OG&E 2009 Annual Report Download - page 22

in significant additional compliance costs that would affect our future financial position, results of operations and cash flows if such
costs are not recovered through regulated rates.
We are subject to physical and financial risks associated with climate change.
There is a growing concern that emissions of greenhouse gases are linked to global climate change. Climate change creates
physical and financial risk. Physical risks from climate change could include an increase in sea level and changes in weather
conditions, such as an increase in changes in precipitation and extreme weather events. The Company’s operations are not sensitive to
potential future sea-level rise as it does not operate in coastal areas. However, the Company’s power delivery systems are vulnerable
to damage from extreme weather events, such as ice storms, tornadoes and severe thunderstorms. These types of extreme weather
events are common on the Company system, so the Company includes storm restoration in its budgeting process as a normal business
expense. To the extent the frequency of extreme weather events increases, this could increase the Company’s cost of providing
service. The Company’s electric generating facilities are designed to withstand the effects of extreme weather events, however,
extreme weather conditions increase the stress placed on such systems. If climate change results in temperature increases in the
Company’s service territory, the Company could expect increased electricity demand due to the increase in temperature and longer
warm seasons. While this increase in demand could lead to increased energy consumption, it could also create a physical strain on the
Company’s generating resources. At the same time, the Company could face restrictions on the ability to meet that demand if, due to
drought severity, there is a lack of sufficient water for use in cooling during the electricity generating process.
In addition to the above cited risks, to the extent that any climate change adversely affects the national or regional economic
health through increased rates caused by the inclusion of additional regulatory imposed costs (carbon dioxide taxes or costs associated
with additional regulatory requirements), OGE Energy may be adversely impacted. A declining economy could adversely impact the
overall financial health of OGE Energy because of lack of load growth and decreased sales opportunities.
To the extent financial markets view climate change and emissions of greenhouse gases as a financial risk, this could
negatively affect our ability to access capital markets or cause us to receive less than ideal terms and conditions.
We may not be able to recover the costs of our substantial planned investment in capital improvements and additions.
Our business plan calls for extensive investment in capital improvements and additions, including the installation of
environmental upgrades and retrofits and modernizing existing infrastructure as well as other initiatives. Significant portions of our
facilities were constructed many years ago. Older generation equipment, even if maintained in accordance with good engineering
practices, may require significant capital expenditures to maintain efficiency, to comply with changing environmental requirements or
to provide reliable operations. We currently provide service at rates approved by one or more regulatory commissions. If these
regulatory commissions do not approve adjustments to the rates we charge, we would not be able to recover the costs associated with
our planned extensive investment. This could adversely affect our results of operations and financial position. While we may seek to
limit the impact of any denied recovery by attempting to reduce the scope of our capital investment, there can no assurance as to the
effectiveness of any such mitigation efforts, particularly with respect to previously incurred costs and commitments.
Our planned capital investment program coincides with a material increase in the historic prices of the fuels used to generate
electricity. Many of our jurisdictions have fuel clauses that permit us to recover these increased fuel costs through rates without a
general rate case. While prudent capital investment and variable fuel costs each generally warrant recovery, in practical terms our
regulators could limit the amount or timing of increased costs that we would recover through higher rates. Any such limitation could
adversely affect our results of operations and financial position.
The regional power market in which we operate has changing transmission regulatory structures, which may affect the
transmission assets and related revenues and expenses.
We currently own and operate transmission and generation facilities as part of a vertically integrated utility. We are a
member of the SPP RTO and have transferred operational authority (but not ownership) of our transmission facilities to the SPP
RTO. The SPP RTO implemented a regional energy imbalance service market on February 1, 2007. We have participated, and
continue to participate, in the SPP energy imbalance service market to aid in the optimization of our physical assets to serve our
customers. We have not participated in the SPP energy imbalance service market for any speculative trading activities. The SPP
purchases and sales are not allocated to individual customers. We record the hourly sales to the SPP at market rates in Operating
Revenues and the hourly purchases from the SPP at market rates in Cost of
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