Ladies and gentlemen, thank you for standing by, and Welcome to the Q4 2019 OGE Energy Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host, Todd Tidwell. Sir, please go ahead.
Thank you, Latif. Good morning, everyone, and welcome to OGE Energy Corp's Fourth Quarter 2019 Earnings Call. I'm Todd Tidwell, Director of Investor Relations, and with me today, I have Sean Trauschke , Chairman, President, and CEO of OGE Energy Corp, and Steve Merrill, CFO of OGE Energy Corp. In terms of the call today, we will first hear from Sean, followed by an explanation from Steve of year-end and fourth quarter results. Finally, as always, we will answer your questions. I would like to remind you that this conference is being webcast, and you may follow along on our website at ogeenergy.com. In addition, the conference call and accompanying slides will be archived following the call on that same website. Before we begin the presentation, I would like to direct your attention to the Safe Harbor statement regarding forward-looking financial statements.
This is an SEC requirement for financial statements and simply states that we cannot guarantee forward-looking financial results, but this is our best estimate to date. I would also like to remind you that there is a Regulation G reconciliation for gross margin in the appendix. I will now turn the call over to Sean Trauschke for his opening comments. Sean?
Thank you, Todd. Good morning, everyone, and thank you for joining us on today's call. Earlier this morning, we reported 2019 consolidated earnings of $2.16 per share compared to 2.12 last year. This includes earnings at the utility of $1.74, well above our initial 2019 midpoint of $1.58 per share. Steve will discuss the details of our full-year earnings in the fourth quarter in a moment. First, I'd like to spend a few minutes talking about our 2019 accomplishments and areas of focus for 2020. I do want to begin by congratulating everyone at the company on another successful year around safety. Our members consistently demonstrate their commitment to a culture of excellence as they work towards achieving an incident- and injury-free workplace.
Their efforts in 2019 continued our trend of the last four years, being the four safest years in our company's history. Well done. Speaking of history, we are celebrating our 118th anniversary today. As we begin this new year and new decade, we honor those who came before us as we embark on a new chapter in our company's history. Emerging from the completion of our decade-long journey of environmental compliance investments, we now look to the future growth of our company through the lens of three priorities: g rowing our business, growing our communities, and growing the capabilities of our employees. The integration of our River Valley and Frontier power plants continues at an excellent pace.
These plants are saving our customers money, they're having a positive economic impact on the communities where they are located, and we continue to enhance operations, improve efficiencies, and lower emissions at these plants. We grow our business by enhancing the customer experience. We do this in a variety of ways, the most important of which is to combine premier functionality with competitive customer rates. We have been a leader in smart technology for years, being among the first in the country to deploy customer-driven demand response technology and programs. We leverage this technology to expand and enhance the customer experience while improving efficiencies throughout our organization. Over the past nine years, we've invested more than $6 billion in technological and environmental enhancements to our system.
The total company rate base grew during this period at a compound annual growth rate of over 6% while our average retail rate in Oklahoma actually declined. There are many factors in managing customer bills. One example is O&M expense. Our O&M expense per customer will actually be lower in 2020 after adjusting for these two new plants. This year, we will begin our Grid Investment Plan in Oklahoma to further enhance our system, making it more reliable, more resilient, more secure, and more efficient for the benefit of our customers. Our plan focuses on the installation of new technology, equipment, and communication systems that promote a self-healing grid. System improvements like these create value for our business by reducing service interruptions for our customers, preventing truck rolls, improving efficiencies, and reducing costs. In 2020, we will begin work on 55 critical circuits and 40 associated substations in Oklahoma.
We filed our application with the Oklahoma Corporation Commission this week for recovery of costs associated with these system improvements. Our filing seeks recovery on $800 million of these grid-enhancing investments, at the same time, minimizing revenue impacts to customers. Based on calculation using the DOE's Interruption Cost Estimate or ICE calculator tool, these investments will benefit customers by more than $1.9 billion over a 30-year period, while the average year-over-year increase to retail rates for the five-year program will be less than 1%. In other words, for every dollar of investment made towards these grid enhancements, customers will have $2.35 in benefits. In Arkansas, we reached a unanimous settlement in our second formula rate filing, are anticipating a final order by mid-March. We also expect to conclude our second year of grid enhancements this quarter, quickly begin the next phase of that.
