Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 OGE Energy Earnings Conference Call. At this time, all participants' line are in a listen-only mode. After the speakers' presentation, there will be a question- and- answer session. To ask a question during the session, you will need to press star one on your telephone. If you need any further assistance, please press star zero. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Mr. Todd Tidwell. Please go ahead, sir.
Thank you, operator. Good morning, everyone. Welcome to OGE Energy Corp.'s first quarter 2020 earnings call. I'm Todd Tidwell, Director of Investor Relations. With me today, I have Sean Trauschke, Chairman, President, and CEO of OGE Energy Corp., 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 first quarter results. Finally, as always, we will answer your questions. I would like to remind you that this conference is being webcast. 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 Reg G reconciliation for gross margin and reconciliation of ongoing earnings to GAAP earnings in the appendix. 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 on today's call. I want to begin by recognizing the severity of the COVID-19 crisis and the impact it has had and is continuing to have on our communities. Public service is a core value that underscores all of our efforts throughout the communities we serve. In this unusual time, caring for each other is more important, I believe, than ever. We believe our company is only as strong as the communities we serve, and it's this shared responsibility to ensure our communities remain strong that will help us all navigate through this unprecedented crisis. From the outset, we took decisive action to help our customers by suspending disconnects for non-payments and making flexible payment arrangements for residential and small business customers financially impacted by this extraordinary situation.
The Arkansas Commission has allowed accounting mechanisms and processes that will allow for future recovery of costs resulting from the suspension of disconnects. The Oklahoma Commission will hear a similar request today. We are certainly appreciative of both commissions for their partnership and collaborative efforts during this difficult time. We continue to engage with our communities and provide support. One example is our recent donation to the Meals on Wheels program, which basically enabled local restaurant owners to bring back their employees to provide nutritious meals and then to utilize the Meals on Wheels infrastructure to deliver those meals to homebound seniors and other families impacted by job losses during the crisis. We'll continue to monitor the crisis as it evolves and take additional actions for our customers and communities as appropriate. Of course, we also took definitive action with the health and safety of our members.
We were prepared, and we executed our plans by establishing a situation room for our employees to contact with any COVID-19 questions or concerns. This was staffed complete with an on-staff physician who has provided invaluable advice and assistance through this crisis. We implemented work-from-home procedures, health screenings, cleanings, and other measures. Members in critical operations are practicing shift change separation and observing social distancing guidelines. We restricted access to visitors for all of our facilities and require contractors to follow enhanced safety protocols. These are just a few of the precautions we've implemented to ensure the health and safety of our employees and that of the public we serve. Because of these actions, to date, I am grateful to report we have had no positive tests for COVID-19 in our workforce. I'm incredibly proud of everyone here and how they have continued to excel in this challenging environment.
Their efforts and hard work during a truly difficult time cannot be understated. We all hear about the efforts of healthcare workers and first responders, and rightfully so. They've just been outstanding. I think we also should give a shout-out to the line workers and power plant control room, IT, and virus response workers, not just at OGE, but across the nation, who have kept the lights on and energy flowing. They've done a truly remarkable job. Moving on to our quarterly earnings. Earlier this morning, we reported ongoing first-quarter consolidated earnings of $0.23 per share compared to $0.24 per share in the first quarter 2019. The utility is making the appropriate adjustments and is on plan for the quarter and the year, while Enable is flat year-over-year.
Steve will discuss the details in a moment, but before he does, I'd like to spend a few minutes talking about our first quarter highlights and provide further details on our efforts to mitigate the effects of the COVID-19 crisis on our customers and our business. First and foremost, our balance sheet remains strong, as do all of our credit metrics. We purposely built our balance sheet to withstand the rigors of the marketplace and for unprecedented events like what we've experienced the past couple of months. We have a clear path forward because of the work we've done in the past and the swift and decisive action we've continued to take in ensuring our long-term financial health. For example, on April 1st, we completed a 10-year, $300 million debt offering with a coupon of three and a quarter. This was an acceleration of a planned financing in 2021.
