OG&E 2011 Annual Report Download - page 60

Enogex
Operating revenues for gathering, processing, transportation, storage
and marketing services for Enogex are recorded each month based on
the current month’s estimated volumes, contracted prices (considering
current commodity prices), historical seasonal fluctuations and any
known adjustments. The estimates are reversed in the following month
and customers are billed on actual volumes and contracted prices. Gas
sales are calculated on current-month nominations and contracted prices.
Operating revenues associated with the production of NGLs are estimated
based on current-month estimated production and contracted prices.
These amounts are reversed in the following month and the customers
are billed on actual production and contracted prices. Estimated oper-
ating revenues are reflected in Accounts Receivable on the Consolidated
Balance Sheets and in Operating Revenues on the Consolidated
Statements of Income. Enogex’s key natural gas producer customers in
2011 included Chesapeake Energy Marketing Inc., Apache Corporation,
Devon Energy Production Company, L.P., BP America Production Company
and Kaiser Francis Oil Co. In 2011, these five customers accounted for
19.9 percent, 15.0 percent, 12.5 percent, 4.1 percent and 3.9 percent,
respectively, of Enogex’s gathering and processing volumes. In 2011,
Enogex’s top 10 natural gas producer customers accounted for 69.4 per-
cent of Enogex’s gathering and processing volumes.
Enogex recognizes revenue from natural gas gathering, processing,
transportation, storage and marketing services to third parties as
services are provided. Revenue associated with NGLs is recognized
when the production is sold. Enogex depends on third-party facilities to
transport and fractionate NGLs that it delivers to the third party at the
tailgates of its processing plants. Additionally, the third party purchases
50 percent of the NGLs delivered to its system, which accounted for
$285.4 million (38.8 percent, $279.8 million (46.0 percent) and $170.0 mil-
lion (49.5 percent), respectively, of Enogex’s total NGLs sales for the
years ended December 31, 2011, 2010 and 2009. If this third-party’s
pipeline or other facilities become partially or fully unavailable, Enogex’s
revenues and cash flows could be adversely affected.
Enogex records deferred revenue when it receives consideration
from a third party before achieving certain criteria that must be met for
revenue to be recognized in accordance with GAAP.
Enogex, through OER, engages in energy marketing, trading, risk
management and hedging activities related to the purchase and sale
of natural gas as well as hedging activity related to the sale of natural
gas and NGLs on behalf of the Company. Contracts utilized in these
activities generally include purchases and sales for physical delivery of
natural gas, over-the-counter forward swap and option contracts and
exchange traded futures and options. OER’s transactions that qualify as
derivatives are reflected at fair value with the resulting unrealized gains
and losses recorded as PRM Assets or Liabilities in the Consolidated
Balance Sheets, classified as current or long-term based on their antici-
pated settlement, or against the brokerage deposits in Other Current
Assets. The offsetting unrealized gains and losses from changes in the
market value of open contracts are included in Operating Revenues in
the Consolidated Statements of Income or in Other Comprehensive
Income for derivatives designated and qualifying as cash flow hedges.
Contracts resulting in delivery of a commodity are included as sales
or purchases in the Consolidated Statements of Income as Operating
Revenues or Cost of Goods Sold depending on whether the contract
relates to the sale or purchase of the commodity.
Estimates for gas purchases are based on estimated volumes and
contracted purchase prices. Estimated gas purchases are included in
Accounts Payable on the Consolidated Balance Sheets and in Cost
of Goods Sold on the Consolidated Statements of Income.
Normal purchases and normal sales contracts are not recorded
in PRM Assets or Liabilities in the Consolidated Balance Sheets and
earnings recognition is recorded in the period in which physical delivery
of the commodity occurs. Management applies normal purchases and
normal sales treatment to: (i) commodity contracts for the purchase
and sale of natural gas used in or produced by Enogex’s operations
and (ii) commodity contracts for the sale of NGLs produced by Enogex’s
gathering and processing business.
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 OG&E’s
customers through fuel adjustment clauses, which are subject to
periodic review by the OCC, the APSC and the FERC.
Income Taxes
The Company files consolidated income tax returns in the U.S. Federal
jurisdiction and various state jurisdictions. Income taxes are generally
allocated to each company in the affiliated group based on its stand-
alone taxable income or loss. Federal investment tax credits previously
claimed on electric utility property have been deferred and are being
amortized to income over the life of the related property. The Company
uses the asset and liability method of accounting for income taxes.
Under this method, a deferred tax asset or liability is recognized for
the estimated future tax effects attributable to temporary differences
between the financial statement basis and the tax basis of assets and
liabilities as well as tax credit carry forwards and net operating loss
carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the period of the change. The Company
recognizes interest related to unrecognized tax benefits in interest
expense and recognizes penalties in other expense.
58 OGE Energy Corp.