OG&E 2011 Annual Report Download - page 22

20 OGE Energy Corp.
2011 Compared to 2010
OG&E’s operating income increased $58.6 million, or 14.2 percent, in 2011
as compared to 2010 primarily due to a higher gross margin partially offset
by higher other operation and maintenance expense.
Gross Margin
Gross margin was $1,198.0 million in 2011 as compared to $1,109.7 million
in 2010, an increase of $88.3 million, or 8.0 percent. The gross margin
increased primarily due to:
•Warmer weather in OG&E’s service territory, which increased the gross
margin by $27.4 million;
•Increased price variance, which included revenues from various rate riders,
including OG&E’s transmission line from Oklahoma City, Oklahoma to
Woodward, Oklahoma (“Windspeed”) rider, the Oklahoma demand program
rider, the Smart Grid rider, the system hardening rider, the Oklahoma
storm recovery rider, the Crossroads rider and the OU Spirit rider, and
higher revenues from sales and customer mix, which increased the
gross margin by $23.9 million;
•Higher transmission revenue primarily due to the inclusion of construction
work in progress in transmission rates for specific FERC approved projects
that previously accrued allowance for funds used during construction,
which increased the gross margin by $15.3 million;
•New customer growth in OG&E’s service territory, which increased the
gross margin by $13.1 million;
•Revenues from the Arkansas rate increase, which increased the gross
margin by $6.0 million;
•Higher demand and related revenues by non-residential customers in
OG&E’s service territory, which increased the gross margin by $5.0 mil-
lion; and
•Higher revenues related to the renewal of the Arkansas Valley Electric
Cooperative contract (see Note 17 of Notes to Consolidated Financial
Statements), which increased the gross margin by $3.1 million.
These increases in the gross margin were partially offset by a credit to
customers related to the settlement of OG&E’s 2009 fuel adjustment
clause review (see Note 17 of Notes to Consolidated Financial Statements),
which decreased the gross margin by $5.7 million.
Cost of goods sold for OG&E consists of fuel used in electric
generation, purchased power and transmission related charges. Fuel
expense was $775.0 million in 2011 as compared to $771.0 million in
2010, an increase of $4.0 million, or 0.5 percent, primarily due to higher
generation primarily due to warmer weather in OG&E’s service territory.
OG&E’s electric generating capability is fairly evenly divided between
coal and natural gas and provides for flexibility to use either fuel to the
best economic advantage for OG&E and its customers. In 2011, OG&E’s
fuel mix was 58 percent coal, 39 percent natural gas and three percent
wind. In 2010, OG&E’s fuel mix was 55 percent coal, 42 percent natural
gas and three percent wind. Purchased power costs were $230.7 million
in 2011 as compared to $226.5 million in 2010, an increase of $4.2 million,
or 1.9 percent, primarily due to an increase in short-term power purchases
partially offset by a decrease in purchases in the energy imbalance service
market and a decrease in cogeneration cost.
Variances in the actual cost of fuel used in electric generation and
certain purchased power costs, as compared to the fuel component
included in the cost-of-service for ratemaking, are passed through to
OG&E’s customers through fuel adjustment clauses. The fuel adjustment
clauses are subject to periodic review by the OCC, the APSC and the
FERC. The OCC, the APSC and the FERC have authority to review the
appropriateness of gas transportation charges or other fees OG&E
pays to Enogex.
Operating Expenses
Other operation and maintenance expenses were $436.0 million in 2011
as compared to $418.1 million in 2010, an increase of $17.9 million, or
4.3 percent. The increase in other operation and maintenance expenses
was primarily due to:
•An increase of $15.5 million allocated from the holding company primarily
related to payroll and benefits expense, contract technical and construc-
tion services and contract professional services;
•An increase of $12.1 million in salaries and wages expense primarily due
to salary increases in 2011, increased incentive compensation expense
and increased overtime expense primarily due to storms in April and
August 2011;
•An increase of $4.6 million in other marketing and sales expense related
to demand-side management initiatives, which expenses are being
recovered through a rider;
•An increase of $3.1 million in uncollectible expense;
•An increase of $1.6 million in fleet transportation expense primarily due
to higher fuel costs in 2011;
•An increase of $1.3 million in temporary labor expense; and
•An increase of $1.2 million in SPP administration fees.
These increases in other operation and maintenance expenses were
partially offset by:
•A decrease of $9.8 million in employee benefits expense primarily due
to a decrease in postretirement benefits expense related to amendments
to the Company’s retiree medical plan adopted in January 2011 (see
Note 14 of Notes to Consolidated Financial Statements) partially offset
by a modification to OG&E’s pension tracker and a decrease in worker’s
compensation accruals in 2011;
•A decrease of $5.0 million in injuries and damages expense primarily
due to higher reserves on claims in 2010; and
•A decrease of $2.9 million related to decreased spending on vegetation
management partially related to system hardening, which expenses are
being recovered through a rider.