OG&E 2011 Annual Report Download - page 35

OGE Energy Corp. 33
In 2011, the Company’s sources of capital were cash generated
from operations, proceeds from the issuance of long and short-term
debt, proceeds from the sales of common stock to the public through
the Company’s Automatic Dividend Reinvestment and Stock Purchase
Plan, funding for growth opportunities at Enogex through the ArcLight
group and quarterly distributions from Enogex Holdings. Changes in
working capital reflect the seasonal nature of the Company’s business,
the revenue lag between billing and collection from customers and fuel
inventories. See “Financial Condition” for a discussion of significant
changes in net working capital requirements as it pertains to operating
cash flow and liquidity.
Funding of Benefit Plans
In November 2011, the Company purchased 120,000 shares of its
common stock at an average cost of $51.33 per share on the open
market. These shares will be used to satisfy Enogex’s portion of the
Company’s obligation to deliver shares of common stock related to
long-term incentive payouts of earned performance units in 2012.
The Company expects to purchase shares in the future to satisfy
a portion of its obligation under its incentive plan.
OG&E Issuance of Long-Term Debt
On May 24, 2011, OG&E issued $250 million of 5.25% senior notes
due May 15, 2041. The proceeds from the issuance were added to
OGE Energy’s general funds and were used to repay short-term debt.
OG&E expects to issue additional long-term debt from time to time
when market conditions are favorable and when the need arises.
Potential Collateral Requirements
Derivative instruments are utilized in managing the Company’s commodity
price exposures and in OER’s asset management, marketing and trading
activities and hedging activities executed on behalf of the Company.
Agreements governing the derivative instruments may require the Company
to provide collateral in the form of cash or a letter of credit in the event
mark-to-market exposures exceed contractual thresholds or the Company’s
credit ratings are lowered. Future collateral requirements are uncertain,
and are subject to terms of the specific agreements and to fluctuations
in natural gas and NGLs market prices.
On July 21, 2010, President Obama signed into law Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). While
the Dodd-Frank Act is focused primarily on the regulation and oversight
of financial institutions, it also provides for a new regulatory regime for
derivatives, including mandatory clearing of certain swaps, exchange
trading, margin requirements and other transparency requirements. The
Dodd-Frank Act contains provisions that should exempt certain derivatives
end-users from much of the clearing requirements. It is unclear whether
end-users will be exempt from the margin requirements. The scope of
the margin requirements and the end user exemption is uncertain and
will be further defined through rulemaking proceedings at the Commodity
Futures Trading Commission and the Securities and Exchange Commission.
Further, although the Company may qualify for certain exemptions, its
derivative counterparties may be subject to new capital, margin and
business conduct requirements imposed as a result of the new legislation,
which may increase the Company’s transaction costs or make it more
difficult to enter into hedging transactions on favorable terms. The
Company’s inability to enter into hedging transactions on favorable terms,
or at all, could increase operating expenses and put the Company at
increased exposure to risks of adverse changes in commodities prices.
If, as a result of the rulemaking associated with the Dodd-Frank Act, the
Company does not qualify for any exemptions related to clearing require-
ments and/or are subject to margin requirements, the Company would
be subject to higher costs and increased collateral requirements. The
impact of the provisions of the Dodd-Frank Act on the Company cannot
be determined pending issuance of the final implementing regulations.
Future Sources of Financing
Management expects that cash generated from operations, proceeds
from the issuance of long and short-term debt and proceeds from the
sales of common stock to the public through the Company’s Automatic
Dividend Reinvestment and Stock Purchase Plan or other offerings will
be adequate over the next three years to meet anticipated cash needs
and to fund future growth opportunities. Additionally, the Company will
have an additional source of funding for growth opportunities at Enogex
through the ArcLight group and from quarterly distributions from Enogex
Holdings. The Company utilizes short-term borrowings (through a com-
bination of bank borrowings and commercial paper) to satisfy temporary
working capital needs and as an interim source of financing capital
expenditures until permanent financing is arranged.
Short-Term Debt and Credit Facilities
Short-term borrowings generally are used to meet working capital
requirements. The Company borrows on a short-term basis, as neces-
sary, by the issuance of commercial paper and by borrowings under its
revolving credit agreements. In December 2011, the Company, OG&E
and Enogex LLC each entered into new unsecured five-year revolving
credit facilities totaling in the aggregate $1,550 million ($750 million for
the Company, $400 million for OG&E and $400 million for Enogex LLC).
The short-term debt balance was $277.1 million and $145.0 million
at December 31, 2011 and 2010, respectively. The weighted-average
interest rate on short-term debt at December 31, 2011 was 0.48 percent.
The average balance of short-term debt in 2011 was $210.7 million at
a weighted-average interest rate of 0.36 percent. The maximum month-
end balance of short-term debt in 2011 was $323.0 million. Enogex
had $150.0 million and $25.0 million in outstanding borrowings under
its revolving credit agreement at December 31, 2011 and 2010, respec-
tively. As Enogex LLC’s credit agreement matures on December 13,
2016, along with its intent in utilizing its credit agreement, borrowings
thereunder are classified as long-term debt in the Company’s Consolidated