This action improved liquidity and negated any need to access the capital markets this year or next. Moving on to operations. Last quarter, we announced our Grid Enhancement Plan. The plan focuses on the installation of new technology, equipment, communication systems that promote a self-healing grid, further strengthening our system, making it more secure, reliable, resilient and efficient for the benefit of all of our customers. Initial construction of these projects began in April and are progressing according to plan. Prior to the COVID-19 shutdown, the Oklahoma Commission issued a procedural schedule with a July 7 hearing date. To date, no change to that schedule has been communicated. Of course, we will continue to work closely with the Oklahoma Commission on the best way forward. In Arkansas, we received a final order from the Arkansas Commission with rates taking effect on April 1st of this year.
We've also begun work on the next round of grid enhancements on our Arkansas circuits. It's important to note that despite the COVID-19 crisis and all that it entails, our operational metrics continue to improve as we build on prior successes. Moreover, we have maintained our strategic project calendar and all projects remain on time and on budget. No one really knows when things will get back to normal or how prolonged the economic downturn will last, but rest assured we have plans in place to mitigate those. The economy is the key. Our load growth was up for the first quarter year-over-year on a weather-adjusted basis. Oklahoma and Arkansas are now both opening up for business. We've spoken with many of our large commercial accounts who will be starting up over the next several weeks.
Based on what we're seeing, and based on what we're hearing from them, and assuming normal weather for the remainder of the year, we expect to meet our utility guidance. Keep in mind, more than 90% of utility earnings are ahead of us. During this difficult time, we do have one key area that differentiates our utility business. Nearly half of our margin comes from the residential sector. Said another way, a 5% increase in residential sales would almost completely offset a 5% margin decline in all other customer classes combined. We will continue to monitor this situation, and if our view changes, we will let you know, but for now, we continue to stay the course. Turning to Enable, we incurred a $700 million equity write-down of our investment.
This was due to the significant fall in the unit price in the market compared to the value on our books, and is not a reflection on the cash flow generated by these assets. From a cash generation standpoint, Enable has solid assets and poised to deliver strong results as energy prices normalize. Enable has strengthened their already sound financial position. The steps they are taking to increase their annualized retained cash flow by roughly $450 million only serves to make them stronger. Before turning the call over to Steve, I want to restate a few key points. The first is our financial strength. We do not need equity during our planning horizon. Secondly, I want to make it clear how pleased I am with the performance of the utility during this crisis. There have been no disruptions to the safe and reliable service our customers receive.
Third, the economies of both Oklahoma and Arkansas are opening for business. Our balanced approach of ensuring our customers, communities, and employees are at the center of everything we do, and it enables us to energize life for all of our stakeholders. Thank you, and I'll now turn the call over to Steve.
Thank you, Sean, and good morning, everyone. For the first quarter, we reported ongoing net income of $45 million, or $0.23 per share, as compared to net income of $47 million, or $0.24 per share in 2019. On a GAAP basis, OGE Energy Corp reported a loss of $2.46 per share due to a $780 million impairment charge of the equity value of our Enable units. We saw a significant drop in the trading value of the units in the first quarter from our book value of just over $10 per share, determined that an impairment charge to $3.13 per share was necessary. The contribution by business unit on a comparative basis is listed on the slide.
As a result of the impairment, the holding company's earnings includes a tax benefit due to a consolidating tax adjustment related to the interim period that will reverse over the course of the year. At OG&E, net income for the quarter was $20 million, or $0.10 per share. First quarter gross margin at the utility increased almost $19 million, which I'll discuss on the next slide. Looking at the other key drivers, first quarter O&M expense was essentially flat despite adding the River Valley plant to our fleet. Depreciation increased $12 million as additional assets were placed into service and the depreciation expense for the Sooner Scrubbers, which was previously deferred to a regulatory asset. Interest expense increased $5 million, primarily due to additional long-term debt outstanding, along with interest expense for the scrubbers that was previously deferred in the regulatory asset.