We're also expanding our solar portfolio in 2020 by adding two new 5-MW universal solar energy centers in Southeast Oklahoma. The company-owned solar energy centers will help meet the renewable energy needs of the Chickasaw Nation and the Choctaw Nation, who will purchase approximately 50% of each farm's solar energy output. Both projects are expected to be completed in August. An important point I want to make here is that as we invest in our system for the benefit of our customers, we will always work to ensure our rates remain among the lowest in the country. Our rates today are more than 30% below the national average, which is a significant competitive advantage as we seek to attract new businesses to our region and service territory.
We continue to grow our service territory and continue to see higher sales growth as well, which when combined with our low rates and the emphasis we put on economic development efforts, has a positive impact on load growth. We added 8,300 new customers in 2019, which was well above what we added in 2018. The Oklahoma City Metro ended 2019 with an average unemployment rate for the year of approximately 3.1%. With a population of just over 1.4 million, the metro area has grown by nearly of a 0.25 million people. Long-term growth trends continue to be positive. The importance of economic development efforts to recruit new businesses and help existing companies grow cannot be overstated. Population gains follow job growth. This leads to another area of priority for us, which is growing our communities.
We've always said that we're only as strong as the communities we serve. We invest in the future of these communities by partnering with our community leaders in the areas of economic and community development. In 2019, this partnership led to more than 5,400 new jobs, $1.5 billion in capital investment, and 175 MW of new load within our service area. We will continue to strengthen our partnerships with community leaders. Working together, we will help define and support the needs of our cities and towns. Turning to Enable, last week they reported solid results for the fourth quarter and full year, despite ongoing commodity price pressure. Enable distributions to OGE were $144 million for the year, putting total distributions to us over $1 billion in cash since Enable's inception. This is cash that has supported and continues to support our dividend growth and utility investments.
We continue to be disappointed on valuation, and that Enable is lumped in with other midstream businesses that don't have similar quality assets, balance sheet, and coverage ratios. We maintain our belief that there is upside to the Enable valuation, ultimately benefiting the OGE shareholder. By investing in the future of our company through the growth of our business, our communities, and our employees, we deliver value to our shareholders. In 2019, we increased our annual dividend by 6%. This following five consecutive years of 10% increases. Looking forward, we expect dividend growth to remain in line with our long-term earnings growth rate at the utility of 4%-6%, while ensuring our financial and credit risk metrics remain strong across the board. Before turning the call over to Steve, I want to reiterate how pleased I am with the performance of the businesses.
Our company's never been stronger. I'm confident that our balanced approach to investing in new opportunities will continue to fuel our growth now and in the future. Thank you. I'll now turn the call over to Steve to review our financial results for the fourth quarter and for the full year. Steve?
Thanks, Sean, and good morning, everyone. For the fourth quarter, we reported net income of $35 million, or 0.18 per share, as compared to net income of $55 million or 0.27 per share in 2018. The contribution by business unit on a comparative basis is listed on the slide. For the full year 2019, we reported earnings of $434 million or 2.16 per share as compared to net income of $426 million or 2.12 per share in 2018. At OG&E, net income for the quarter was $29 million or 0.15 per share as compared to net income of $21 million or 0.10 per share in 2018. For the quarter, gross margin increased $28 million, primarily due to the addition of environmental assets, River Valley and the Frontier Plants, resulting in considerable savings to our customers.
