OG&E 2009 Annual Report Download - page 69

previous long-term debt. The unamortized loss on reacquired debt is not included in the Company’s rate base and does not otherwise
earn a rate of return.
Fuel clause under recoveries are generated from under recoveries from the Company’s customers when the Company’s cost
of fuel exceeds the amount billed to its customers. Fuel clause over recoveries are generated from over recoveries from the
Company’s customers when the amount billed to its customers exceeds the Company’s cost of fuel. The Company’s fuel recovery
clauses are designed to smooth the impact of fuel price volatility on customers’ bills. As a result, the Company under recovers fuel
costs in periods of rising fuel prices above the baseline charge for fuel and over recovers fuel costs when prices decline below the
baseline charge for fuel. Provisions in the fuel clauses are intended to allow the Company to amortize under and over recovery
balances. As part of the OCC order in the Company’s Oklahoma rate case, the Company will refund approximately $80.4 million in
fuel clause over recoveries to its Oklahoma customers over the next seven months.
Accrued removal obligations represent asset retirement costs previously recovered from ratepayers for other than legal
obligations.
Management continuously monitors the future recoverability of regulatory assets. When in management’s judgment future
recovery becomes impaired, the amount of the regulatory asset is adjusted, as appropriate. If the Company were required to
discontinue the application of accounting principles for certain types of rate-regulated activities for some or all of its operations, it
could result in writing off the related regulatory assets; the financial effects of which could be significant.
Use of Estimates
In preparing the Financial Statements, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the Financial Statements
and the reported amounts of revenues and expenses during the reporting period. Changes to these assumptions and estimates could
have a material effect on the Company’s Financial Statements. However, the Company believes it has taken reasonable, but
conservative, positions where assumptions and estimates are used in order to minimize the negative financial impact to the Company
that could result if actual results vary from the assumptions and estimates. In management’s opinion, the areas of the Company where
the most significant judgment is exercised is in the valuation of pension plan assumptions, contingency reserves, asset retirement
obligations (“ARO”), fair value and cash flow hedges, regulatory assets and liabilities, unbilled revenues and the allowance for
uncollectible accounts receivable.
Cash and Cash Equivalents
For purposes of the Financial Statements, the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value.
Allowance for Uncollectible Accounts Receivable
Customer balances are generally written off if not collected within six months after the final billing date. The allowance for
uncollectible accounts receivable for the Company is calculated by multiplying the last six months of electric revenue by the provision
rate. The provision rate is based on a 12-month historical average of actual balances written off. To the extent the historical
collection rates are not representative of future collections, there could be an effect on the amount of uncollectible expense
recognized. Beginning in August 2009 and going forward, there was a change in the provision calculation as a result of the Oklahoma
rate case whereby the portion of the uncollectible provision related to fuel will be recovered through the fuel adjustment clause. The
allowance for uncollectible accounts receivable was approximately $1.7 million and $2.3 million at December 31, 2009 and 2008,
respectively.
New business customers are required to provide a security deposit in the form of cash, bond or irrevocable letter of credit that
is refunded when the account is closed. New residential customers, whose outside credit scores indicate risk, are required to provide a
security deposit that is refunded based on customer protection rules defined by the OCC and the APSC. The payment behavior of all
existing customers is continuously monitored and, if the payment behavior indicates sufficient risk within the meaning of the
applicable utility regulation, customers will be required to provide a security deposit.
Fuel Inventories
Fuel inventories for the generation of electricity consist of coal, natural gas and oil. The Company uses the weighted-average
cost method of accounting for inventory that is physically added to or withdrawn from storage or stockpiles. The amount of fuel
inventory was approximately $101.0 million and $56.6 million at December 31, 2009 and 2008, respectively.
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