the possibility of perhaps doing something with the trust preferred in the third quarter, and that might result in a charge. Is that still in the plans? And would that -- is that charge in or out of the roughly 13 million expected loss to the holding Company?

Doug, our current plans would be call that trust preferred. It's callable at par in October. The charge associated with that is about $6 million of an unamortized debt expense, and taking that to expense is incorporated in our guidance.

So, that is in your guidance number?

Correct.

So, you have sharply lower borrowings, I guess, are expected at the holding Company. Is that what's driving -- were not (technical difficulty) but to offset that after-tax impact of a -- what is that, 4 million or so after-tax?

We have -- there are really two aspects. One is, obviously, we would have an improvement in our borrowing costs as we replace that. But we also have anticipated throughout the year lower levels of commercial paper incorporated in our revised guidance.

And then, you talked about at the utility your higher guidance was -- you said 6 million related to higher margins. And a big portion of that 6 million was due to fuel recoveries. Could you explain that? Is that a onetime sort of mismatch in timing? Or is that something more permanent?

Doug, I'm going to ask Howard Motley -- the regulatory person -- to answer that, please.

Yeah, the increased $6 million is related to the new gas transportation storage contract between Enogex and OG&E. In the last rate case we have -- we're recovering about $25 million of the gas transportation costs and base rates, and in (technical difficulty) the commission authorized fuel adjustment clause. And so what we're beginning to do this year is to pass the difference between the 25 million and the 32 million in the new contract -- which is about $7 million a year -- through the fuel adjustment clause. And that's about $0.5 million a month. So, $0.5 million times eleven months -- we started in February -- is about $5.5 million. And those dollars will be subject to review in this gas transportation case when we go to hearing in August of this year.

So, in your original guidance you were assuming you were not going to fully recover those costs?

It wasn't that we wouldn't fully recover those costs. It was really, as we looked at the gas transportation case, as it unfolded, we had the opportunity to recover that additional contract amount through the fuel costs.

And I guess I would add that after results of the hearing in the future, whatever the commission decides in that, we will keep recovering whatever level the commission authorized through the fuel adjustment clause until the Company's next rate proceeding.

Okay, so these are all costs that were -- is this 5.5 million for '03? Or is it just reflecting full recovery in '04?

It is full recovery of a contract beginning February '04.

Okay.

Recovery on a prospective basis.

Okay. And then one last question -- is Smith Cogen not an intervener anymore at McClain? I am a little confused about their status.

A good question, Doug. At this current time where we are -- we've had other interveners. Some interveners positive, some interveners negative. All the interveners, including InterGen, in that case were saying -- the acquisition should be approved. But everybody -- not everybody -- but a lot of them attached certain conditions. And InterGen has their list of conditions. And Power Smith had been a, I guess you would call, intervener who felt that certain conditions should be attached to that acquisition. And they are no longer an active intervener in that case.

What is InterGen asking for beyond what you have offered in your unilateral settlement?

Well, we've offered, again, to mitigate the -- the December 18 order viewed the acquisition and how they treated -- asked the purchase power agreements to be treated as they did we were taking 400 megawatts out of the market -- wholesale market. And our mitigation really addressed that to provide additional (indiscernible) capacity for additional 400 megawatts to offset that 400 megawatts that would be taken out of the market ostensibly through the acquisition of McClain.

If you look at what InterGen -- and this is our biggest issue is that -- you look at InterGen, InterGen wants to deal with changing conditions in Oklahoma -- conditions in regard to the markets that have nothing to do with our acquisition. They are proposing things like that -- there is an economic dispatch of all the IPPs in the state of Oklahoma. And some various other issues.

That plan is not operational at this point in time. We -- they've not, since operational, and they are not able to offer us any energy at this time. So, a lot of what they're asking for really are trying to trade a set of conditions that they would like to see in Oklahoma, but are conditions in the market that existed prior to our acquisition. And has nothing to really do with our acquisition.

At any rate, we've offered in our unilateral offer, some of you know, to have increased available transmission capacity into our control area of 600 megawatts. Although, expenses, we again were only taking 400 megawatts out of the market.

We continue our efforts, however, to reach an accommodation with InterGen but we're not really able to really predict our probability of success in that venture.

Is this plant not operational because it's not complete? Or because it's not economic to run it at this point, since it doesn't have customers?

Our view is that it is complete. And, as I am aware, they had testing power agreement with Western Resources. And I believe that (indiscernible) you have to ask InterGen. But, we probably believe that it's probably ready operationally, but it has not declared so because of a market. But, you have to ask InterGen.

Thank you.

Jeff Gilder Sleeve (ph).

I just wanted to make sure I understood completely the previous guidance versus the new guidance and how much nonrecurring earnings were embedded in the last guidance? And then I just want to make sure I knew the amount nonrecurring earnings in the current $1.60 to $1.70?