Overall, the utility is on plan and off to a good start. We are managing the business to deal with any COVID-19 impacts. Turning to first quarter gross margin, utility margins increased approximately $19 million in the first quarter of 2020 compared to 2019. There were a couple of drivers for the increase, including the recovery of environmental assets placed into service, adding $23 million to margin, as well as new customer growth that contributed $6 million. Partially offsetting the increase was weather, which reduced margin by $11 million as heating degree days were 21% below last year. Compared to normal, weather reduced margin by $3 million. Turning to our investment Enable, natural gas midstream operations contributed ongoing earnings to OGE Energy Corp of $22 million, or $0.11 per share for the first quarter of 2020, consistent with the same period in 2019.
In addition, Enable Midstream issued cash distributions to OGE of approximately $37 million in the first quarter of 2020, compared to $35 million in 2019. Turning to 2020 guidance, the utility is on plan. We believe we will be able to offset the impacts of COVID-19 with cost control measures. Assuming normal weather, we affirm our current utility guidance. As a result of the revised guidance by Enable and the equity method investment impairment recorded by the company, OGE Holdings projects a net loss between $2.59-$2.55 per average diluted share. Ongoing earnings are projected to be between $0.36 and $0.40 per average diluted share.
Additionally, OGE Energy consolidated earnings guidance for 2020 has changed from $440 million-$463 million of net income, or $2.19-$2.31 per average diluted share, to a net loss of approximately $173 million-$154 million, or a loss of $0.87-$0.77 per share. Ongoing earnings are projected to be $417 million-$436 million of net income, or $2.08-$2.18 per share. One more point before we move on to your questions. As you know, related to our investment in Enable, the basis difference that we have is being amortized over the average life of the assets, which is approximately 30 years. The impairment we recorded this quarter resulted in an additional layer of basis difference for the company's investment in Enable that will be amortized over the average life of the assets, which is approximately 30 years.
The ongoing total of these adjustments is a combined $49.5 million for 2020. This concludes our prepared remarks. We will now answer your questions. Operator?
Ladies and gentlemen, as a reminder, in order to ask a question, please press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the queuing roster. Your first question comes from the line of Julien Dumoulin-Smith from Bank of America. Your line is now open.
Hey, morning. This is Richie here for Julien. Hope everyone's safe and healthy.
Yeah. Good morning, Richie. All safe and healthy here, and I hope you are as well.
All right. Good. That's great to hear. Just wanted to ask a question around You reaffirmed your guide for the utility, which implicitly implies confidence in the outlook. Just wondering what you're sort of seeing with sales trends in April and what you're expecting through the year. Was the commentary around the 5% increase in residential and 5% decline elsewhere kind of what you're expecting for the year? How are you thinking about the O&M efforts to offset that impact?
Okay. All right. Let me kind of take those in pieces here. Maybe dealing with O&M first. We were very fortunate to really have a low growth plan in front of us, and we've been very fortunate to have growth in our service territory. Over the years, we've been diligent in making sure that our O&M per customer does not increase. We've been really cost-conscious in reducing our O&M costs. At the same time, we've been trying to expand our customer base. When this came on and we saw that, we had built plans for roughly something greater than a 1% growth. I mean, we were talking about that. We recognized that probably wasn't going to happen immediately. We did not execute on those resources that we were planning to accommodate that new growth.
We've already taken those actions and revised our business plans to minimize any of that increased growth. As far as on what we're seeing in sales, I mentioned to you, in my remarks that we actually did see positive growth on a weather normalized basis in the first quarter. April is probably the lowest load month we have. It's just a shoulder season, pretty calm. It confirmed a lot of the things that we expected to see, i.e., we'd expect residential sales to increase. We'd expect some deterioration in commercial industrial sales. What's given us that confidence is the fact that what a lot of these large commercial industrial customers are telling us is they do have plans to start back up over the next several weeks. The last point, we mentioned that 5%, that was just a sensitivity we were trying to give you.
Residential sales represent almost 50% of the margin. It's a large component. What we're trying to share with you, though, there was as residential sales increase, it covers a large percentage of any deterioration in load from the other classes all combined.
Got it. That is very helpful. I appreciate all the color. Congrats on keeping the guidance for the utility. That's quite impressive. Just curious if you can potentially comment on any initial reaction to your peers' strategic review process.
