OG&E 2014 Annual Report Download - page 7

10 OGE Energy Corp. OGE Energy Corp. 11
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Glossary of Terms
The following is a glossary of frequently used abbreviations that are
found throughout this Annual Report.
Abbreviation Definition
401(k) Plan Qualified defined contribution retirement plan
APSC Arkansas Public Service Commission
ArcLight group Bronco Midstream Holdings, LLC, Bronco
Midstream Holdings II, LLC, collectively
ASC Financial Accounting Standards Board
Accounting Standards Codification
BART Best available retrofit technology
Bcf Billion cubic feet
CenterPoint CenterPoint Energy Resources Corp.,
wholly-owned Subsidiary of CenterPoint
Energy, Inc.
Code Internal Revenue Code of 1986
Company OGE Energy Corp, collectively with its
subsidiaries and Enable Midstream Partners
Dry Scrubbers Dry flue gas desulfurization units with spray
dryer absorber
Enable Enable Midstream Partners, LP, partnership
between OGE Energy, the ArcLight Group and
CenterPoint Energy, Inc. formed to own and
operate the midstream businesses of OGE
Energy and CenterPoint
Enogex Holdings Enogex Holdings LLC, the parent company of
Enogex LLC and a majority-owned subsidiary
of OGE Holdings, LLC (prior to May 1, 2013)
Enogex, LLC Enogex, LLC collectively with its subsidiaries
(effective June 30, 2013, the name was
changed to Enable Oklahoma Intrastate
Transmission, LLC)
EPA U.S. Environmental Protection Agency
Federal Clean Federal Water Pollution Control Act of 1972,
Water Act as amended
FERC Federal Energy Regulatory Commission
FIP Federal implementation plan
GAAP Accounting principles generally accepted in
the United States
Abbreviation Definition
MATS Mercury and Air Toxics Standards
MMBtu Million British thermal unit
MMcf/d Million cubic feet per day
MW Megawatt
MWH Megawatt-hour
NAAQS National Ambient Air Quality Standards
NGLs Natural gas liquids
NOX Nitrogen oxide
OCC Oklahoma Corporation Commission
Off-system sales Sales to other utilities and power marketers
OG&E Oklahoma Gas and Electric Company,
wholly-owned subsidiary of OGE Energy Corp
OGE Holdings OGE Enogex Holdings, LLC, wholly-owned
subsidiary of OGE Energy Corp, parent
company of Enogex Holdings (prior to May 1,
2013) and 26.3 percent owner of Enable
Midstream Partners
OSHA Federal Occupational Safety and Health Act of
1970
Pension Plan Qualified defined benefit retirement plan
QF Qualified cogeneration facilities
QF contracts Contracts with QFs and small power
production producers
Regional Haze The EPA’s regional haze rule
Restoration of Supplemental retirement plan to
Retirement Income the Pension Plan
Plan
SESH Southeast Supply Header, LLC
SIP State implementation plan
SO2 Sulfur dioxide
SPP Southwest Power Pool
Stock Incentive Plan 2013 Stock Incentive Plan
System sales Sales to OG&E’s customers
TBtu/d Trillion British thermal units per day
Forward-Looking Statements
Except for the historical statements contained herein, the matters
discussed in this Annual Report, including those matters discussed in
Management’s Discussion and Analysis of Financial Condition and
Results of Operations, are forward-looking statements that are subject
to certain risks, uncertainties and assumptions. Such forward-looking
statements are intended to be identified in this document by the words
“anticipate”, “believe”, “estimate”, “expect”, “intend”, “objective”, “plan”,
“possible”, “potential”, “project” and similar expressions. Actual results
may vary materially from those expressed in forward-looking
statements. In addition to the specific risk factors discussed in
Management’s Discussion and Analysis of Financial Condition and
Results of Operations herein, factors that could cause actual results to
differ materially from the forward-looking statements include, but are
not limited to:
• general economic conditions, including the availability of credit,
access to existing lines of credit, access to the commercial paper
markets, actions of rating agencies and their impact on capital
expenditures;
• the ability of the Company and its subsidiaries to access the capital
markets and obtain financing on favorable terms as well as inflation
rates and monetary fluctuations;
• prices and availability of electricity, coal, natural gas and NGLs;
• the timing and extent of changes in commodity prices, particularly
natural gas and NGLs, the competitive effects of the available
pipeline capacity in the regions Enable serves, and the effects of
geographic and seasonal commodity price differentials, including the
effects of these circumstances on re-contracting available capacity
on Enable’s interstate pipelines;
• the timing and extent of changes in the supply of natural gas,
particularly supplies available for gathering by Enable’s gathering
and processing business and transporting by Enable’s interstate
pipelines, including the impact of natural gas and NGLs prices on the
level of drilling and production activities in the regions Enable serves;
• business conditions in the energy and natural gas midstream
industries, including the demand for natural gas, NGLs, crude oil and
midstream services;
• competitive factors including the extent and timing of the entry of
additional competition in the markets served by the Company;
• unusual weather;
• availability and prices of raw materials for current and future
construction projects;
• Federal or state legislation and regulatory decisions and initiatives
that affect cost and investment recovery, have an impact on rate
structures or affect the speed and degree to which competition
enters the Company’s markets;
• environmental laws and regulations that may impact the Company’s
operations;
• changes in accounting standards, rules or guidelines;
• the discontinuance of accounting principles for certain types of
rate-regulated activities;
• the cost of protecting assets against, or damage due to, terrorism or
cyber attacks and other catastrophic events;
• advances in technology;
• creditworthiness of suppliers, customers and other contractual
parties;
• difficulty in making accurate assumptions and projections regarding
future revenues and costs associated with the Company’s equity
investment in Enable that the Company does not control; and
• other risk factors listed in the reports filed by the Company with the
Securities and Exchange Commission.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Introduction
The Company is an energy and energy services provider offering
physical delivery and related services for both electricity and natural
gas primarily in the south central United States. The Company
conducts these activities through two business segments: (i) electric
utility and (ii) natural gas midstream operations. The accounts of
OGE Energy and its wholly owned and majority owned subsidiaries
are included in the consolidated financial statements. All intercompany
transactions and balances are eliminated in consolidation. OGE Energy
generally uses the equity method of accounting for investments where
its ownership interest is between 20% and 50% and has the ability to
exercise significant influence.
