OG&E 2009 Annual Report Download - page 42

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2009 compared to 2008. The Company’s operating income increased approximately $75.8 million in 2009 as compared to
2008 primarily due to a higher gross margin partially offset by higher depreciation and amortization expense.
Gross Margin
Gross margin was approximately $954.9 million in 2009 as compared to approximately $844.6 million in 2008, an increase
of approximately $110.3 million, or 13.1 percent. The gross margin increased primarily due to:
Ÿ increased price variance, which included revenues from various rate riders, including the Redbud Facility rider, the
storm cost recovery rider, the system hardening rider, the OU Spirit rider and the Oklahoma demand program rider,
and higher revenues from the sales and customer mix, which increased the gross margin by approximately $89.5
million;
Ÿ the $48.3 million Oklahoma rate increase in which the majority of the annual increase is recovered during the
summer months, which increased the gross margin by approximately $28.6 million;
Ÿ revenues from the Arkansas rate increase, which increased the gross margin by approximately $9.3 million;
Ÿ new customer growth in the Company’s service territory, which increased the gross margin by approximately $8.1
million; and
Ÿ increased transmission revenues due to higher transmission volumes and increased rates due to the FERC formula
rate tariff filing, which increased the gross margin by approximately $1.8 million.
These increases in the gross margin were partially offset by:
Ÿ milder weather in the Company’s service territory, which decreased the gross margin by approximately $18.2
million; and
Ÿ lower demand and related revenues by non-residential customers in the Company’s service territory, which
decreased the gross margin by approximately $8.1 million.
Cost of goods sold for the Company consists of fuel used in electric generation, purchased power and transmission related
charges. Fuel expense was approximately $618.5 million in 2009 as compared to approximately $857.2 million in 2008, a decrease of
approximately $238.7 million, or 27.8 percent, primarily due to lower natural gas prices. The Company’s electric generating
capability is fairly evenly divided between coal and natural gas and provides for flexibility to use either fuel to the best economic
advantage for the Company and its customers. In 2009, the Company’s fuel mix was 60 percent coal, 38 percent natural gas and two
percent wind. In 2008, the Company’s fuel mix was 68 percent coal, 30 percent natural gas and two percent wind. Purchased power
costs were approximately $176.6 million in 2009 as compared to approximately $257.0 million in 2008, a decrease of approximately
$80.4 million, or 31.3 percent, primarily due to the termination of the purchase power agreement with the Redbud Facility following
the Company’s purchase of the Redbud Facility in September 2008 as well as a decrease in purchases in the energy imbalance service
market.
Variances in the actual cost of fuel used in electric generation and certain purchased power costs, as compared to the fuel
component included in the cost-of-service for ratemaking, are passed through to the Company’s customers through fuel adjustment
clauses. The fuel adjustment clauses are subject to periodic review by the OCC, the APSC and the FERC. The OCC, the APSC and
the FERC have authority to review the appropriateness of gas transportation charges or other fees the Company pays to Enogex.
Operating Expenses
Other operation and maintenance expenses were approximately $348.0 million in 2009 as compared to approximately $351.6
million in 2008, a decrease of approximately $3.6 million, or 1.0 percent. The decrease in other operation and maintenance expenses
was primarily due to:
Ÿ a decrease of approximately $13.2 million in contract technical and construction services attributable to decreased
spending on overhauls at some of the Company’s power plants in 2009 as compared to 2008 and utilization of
employees instead of contracting external labor;
Ÿ a decrease of approximately $9.5 million due to a correction of the over-capitalization of certain payroll, benefits,
other employee related costs and overhead costs in previous years in March 2008, as discussed in Note 2 of Notes to
Financial Statements;
36