OG&E 2011 Annual Report Download - page 64

Contracts with Master Netting Arrangements
Fair value amounts recognized for forward, interest rate swap, option
and other conditional or exchange contracts executed with the same
counterparty under a master netting arrangement may be offset. The
reporting entity’s choice to offset or not must be applied consistently.
A master netting arrangement exists if the reporting entity has multiple
contracts, whether for the same type of conditional or exchange con-
tract or for different types of contracts, with a single counterparty that
are subject to a contractual agreement that provides for the net settle-
ment of all contracts through a single payment in a single currency in
the event of default on or termination of any one contract. Offsetting the
fair values recognized for forward, interest rate swap, option and other
conditional or exchange contracts outstanding with a single counter-
party results in the net fair value of the transactions being reported as
an asset or a liability in the Consolidated Balance Sheets. The Company
has presented the fair values of its derivative contracts under master
netting agreements using a net fair value presentation.
The following tables summarize the Company’s assets and liabilities
that are measured at fair value on a recurring basis at December 31, 2011
and 2010 as well as reconcile the Company’s commodity contracts fair
value to PRM Assets and Liabilities on the Company’s Consolidated
Balance Sheets at December 31, 2011 and 2010. There were no Level 3
investments held at December 31, 2011.
Commodity Contracts Gas Imbalances
(In millions, December 31) Assets Liabilities Assets Liabilities
2011
Quoted market prices
in active market for
identical assets (Level 1) $«57.1 $«52.3 $÷«– $÷«–
Significant other observable
inputs (Level 2) 4.2 1.2 1.8 7.8
Total fair value 61.3 53.5 1.8 7.8
Netting adjustments (57.5) (53.0) – –
Total $÷«3.8 $÷«0.5 $1.8 $7.8
2010
Quoted market prices
in active market for
identical assets (Level 1) $«20.6 $«20.2 $÷«– $÷«–
Significant other observable
inputs (Level 2) 2.7 30.7 2.5 2.8
Significant unobservable
inputs (Level 3) 13.3–––
Total fair value 36.6 50.9 2.5 2.8
Netting adjustments (34.4) (34.1) – –
Total $÷«2.2 $«16.8 $2.5 $2.8
(A) The Company uses the market approach to fair value its gas imbalance assets and liabilities,
using an average of the Inside FERC Gas Market Report for Panhandle Eastern Pipe Line Co.
(Texas, Oklahoma Mainline), ONEOK (Oklahoma) and ANR Pipeline (Oklahoma) indices.
(B) Gas imbalance liabilities exclude fuel reserves for over retained fuel due to shippers of $2.0 million
and $3.9 million at December 31, 2011 and 2010, respectively, which fuel reserves are based
on the value of natural gas at the time the imbalance was created and which are not subject to
revaluation at fair market value.
The following table summarizes the Company’s assets and liabilities
that are measured at fair value on a recurring basis using significant
unobservable inputs (Level 3).
Commodity Contracts
Assets Liabilities
(In millions) 2011 2010 2011 2010
Balance at January 1 $13.3 $«49.0 $«– $«14.7
Total gains or losses
Included in other
comprehensive income (5.4) (10.0) ––
Settlements (7.9) (25.7) –(14.7)
Balance at December 31 $÷÷– $«13.3 $«– $÷÷÷–
In the fourth quarter of 2011, OG&E recorded an asset retirement
obligation for $13.0 million related to its Crossroads wind farm, which is
measured at fair value on a nonrecurring basis and is considered level 3
in the fair value hierarchy. The inputs used in the valuation of the asset
retirement obligation include the term of the Crossroads lease agreement,
the average inflation rate, market risk premium and the credit-adjusted
risk free interest rate. The term of the asset retirement obligation of 50
years was determined by the Crossroads lease agreement which states
that OG&E will remove the wind turbines and related facilities at the time
the lease expires. The inflation rate is calculated by using a 20-year aver-
age of the Consumer Price Index. The market risk premium is based
on historical market returns relative to the U.S. Treasury rate. The credit-
adjusted risk free interest rate is estimated from recent yields of OG&E’s
outstanding debt.
The following table summarizes the fair value and carrying amount
of the Company’s financial instruments, including derivative contracts
related to the Company’s PRM activities, at:
2011 2010
Carrying Fair Carrying Fair
(In millions, December 31) Amount Value Amount Value
Price risk management assets
Energy derivative contracts $÷÷÷«3.8 $÷÷÷«3.8 $÷÷÷«2.2 $÷÷÷«2.2
Price risk management liabilities
Energy derivative contracts $÷÷÷«0.5 $÷÷÷«0.5 $÷÷«16.8 $÷÷«16.8
Long-term debt
OG&E senior notes $1,903.8 $2,383.8 $1,655.0 $1,831.5
OGE Energy senior notes 99.8 108.5 99.7 106.4
OG&E industrial
authority bonds 135.4 135.4 135.4 135.4
Enogex LLC senior notes 448.1 497.9 447.8 480.7
Enogex LLC revolving
credit agreement 150.0 150.0 25.0 25.0
62 OGE Energy Corp.
(A)
(B)