The previous guidance of $1.40, $1.50 you had no -- 0 for nonrecurring charges. And if you -- the $1.60, $1.70 guidance really incorporates about $5 million of net income at Enogex or about 6 cents per share, would be what's incorporated in the new guidance.

Okay -- of nonrecurring earnings?

Correct.

Okay. So the fuel recovery that Doug was asking about, that is ongoing?

That is ongoing. But if you think about -- this started in February '04. For 2004, as compared to prior periods, it's going be the incremental. Once we get into '05 and look back at '04, it's not going to have a year-over-year change.

Right. And I think the comment was that that was about 0.5 million a month? And so if it started in February, would the fuel recovery impact be about 1 million in the first quarter?

Correct.

Okay. Great. Thank you.

Jeffrey Covello (ph).

I just wanted to clarify -- some of this investment tax credit benefits you mentioned.

Okay.

Are those ongoing as well?

This is Tom Reynolds (ph). They are ongoing as well, but they won't be at the level -- the amounts we have in the first quarter reflect settlement of the Oklahoma Tax Commission, which relate to about a three-year period. Where we went back and got credits for investments made over that period of time.

Okay. Okay. Is there any sort of run rate we should think about going forward, you know, for next year?

The run rate, I guess, going forward would be somewhere in the range of 0.5 million a year.

Great. Thank you. Just going back to the FERC and McClain process, I just wanted to clarify where we were with that.

I believe you said on Monday you filed something with I guess Pat Wood (ph), and you're waiting for his response, which I guess would have to come in seven days. If he says that the commission won't hear it, other than a settlement, is there any other recourse you have to try to get that at (indiscernible) before the hearings?

Yes, we appealed -- again, the way the rules work, we were able to appeal that denial that ALJ to Motions Commissioner -- in this case, the Motions Commissioner, as we understand it at this point is the FERC Chairman. Because no other Motions Commissioner has been appointed.

Now, the Chairman can take -- if he takes no action, (indiscernible). If you take no action, for example, it doesn't require an action, then that appeal -- it falls dead. And we would continue, again, with the ALJ. The ALJ chose not to certify us because he felt they were some -- which we disagree with -- some material -- absence of some material information. He felt it was too contested. And some other issues there.

One of the things is that we continue to file testimony preparation for the hearings. The record will become more complete. We would probably, at that point in time, seeing that that was one of the problems the ALJ had with certifying our offer at this point in time, that we would then file additional motions -- at that point in time we could get the offer certified.

So, you can file that motion again, just because it's filed in the night doesn't mean that you can't?

That's correct. So, the alternatives would be here, as we look at it -- again, and I'm not lawyer -- but I will try to give you my best view of this -- is that -- And again, I (indiscernible) the ALJ decline to certify InterGen offer a settlement -- they also offered their own unilateral offer settlement. So both offers have been -- they did not certify either.

But, we will continue to try to get our offers certified. We will continue to try to settle with InterGen as well, and have that certified. We have a mutual settlement.

And then again, if that does not occur, we will be into the hearing process, which was scheduled, again, on January 15th after December 18th order the presiding judge set a procedural schedule. And that procedural schedule called for a hearing on August 3rd.

We have filed our legal case, and testimony is being filed during this period in time, in preparation for the hearing. And then we will be into the hearing process, should all these other efforts not be successful.

And I guess, once this is resolved at FERC, is there anything precluding you from filing your rate case with the OCC immediately thereafter? Is there -- is that sort of how you would envision it going?

Jim, you want me to talk about the (multiple speakers) assuming that approval was granted at FERC (multiple speakers)

(multiple speakers) assuming (multiple speakers) resolved in any case?

Well, the -- we're not set on a particular schedule to go into Oklahoma and Arkansas to recover -- not only McClain, but the additional investments we're making throughout the year.

You'll remember the stipulation allowed us to book as a regulatory asset for up to 12 months. -- the McClain acquisition. And so we would look at the timing where we are -- our business environment, other construction programs we have -- and try to go in at a time when we can maximize recovery -- and not only cost of service but our additional investments as well.

But there is no procedural problem with filing it whenever you deem? Is that right? There's no --?

Right. We're not stuck by any timetables.

All right. Thank you very much.

Thank you, sir. And it appears we have no further questions at this time. So, I would like to hand it back over to management.

Well, this is Steve Moore. We would like to, once again, thank you for your interest in the Company and participating in the call. I would like to take just one second to briefly acknowledge the service of Al Strecker (ph) who is retiring in just a few days. He has participated in many of these calls, and he wanted me to tell you that he will miss the calls in the future. We appreciate Al's service. We appreciate your interest in the Company. Good day.