OGE Energy Corp (OGE) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the OGE Energy Second-Quarter Earnings Conference Call. (OPERATOR INSTRUCTIONS.)

As a reminder, this conference may be recorded.

I would now like to turn the conference over to our host of today's call, Mr. Todd Tidwell. You may begin.

Thank you, Operator, and good morning, everyone, and welcome to OGE Energy Corp's Second-Quarter 2015 Earnings Call. I'm Todd Tidwell, Director of Investor Relations, and with me today I have Sean Trauschke, 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 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.

I would also like to remind you that there is a Regulation 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. Sean?

Thank you, Todd, and good morning, everyone, and thank you for joining us today on the call.

We have a number of accomplishments to update you on, so let's briefly touch over a few highlights.

Earlier this morning, we reported second-quarter consolidated earnings of $0.22 per share, compared with $0.50 in 2014. Year to date, we are on plan, and Steve will discuss the financial results in more detail in just a moment.

We have many opportunities to enhance shareholder value and provide customer solutions, and in fact, just this quarter, we received the JD Power award for Customer Satisfaction for the third straight year. This is the fourth award in five years and a real credit to our team for the innovation and execution we are doing with our grid. We continue to believe our businesses are strong and well-positioned for the long-term growth and value creation. Enable has refreshed guidance and recently increased the distribution, consistent with their stated growth rate guidance of 3% to 7%, and as we've said before, cash distributions received is the key metric we are using for Enable. Distributions from Enable will continue to fund our dividend and capital expenditures associated with the environment compliance plan.

Turning to the utility, our service territory remains strong, as Oklahoma -- and in particular, Oklahoma City -- continue to outpace the nation in terms of economic growth and low unemployment. We've added another 9,000 customers, compared to the second quarter of 2014, and I am pleased to announce three major economic development accomplishments. The first is an advanced technology micro-steel mill located in southeastern Oklahoma which will provide 300 jobs and up to 40 megawatts of load for OG&E over the next 5 years. The second is a cold storage facility in Fort Smith which will add 100 jobs and up to 20 megawatts of load to our system. And finally, Boeing has announced Oklahoma City as its new headquarters for the Aircraft Modernization and Sustainability division. An additional 900 high-paying jobs are being relocated to the city, bringing the total Boeing jobs to almost 3,000 over the past few years. While we are very excited to have these new businesses in our service territory, the real benefit of this is the added economic impact of new families moving into the service territory which contributes to making local businesses stronger and growing our communities overall. These are examples of the attractiveness of our service territory and the focus of our economic development efforts. Low rates and high reliability are key components in economic development, and these businesses highlight our region's growing economic diversity.

Attracting customers with not only competitive rates but additional products and services is a key component of our strategy. We've talked many times about our Smart Hours program which allows customers to choose pricing and usage patterns, utilizing real-time data accessible through their own smartphones or computers. A consultant recently testified before the Oklahoma Commission that our Smart Hours program was not only one of the best in the US but the world. We believe this -- we believe offering this type of program to customers is a key reason why we've won the JD Power award for three years in a row.

I'm also pleased to announce our first solar installation came online last week. This 2.5-megawatt facility, located at our Mustang facility, will provide better economics for customers and rooftop solar and useful information regarding solar's impact on our system -- how the panels hold up in severe weather and if this is a viable renewable product for our customers. Oklahoma Governor Mary Fallin and other community and state leaders were on hand at the dedication ceremony, welcoming what could be another exciting chapter in Oklahoma's rich energy history. I was pleased to hear the governor commend our company for our low rates, high reliability, innovation and, probably most importantly, our community engagement.

Before turning the call over to Steve, I'd like to provide you an update on regulatory events in Oklahoma and Arkansas. In Oklahoma, we recently received approval of our economic development program for 12 sites within our service territory. This program will allow us to provide a discount to new customers to provide at least 1 megawatt of load to areas of our system with available capacity. We believe this incentive mechanism will be a significant factor in the future for businesses considering locating to Oklahoma.

Turning to our environmental filing in Oklahoma, the case is now being considered by the three Oklahoma commissioners, and we expect an order soon. The commissioners began deliberating on Tuesday and indicated they'd like to get an order out in 30 days. Two commissioners verbally stated they thought the scrub convert plan was reasonable, but the points of discussion were around recovery, specifically whether it should be in the rider as we proposed or considered in the upcoming rate case. Regarding the Mustang modernization plan, the commissioners did not appear they are ready to grant pre-approval. However, two of the commissioners did acknowledge the value of the site and its ancillary assets. I define these as the existing gas supply, the water supply, the transmission interconnection and, most importantly, a quality workforce at the site. We sought pre-approval and a rider for this plant in order to smooth the rate impact out for customers.

