OG&E 2014 Annual Report Download - page 22

40 OGE Energy Corp. OGE Energy Corp. 41
OG&E recovers the cost of system-wide deployment of smart grid
technology and implementing the smart grid pilot program, the
incremental costs for web portal access, education and providing home
energy reports. These amounts are currently being recovered through
a rider which will remain in effect until the smart grid project costs are
included in base rates in OG&E’s next general rate case. Costs not
included in the rider are the incremental costs for web portal access,
education and home energy reports, which are capped at $6.9 million,
and the stranded costs associated with OG&E’s analog electric meters,
which have been replaced by smart meters, which were accumulated
during the smart grid deployment and have been included in the Smart
Grid asset in the Regulatory Assets/Liabilities table above. These costs
are expected to be recovered in base rates in OG&E’s next general
rate case.
OG&E defers annual Oklahoma storm-related operation and
maintenance expenses in excess of $2.7 million and includes in
expense any Oklahoma storm-related operation and maintenance
expenses up to $2.7 million. OG&E will recover the amounts deferred
each year, over a five-year period.
Unamortized loss on reacquired debt is comprised of unamortized
debt issuance costs related to the early retirement of OG&E’s
long-term debt. These amounts are recorded in interest expenses
and are being amortized over the term of the long-term debt which
replaced the previous long-term debt. The unamortized loss on
reacquired debt is not included in OG&E’s rate base and does not
otherwise earn a rate of return.
Accrued removal obligations represent asset retirement costs
previously recovered from ratepayers for other than legal obligations.
OG&E recovers specific amounts of pension and postretirement
medical costs in rates approved in its Oklahoma rate cases. In
accordance with approved orders, OG&E defers the difference
between actual pension and postretirement medical expenses and
the amount approved in its last Oklahoma rate case as a regulatory
asset or regulatory liability. These amounts have been recorded in
the Pension tracker in the regulatory assets and liabilities table above.
Management continuously monitors the future recoverability of
regulatory assets. When in management’s judgment future recovery
becomes impaired, the amount of the regulatory asset is adjusted, as
appropriate. If OG&E were required to discontinue the application of
accounting principles for certain types of rate-regulated activities for
some or all of its operations, it could result in writing off the related
regulatory assets, which could have significant financial effects.
Use of Estimates
In preparing the Consolidated Financial Statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and contingent liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenues and expenses
during the reporting period. Changes to these assumptions and
estimates could have a material effect on the Company’s Consolidated
Financial Statements. However, the Company believes it has taken
reasonable positions where assumptions and estimates are used in
order to minimize the negative financial impact to the Company that
could result if actual results vary from the assumptions and estimates.
In management’s opinion, the areas of the Company where the most
significant judgment is exercised for all Company segments includes
the determination of Pension Plan assumptions, income taxes,
contingency reserves, asset retirement obligations and depreciable
lives of property, plant and equipment. For the electric utility segment,
the most significant judgment is also exercised in the existence of
regulatory assets and liabilities and unbilled revenues.
Cash and Cash Equivalents
For purposes of the Consolidated Financial Statements, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. These
investments are carried at cost, which approximates fair value.
Allowance for Uncollectible Accounts Receivable
Customer balances are generally written off if not collected within
six months after the final billing date. The allowance for uncollectible
accounts receivable for OG&E is calculated by multiplying the last
six months of electric revenue by the provision rate. The provision rate
is based on a 12-month historical average of actual balances written
off. To the extent the historical collection rates are not representative
of future collections, there could be an effect on the amount of
uncollectible expense recognized. Also, a portion of the uncollectible
provision related to fuel within the Oklahoma jurisdiction is being
recovered through the fuel adjustment clause. The allowance for
uncollectible accounts receivable was $1.6 million and $1.9 million
at December 31, 2014 and 2013, respectively.
New business customers are required to provide a security
deposit in the form of cash, bond or irrevocable letter of credit that
is refunded when the account is closed. New residential customers,
whose outside credit scores indicate an elevated risk, are required
to provide a security deposit that is refunded based on customer
protection rules defined by the OCC and the APSC. The payment
behavior of all existing customers is continuously monitored and,
if the payment behavior indicates sufficient risk within the meaning
of the applicable utility regulation, customers will be required to
provide a security deposit.
Fuel Inventories
Fuel inventories for the generation of electricity consist of coal,
natural gas and oil. OG&E uses the weighted-average cost method of
accounting for inventory that is physically added to or withdrawn from
storage or stockpiles. The amount of fuel inventory was $66.7 million
and $74.4 million at December 31, 2014 and 2013, respectively.
Effective May 1, 2014, the gas storage services agreement with Enable
was terminated. As a result of this contract termination, approximately
5.3 BCF of cushion gas owned by OG&E on the Enable system is
being directed to OG&E’s power plants over a five year period during
peak time of June 1 to August 31 at a rate of 11,500 MMBtu/day for a
total of 1.06 Bcf per year. Therefore, approximately $11.0 million of
cushion gas was reclassified from Plant-in-Service to Deferred
Charges and Other Assets and an additional $2.7 million was
reclassified to current Fuel Inventories on the Balance Sheets.