O&M was flat for the quarter and actually down on a per-customer basis. Depreciation expense increased by $13 million for the quarter due to additional plant and service primarily associated with generation assets. Net other income decreased $8 million due to lower AFUDC and the tax gross up related to the completion of the environmental projects. Finally, income tax expense decreased $2 million, primarily due to an increase in the amortization of net refundable deferred taxes and higher tax credits. Now turning to the full year at OG&E, net income for the year was $350 million, or 1.74 per share, as compared to net income of $328 million or 1.64 per share in 2018. Gross margin for 2019 increased $67 million, which I'll discuss on the next slide.
Looking at the key drivers for the year, they are very similar to the quarter. O&M increased $19 million, primarily due to new expenses related to the River Valley Power Plant, which has a margin offset. Increased depreciation and lower AFUDC are a result of new assets being placed into service. Turning to the 2019 gross margin, utility margins increased $67 million in 2019 compared to 2018. Margin was higher due to the following: The addition of environmental assets, River Valley and Frontier increased margin by $44 million as compared to 2018. As you'll recall, we purchased two power plants that were under legacy purchase power contracts. We are now earning on these investments while simultaneously saving customers millions of dollars. Weather increased margin $18 million for the year as the service territory experienced higher cooling degree days for certain summer months during the year.
Compared to normal, weather increased margin by nearly $5 million. Natural Gas Midstream Operations received cash distributions from Enable Midstream of $144 million and contributed earnings of $81 million, or 0.41 per share, compared to $109 million or 0.54 per share in 2018. The Enable board approved a limited partner distribution of just over $0.33 per unit that was paid February 25th. In 2019, the total cash distributions received from Enable crossed the $1 billion mark. Said another way, this is $1 billion of avoided equity issuances. Enable's fourth quarter and full year 2019 was impacted by a non-cash goodwill impairment charge of $16 million or 0.08 per share. The impairment was driven by the partnership's inappropriately low valuation and a pullback in commodity prices. 2019 was a challenging year for the energy industry.
Despite the landscape, Enable performed well, setting records for annual gathering, processing, and transportation volumes. The Enable management team continues to focus on cost discipline and capital efficiency. They ended the year with a strong balance sheet and a distribution coverage at 1.38 x. As Sean mentioned in his comments, we filed our Grid Enhancement Filing with the Oklahoma Corporation Commission earlier this week. The five-year plan includes strategic data-driven investments covering Grid Resiliency, Grid Automation, Communication Systems, and Technology Platforms and Applications. Investments total $810 million. The proposed mechanisms will provide recovery of the revenue requirement of projects that are placed in service. The revenue requirement will include a return on rate base depreciation and ad valorem taxes. Each quarter, OG&E will submit to the Oklahoma Corporation Commission a report detailing the projects that have been placed in service and included for prospective recovery in the mechanism.
Only projects placed in service will be subject to recovery. Turning to 2020 guidance at the utility and assuming normal weather, we project earnings per share to be between $1.72 and 1.78 per share. For the midstream business, we are projecting the earnings contribution to be at the lower end of their guidance, between $0.47 and 0.53 per share. We're projecting consolidated earnings between $2.19 and 2.31 per share. Looking further into our utility outlook, you can see the detailed assumptions on the slide. It's important to remember that OG&E has significant seasonality in its earnings and typically shows the majority of earnings in the second and third quarters due to the seasonal nature of air conditioning demand. That concludes our prepared remarks today, and we'll now answer your questions.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Again, that's star one on your touchtone telephone to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Julien Dumoulin-Smith of Bank of America. Your line is open.
Hello?
Hi, this is Richie. Can you hear me?
Hey, Richie. It's Sean. Good morning. How are you today?
Hey, morning. Doing well.
Good.
Just had a quick question for you. You're pointing to the low end now for Enable guidance. Enable's management recently came out with saying, essentially they needed to see a rebound in commodity prices to get to the midpoint of their guidance range. I was just curious how you're feeling about the Enable distribution now, and if there was any potential cut in the distribution, how would that impact your balance sheet? I.e., could you absorb any potential cash flow impact?
Sure.
Defend the FFO to debt metrics?
