OG&E 2011 Annual Report Download - page 34

32 OGE Energy Corp.
The amounts in Accumulated Other Comprehensive Loss and those
recorded as a regulatory asset represent a net periodic benefit cost to be
recognized in the Consolidated Statements of Income in future periods.
Restoration of Postretirement
Pension Plan Retirement Income Plan Benefit Plans
(In millions, year ended December 31) 2011 2010 2011 2010 2011 2010
Benefit obligations $(697.7) $(640.9) $(13.3) $(10.8) $(280.6) $(337.1)
Fair value of plan assets 589.8 574.0 ––61.0 58.5
Funded status at end of year $(107.9) $÷(66.9) $(13.3) $(10.8) $(219.6) $(278.6)
Common Stock Dividends
The Company’s dividend policy is reviewed by the Board of Directors
at least annually and is based on numerous factors, including manage-
ment’s estimation of the long-term earnings power of its businesses.
The Company’s financial objective includes increasing the dividend to
meet the Company’s dividend payout objectives. The Company’s target
payout ratio is to pay out dividends no more than 60 percent of its nor-
malized earnings on an annual basis. The target payout ratio has been
determined after consideration of numerous factors, including the largely
retail composition of the Company’s shareholder base, the Company’s
financial position, the Company’s growth targets, the composition of
the Company’s assets and investment opportunities. At the Company’s
December 2011 Board meeting, management, after considering estimates
of future earnings and numerous other factors, recommended to the Board
of Directors an increase in the current quarterly dividend rate to $0.3925
per share from $0.3750 per share effective with the Company’s first
quarter 2012 dividend.
Security Ratings
Standard
Moody’s & Poor’s
Investor Ratings Fitch
Services Services Ratings
OG&E senior notes A2 BBB+ A+
Enogex LLC notes Baa3 BBB- BBB
OGE Energy senior notes Baa1 BBB A
OGE Energy commercial paper P2 A2 F1
Access to reasonably priced capital is dependent in part on credit
and security ratings. Generally, lower ratings lead to higher financing
costs. Pricing grids associated with the Company’s credit facilities could
cause annual fees and borrowing rates to increase if an adverse ratings
impact occurs. The impact of any future downgrade could include an
increase in the costs of the Company’s short-term borrowings, but a
reduction in the Company’s credit ratings would not result in any defaults
or accelerations. Any future downgrade of the Company could also lead
to higher long-term borrowing costs and, if below investment grade,
would require the Company to post cash collateral or letters of credit.
In the event Moody’s Investors Services or Standard & Poor’s Ratings
Services were to lower the Company’s senior unsecured debt rating to
a below investment grade rating, at December 31, 2011, the Company
would have been required to post $2.1 million of cash collateral to
satisfy its obligation under its financial and physical contracts relating to
derivative instruments that are in a net liability position at December 31,
2011. In addition, the Company could be required to provide additional
credit assurances in future dealings with third parties, which could
include letters of credit or cash collateral.
On October 25, 2011, Standard & Poor’s Ratings Services reaffirmed
the security ratings of OGE Energy and OG&E as shown in the table below
and downgraded Enogex LLC’s security rating from BBB+ to BBB- with
a stable outlook. Standard & Poor’s Ratings Services indicated that the
downgrade at Enogex LLC was primarily due to OGE Energy’s lower
ownership percentage in Enogex which according to Standard & Poor’s
Ratings Services, over time, lessens the benefit that Enogex receives
from OGE Energy’s higher credit rating. The downgrade did not trigger
any collateral requirements and will not cause a material increase in
fees under the revolving credit agreement.
A security rating is not a recommendation to buy, sell or hold securities.
Such rating may be subject to revision or withdrawal at any time by the
credit rating agency and each rating should be evaluated independently
of any other rating.
Future financing requirements may be dependent, to varying degrees,
upon numerous factors such as general economic conditions, abnormal
weather, load growth, commodity prices, levels of drilling activity, acqui-
sitions of other businesses and/or development of projects, actions by
rating agencies, inflation, changes in environmental laws or regulations,
rate increases or decreases allowed by regulatory agencies, new legis -
lation and market entry of competing electric power generators.
2011 Capital Requirements, Sources of Financing, Funding
of Benefit Plans and Financing Activities
Total capital requirements, consisting of capital expenditures and
maturities of long-term debt, were $1,446.2 million and contractual
obligations, net of recoveries through fuel adjustment clauses, were
$110.2 million resulting in total net capital requirements and contrac-
tual obligations of $1,556.4 million in 2011, of which $6.9 million was
to comply with environmental regulations. This compares to net capital
requirements of $1,111.3 million and net contractual obligations of
$104.4 million totaling $1,215.7 million in 2010, of which $27.8 million
was to comply with environmental regulations.