OG&E 2009 Annual Report Download - page 60

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Risk Policies
Management utilizes risk policies to control the amount of market risk exposure. These policies are designed to provide the
Audit Committee of OGE Energy’s Board of Directors and senior executives of the Company with confidence that the risks taken on
by the Company’s business activities are in accordance with their expectations for financial returns and that the approved policies and
controls related to risk management are being followed. Some of the measures in these policies include value-at-risk limits, position
limits, tenor limits and stop loss limits.
Interest Rate Risk
The Company’s exposure to changes in interest rates relates primarily to short-term variable-rate debt, treasury lock
agreements and commercial paper. The Company from time to time uses treasury lock agreements to manage its interest rate risk
exposure on new debt issuances. Additionally, the Company manages its interest rate exposure by limiting its variable-rate debt to a
certain percentage of total capitalization and by monitoring the effects of market changes in interest rates. The Company utilizes
interest rate derivatives to alter interest rate exposure in an attempt to reduce interest expense related to existing debt issues. Interest
rate derivatives are used solely to modify interest rate exposure and not to modify the overall leverage of the debt portfolio.
The fair value of the Company’s long-term debt is based on quoted market prices. At December 31, 2009 and 2008, the
Company had no outstanding treasury lock agreements. The following table shows the Company’s long-term debt maturities and the
weighted-average interest rates by maturity date. There are no maturities of the Company’s long-term debt during the next five years.
Year ended December 31 After 12/31/09
(Dollars in millions) 2014 Total Fair Value
Fixed-rate debt (A)
Principal amount $ 1,410.0 $ 1,410.0 $ 1,492.1
Weighted-average
interest rate 6.63% 6.63% ---
Variable-rate debt (B)
Principal amount $ 135.4 $ 135.4 $ 135.4
Weighted-average
interest rate 0.57% 0.57% ---
(A) Prior to or when these debt obligations mature, the Company may refinance all or a portion of such debt at then-existing market
interest rates which may be more or less than the interest rates on the maturing debt.
(B) A hypothetical change of 100 basis points in the underlying variable interest rate would change interest expense by approximately
$1.4 million annually.
Management may designate certain derivative instruments for the purchase or sale of electric power and fuel procurement as
normal purchases and normal sales contracts. Normal purchases and normal sales contracts are not recorded in Price Risk
Management assets or liabilities in the Balance Sheets and earnings recognition is recorded in the period in which physical delivery of
the commodity occurs. Management applies normal purchases and normal sales treatment to: (i) electric power contracts by the
Company and (ii) fuel procurement by the Company.
54