The electric utility segment generates, transmits, distributes and
sells electric energy in Oklahoma and western Arkansas. Its operations
are conducted through OG&E and are subject to regulation by the
OCC, the APSC and the FERC. OG&E was incorporated in 1902 under
the laws of the Oklahoma Territory, and is a wholly owned subsidiary of
the Company. OG&E is the largest electric utility in Oklahoma and its
franchised service territory includes the Fort Smith, Arkansas area.
OG&E sold its retail natural gas business in 1928 and is no longer
engaged in the natural gas distribution business.
The natural gas midstream operations segment currently represents
the Company’s investment in Enable through its wholly owned
subsidiary OGE Holdings. Enable is engaged in the business of
gathering, processing, transporting and storing natural gas. Enable’s
natural gas gathering and processing assets are strategically
located in four states and serve natural gas production from shale
developments in the Anadarko, Arkoma and Ark-La-Tex basins. Enable
also owns an emerging crude oil gathering business in the Bakken
shale formation, principally located in the Williston basin. Enable’s
natural gas transportation and storage assets extend from western
Oklahoma and the Texas Panhandle to Alabama and from Louisiana
to Illinois. For periods prior to the formation of Enable, the natural gas
midstream operations segment reflected the consolidated results of
Enogex Holdings.
Enable was formed effective May 1, 2013 by OGE Energy, the
ArcLight group and CenterPoint Energy, Inc. to own and operate the
midstream businesses of OGE Energy and CenterPoint. In the
formation transaction, OGE Energy and ArcLight contributed
Enogex LLC to Enable and the Company deconsolidated its previously
held investment in Enogex Holdings and acquired an equity interest in
Enable. The Company’s contribution of Enogex LLC to Enable met the
requirements of being in substance real estate and was recorded at
historical cost. The general partner of Enable is equally controlled by
CenterPoint and OGE Energy, who each have 50 percent management
ownership. Based on the 50/50 management ownership, with neither
company having control, effective May 1, 2013, OGE Energy began
accounting for its interest in Enable using the equity method
of accounting.
On April 16, 2014, Enable completed an initial public offering of
25,000,000 common units resulting in Enable becoming a publicly
traded Master Limited Partnership. The offering represented
approximately 6.0 percent of the limited partner interests and raised
approximately $464 million in net proceeds for Enable. In connection
with the offering, underwriters exercised their option to purchase
3,750,000 additional common units which were fulfilled with units held
by ArcLight. As a result of the offering, OGE Holding’s ownership was
reduced from 28.5 percent to 26.7 percent. In connection with Enable’s
initial public offering, approximately 61.4 percent of OGE Holdings and
CenterPoint’s common units were converted into subordinated units.
As a result, following the initial public offering, OGE Holdings owned
42,832,291 common units and 68,150,514 subordinated units
of Enable.
On May 13, 2014, CenterPoint exercised its put right with respect
to a 24.95 percent interest in SESH and pursuant to that right, on
May 30, 2014, Enable issued 6,322,457 common units representing
limited partner interests in Enable in exchange for CenterPoint’s
24.95 percent interest in SESH. At December 31, 2014, OGE Energy
held 26.3 percent of the limited partner interests in Enable.
On January 26, 2015, Enable announced a quarterly dividend
distribution of $0.30875 per unit on its outstanding common and
subordinated units, representing an increase of approximately
2.1 percent over the prior quarter distribution. Enable’s gross margins
are affected by commodity price movements. Based on forward
commodity prices, Enable expects to see a change in producer activity
that will affect its future distribution growth rate. If cash distributions to
Enable’s unitholders exceed $0.330625 per unit in any quarter, the
general partner will receive increasing percentages, up to 50 percent,
of the cash Enable distributes in excess of that amount. OGE Holdings
is entitled to 60 percent of those “incentive distributions.”
OG&E began participating in the SPP Integrated Marketplace
effective March 1, 2014. The SPP Integrated Marketplace replaced the
SPP Energy Imbalance Services market. As part of the Integrated