OG&E 2011 Annual Report Download - page 57

Fuel Inventories
OG&E
Fuel inventories for the generation of electricity consist of coal, natural
gas and oil. OG&E uses the weighted-average cost method of account-
ing for inventory that is physically added to or withdrawn from storage
or stockpiles. The amount of fuel inventory was $76.9 million and
$134.9 million at December 31, 2011 and 2010, respectively.
Enogex
Natural gas inventory is held by Enogex, through its transportation and
storage business to provide operational support for its pipeline deliveries
and through its marketing business to manage its leased storage capacity.
In an effort to mitigate market price exposures, Enogex may enter into
contracts or hedging instruments to protect the cash flows associated
with its inventory. All natural gas inventory held by Enogex is valued using
moving average cost and is recorded at the lower of cost or market. As
part of its recurring marketing activity, OER injects and withdraws natural
gas into and out of inventory under the terms of its storage capacity
contracts. During the years ended December 31, 2011, 2010 and 2009,
Enogex recorded write-downs to market value related to natural gas stor-
age inventory of $4.8 million, $0.3 million and $6.1 million, respectively.
The amount of Enogex’s natural gas inventory was $23.7 million and
$23.9 million at December 31, 2011 and 2010, respectively. The cost of
gas associated with sales of natural gas storage inventory is presented
in Cost of Goods Sold on the Consolidated Statements of Income.
Gas Imbalances
Gas imbalances occur when the actual amounts of natural gas delivered
from or received by Enogex’s pipeline system differ from the amounts
scheduled to be delivered or received. Imbalances are due to or due
from shippers and operators and can be settled in cash or made up
in-kind depending on contractual terms. Enogex values all imbalances
at an average of current market indices applicable to Enogex’s operations,
not to exceed net realizable value.
Property, Plant and Equipment
OG&E
All property, plant and equipment is recorded at cost. Newly constructed
plant is added to plant balances at cost which includes contracted
services, direct labor, materials, overhead, transportation costs and the
allowance for funds used during construction. Replacements of units of
property are capitalized as plant. For assets that belong to a common
plant account, the replaced plant is removed from plant balances and
the cost of such property is charged to Accumulated Depreciation. For
assets that do not belong to a common plant account, the replaced
plant is removed from plant balances with the related accumulated
depreciation and the remaining balance net of any salvage proceeds
is recorded as a loss in the Consolidated Statements of Income as
Other Expense. Repair and replacement of minor items of property are
included in the Consolidated Statements of Income as Other Operation
and Maintenance Expense.
The table below presents OG&E’s ownership interest in the
jointly-owned McClain Plant and the jointly-owned Redbud Plant, and,
as disclosed below, only OG&E’s ownership interest is reflected in the
property, plant and equipment and accumulated depreciation balances
in these tables. The owners of the remaining interests in the McClain
Plant and the Redbud Plant are responsible for providing their own
financing of capital expenditures. Also, only OG&E’s proportionate inter-
ests of any direct expenses of the McClain Plant and the Redbud Plant
such as fuel, maintenance expense and other operating expenses are
included in the applicable financial statement captions in the
Consolidated Statement of Income.
Total Property, Net Property,
Percentage Plant and Accumulated Plant and
(In millions, December 31) Ownership Equipment Depreciation Equipment
2011
McClain Plant 77% $207.2 $73.7 $133.5
Redbud Plant 51% $461.1 (A) $54.3 (B) $406.8
(A) This amount includes a plant acquisition adjustment of $148.3 million.
(B) This amount includes accumulated amortization of the plant acquisition adjustment of $17.9 million.
Enogex
All property, plant and equipment is recorded at cost. Newly constructed
plant is added to plant balances at cost which includes contracted serv-
ices, direct labor, materials, overhead, transportation costs and capitalized
interest. Replacements of units of property are capitalized as plant. For
assets that belong to a common plant account, the replaced plant is
removed from plant balances and charged to Accumulated Depreciation.
For assets that do not belong to a common plant account, the replaced
plant is removed from plant balances with the related accumulated
depreciation and the remaining balance net of any salvage proceeds is
recorded as a loss in the Consolidated Statements of Income as Other
Expense. Repair and removal costs are included in the Consolidated
Statements of Income as Other Operation and Maintenance Expense.
On December 8, 2010, a fire occurred at Enogex’s Cox City natural
gas processing plant destroying major components of one of the four
processing trains, representing 120 MMcf/d of the total 180 MMcf/d of
capacity, at that facility. Gas volumes normally processed at the Cox
City plant were diverted to other facilities or bypassed around Enogex’s
system to accommodate production and all of the impacted gathered
volumes were back online in December 2010. The damaged train was
replaced and the facility was returned to full service in September 2011.
The total cost necessary to return the facility back to full service was
$29.6 million. While Enogex believes that the costs in excess of the
$10 million deductible should be reimbursed by insurance, the matter
is currently being negotiated with the insurance company and Enogex
cannot predict the precise outcome of these negotiations or the timing
associated with the recovery. In the fourth quarter of 2011, Enogex
received a partial insurance reimbursement of $7.4 million and recog-
nized a gain of $3.0 million on insurance proceeds. Enogex expects to
receive additional reimbursement of portions of the costs in 2012. Enogex
will recognize insurance recoveries in earnings as the insurance claims
are resolved.
OGE Energy Corp. 55