As of December 31, 2014, the balance of cushion gas in Other Assets
is approximately $8.2 million.
Property, Plant and Equipment
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
interests 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,
December 31, 2014 Percentage Plant and Accumulated Plant and
(In millions) Ownership Equipment Depreciation Equipment
McClain Plant (A) 77% $207.7 $46.6 $161.1
Redbud Plant (A)(B) 51% $484.1 $81.8 $402.3
(A)
Construction work in progress was $0.5 million and $0.4 million for the McClain and
Redbud Plants, respectively.
(B)
This amount includes a plant acquisition adjustment of $148.3 million and
accumulated amortization of $34.3 million.
Total Property, Net Property,
December 31, 2013 Percentage Plant and Accumulated Plant and
(In millions) Ownership Equipment Depreciation Equipment
McClain Plant (A) 77% $183.2 $62.8 $120.4
Redbud Plant (A)(B) 51% $498.9 $89.7 $409.2
(A) Construction work in progress was $0.1 million and $39.5 million for the McClain and
Redbud Plants, respectively.
(B) This amount includes a plant acquisition adjustment of $148.3 million and
accumulated amortization of $28.8 million.
OGE Energy Consolidated
The Company’s property, plant and equipment and related
accumulated depreciation are divided into the following major
classes at:
Total Property Net Property,
December 31, 2014 Plant and Accumulated Plant and
(In millions) Equipment Depreciation Equipment
OGE Energy (holding company)
Property, plant and equipment $ 151.7 $ 113.3 $ 38.4
OGE Energy property, plant
and equipment 151.7 113.3 38.4
OG&E
Distribution assets 3,559.5 1,086.7 2,472.8
Electric generation assets (A) 3,620.1 1,345.1 2,275.0
Transmission assets (B) 2,370.0 417.8 1,952.2
Intangible plant 67.6 31.1 36.5
Other property and equipment 330.0 125.0 205.0
OG&E property,
plant and equipment 9,947.2 3,005.7 6,941.5
Total property, plant
and equipment $10,098.9 $3,119.0 $6,979.9
(A) This amount includes a plant acquisition adjustment of $148.3 million and
accumulated amortization of $34.3 million.
(B)
This amount includes a plant acquisition adjustment of $3.3 million and accumulated
amortization of $0.4 million.
Total Property Net Property,
December 31, 2013 Plant and Accumulated Plant and
(In millions) Equipment Depreciation Equipment
OGE Energy (holding company)
Property, plant and equipment $ 152.4 $ 114.2 $ 38.2
OGE Energy property, plant
and equipment 152.4 114.2 38.2
OG&E
Distribution assets 3,403.8 1,028.2 2,375.6
Electric generation assets (A) 3,551.0 1,306.1 2,244.9
Transmission assets (B) 2,163.7 385.0 1,778.7
Intangible plant 50.5 27.1 23.4
Other property and equipment 330.2 118.2 212.0
OG&E property, plant
and equipment 9,499.2 2,864.6 6,634.6
Total property, plant
and equipment $9,651.6 $2,978.8 $6,672.8
(A) This amount includes a plant acquisition adjustment of $148.3 million and
accumulated amortization of $28.8 million.
(B)
This amount includes a plant acquisition adjustment of $3.3 million and accumulated
amortization of $0.3 million.
The following table summarizes the Company’s unamortized
computer software costs.
December 31 (In millions) 2014 2013
OGE Energy (holding company) $ 4.5 $ 7.2
OG&E 33.6 16.8
Total $38.1 $24.0
The following table summarizes the Company’s amortization
expense for computer software costs.
Year ended December 31 (In millions) 2014 2013 2012
OGE Energy (holding company) $4.3 $ 6.4 $ 6.8
OG&E 5.2 4.0 4.2
Enogex — 0.8 3.1
Total $9.5 $11.2 $14.1
Depreciation and Amortization
The provision for depreciation, which was 2.8 percent of the average
depreciable utility plant for both 2014 and 2013, is provided on a
straight-line method over the estimated service life of the utility assets.
Depreciation is provided at the unit level for production plant and at the
account or sub-account level for all other plant, and is based on the
average life group method. In 2015, the provision for depreciation is
projected to be 2.8 percent of the average depreciable utility plant.
Amortization of intangible assets is computed using the straight-line
method. Of the remaining amortizable intangible plant balance at
December 31, 2014, 96.0 percent will be amortized over 9 years with
4.0 percent of the remaining amortizable intangible plant balance at
December 31, 2014 being amortized over 26 years. Amortization of
plant acquisition adjustments is provided on a straight-line basis over
the estimated remaining service life of the acquired asset. Plant
acquisition adjustments include $148.3 million for the Redbud Plant,
which are being amortized over a 27-year life and $3.3 million for
certain substation facilities in OG&E’s service territory, which are being
amortized over a 37 to 59-year period.
Investment in Unconsolidated Affiliate
OGE Energy’s investment in Enable is considered to be a variable
interest entity because the owners of the equity at risk in this entity
have disproportionate voting rights in relation to their obligations to
absorb the entity’s expected losses or to receive its expected residual