Moving to the rate case, we filed our notice of intent with the Oklahoma Corporation Commission last week. Our plan is to file the case no later than November 30 of 2015, with a test year ending June 30 of 2015. The case will focus on two main issues. And the first, as we've discussed, we've terminated a large wholesale contract and several smaller contracts and will now seek to place approximately 300 megawatts of OG&E's generating capacity into retail rates. This is a great deal for customers, as the embedded capacity cost is less than $250 per kw.

The second focus will be able to recover the retail portion of several transmission lines that are in service that we've constructed at SPP's direction over the past few years. In addition to the two items above, this will also satisfy the requirement on the Statute 286.

Moving to Arkansas, where there is similar legislation on the books -- it's referred to as Act 310 -- we have filed under Act 310 which allows us a simplifying of environmental expenditures for assets placed into service. We filed in May, put the rates into effect in June, and a hearing's been scheduled for the case in October, and we will update the filing every 6 months as additional compliance investments are made.

Continuing with Arkansas, we're excited to see the state moving forward in a direction that has great potential for the future rate-making. Formula rate-making is taking hold in many jurisdictions. It can streamline the process, reduce regulatory lag and, at the same time, protect the customer. And we are encouraged by the state's forward thinking.

Now let me provide you an update on our compliance progress today. Regarding the ACI systems for (inaudible) compliance, we expect to finalize installation contracts this summer and construction will commence in the second half of this year to meet the April 2016 compliance deadline. While the (inaudible) rules aren't finalized, the compliance deadline remains in place which required us to move forward with the control's equipment.

Looking at the regional haze compliance plan, installation of the Low NOx burners is now complete on all of the coal units, the permitting process for the remaining three units at Seminole has been completed and installation will begin on those units this fall and be completed in the spring of 2017. The equipment and installation vendors for the two dry scrubbers at Sooner have been selected, and the schedules and budgets are on plan. For the Mustang plant, the turbine selection's been completed and the permit and applications have been filed with the Oklahoma Department of Environmental Quality. And finally, engineering studies for the conversion of the two coal units at Muskogee have recently been completed and with permit applications to be submitted to the Oklahoma Department of Environmental Quality in the second half of 2017. Recall our plan is to continue to run these coal units as long as possible to maximize the benefits for our customers.

Finally, the EPA issued its much-anticipated Clean Power Plant on Monday. The rule is complex and close to 3,000 pages, including the Federal Implementation Plans. We're probably no different than the rest of the industry. It'll take us some time to conduct our own analysis. Considering the actions we are taking for regional haze compliance, we will have reduced our CO2 emissions in excess of 30% by 2020 without the introduction or the implementation of the Clean Power Plant.

Before closing, I wanted to update you on the Enable CEO search. The search is going well and we are beginning the interview process. I'm pleased to see that there's been a great deal of interest in this position, and our committee is pleased with what we've seen thus far. And so stay tuned. As always, we'll keep you updated with any news or changes on that front.

Before I conclude, let me just say that this is my first earnings call as CEO. The transition from Pete to me has been a smooth one. And among the many things one does when assuming such a role, I've met with many members, which is what we call our employees here at the company, throughout our service territory, and I'm pleased with the enthusiasm they've shown towards my leadership, towards the challenges facing our company and the opportunities we have before us. We ask a lot of our team, and I'm convinced these folks are up to any task set before them.

So in conclusion, you can see we've got a lot going on in the company, but I want you to know we're committed to executing on our strategy to continue growing our business, and we continue to have top-quartile dividend growth and our expectation is the dividend trajectory will not change.

With that, I'll turn the call over to Steve to review our financial results for the quarter. Steve?

Thank you, Sean, and good morning.

For the second quarter, we reported net income of $88 million, or $0.44 per share, as compared to net income of $101 million, or $0.50 per share, in 2014. The contribution by business unit on a comparative base is listed on the slide.

At OG&E, net income for the quarter was $69 million, or $0.34 per share, as compared to net income of $77 million, or $0.38 per share, in 2014. Second-quarter gross margin at the utility decreased approximately $2 million, which I'll discuss on the next slide.

