OG&E 2009 Annual Report Download - page 71

Total Property, Net Property,
Plant and Accumulated Plant and
December 31, 2008 (In millions) Equipment Depreciation Equipment
Distribution assets $ 2,551.5 $ 824.8 $ 1,726.7
Electric generation assets 2,623.8 1,095.4 1,528.4
Transmission assets 846.1 299.8 546.3
Intangible plant 26.8 18.4 8.4
Other property and equipment 222.0 76.3 145.7
Total property, plant and equipment $ 6,270.2 $ 2,314.7 $ 3,955.5
Depreciation and Amortization
The provision for depreciation, which was approximately 2.9 percent and 2.7 percent, respectively, of the average
depreciable utility plant for 2009 and 2008, is provided on a straight-line method over the estimated service life of the utility
assets. Depreciation is provided at the unit level for production plant and at the account or sub-account level for all other plant, and is
based on the average life group method. In 2010, the provision for depreciation is projected to be approximately 2.9 percent of the
average depreciable utility plant. Amortization of intangibles is computed using the straight-line method. Approximately 71.4 percent
of the remaining amortizable intangible plant balance at December 31, 2009 will be amortized over three years with approximately
28.6 percent of the remaining amortizable intangible plant balance at December 31, 2009 being amortized over their respective lives
ranging from four to 25 years. Amortization of plant acquisition adjustments is provided on a straight-line basis over the estimated
remaining service life of the acquired asset. Plant acquisition adjustments include approximately $148.3 million for the Redbud
Facility, which are being amortized over a 27-year life and approximately $3.1 million for certain substation facilities in the
Company’s service territory, which are being amortized over a 26 to 59-year period.
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
project in western Oklahoma (“OU Spirit”). 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.
Allowance for Funds Used During Construction
AFUDC is calculated according to the FERC pronouncements for the imputed cost of equity and borrowed funds. AFUDC, a
non-cash item, is reflected as a credit in the Statements of Income and as a charge to Construction Work in Progress in the Balance
Sheets. AFUDC rates, compounded semi-annually, were 7.99 percent, 3.58 percent and 5.78 percent for the years 2009, 2008 and
2007, respectively. The increase in the AFUDC rates in 2009 was primarily due to the lack of short-term borrowings in conjunction
with a high level of capital spending.
Collection of Sales Tax
In the course of its operations, the Company collects sales tax from its customers. The Company records a current liability
from sales taxes when it bills its customers and eliminates this liability when the taxes are remitted to the appropriate governmental
authorities. The Company excludes the sales tax collected from its operating revenues.
Revenue Recognition
General
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. The estimates that management uses in this calculation could vary from the actual
amounts to be paid by customers.
65