Probably no comment. I saw that right before I walked in here, Richie, so I'm reading it the same time you are.
Got it. Okay. Thanks a lot. Thanks again for all the time. I'll jump back in the queue.
Thanks, Richie. Have a great day.
All right. You too. Bye.
Your next question comes from the line of Insoo Kim from Goldman Sachs. Your line is now open.
Good morning, glad to hear that you guys are all doing well and staying safe.
Good morning, Insoo. I hope you are as well. Everybody there healthy?
We are doing okay for right now. Thank you. My first question is on the deferral filing that's currently before the Oklahoma Commission. I believe you said that there are hearings later today on the release or 10-Q. When is the expected decision for such a deferral? Could you detail a little bit of what would be embedded in that or included if that is approved?
Sure. We would hope that the approval is today. We expect that. Just a little color around that, Insoo. This is for deferral of those bad debts and all the COVID-related expenses that were incurred. A piece I want to make sure is clear, this is not an OGE filing. We certainly led the effort, but we created a coalition of all the utilities, gas utilities included in Oklahoma. This is a utility filing that was made over at the Oklahoma Corporation Commission, and it's going to be heard this morning, and we would hope to have an order this morning.
It would be bad debt expense and, I guess, COVID-related O&M costs?
Yeah.
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Yeah. Yes, that's true.
Got it. Nothing in there that includes any COVID-related sales impact?
No.
Understood. Just on the Grid Enhancement Plan docket, it seems like the schedule that you laid out is pretty much in line. Any logistical delays that you're seeing because of COVID?
Not at this time. The commission is still going to have this hearing today virtually. They're still conducting business as usual. We're in constant dialogue, but no change at this point.
Understood. Thank you very much, and stay safe, everyone.
You, too.
Your next question comes from the line of Anthony Crowdell from Mizuho. Your line is now open.
Hey, good morning, Sean. Good morning, Steve.
Hey, good morning, Anthony.
Morning, Anthony.
Everybody well at home?
A little crowded, but everyone's healthy. How about yourself?
Oh, likewise.
We're making the best of it. If I could jump on one of Insoo's question, you said it was a group effort filing for the COVID-related expenses and maybe bad debt expense. Has the company quantified what their forecast of bad debt expense is to be in 2020 or 2021?
No. No, we haven't. There's a slight tick up at this stage, but nothing material. As you know, we're already allowed $3 million of bad debt expense in base rates. We're not there yet.
Is there any chance you know what was the number that utility had a hit in 2008, 2009 crisis? Is that something that you'd have handy?
Yeah. We had $3.1 million.
Got it. Cool.
Again, we have $3 million recoverable in base rates.
If I could shift to the write-down, and I think you spoke about the ability to amortize that, and maybe it's a $49 million impact annually. Is that something that now has to be funded with $49 million of additional equity?
No. It's really an accounting adjustment. A way to think about it, Anthony, is we just wrote down our book value and Enable, because their cash flows are strong, didn't have a write-down. They're recording higher depreciation than effectively would pass through to us. We're now accreting that back up to basically eliminate the depreciation that they're passing through to us for the write-down that we took, and that creates that accretion of them. It has really no cash implications whatsoever.
Got it. Lastly, I know it's a really small part of your business, but decline or anything in drilling activity or anything you could read through to the utilities business?
Surprisingly, through four quarters, it's held up. We do expect some deterioration there, but between residential, commercial, industrial, and oil field, oil field's the smallest sector and smallest contributor to margin. It's less than 8%. It's important to jobs and things like that, but it's not a big driver in the long run for us.
Oh, great. Thanks for taking my questions, and I hope everyone stays healthy out there.
Thank you, Anthony. Appreciate your support, and you take care of your family and stay healthy yourself.
Thank you.
Once again, in order to ask your question, please press star one on your telephone. There are no questions from participants online. I will now turn the call over to Mr. Sean Trauschke for closing remarks.
Okay. Thank you for that. Thank you all for joining us today. Thank you for your interest in OGE. Please take care of yourselves and those around you, and stay healthy. All the best, and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.