O&M is on plan for the year. Our goal is to keep O&M growth no higher than the rate of inflation.

Depreciation increased $9 million, and taxes, other than income, increased $3 million, primarily due to the large transmission lines that were added in the last 12 months, part of the over $800 million of plant placed in service in 2014.

Finally, other income increased $2 million, largely due to increased margins from the guaranteed flat bill program.

Turning to the second-quarter gross margin, utility margins were down approximately $2 million for the second quarter of 2015 compared to 2014. There were four primary drivers for the change in gross margin. First, wholesale transmission revenues decreased $10 million compared to the second quarter of 2014, primarily due to an adjustment of the SPP formula rate to reflect the continuation of bonus depreciation.

Second, mild weather translated into $2 million of lower gross margin, as tooling degree days were 11% lower compared to the second quarter of 2014. Partially offsetting these decreases was new customer growth, contributing $5 million. We added nearly 9,000 new customers to the system, as compared to the second quarter of 2014, growing at our historical rate of 1%.

And finally, an additional $4 million of margin was associated with customer migration between rate classes.

For the second quarter of 2015, Enable Midstream made cash distributions of approximately $35 million to OGE and contributed earnings of $18 million, or $0.10 per share, compared to $24 million, or $0.12 per share, in 2014. The decrease is primarily due to lower commodity prices.

Despite the current commodity price environment, Enable continues to grow their quarterly distribution rate. The second-quarter rate increase recently announced was 1%, raising the distribution to $0.316 per unit. Overall, Enable has raised its quarterly distributions 10% since its IPO in early 2014.

Year to date, OGE has received approximately $69 million of distributions from Enable.

Turning to the 2015 outlook, guidance remains unchanged and is based on our assumptions set forth on our 2014 10-K. For the Midstream business, we are projecting to receive approximately $140 million in cash from distributions. Our cash flow position for 2015 remains strong and is key to our value proposition, which is growing utility EPS and utilizing our cash flow received from Enable to fund our capital investments and grow our dividend at 10% annually.

This concludes our prepared remarks and I'll now turn the call -- and we'll now answer your questions.

(OPERATOR INSTRUCTIONS) And our first question comes from Michael Bondurant of Goldman Sachs. Your line is open.

Hi, guys. Thanks for the taking the question and congrats on your role, Sean.

Oh, thank you, Michael, and good morning.

Morning. Morning. So just wanted to start out with Enable here and some of the strategy there. So I guess maybe just to start with the CEO search, is there -- can you just outline some of the criteria you're looking for? Is it someone more with operational experience or transactional? Both? If you could just touch on that real quick.

Yes. I think -- so a couple key factors. We're looking for somebody that can integrate the two companies. They were two companies that were put together. Build the team, grow the company and someone that's knowledgeable about the business and well-known in the industry, not just to customers but to shareholders alike.

Okay. Great. Great. Good color on it. And just as far as what we've seen in the market. Obviously a lot of weakness in the MLP market. Is there a point where, from a strategic standpoint, it makes sense to consider bringing some of the assets back into the company, or is the commitment still to keep Enable stand-alone?

Yes. So Michael, the commitment -- we take a very long-term view --

Right.

For value creation. And you're right, there has been some weakness in the MLP market. But that doesn't change our conviction -- our strategy that we want Enable to be a stand-alone entity that goes and acquires its growth strategy -- gets -- grows its own business and acquires its own capital.

Okay. Got it. Got it. And then shifting off Enable real quick to the Oklahoma regulatory outlook and with the filing deadline of November, just what would that put interim rates at? When would you be eligible to implement those and then what's the thinking there?

Yes. So if we filed late this fall, rates would go into effect May, June timeframe of next year. So that was the timing. As far as our notice or filing of intent, this is just consistent with what we've -- our plan. We had said at the beginning of the year we were going to file a rate case to recover these two items, and we wanted everybody to know that's what we're doing.

Okay. Okay. Great. That's all I have. Thank you.

Alright. Thanks, Michael. Have a great day.

You, too.

And our next question comes from Paul Patterson of Glenrock Associates. Your line is open.

Good morning.

Hi. Good morning, Paul. How are you?

Alright. You guys spoke very quickly at the beginning of the call and I'm afraid that I couldn't keep up with you really on the --

Okay.

