OG&E 2009 Annual Report Download - page 54

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Except as otherwise disclosed in this Form 10-K, management, after consultation with legal counsel, does not currently
anticipate that liabilities arising out of these pending or threatened lawsuits, claims and contingencies will have a material adverse
effect on the Company’s financial position, results of operations or cash flows. See Notes 12 and 13 of Notes to Financial Statements
and Item 3 in this Form 10-K.
Asset Retirement Obligations
In the fourth quarter of 2009, the Company recorded an ARO for approximately $4.5 million related to its OU Spirit wind
farm. Beginning January 1, 2010, the Company will amortize the remaining value of the related ARO asset over the estimated
remaining life of 35 years. The Company also has other previously recorded AROs that are being amortized over their respective lives
ranging from 20 to 99 years. The Company also has certain AROs that have not been recorded because the Company determined that
these assets, primarily related to the Company’s power plant sites, have indefinite lives.
Hedging Policies
The Company engages in cash flow hedge transactions to manage commodity risk. The Company may hedge its forward
exposure to manage the impact of changes in commodity prices. Hedges of anticipated transactions are documented as cash flow
hedges and are executed based upon management-established price targets. During 2009, the Company applied hedge accounting to
manage its natural gas exposure associated with a wholesale generation sales contract, which hedge expires in 2013. Hedges are
evaluated prior to execution with respect to the impact on the volatility of forecasted earnings and are evaluated at least quarterly after
execution for the impact on earnings.
The Company engages in cash flow and fair value hedge transactions to modify the rate composition of the debt
portfolio. During 2007, the Company entered into treasury lock agreements relating to managing interest rate exposure on the debt
portfolio or anticipated debt issuances to modify the interest rate exposure on fixed rate debt issues. These treasury lock agreements
qualified as cash flow hedges with an objective to protect against the variability of future interest payments of long-term debt that was
issued by the Company. The Company does not currently have any outstanding treasury lock agreements.
Regulatory Assets and Liabilities
The Company, as a regulated utility, is subject to accounting principles for certain types of rate-regulated activities, which
provides that certain actual or anticipated costs that would otherwise be charged to expense can be deferred as regulatory assets, based
on the expected recovery from customers in future rates. Likewise, certain actual or anticipated credits that would otherwise reduce
expense can be deferred as regulatory liabilities, based on the expected flowback to customers in future rates. Management’s expected
recovery of deferred costs and flowback of deferred credits generally results from specific decisions by regulators granting such
ratemaking treatment.
The Company records certain actual or anticipated costs and obligations as regulatory assets or liabilities if it is probable,
based on regulatory orders or other available evidence, that the cost or obligation will be included in amounts allowable for recovery
or refund in future rates. The benefits obligation regulatory asset is comprised of items which are probable of future recovery that
have not yet been recognized as a component of net periodic benefit cost including, net loss, prior service cost and net transition
obligation.
Unbilled Revenues
The Company reads its customers’ meters and sends bills to its customers throughout each month. As a result, there is a
significant amount of customers’ electricity consumption that has not been billed at the end of each month. Unbilled revenue is
presented in Accrued Unbilled Revenues on the Balance Sheets and in Operating Revenues on the Statements of Income based on
estimates of usage and prices during the period. At December 31, 2009, if the estimated usage or price used in the unbilled revenue
calculation were to increase or decrease by one percent, this would cause a change in the unbilled revenues recognized of
approximately $0.4 million. At December 31, 2009 and 2008, Accrued Unbilled Revenues were approximately $57.2 million and
$47.0 million, respectively. The estimates that management uses in this calculation could vary from the actual amounts to be paid by
customers.
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