OG&E 2009 Annual Report Download - page 44

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Ÿ an increase of approximately $29.2 million in interest expense related to the issuances of long-term debt in 2008;
and
Ÿ an increase of approximately $2.0 million in interest expense due to interest to customers related to the fuel over
recovery balance in 2009.
These increases in interest expense were partially offset by:
Ÿ a decrease in interest expense of approximately $8.9 million related to interest on short-term debt primarily due to
lower short-term borrowings in 2009 due to the issuances of long-term debt in 2008;
Ÿ a decrease in interest expense of approximately $4.3 million primarily due to a higher allowance for borrowed funds
used during construction for capitalized interest; and
Ÿ a decrease in interest expense of approximately $2.4 million due to the settlement of treasury lock agreements the
Company entered into related to the issuance of long-term debt in January 2008.
Income Tax Expense. Income tax expense was approximately $90.0 million in 2009 as compared to approximately $52.4
million in 2008, an increase of approximately $37.6 million, or 71.8 percent, primarily due to higher pre-tax income in 2009 as
compared to 2008, lower Federal investment tax credit amortization and higher state income tax expense.
2008 compared to 2007. The Company’s operating income decreased approximately $13.7 million in 2008 as compared to
2007 primarily due to higher operation and maintenance expense, higher depreciation and amortization expense and higher taxes other
than income partially offset by a higher gross margin.
Gross Margin
Gross margin was approximately $844.6 million in 2008 as compared to approximately $810.0 million in 2007, an increase
of approximately $34.6 million, or 4.3 percent. The gross margin increased primarily due to:
Ÿ new revenues from the Redbud Facility rider and the storm cost recovery rider, which increased the gross margin by
approximately $21.1 million;
Ÿ new customer growth in the Company’s service territory, which increased the gross margin by approximately $8.4
million; and
Ÿ increased demand and related revenues by non-residential customers in the Company’s service territory, which
increased the gross margin by approximately $5.0 million.
Fuel expense was approximately $857.2 million in 2008 as compared to approximately $756.1 million in 2007, an increase of
approximately $101.1 million, or 13.4 percent, primarily due to higher 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 2008, the Company’s fuel mix was 68 percent coal, 30 percent natural gas and two
percent wind. In 2007, the Company’s fuel mix was 62 percent coal, 36 percent natural gas and two percent wind. Purchased power
costs were approximately $257.0 million in 2008 as compared to approximately $268.6 million in 2007, a decrease of approximately
$11.6 million, or 4.3 percent, primarily due to lower purchases from the energy imbalance service market partially offset by capacity
payments made to Redbud due to the purchase power agreement in effect prior to the Company’s purchase of the Redbud Facility in
September 2008.
Operating Expenses
Other operation and maintenance expenses were approximately $351.6 million in 2008 as compared to approximately $320.7
million in 2007, an increase of approximately $30.9 million, or 9.6 percent. The increase in other operation and maintenance expenses
was primarily due to:
Ÿ a decrease in capitalized work of approximately $14.0 million primarily related to costs related to the 2007 ice storm
that were deferred as a regulatory asset;
Ÿ an increase 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;
Ÿ an increase of approximately $6.9 million in salaries and wages expense primarily due to hiring additional
employees to support the Company’s operations as well as salary increases in 2008;
38