On Mustang and what have you and what the OCC talked about.

Okay.

Could you go over that a little bit more -- what they basically -- what you think they're coming down to in terms of the case?

Sure. So they -- the OCC began deliberations Tuesday. It was about an hour. And it did not look like, just based on their comments, that they were inclined to pre-approve Mustang. And recall we had requested a rider just really from the perspective of trying to smooth out the impact to customers. But it was noted by a couple of the commissioners that the site has a lot of value, and that was the point we had been making in a lot of our cases -- a lot of our discussions. There's already transmission interconnection there, gas supply, water supply, and there's a workforce there. So this is a significantly old plant and we have a window of opportunity to utilize this site that is really closest to the largest load center, being Oklahoma City.

But it doesn't sound like they're interested maybe right now in terms of going forward with the Mustang plant.

Well, I think discussion was around pre-approval of the site, Paul -- pre-approved.

Okay.

Yes.

So then how should we -- in terms of -- do we have any sense in terms of how they see -- how there's lining up with respect to the ALJ recommendation in the case and Commissioner Anthony, I think it is, who put out his (inaudible) statement, is it? I forget what the technical term was, but --

Yes. I'm not sure what the technical term of that was, but the Commission just -- they had -- this deliberation was one hour, and it seems they're using the ALJ as a guidepost and discussing positions thereabout. I will tell you, our position is this -- is the Commission hasn't ruled. We do not want to say or do anything based on -- and speculate on what they could do or what we would do, but what I want to assure you is is we've been through and we've reviewed the various outcomes, and what I want to convey to you is that we're prepared.

Okay. And then in terms of Enable and what we've seen in terms of weakness and what-have-you in the space, is there any thought about what this might mean in terms of -- in the next year or two in terms of your ability to grow and the outlook for Enable itself?

Well, that was one of the important things on Enable's call yesterday and on their distribution call they had previously -- is there was some uncertainty and they needed to really be clear about what their growth strategy was and provide line of sight to how they're going to grow, and I believe they've articulated a growth strategy that includes not just volumes but -- not just gathering and processing volumes, but oil as well. And so we think they've got a pretty good line of sight to growth and -- over the next couple years. So even in this commodity market, we feel pretty good about that. It may not be as -- it's not as big as it once was, Paul. We recognize that.

Right.

Don't lose sight of the fact it is growing.

Okay. But in terms of the cost of capital and what-have-you, any -- I guess this is sort of a follow-up of the earlier question. What's your thought in terms of when you see what we've seen in the space in terms of the advantage that Enable or MLP space is actually providing vis-?-vis OGE?

Well, I think it's -- if I look at the value it's providing today, it's going to provide roughly $140 million of cash flow to our company today. And that's -- we don't anticipate that changing in the future. We expect it actually to go up. And that helps us fund our dividend growth, the increases we've identified over the next 5 years,

as well as funding a lot of our capital expenditure plans. So I think, from that standpoint, there's a lot of value there, and I think, over the long term, having an entity that runs itself and has to source its own growth initiatives and source its own capital -- I think that puts a level of discipline in the business that otherwise might not be there.

Okay. I appreciate it.

Thanks, Paul. Have a great day.

You, too.

And our next question comes from Matt Tucker of KeyBanc Capital. Your line is open.

Hi, guys. Good morning.

Good morning, Matt.

I just want to ask first about the weather impact in the quarter. Last year second quarter, you indicated weather was a -- had an $8-million negative impact to gross margin. And so you said $2 million versus normal this quarter. Sorry -- versus last year. So that implies about a $10-million negative impact versus normal for the second quarter. It seems like kind of a lot. Cooling degree days were 2% below normal. So, A, are those numbers right? And B, could there be something else going on there like higher levels of efficiency or customer conservation?

Thanks for the question, Matt. This is Steve. No, the numbers are right. Really if you look at year to date compared to last year, it's about $11.3 million below that, but it's actually flat with normal year to date. What happened to us is we had a really wet May and that kept temperatures down. It was unusually wet -- record rainfall around here, and that had an impact. But quarter to quarter, it's about $2.5 million. Whether that's normal over the prior year, but down about $11.3 million year to date compared to last year.

Got it. Thanks. And then just wanted to ask hypothetically if the Commission does not approve a rider in this case (inaudible) for the environmental spending, given Enable's new forecast that they came out with earlier this week, I just wanted to confirm you'd still be confident in your long-term dividend growth target?