Yeah. Thanks, Richie. Thanks for the question. Their guidance supports a 1.3 coverage ratio. If you back in to do the math, that's roughly $160 million of cash cushion there. We feel very good about the distribution in that regard. As far as a distribution cut, we don't see it, but we've said many times if Enable cut the distribution 10%, that'd be $14 million to us. That's not going to move the needle in our credit metrics, as an example.
Yeah. Okay.
Okay?
That's very helpful.
Yeah. Look, that 1.3 coverage is really strong, and that cash cushion they have. That's why when we created Enable, we built the balance sheet to be strong, to kind of weather environments like this, and they're built for the long term.
That makes a lot of sense. I was just curious on the utility growth outlook, 4%-6%. Should we be using the new 2020 guide at OG&E or still the 2019 base after you adjust out weather and normalize that for other one-time items?
Yeah, Richie, a clean number for 2019 that we would use as our base for growth is $1.65. Given where our midpoint of our guidance is, that's a 6% growth rate from 2019 to 2020.
Got it. That's very helpful. Just last one on the Grid Mod Rider-- or excuse me, the enhanced recovery mechanism in Oklahoma. Just curious, how much regulatory lag could that potentially mitigate if that were to be approved?
It'll basically mitigate all of it because these projects are short-term in nature, and we would go in each quarter with those projects that have been completed, and then rates would go into place within 30 days after commission review. At the most, 30 days of lag associated with each quarter's completed investments.
All right. Thank you. That's very helpful.
Thanks, Richie. Have a great day.
You too. Take care.
Thank you. Once again, to ask a question, press star one on your touchtone telephone. Our next question comes from the line of Vedula Murti of Avon Capital. Your line is open.
Hey, good morning, Sean.
Hey, good morning, Vedula. How are you?
I am okay. Can you, just so I understand this regulatory mechanism, has this been approved, or is this already part of some statute that already exists that you'll be applying these expenditures to? Can you explain it to me a little bit more and whether there's any regulatory steps that need to occur prior to initiating this?
Yes. Good question. This has been a very constructive and thoughtful process of partnership, really, that we've had with the Commission and customers and the staff laying out this framework. We made this filing. We will go through the normal customary hearings, and we filed testimony. The Commission held a public meeting where we could talk about the attributes of these investments we're talking about here. We would expect an order later this year to approve this mechanism for us. To your other question, we don't need any other regulatory approvals or anything like that. This is just what I'd characterize as normal course.
This will be principally a 2021 and ongoing effect?
Yeah. This has a bigger impact in 2021. We certainly want to get this done this year and get started and get mobilized, but yes, this is a 2021 impact.
Is there a procedural schedule in terms of?
Not at this time.
Okay.
Yeah, not at this time. Not yet.
Okay. Thank you.
Thanks, Vedula. Have a great day.
Thank you. Our next question comes from Anthony Crowdell of Mizuho. Your line is open.
Hey, good morning, Sean. Good morning, Steve.
Hey, Anthony. Good morning.
Morning, Anthony.
Hopefully easy question. Just if I wanted to, I guess, dig deeper into the write-down. One is, you're including that in your operating number or your ongoing. Any chance why you're going to exclude it? I believe that some of the reason you wrote it down was lower commodity prices. If commodity prices rebound, do you then mark that back up?
You don't. This was really goodwill at Enable, which the way the accounting rules work now, you don't amortize goodwill. It just sits there. Now that it's been written off, it's gone. It'll have no future impact on a go-forward basis. There is not a write-up that would occur if commodities rebound.
Any reason you guys didn't back that out of your earnings number, like an ongoing number?
Well, we called it out, but the SEC is really cracking down on non-GAAP items, and that's considered a non-GAAP item when we back that out. We just chose to at least highlight it, but not report that as a special item.
Great. Thanks for taking my question.
Thanks, Anthony.
Thank you. At this time, I'd like to turn the call back over to Sean Trauschke for closing remarks. Sir?
Thank you, Latif. Thank you all for your interest in OGE Energy Corp and for being on the call today. Have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.