OG&E 2009 Annual Report Download - page 72

SPP Purchases and Sales
The Company participates in the Southwest Power Pool (“SPP”) energy imbalance service market in a dual role as a load
serving entity and as a generation owner. The energy imbalance service market requires cash settlements for over or under schedules
of generation and load. Market participants, including the Company, are required to submit resource plans and can submit offer curves
for each resource available for dispatch. A function of interchange accounting is to match participants’ megawatt-hour (“MWH”)
entitlements (generation plus scheduled bilateral purchases) against their MWH obligations (load plus scheduled bilateral sales) during
every hour of every day. If the net result during any given hour is an entitlement, the participant is credited with a spot-market sale to
the SPP at the respective market price for that hour; if the net result is an obligation, the participant is charged with a spot-market
purchase from the SPP at the respective market price for that hour. The SPP purchases and sales are not allocated to individual
customers. The Company records the hourly sales to the SPP at market rates in Operating Revenues and the hourly purchases from
the SPP at market rates in Cost of Goods Sold in its Financial Statements.
Fuel Adjustment Clauses
Variances in the actual cost of fuel used in electric generation and certain purchased power costs, as compared to the fuel
component in the cost-of-service for ratemaking, are passed through to the Company’s customers through fuel adjustment clauses,
which are subject to periodic review by the OCC, the APSC and the FERC.
Accrued Vacation
The Company accrues vacation pay by establishing a liability for vacation earned during the current year, but not payable
until the following year.
Accumulated Other Comprehensive Loss
There was approximately $0.4 million in accumulated other comprehensive loss at December 31, 2009 related to deferred
hedging activity. There was no accumulated other comprehensive income balance at December 31, 2008.
Environmental Costs
Accruals for environmental costs are recognized when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated. Costs are charged to expense or deferred as a regulatory asset based on expected recovery from
customers in future rates, if they relate to the remediation of conditions caused by past operations or if they are not expected to
mitigate or prevent contamination from future operations. Where environmental expenditures relate to facilities currently in use, such
as pollution control equipment, the costs may be capitalized and depreciated over the future service periods. Estimated remediation
costs are recorded at undiscounted amounts, independent of any insurance or rate recovery, based on prior experience, assessments
and current technology. Accrued obligations are regularly adjusted as environmental assessments and estimates are revised, and
remediation efforts proceed. For sites where the Company has have been designated as one of several potentially responsible parties,
the amount accrued represents the Company’s estimated share of the cost. The Company has less than $0.1 million in accrued
environmental liabilities at both December 31, 2009 and 2008.
Related Party Transactions
OGE Energy charged operating costs to the Company of approximately $92.6 million, $87.4 million and $96.4 million in
2009, 2008 and 2007, respectively. OGE Energy charges operating costs to its subsidiaries based on several factors. Operating costs
directly related to specific subsidiaries are assigned to those subsidiaries. Where more than one subsidiary benefits from certain
expenditures, the costs are shared between those subsidiaries receiving the benefits. Operating costs incurred for the benefit of all
subsidiaries are allocated among the subsidiaries, based primarily upon head-count, occupancy, usage or the “Distrigas” method. The
Distrigas method is a three-factor formula that uses an equal weighting of payroll, net operating revenues and gross property, plant and
equipment. OGE Energy adopted the Distrigas method in January 1996 as a result of a recommendation by the OCC Staff. OGE
Energy believes this method provides a reasonable basis for allocating common expenses.
In 2009, 2008 and 2007, the Company recorded an expense from its affiliate, Enogex LLC and its subsidiaries (“Enogex”), of
approximately $34.8 million, $34.8 million and $34.7 million, respectively, for transporting gas to the Company’s natural gas-fired
generating facilities. In 2009, 2008 and 2007, the Company recorded an expense from Enogex of approximately $12.7 million, $12.8
million and $12.7 million, respectively, for natural gas storage services. In 2009, 2008 and 2007, the Company also recorded natural
gas purchases from its affiliate, OGE Energy Resources, Inc. (“OERI”) of
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