Yes.

Okay. Great. And then just -- I thought so. Just wanted to check. And then with respect to the -- recovering the retail portion of transmission lines with your upcoming rate case, could you give any sense of kind of what the magnitude of that is?

Sure. If you look at the retail portion of transmission and then that expiring wholesale contract, the ask is about anywhere from $20 million to $30 million in the rate case. Yes, the transmission -- the rate base impacts transmissions about $100 million. But I don't want to get that confused with the ask in a rate case. The revenue required to be $20 million to $30 million combined AVAC and transmission and then any other changes in cost of service associated with that.

Understood. Thanks a lot, guys.

Thanks.

And our next question comes from Brian Russo of Ladenburg Thalmann. Your line is open.

Hi. Good morning.

Hi. Good morning, Brian.

Hi. Just to -- did I hear you correctly that the OCC is expected to issue an order on the ECP and MMT within 30 days?

That's what they discussed during their deliberations on Tuesday, Brian. They had a goal or an objective to try to get an order out within 30 days.

Okay. And those deliberations, although there's a transcript cover page posted on the website, we can't actually publicly access the deliberations, correct?

I thought you can. I think you can access those deliberations, and we'll get the transcript out there. Todd will get that out there if it's not on the Commission website.

Okay. Great. And assuming the Commission denies the MMT, when would you seek recovery of that in a rate case?

Yes. Let me just hold that, Brian, and I don't want to get ahead of myself and prejudice any of the deliberations that are going on. But as I mentioned earlier, we've thought through a number of different scenarios and we're prepared to respond on whatever is -- whatever order comes out.

Okay. And just on the 10% average annual dividend growth, I totally understand that it's solid. But maybe just -- can you just elaborate on initially what were the assumptions kind of underlying that dividend growth and any stress tests you've done surrounding Enable's cash flows.

Sure. Thanks, Brian, for the question. Actually appreciate the opportunity to clarify this. But we stressed that significantly and actually stressed it as if there were zero growth from Enable from September of last year on. So distributions didn't grow at all over that 5-year horizon. And we even stressed it to say what if the utility didn't grow as well -- what would we do? And that's where we came down -- we'd be very committed to this 10% long-term growth rate.

Okay. And then lastly, can you just remind us your opinion on the Oklahoma legislation that allows for recovery of environmental compliance outside of the context of the rate case and why your view differs from these interveners when it seems pretty clear what you're allowed to recover outside of a rate case based on the statute.

Well, thank you, Brian, for the question, and we agree with your assessment. We think it's very clear what is allowed under the statute. And I'll tell you, I think the state legislature understood that the government mandates were coming our way when they put -- when they unanimously put this House Bill 1910 into law, and they understood that keeping us strong and dealing with the federal mandates is in the best interest of customers and us as well. And we did everything we could to fight this. We've delayed this increase for a number of years and -- but now we're at the point where we need kind of timely approval and cost recovery to comply with these mandates. And so we do believe that it's clear that this is provided for. I'll tell you, this is a large, complex case. And you know that and I know that. And there were a lot of interveners. And -- but you think about the clean power plant and there are a lot of interveners in that and there are a lot of varying opinions on what goes on. And so I think the Commission is trying to be thoughtful and hear those concerns, but at the end of the day, I think everyone acknowledges and understands that the design and operation of our system and the safe and reliable delivery of energy to customers -- that's our responsibility and that's what we do. And I think they understand that we're the experts in that.

Okay. And then just lastly, if -- assuming you don't -- assuming the OCC denies a rider, would you have to file multiple rate cases as you spend the environmental CapEx to seek recovery? Is that kind of how we would look at it?

Brian, again, as I said, I don't want to get into -- they have not ruled yet and I want to avoid getting into a hypothetical situation. I want to assure you that we are prepared and we will -- our dividend is fine and we're in good shape.

Understood. Great.

And Brian?

Yes?

Keep in -- that's actually a good point. Keep in mind -- remember a lot of this goes into service in '18 and '19. The scrubbers go into service in '18. The conversion occurs in '19. Mustang is in between there. So we'll be accruing AFUDC as we go. And as Steve mentioned, we've stressed all this as we've thought about our dividend.

Great. Thank you very much.

Alright? Thanks, Brian.

And our next question comes from Anthony Crowdell of Jefferies. Your line is open.

Hi. Good morning. Just a couple question. One, if I could jump on Brian' question with Mustang. Would there be any thought to delaying the -- when Mustang goes online based on the outcome, or do you need it for reliability and it needs to go on in '18?

Yes. Really what's happening there at Mustang, Anthony, is we have a window through the permitting process and basically what happens is your emission -- you take the previous 5 years and you take the highest emissions over -- 2 consecutive years over the prior 5 years, and that is your emission cap for us to put a plant in there. And go back to 2012 when we had those 63 days of 100-plus-degree weather. That plant struggled but it ran a lot. And so we're utilizing those emissions -- those emission levels to size this 400-megawatt plant. If we delay that, the size of the plant declines and what happens is the actual value of the site and the contribution to customers declines. It's not worth as much. So we have a window there for us to reutilize an existing site that adds a lot of value to the community.

So I guess two years from 2012, the plant has to go, I guess, online. You'll accrue AFUDC at that point, and I know you don't want to speak of the outcome, but whatever the outcome is, that plant really is going to online sometime, I guess, '17, '18.

Yes. That's the plan is to go on in '18. That's right.

'18. Alright. Great. If I could just jump to your favorite topic, Enable. When do you think that CEO search wraps up?

Well, we're in the interview -- we're interviewing now. We're in the process of scheduling some additional interviews. We have a lot of very good candidates so we're going to go through that process. And I'm optimistic based on the candidates that we have, but Anthony, we're -- I'm not going to put a timeline out there. I understand Pete said that he thought it could be done by the end of the year. We'll talk to Pete. But I'm optimistic. We'll get that -- we're going to move very quickly, but we're going to get the right person.

Great. And I guess if I think optimistic, I know you guys had stated that -- to one of the earlier questions that you kind of stress-test Enable's cash flows so that the 10% dividend growth is well-funded. But if I think that, hey, energy does become useful to people in the future and oil prices return to a normal level and the distributions at Enable grow, what happens if Enable -- or is there a point where Enable becomes larger or a bigger piece of the pie than what OGE would like? I know it's a nice problem to think about, but is there a point where you think Enable is much larger than what OGE is comfortable with and what do you do for that?

Well, you're exactly right. That's a high-class problem to have. I'd -- that'd be a good discussion. We don't have an answer for you now, but I will tell you the utility's growing and you've modeled and you see the growth trajectory that the utility's going to have over the next 4 or 5 years. So Enable's got a lot of catching up to do to present that scenario, and if they did, that'd be a great outcome.

Great. Thanks for taking my questions. And Steve, much better job than your predecessor.

Thanks, Anthony.

And our next question comes from Charles Fishman of Morningstar. Your line is open.

Thank you. Sean, you mentioned three commercial industrial projects at the beginning of you prepared remarks. And then you talked about the -- some expiration of wholesale contracts. I'm assuming that those wholesale contracts are going to cover the capacity that those new projects are adding in the intermediate term?

Sure. I think from a capacity standpoint, we'll be in good shape with the additions we're making now. That is a true statement.

Okay. And then as far as any rate base growth from those projects, it's built-in to your distribution CapEx on Slide 12?

Yes. Yes.

Okay. That was the only question I had. Thank you.

Okay. Thanks. Take care.

And our next question comes from Sarah Akers of Wells Fargo. Your line is open, Sarah.

Good morning.

Hi. Good morning, Sarah.

Just a question on Arkansas. When do you plan to file a general rate case there which would include the formula rate plan?

Right now we have that teed up for the summer -- next summer. We are evaluating that. We've got a lot on our plate right now and -- but right now it's teed up for next summer.

Got it. All set. Thank you.

Thanks.

And our next question comes from Neel Mitra of Tudor Pickering. Your line is open.

Hi. Good morning.

Hi. Good morning, Neel.

Good morning, Neel.

Question on your ROEs. Are you under-earning in 2015? And after the rate case, I guess you get the rates put in some time around mid-year. Would you be earning your authorized in 2016? Is that the right way to look at it?

Yes. We've historically been earning our ROE in Oklahoma around 10%. We're dropping slightly below 10% for 2015, but that would get all fixed in 2016. And what we'd expect timing-wise would be around May.

Okay. And the Mustang CTs -- it sounds like that wants to be deferred into the rate case. Are you expecting that you get a decision in the rate case process? And if you don't, what's the next course of action as to when you can start that process which it seems like you have a limited window with the permits.

Yes. Sure. We're kind of taking a wait-and-see approach to see what the order comes out with -- what the Commission comes out with in their order. We have a plan based on what they do. We've gone through several scenarios, but again, we don't want to bias the Commission's deliberations by indicating necessarily what our plan would be in that regard.

Okay. And maybe I could rephrase the regional (inaudible) spending question a little bit in a different way. Since most of the spending is back-end-weighted, does the -- how important is that contemporaneous recovery? Could you kind of move the spending over so it's primarily '18 and '19 and you could get it all done in a rate case? Or is it -- the timeline you set out with the spending plan the only way to do it?

Yes. Neil, this is Sean. I think the -- you're exactly right. It is -- a lot of the CapEx is back-end-loaded. But what's going to happen here, without a rider you would accrue AFUDC. Okay? And the way we've looked at this is we proposed the rider. It was allowed under the statute as per the previous question. But we proposed the rider and it was really our attempt to try to help smooth this impact out to customers. We put this in place because, as you know, if you accrue AFUDC over this versus collecting this as we go through a rider, ultimately there's going to be a bigger impact to customers. And that was the intent. So from a company standpoint, we can fund this, we can get through this, but the deliberations have really been around this rider and we wanted to -- we thought it would be a good idea and a good way to kind of help smooth this out for customers. So I don't think that it's necessary for us to move any of the CapEx around from year to year. Financially and liquidity-wise, we're in perfect shape. I think, more importantly, remember -- the CapEx is driven by the compliance deadlines we have. And so we have to deploy the capital in order to comply with these various regulations. And so that's what's driving the CapEx -- not the regulatory strategy.

Okay. Great. Thank you very much.

Thanks, Neel.

And our next question comes from Joe (inaudible) of Avon Capital Advisors. Your line is open.

Hi, guys. It's Andy Levy. How are you doing?

Hi, Andy. How are you?

I'm glad you're happy to hear from me.

Good.

But you haven't heard my question yet. No, I'm just teasing you.

Well, we may have --

No, no. I'm teasing you.

We may have a -- we have a problem.

No, we like you guys. But anyway, just a quick question. On the projected capital expenditures, I noticed that May's handout is different than this current handout and the numbers moved around a little bit. Could you kind of discuss that?

Sure, Andy. Part of --

And the strategy behind that?

Sure. The strategy is we've actually been signing contracts and we're getting more firm on what the actual plans are and what the costs are looking like. So, like 2015 has gone up a bit. That's really timing of costs moving in from 2016. Overall, since May, it's come down about $20 million as we firmed up some of our contracts, and it's actually come down about $55 million since the 10-K. And that's just us firming up the outlook and the contracts. Nothing strategically has gone on other than we're just further along in the process and its timing.

I noticed the dollar amounts didn't really change, but you pulled some stuff forward into '16 from '17. So the stuff that's being pulled forward into '16, that will be able to be part of the rate case? Is that the thinking?

It depends on the timings of the rate case, but we only get -- like if we file this rate case in November, we only get a 6-month look. So anything that's out that far wouldn't get pulled in on this next rate case.

Okay. So just why did we -- I'm just -- can you just go over what you pulled forward and what the impact of that is on earnings?

Yes. It's really associated with the CTs. It won't really affect earnings because they'll be FUDC on that. It'll move the earnings up a little bit. But it's really associated with the progress payments of the build of the CTs and the order for that. So it's tied to that. It's not that we intentionally tried to move those up. It's just how the contracts lay out for the build on the CTs.

Okay. So those won't be part of the current rate case, or at least a portion of it won't be. But you'll accrue AFUDC and then it'll be part of the next rate case, I guess is what you're saying.

That's correct, assuming we don't get the rider. Keep in mind this is what the Commission (inaudible) --

Right. If you should get the rider in '17 then --

Our expectation is we do get that rider.

Right. Theoretically you should get the rider in the beginning of '17, right?

That's correct.

Right. Okay. Got it. Okay. That explains everything. Thank you very much.

Thank you.

Thanks, Andy.

And I'm not showing any further questions in the queue. I'd like to now hand the call back over to management.

Thank you. Once again, I just want to thank our members for their hard work and dedication, commitment to safety, and thank all of you for joining us on the call today. Have a great day.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.